<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-85727
Prospectus Supplement to Prospectus dated September 7, 1999.
$275,000,000
THE KROGER CO.
Puttable Reset Securities PURS(SM) due 2010
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We will pay interest on the PURS until October 1, 2000 as follows:
- We will pay interest on each of December 22, 1999, March 22, 2000, June
22, 2000, and October 1, 2000.
- On each payment date interest will be reset to equal the applicable LIBOR
plus 90 basis points.
The PURS will be issued only in denominations of $1,000 and integral
multiples of $1,000.
On October 1, 2000, one of two things will happen. Either:
- Goldman, Sachs & Co. will exercise its right to purchase all the PURS
from the holders; or
- We will repurchase the PURS excluding PURS that holders of at least 10%
of the outstanding PURS have elected to continue to hold by giving proper
notice to the trustee.
If either Goldman, Sachs & Co. has exercised its right to purchase the PURS
or holders of at least 10% of the outstanding PURS have elected to hold the
PURS, then the interest rate will be reset by the calculation agent. The new
rate will be fixed on the basis of bids the calculation agent will request from
various dealers as described in this prospectus supplement. The reset interest
payments will be made on April 1 and October 1, beginning on April 1, 2001.
The PURS are guaranteed by our subsidiaries listed on pages S-27 and S-28
of this prospectus supplement.
See "Risk Factors" beginning on page S-3 of the prospectus supplement to
read about certain factors you should consider before buying PURS.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per PURS Total
-------- ------------
<S> <C> <C>
Initial public offering price............................... 100.00% $275,000,000
Underwriting discount....................................... 0.25% $ 687,500
Proceeds, before expenses, to Kroger........................ 101.97% $280,417,500
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the PURS will accrue from September 22, 1999 and
must be paid by the purchaser if the PURS are delivered after September 22,
1999. The proceeds to Kroger include a payment by Goldman, Sachs & Co. for the
call option it will have on the PURS.
----------------------
The underwriters expect to deliver the PURS in book-entry form only through
the facilities of The Depository Trust Company against payment in New York, New
York on September 22, 1999.
- ---------------
PURS is a service mark of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO. SALOMON SMITH BARNEY
----------------------
Prospectus Supplement dated September 15, 1999.
<PAGE> 2
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.
We operate approximately 2,200 supermarkets and multidepartment stores in
31 states, 796 convenience stores in 15 states and 380 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.
RECENT DEVELOPMENTS
COMPLETION OF MERGER WITH FRED MEYER
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 at the end of 1998. In connection with the merger,
we issued one share of Kroger common stock for each share of outstanding Fred
Meyer common stock. Fred Meyer is now a wholly-owned subsidiary of Kroger.
Purchasers of the PURS should consider the new circumstances of Kroger that
result from the merger. See "Risk Factors" contained in this prospectus
supplement.
Audited supplemental financial statements for the combined company are
available to you on Kroger's Current Report on Form 8-K dated May 28, 1999,
filed with the SEC.
USE OF PROCEEDS
We estimate that the net proceeds from this offering will be approximately
$280.2 million. We intend to use those proceeds to repay amounts under our
credit facilities and thereafter to use borrowings under those credit facilities
to repurchase or redeem our outstanding indebtedness. We also expect to use
borrowing proceeds for other general corporate purposes.
The interest rate for borrowings under the credit facilities, as amended,
are detailed in the Supplemental Financial Statements attached to our Current
Report on Form 8-K dated May 28, 1999 filed with the SEC.
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RISK FACTORS
You should carefully consider the following matters in deciding whether to
purchase the PURS. 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 supplement 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 PURS. As a result, the PURS
will effectively rank equal in right of payment with approximately $7.6 billion
of indebtedness of these subsidiaries as of July 17, 1999. The PURS will
effectively rank junior in right of payment to indebtedness of our subsidiaries
that do not guarantee the PURS. As of July 17, 1999, the indebtedness of the
subsidiaries who will not guarantee the PURS 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 INTO A
SINGLE ENTITY.
- 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.,
-- the diversion of management's attention to the combining of operations,
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-- 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 PURS BY OUR SUBSIDIARIES MAY BE INADEQUATE.
Although most of our subsidiaries have guaranteed our obligation to pay the
PURS, 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 facilities.
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 PURS,
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.
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DESCRIPTION OF THE PURS
The following description of the particular terms of the PURS (referred to
in the accompanying prospectus as "debt securities") supplements, and to the
extent it is inconsistent with the description in the prospectus, it replaces
the description of the general terms and provisions of the debt securities in
the prospectus. We will issue the PURS under an indenture dated June 25, 1999,
as it may be amended and supplemented from time to time among Kroger and Firstar
Bank, National Association, as trustee and the guarantors named in the
supplemental indentures. We have summarized select portions of the indenture
below. The summary is not complete and is qualified by reference to the
indenture.
GENERAL
The PURS will be limited to $275,000,000 aggregate principal amount and
will mature on October 1, 2010, but we may repurchase the PURS before that date
as described in "Put Option" below. We may also redeem all or some of the PURS,
at any time after the reset date on October 1, 2000, as described in "Optional
Redemption" below. The PURS may also be purchased by the call option holder as
described in "Call Option" below.
The PURS rank equally in right of payment with all of our existing and
future unsecured senior debt. The PURS rank senior to all of our existing and
future subordinated indebtedness.
Some of our subsidiaries will guarantee the PURS. As a result, the PURS
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 PURS will effectively rank junior in right of payment to
indebtedness of our subsidiaries that do not guarantee the PURS. As of July 17,
1999, the indebtedness of the subsidiaries who will not guarantee the PURS
totaled approximately $252 million.
The PURS are unsecured and not entitled to any sinking fund.
The PURS will initially be issued only in registered, book-entry form, in
denominations of $1,000 and any integral multiple thereof as described under
"Book-Entry System". We will issue global securities in denominations equal to
the total principal amount of outstanding PURS.
If any interest, principal or other payment date of the PURS (including any
payment in connection with the call option or any put option as described below)
does not fall on a business day, a payment otherwise payable on that day will be
made on the next succeeding business day. It will have the same effect as if
made on the actual payment date, and no interest will accrue for the period from
and after such interest payment date, maturity date or other payment date.
"Business day" means any day other than a Saturday or Sunday or a day on which
banking institutions in New York City or Cincinnati, Ohio are authorized or
obligated by law or executive order to close. "Market day" means a business day
other than a day on which dealings in the U.S. Treasury bond market are
generally not being conducted. "London business day" means any day on which
dealings in U.S. dollars are transacted in the London interbank market.
We have agreed with the call option holder that we will not cause or permit
the terms or provisions of the PURS (or the indenture, as it relates to the
PURS) to be modified in any way, and may not make open market or other purchases
of the PURS except under the put option or in other limited circumstances,
without the prior written consent of the call option holder.
INTEREST
The PURS will bear interest at the applicable rate described below from
September 22, 1999.
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During the floating rate period, which is from and including September 22,
1999 to but excluding October 1, 2000, which is the reset date, the PURS will
accrue interest at a floating rate of LIBOR, as determined below, plus 0.90%.
During the floating rate period, we will pay interest on the PURS quarterly
in arrears on December 22, 1999, March 22, 2000, June 22, 2000, and October 1,
2000 to the person in whose name the PURS are registered at the close of
business on the fifteenth calendar day, whether or not a business day,
immediately preceding the interest payment date. The record date for payment of
interest will differ from the record date for the exercise of the call option
and the put option discussed below.
Interest on the PURS will be computed on the basis of a 360-day year for
the actual number of days elapsed. Interest on the PURS will accrue from, and
including, September 22, 1999, to, and excluding, the first interest payment
date and then from, and including, the immediately preceding interest payment
date to which interest has been paid or duly provided for to, but excluding, the
next interest payment date.
During the floating rate period, the interest on the PURS will be
calculated by the trustee as the floating rate calculation agent, and will be
equal to LIBOR, as determined below, plus 0.90%. The floating rate calculation
agent will set the interest rate on September 22, 1999 and reset the interest
rate on December 22, 1999, March 22, 2000, and June 22, 2000; each of which,
including September 22, 1999, is referred to as a "floating rate reset date."
The second London business day preceding a floating rate reset date is referred
to as the "floating rate determination date" for that floating rate reset date.
The interest rate in effect on each date that is not a floating rate reset date
will be the interest rate determined as of the floating rate determination date
pertaining to the immediately preceding floating rate reset date. The interest
rate in effect on any day that is a floating rate reset date will be the
interest rate determined as of the floating rate determination date pertaining
to that floating rate reset date.
"LIBOR" will be determined by the floating rate calculation agent in
accordance with the following provisions:
(1) Except as set forth in the next sentence, with respect to any
floating rate determination date, LIBOR will be the rate for
deposits in U.S. dollars having a maturity of three months
commencing on the first day of the applicable interest period that
appears on Telerate Page 3750 as of 11:00 a.m., London time, on that
floating rate determination date. With respect to the floating rate
determination date for June 22, 2000, LIBOR will be based on the
straight-line interpolation of the rate described in the preceding
sentence and the rate for deposits in U.S. dollars having a maturity
of four months commencing on the first day of the applicable
interest period that appears on Telerate Page 3750 as of 11:00 a.m.,
London time, on that floating rate determination date. If no rate
appears on that floating rate determination date, LIBOR, in respect
of that floating rate determination date, will be determined in
accordance with the provisions described in (2) below.
(2) With respect to a floating rate determination date on which no rate
appears on Telerate Page 3750, as specified in (1) above, the
floating rate calculation agent will request the principal London
offices of each of four major reference banks in the London
interbank market, as selected by the floating rate calculation
agent, to provide it with its offered quotation for deposits in U.S.
dollars for the period of three months, or four months as
applicable, commencing on the first day of the applicable interest
period, to prime banks in the London interbank market at
approximately 11:00 a.m., London time, on that floating rate
determination date and in a principal amount that is representative
for a single transaction in U.S. dollars in that market at that
time. If at least two quotations are provided, then LIBOR on that
interest determination date will be the arithmetic mean of those
quotations. If fewer than two quotations are provided, then LIBOR on
the interest determination date will be the arithmetic mean
(rounded, if necessary, to the nearest one-hundred-thousandth of a
percentage point, with five one-millionths of a percentage point
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rounded upwards) of the rates quoted at approximately 11:00 A.M.,
New York City time, on the interest determination date by three
major banks in New York City selected by the calculation agent for
loans in U.S. dollars to leading European banks, having a
three-month, or four-month as applicable, maturity and in a
principal amount that is representative for a single transaction in
U.S. dollars in that market at that time. If the banks selected by
the calculation agent are not providing quotations in the manner
described by this sentence, LIBOR for the interest period commencing
on the floating rate reset date following the floating rate
determination date will be LIBOR in effect on that floating rate
determination date.
"Telerate Page 3750" means the display designated as "Page 3750" on Dow
Jones Market Service or any successor service, for the purpose of displaying the
London interbank offered rates for U.S. dollar deposits.
On the reset date (or, if the reset date is not a market day, on the next
market day following the reset date), the interest rate on the PURS will be
reset to a fixed rate which will be determined using the procedures described
under the section entitled "Reset of Interest Rate" below. After the interest
rate has been reset, interest on the PURS will accrue from the reset date (even
if it is not a market day) at the new interest rate. However, the interest rate
on the PURS will not be reset on the reset date if:
- we are obligated to repurchase the PURS on that date; or
- a market disruption event or a failed remarketing event occurs. See
"Reset of Interest Rate" below.
A market disruption event is any of the following:
- a suspension or material limitation in trading in securities in
general on the New York Stock Exchange or the establishment of minimum
prices on that exchange;
- a general moratorium on commercial banking activities declared by
either federal or New York state authorities;
- any material adverse change in the existing financial, political or
economic conditions in the U.S.;
- an outbreak or escalation of hostilities involving the U.S. or the
declaration of a national emergency or war by the U.S.; or
- any material disruption of the U.S. government securities market, U.S.
corporate bond market or U.S. federal wire system.
The reset date is October 1, 2000.
CALL OPTION
On the reset date, Goldman, Sachs & Co., as the call option holder, may
purchase all, but not some, of the PURS from the holders of the PURS at 100% of
the principal amount of the PURS as long as it gives notice of its intention to
do so as described below.
In addition, we will remain obligated to pay all accrued and unpaid
interest on the PURS. Interest that becomes payable on the reset date will be
payable by us to the holders of record on the corresponding interest payment
record date, as provided in the PURS and the indenture.
To exercise the call option, the call option holder must give a notice to
the holders of the outstanding PURS no later than the tenth market day prior to
the reset date in the manner described under "Notices" below. If a notice to
exercise the call option is properly given, each holder of PURS will be
obligated to sell to the call option holder, and the call option holder will be
required to purchase from each holder of PURS, the PURS on the reset date, at
100% of the principal amount of the PURS.
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The sale described in the prior paragraph will be effected through the
facilities of DTC, with each holder being deemed to have automatically tendered
its PURS for sale to the call option holder on the reset date in accordance with
DTC's procedures. This automatic tendering of PURS will be subject to the holder
receiving 100% of the principal amount of the PURS from the call option holder
on the reset date.
Until we purchase or pay for the PURS, they will remain outstanding, even
if the call option holder has exercised its option to call the PURS.
If the call option is exercised, all of the PURS which are outstanding on
the reset date will be subject to repurchase by the call option holder. This
will be the case for every record and beneficial holder of PURS which are
outstanding on the reset date. This includes those holders who acquire an
interest in the PURS after the notice that the call option is being exercised
has been given or who are otherwise unaware that the notice to exercise the call
option has been given.
If an event of default occurs, and in some other circumstances, the call
option holder will have the right to require us to pay it the fair market value
of the call option.
PUT OPTION
If the call option holder does not exercise the call option, each holder of
PURS may require us to repurchase all, but not some, of the holders' PURS at
100% of the principal amount of the PURS on the reset date in the circumstances
described in the next paragraph. This right is referred to as the "put option".
The accrued and unpaid interest on the repurchased PURS that becomes payable on
the reset date will be payable by us to the holders of record on the
corresponding interest payment record date, as provided for in the PURS and in
the indenture. If for any reason we do not make payment for the PURS on the
reset date when due, we will also pay the accrued interest from the reset date
to the date when we pay for them at the time we pay for them.
On the reset date, each holder of the PURS will be deemed to have exercised
automatically its put option for 100% of the principal amount of the PURS held
by the holder, unless either:
- the call option holder has given a notice that it is exercising its
call option; or
- if the call option holder has not given a notice that it is exercising
its call option,
-- no later than 10:00 a.m. (New York City time) on the seventh
market day prior to the reset date, the holder gives notice to the
trustee that the holder elects not to sell its PURS to us on the
reset date; and
-- the notice which the holder gives is effective under the 10%
requirement which is described below.
The notice given by a holder of PURS stating that the holder elects not to sell
its PURS to us on the reset date is referred to as a "hold notice." Any hold
notice must be given in the manner described under "Notices" below.
If the call option holder does not exercise its option or the holder of
PURS does not give a hold notice which is effective under the 10% requirement
described below, we will be obligated to repurchase from the holder, and the
holder will be obligated to sell to us, on the reset date, all of the PURS which
the holder holds, at 100% of the principal amount of the PURS.
The sale and repurchase of the PURS will be effected through DTC. Each
holder who has not given a hold notice which is effective under the 10%
requirement will be deemed to have automatically tendered its PURS for sale to
us on the reset date.
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Under the following circumstances, holders of PURS will not have the option
to retain their PURS by giving a hold notice:
- if we become obligated to pay the call option holder the fair market
value of the call option, as described above;
- if we become obligated to repurchase the PURS as a result of the
failure by the call option holder to pay for the PURS on the reset
date as described under "Settlement on Exercise of the Put and Call
Options" below; or
- if the calculation agent determines that a market disruption event or
a failed remarketing has occurred or is continuing for at least four
consecutive market days beginning six market days prior to the reset
date. See "Call Option" above and "Settlement on Exercise of the Put
and Call Options" and "Reset Interest Rate" below.
If we become obligated to purchase any PURS under the put option, the PURS
subject to repurchase will remain outstanding until we pay for them. See
"Settlement on Exercise of Put and Call Options."
If a holder of PURS gives a hold notice, that hold notice will not be
effective unless hold notices are given by holders of at least 10% of the
outstanding principal amount of PURS. This provision is called the "10%
requirement". If any holder gives a hold notice, and the 10% requirement is not
met, the trustee will give written notice of that fact to the holder and us not
later than the close of business on the seventh market day before the reset
date, in the manner described under "Notices" below.
RESET OF INTEREST RATE
The interest rate on each PURS will be reset on the reset date, unless we
are obligated to repurchase the PURS on that date. We will be obligated to
purchase a holders' PURS on that date if:
- the call option holder does not elect to purchase all of the
outstanding PURS on that date and the holder has exercised its put
option; or
- the holder of the call option exercises its option to purchase the
PURS, but fails to pay 100% of the principal amount of the PURS on the
reset date as described under "Settlement on Exercise of the Put and
Call Options" below.
The interest rate on an outstanding PURS will be reset on the reset date if
either of the following occurs:
- the call option holder elects to purchase all of the outstanding PURS
on that date and so purchases the outstanding PURS; or
- the call option holder does not elect to purchase all of the
outstanding PURS on that date and the holder does not give an
effective hold notice.
The interest rate on the PURS will not be reset if:
- a market disruption event occurs;
- a failed remarketing occurs; or
- an event of default or other events occur and the call option holder
elects to require us to pay it the fair market value of the call
option, as described under "Call Option" above.
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We have initially selected the call option holder to act as the calculation
agent who will reset the interest rate. If the interest rate is to be reset on
the reset date, the calculation agent will reset it using the following
procedure:
Between the tenth market day prior to the reset date and 11:00 A.M., New
York City time, on the sixth market day prior to the reset date, the calculation
agent will select three leading financial institutions (one of which will be
Goldman, Sachs & Co. if it so requests) that deal actively in our debt
securities and have agreed to participate as reference dealers in connection
with the reset of the interest rate on the PURS.
The call option holder can require each of the reference dealers to enter
into a written agreement committing it to purchase from the call option holder
on the reset date the reference dealer's pro rata portion of the PURS that the
call option holder purchases under the call option. This commitment will arise
only if the reference dealer becomes the final dealer as described below.
On the sixth market day prior to the reset date, the calculation agent will
calculate a fixed rate at which interest will accrue on the PURS from and after
the reset date, excluding the final maturity of the PURS. This period is
referred to as the reset period.
Each notice referred to below will be given telephonically and will be
confirmed as soon as possible by facsimile to us and the calculation agent. The
times indicated below refer to New York City time and are guidelines for action,
and the calculation agent will use reasonable efforts to adhere to these times.
- At 12:00 p.m., the calculation agent will:
-- determine the approximate ten-year U.S. Treasury bond yield, which
will be expressed as a percentage (the "Designated Treasury Yield")
and will be based on the then-current, ten-year U.S. Treasury bond.
-- calculate and provide to the reference dealers, on a preliminary
basis, a hypothetical price at which the PURS might be offered for
sale to a reference dealer on the reset date.
The foregoing offer price will be expressed as a percentage of the
principal amount of the PURS. It will equal 100% plus the Margin (as
defined below), if the Treasury Rate Difference (as defined below) is
positive, or 100% minus the Margin, if the Treasury Rate Difference
is negative. The Margin will also be expressed as a percentage of the
principal amount of the PURS outstanding. It will equal the present
value of the absolute value of the Treasury Rate Difference applied
to twenty semi-annual periods (i.e., ten years), discounted at the
Designated Treasury Yield divided by two.
-- request each reference dealer to provide to the calculation agent,
when notified of the final offer price as described in the next
paragraph, a firm bid. The bid must indicate the spread over the
Designated Treasury Yield at which the reference dealer would be
willing to purchase all of the PURS. The purchase at the final offer
price will occur six market days prior to the reset date and will
settle on the reset date. Each firm bid is to be given on an "all-in"
basis and is to remain open for at least 30 minutes after it is
given.
The "Treasury Rate Difference" means the percentage (which may be
positive or negative) equal to (x) 5.93% minus (y) the Designated
Treasury Yield.
- At 12:30 p.m. the calculation agent will determine the Designated
Treasury Yield on a final basis. It will calculate and provide to the
reference dealers the final offer price and request each reference dealer
to submit its bid immediately as described in the prior paragraph. If the
calculation agent receives at least two bids, the following will occur:
-- the reference dealer providing the bid representing the lowest all-in
spread, referred to as the final spread, will be the "final dealer".
If more than one reference dealer has provided a bid representing the
lowest all-in spread, each reference dealer submitting the lowest
all-
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in spread will be permitted to submit a second bid in the same manner
provided above. The reference dealer submitting the lowest all-in
spread will be the final dealer. If more than one submits the lowest
all-in spread, each lowest bidder will be a final dealer.
-- if the call option holder has exercised the call option, each final
dealer will be obligated to purchase from the call option holder at
the final offer price, for settlement on the reset date, its pro rata
portion of the PURS that the call option holder purchases under the
call option and tenders for resale to the final dealer on the reset
date. This assumes that the interest rate on the PURS will be reset
as described in the following paragraph. As used in this section,
"pro rata" means the amount equal to the outstanding principal amount
of the PURS that the call option holder purchases under the call
option divided by the number of final dealers. No final dealer will
be obligated to purchase any PURS if the call option holder has not
exercised the call option.
-- the calculation agent will calculate and provide to us the adjusted
rate, which will be the semi-annual, bond-equivalent, fixed interest
rate on the PURS required to produce, during the reset period, a
semi-annual, bond-equivalent yield on the PURS that equals the sum of
the final spread plus the final Designated Treasury Yield. This
assumes that the PURS are purchased on the reset date at the final
offer price.
-- the interest rate on the PURS will be adjusted for the reset period
as described in the prior paragraph. If the call option holder has
not exercised the call option and any holder gives an effective hold
notice, we will promptly give written notice of the adjusted rate to
the holder.
If the call option holder exercises the call option and is not the calculation
agent, the call option holder will make all determinations regarding the
then-current, ten-year U.S. Treasury bond and the Designated Treasury Yield to
be provided to reference dealers for their bid.
If the calculation agent determines that, on the sixth market date prior to
the reset date,
- a market disruption event has occurred or is continuing; or
- fewer than two reference dealers have provided firm bids in a timely
manner under participation agreements satisfactory to the call option
holder substantially as described above, a failed remarketing will have
occurred.
In this event, the steps contemplated above will be taken on the next market day
on which the calculation agent determines that no market disruption event has
occurred or is continuing and at least two reference dealers have provided bids
under participation agreements satisfactory to the call option holder
substantially as contemplated above.
If the calculation agent determines that a market disruption event or a
failed remarketing has occurred or is continuing for at least four consecutive
market days starting on the day which is six market days prior to the reset
date, then,
- the call option holder will be deemed not to have exercised the call
option;
- all holders will be deemed to have exercised their put options and we
will repurchase all the PURS from the holders on the reset date at
100% of the principal amount of the PURS; and
- we will pay the call option holder an amount equal to the Margin, if
the Treasury Rate Difference is positive.
In these circumstances, the holders of the PURS may not continue to hold
the PURS by giving a hold notice. The calculation agent will notify us of that
determination promptly after the close of business on such fourth market day.
For the purpose of calculating the amount that we will pay to the call option
holder, the calculation agent will redetermine the Designated Treasury Yield,
the Treasury
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Rate Difference, and the Margin at 3:00 p.m. New York City time on such fourth
market day. We will give notice to the holders of the PURS that we will
repurchase the PURS from the holders on the reset date at 100% of their
principal amount, no later than the second market day prior to the reset date in
the manner described under "Notices" below.
If at any time the call option holder is not acting as calculation agent
and the call option holder exercises the call option, then the determinations
and notice to us described in the prior paragraph will be made and given by the
call option holder.
We cannot be certain that the calculation agent will receive at least two
qualifying bids from reference dealers in connection with the reset date. All
determinations regarding market disruption events and failed remarketings,
including whether or not any event has occurred or is continuing, will be made
by the calculation agent (or the call option holder, as applicable) in its sole
discretion.
If the call option holder has not exercised the call option, the final
dealer will not be obligated to purchase PURS from any holder, and no holder
will be obligated to sell PURS to the final dealer. Consequently, in deciding
whether to give a hold notice, holders should not assume that any dealer will be
prepared to purchase their PURS at the final offer price or otherwise.
All determinations made by the calculation agent or the call option holder
regarding the matters described above will be final, conclusive and binding on
all concerned absent manifest error. To the extent permitted by law, no
determination made by the calculation agent or the call option holder regarding
the matters described in this prospectus supplement will give rise to any
liability on the part of the calculation agent, the call option holder, the
trustee or us.
SETTLEMENT ON EXERCISE OF THE PUT AND CALL OPTIONS
If the call option is exercised, then, on the reset date, all beneficial
interests in the PURS will be transferred to a DTC account designated by the
call option holder. The transfers will be made automatically, without any action
on the part of any beneficial owner, by book entry through DTC.
The call option holder will be obligated to make payment of 100% of the
principal amount of the PURS to DTC, for credit to the accounts of the DTC
participants through which beneficial interests in the PURS are held, by the
close of business on the reset date. Each transfer will be made against the
corresponding payment, and each payment will be made against the corresponding
transfer, in accordance with applicable DTC procedures.
If the call option holder fails to pay 100% of the principal amount of the
PURS on the reset date, the call option will be deemed not to have been
exercised and the put option will be deemed to have been exercised for all of
the outstanding PURS. In these circumstances, the holders of the PURS may not
continue to hold the PURS by giving a hold notice, and we will be obligated to
pay, not later than two business days following the reset date, 100% of the
principal amount of the PURS, plus accrued interest from the reset date to, but
excluding, the date payment is made, with settlement occurring as described in
the next paragraph. In any event, we will remain obligated to make payment of
accrued and unpaid interest due on the PURS, with interest payable on the reset
date being payable to the holders of record on the corresponding interest
payment record date, as provided in the PURS and in the indenture. Failure by
the call option holder to pay 100% of the principal amount of the PURS on the
reset date will not constitute an event of default under and as defined in the
PURS or the indenture.
If the put option is exercised, then, on the reset date, all beneficial
interests in the PURS to be purchased will be transferred to a DTC account
designated by us. The transfers will be made automatically, without any action
on the part of any beneficial owner, by book entry through DTC. We will be
obligated to make payment of 100% of the principal amount of the relevant PURS
to DTC, for credit to the accounts of the DTC participants through which
beneficial interests in these PURS are held, by the close of business on the
reset date. Each transfer will be made against the corresponding payment, and
each payment will be made against the corresponding transfer, in accordance with
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applicable DTC procedures. If we fail to pay 100% of the principal amount of the
relevant PURS on the reset date, we will also pay accrued interest from the
reset date to the date the payment is made.
We will remain obligated to make payment of accrued and unpaid interest due
on the PURS, whether or not purchased under the put option, with interest
payable on the reset date being payable to the holders of record on the
corresponding interest payment record date, as provided in the PURS and in the
indenture.
The transactions described above will be executed on the reset date through
DTC in accordance with the procedures of DTC, and the accounts of the respective
DTC participants will be debited and credited and the PURS delivered by
book-entry as necessary to effect the purchases and sales thereof. The
transactions will settle in immediately available funds through DTC's same-day
funds settlement system.
The settlement procedures described above, including those for payment for
and delivery of PURS purchased by the call option holder or by us on the reset
date, may be modified to the extent required by DTC or, if any PURS are issued
in non-book-entry form, to the extent required to facilitate these transactions
in PURS in certificated form. In addition, we and the call option holder may
modify the settlement procedures referred to above in order to facilitate the
settlement process.
Under the terms of the PURS, we have agreed that:
- we will use our best efforts to maintain the PURS in book-entry form
with DTC or any successor thereto and to appoint a successor
depositary to the extent necessary to maintain the PURS in book-entry
form; and
- we will waive any discretionary right we otherwise may have under the
indenture to cause the PURS to be issued in certificated form.
For further information on payments, transfers and settlement through DTC,
see "Book-Entry System" below.
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 PURS, 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 PURS, unless it is prohibited from doing so. If we default in payment
of the principal, interest or any premium due under the PURS, the guarantors
will be obligated to pay these amounts.
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.
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 PURS 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.
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Except as otherwise described above, as long as the PURS are guaranteed we
will add comparable release provisions to any existing debt that we modify after
the date of this prospectus supplement to add guarantees, and to any future debt
securities (excluding asset backed securities) issued by us and guaranteed by
our subsidiaries. We have added guarantees to most of our existing debt. 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.
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 of July 17,
1999, after giving pro forma effect to this offering, the application of the net
proceeds of the offering and the guarantees to be given by some of our
subsidiaries, Kroger and the guarantors would have had approximately $8.3
billion of indebtedness outstanding, of which approximately $7.3 billion would
have been unsecured and unsubordinated indebtedness, $273 million would have
been secured and unsubordinated, and the balance of which would have been
unsecured and subordinated indebtedness.
OPTIONAL REDEMPTION
The PURS will be redeemable, in whole or in part, at our option at any time
after the reset date. The redemption price for the PURS will equal the greater
of:
- 100% of the principal amount of the PURS; and
- the sum of the present values of the remaining scheduled payments of
principal and interest on the PURS 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 PURS being redeemed, plus 12.5 basis points, plus 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.
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 PURS 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 PURS or portions of the PURS
called for redemption.
COVENANTS
The indenture provides that the following covenants will apply to us:
Limitations on Liens. We covenant that, so long as any PURS 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 PURS and other debt ranking equally to these PURS also is so
secured on an equal basis. This restriction will not apply to the following:
(1) liens on any property or assets of any corporation existing at the
same time such 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;
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(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 existing on our or any of our restricted subsidiaries'
properties or assets existing on the date hereof; provided that the
liens secure only those obligations which they secure on the date
hereof or any extension, renewal or replacement thereof;
(7) any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part, of any lien referred
to in clauses (1) through (6);
(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' property or assets that were not incurred in
connection with the borrowing of money and that do not in our
opinion, materially impair the use of such property or assets in
the operation of our business or that of a restricted subsidiary or
the value of the property or assets for its purposes; or
(12) any other liens not included above, which together with amounts
included in clause (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 leaseback 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 PURS; 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
PURS offered hereby or long term debt, including capital leases,
that are senior to or rank on parity with these PURS.
This restriction does not apply to sale and lease-back transactions of
material 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.
For purposes of these covenants, 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. Restricted subsidiaries are all of
our subsidiaries other than those our board of directors has determined are not
material.
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The covenants applicable to the PURS 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 PURS do not contain any other provisions that are
designed to afford protection in the event of a highly leveraged transaction
involving us.
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 PURS; and
- immediately after the merger, consolidation, sale, lease or conveyance,
we or the successor entity are not in default in the performance of the
covenants and conditions of the indenture.
BOOK-ENTRY SYSTEM
Upon issuance, the PURS will be represented by one or more global
securities. Each global security representing global PURS will be deposited
with, or on behalf of, The Depository Trust Company or "DTC", and registered in
the name of a nominee of DTC. Global PURS will not be exchangeable for
certificated PURS, except as described below. Certificated PURS will not be
exchangeable for global PURS and will not otherwise be issuable as global PURS.
Ownership of beneficial interests in a global PURS will be limited to DTC
participants and to persons that may hold interests through institutions that
have accounts with DTC ("participants"). Beneficial interests in a global PURS
will be shown on, and transfers of those ownership interests will be effected
only through, records maintained by DTC and its participants for the global
PURS. The conveyance of notices and other communications by DTC to its
participants and by its participants to owners of beneficial interests in the
PURS will be governed by arrangements among them, subject to any statutory or
regulatory requirements in effect.
DTC holds the securities of its participants and facilitates the clearance
and settlement of securities transactions among its participants in those
securities through electronic book-entry changes in accounts of its
participants. The electronic book-entry system eliminates the need for physical
certificates. DTC's participants include:
- securities brokers and dealers (including the underwriters);
- banks;
- trust companies;
- clearing corporations; and
- other organizations (some of which, and/or their representatives, own
DTC).
Banks, brokers, dealers, trust companies and others that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly, also have access to DTC's book-entry system.
Principal and interest payments on the global PURS represented by a global
security will be made to DTC or its nominee, as the case may be, as the sole
registered owner and the sole holder of the global PURS represented by the
global security for all purposes under the indenture. Accordingly, we, the
trustee and the paying agent under the indenture will have no responsibility or
liability for:
- any aspect of DTC's records relating to, or payments made on account of,
beneficial ownership interests in a global PURS represented by a global
security;
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- any other aspect of the relationship between DTC and its participants or
the relationship between the participants and the owners of beneficial
interests in a global PURS held through the participants; or
- the maintenance, supervision or review of any of DTC's records relating
to the beneficial ownership interests.
DTC has advised us that upon receipt of any payment of principal of or
interest on a global PURS, DTC will immediately credit, on its book-entry
registration and transfer system, the accounts of participants with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the global PURS as shown on DTC's records. The applicable underwriter
or underwriters will initially designate the accounts to be credited. Payments
by participants to owners of beneficial interests in a global PURS will be
governed by standing instructions and customary practices, as is the case with
securities held for customer accounts in bearer form or registered in "street
name," and will be the sole responsibility of those participants.
A global PURS can only be transferred:
- as a whole by DTC to one of its nominees;
- as a whole by a nominee of DTC to DTC or another nominee of DTC; or
- as a whole by DTC or a nominee of DTC to a successor of DTC or a nominee
of the successor.
Global PURS represented by a global security can be exchanged for
certificated PURS in registered form only if:
- DTC notifies us that it is unwilling or unable to continue as depositary
for the global PURS and we do not appoint a successor depositary within
90 days after receiving the notice;
- at any time DTC ceases to be a clearing agency registered under the
Securities Exchange Act of 1934 and we do not appoint a successor
depositary within 90 days after becoming aware that DTC has ceased to be
so registered as a clearing agency;
- we in our sole discretion determine that a global PURS will be
exchangeable for certificated PURS in registered form and notify the
trustee of our decision; or
- an event of default with respect to the PURS represented by a global PURS
has occurred and is continuing.
A global PURS that can be exchanged under the previous paragraph will be
exchanged for certificated PURS that are issued in authorized denominations in
registered form for the same aggregate amount. Those certificated PURS will be
registered in the names of the owners of the beneficial interests in the global
PURS as directed by DTC.
Except as provided above, owners of beneficial interests in a PURS will not
be entitled to receive physical delivery of PURS in certificated form and will
not be considered the holders of the PURS for any purpose under the indenture
and no global PURS represented by a global security will be exchangeable. Each
person owning a beneficial interest in a global PURS must rely on the procedures
of DTC (and if the person is not a participant, on the procedures of the
participant through which the person owns its interest) to exercise any rights
of a holder under the indenture or the global PURS. The laws of some
jurisdictions require that purchasers of securities take physical delivery of
the securities in certificated form. Those laws may impair the ability to
transfer beneficial interests in a global PURS.
We understand that under existing industry practices, if we request holders
to take any action, or if an owner of a beneficial interest in a global PURS
desires to take any action which a holder is entitled to take under the
indenture, then (1) DTC would authorize the participants holding the relevant
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beneficial interests to take that action and (2) those participants would
authorize the beneficial owners owning through those participants to take that
action or would otherwise act upon the instructions of beneficial owners owning
through them.
DTC has provided the following information to us. DTC is:
- a limited-purpose trust company organized under the laws of the State of
New York;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
- a "clearing agency" registered under the Securities Exchange Act of 1934.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Under terms satisfactory to the trustee, we may discharge some obligations
to holders of the PURS which have not already been delivered to the trustee for
cancellation and which have either become due and payable or are by their terms
due and payable within one year (or are scheduled for redemption within one
year) by irrevocably depositing with the trustee cash or U.S. Government
Obligations (as defined in the indenture) as trust funds in an amount certified
to be sufficient to pay at maturity (or upon redemption) the principal of and
interest on the PURS.
We may also discharge any and all of our obligations to holders of the PURS
at any time ("defeasance"), but we may not avoid our duty to register the
transfer or exchange of the PURS, to replace any temporary, mutilated,
destroyed, lost, or stolen PURS or to maintain an office or agency for the PURS.
Defeasance may be effected only if, among other things:
(1) 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 PURS;
and
(2) we deliver to the trustee an opinion of counsel to the effect that the
holders of the PURS 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 PURS. The
opinion must be based on a ruling of the IRS 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.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the PURS will be made by the underwriters in immediately
available funds. We will pay all principal and interest in immediately available
funds.
Secondary trading in long-term PURS and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the PURS
will trade in the DTC's same-day funds settlement system until maturity. As a
result, DTC will require that secondary market trading activity in the PURS be
settled in immediately available funds. We cannot advise holders on the effect
on trading activity in the PURS of settlement in immediately available funds.
THE TRUSTEE
Firstar Bank, National Association, is the trustee under the indenture. 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
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upon the opinion or advice of counsel. The trustee may resign upon written
notice to us as provided in the indenture. 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.
NOTICES
Notices to be given to holders of PURS represented by global securities
will be deemed duly given when given to DTC, or its nominee, in accordance with
DTC's policies. We believe that DTC's practice is to inform its participants of
any notice it receives, in accordance with its policies and procedures. Persons
who hold beneficial interests in the PURS through DTC or its direct or indirect
participants may wish to consult with them about the manner in which notices and
other communications relating to the PURS may be given and received through the
facilities of DTC. Neither we, the calculation agent, the call option holder,
nor the trustee will have any responsibility with respect to those policies and
procedures or for any notices or other communications among DTC, its direct and
indirect participants and the beneficial owners of the PURS in global form.
With respect to any PURS not represented by a global security, notices to
be given to the holders of the PURS will be deemed to have been duly given to
the holders upon the mailing of the notices to the holders at their respective
addresses as they appear on the PURS register maintained by us or our agent as
of the close of business preceding the day notice is given.
Neither the failure to give any notice nor any defect in any notice given
to a particular holder will affect the sufficiency of any notice given to
another holder.
Hold notices may be given by a holder to the trustee only by facsimile
transmission or by mail and MUST ACTUALLY BE RECEIVED by the trustee at the
following address no later than 10:00 a.m., Cincinnati, Ohio time, on the
seventh market day prior to the reset date:
Firstar Bank, National Association
425 Walnut Street, P.O. Box 1118
Cincinnati, Ohio 45201-1118
Attention: Corporate Trust Administration
Facsimile no.: (513) 632-5511
Hold notices may be given with respect to a PURS only by the registered
holder of the PURS. Therefore, in the case of any beneficial interest in a PURS
represented by a global security, a hold notice must be given by DTC or its
agent, and any owner of a beneficial interest that wants a hold notice to be
given with respect to the interest will need to make arrangements with DTC or
the applicable direct or indirect participants for the notice to be given in a
timely manner.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of some of the U.S. federal income
tax consequences of ownership of a PURS by holders that purchased the PURS
directly from us in the offering at a cash purchase price equal to the issue
price of the PURS. For this purpose, the issue price is the first price at which
a substantial amount of the PURS are sold, excluding sales to bond houses,
brokers or similar persons or organizations acting in the capacity as
underwriters, placement agents or wholesalers.
This discussion is based on current provisions of the Internal Revenue
Code, applicable Treasury regulations, current administrative pronouncements of
the IRS and judicial decisions now in effect. All of these are subject to change
or differing interpretation at any time, possibly with retroactive effect.
S-20
<PAGE> 21
This discussion deals only with PURS which are held as capital assets
within the meaning of the Code and does not deal with all aspects of the tax
consequences of ownership of PURS or with special classes of holders. Special
classes of holders include:
- financial institutions;
- dealers in securities or currencies;
- traders in securities which elect mark-to-market accounting;
- insurance companies;
- tax-exempt investors;
- expatriates;
- non-U.S. persons;
- persons who hold PURS as part of a straddle, hedge, conversion or other
integrated transaction other than by reason of the put option or the call
option; and
- persons whose functional currency is not the U.S. dollar.
For purposes of this discussion, a holder is a beneficial owner of a PURS
that is, for U.S. federal income tax purposes:
- an individual citizen or resident of the United States;
- a partnership or corporation created or organized in or under the laws of
the United States or any state thereof;
- an estate that has income subject to U.S. federal income taxation
regardless of its source; or
- a trust if, in general, a court within the U.S. is able to exercise
primary supervision over the administration of the trust and one or more
U.S. persons has authority to control all substantial decisions of the
trust.
The U.S. federal income tax treatment of the PURS is uncertain. No debt
instrument closely comparable to the PURS has been the subject of any Treasury
regulation, ruling or judicial decision. No ruling has been or will be requested
from the IRS for the treatment of the PURS. No assurance can be given that the
IRS or a court will agree with this discussion of the tax consequences of a
holder's ownership of PURS.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
U.S. FEDERAL INCOME AND OTHER TAX CONSEQUENCES, IN THEIR PARTICULAR
CIRCUMSTANCES, OF PURCHASING, OWNING AND SELLING PURS, AND ANY UNCERTAINTIES
CONCERNING THESE CONSEQUENCES.
Although there is no specific authority concerning the U.S. federal income
tax treatment of the PURS, and the matter is not free from doubt, it would be
reasonable for a holder to account for interest income and gain from ownership
of a PURS as if the holder had purchased, for an amount equal to the issue price
of the PURS, a debt instrument that matures on the reset date.
INTEREST
Under this approach a holder will only include in income, in accordance
with the holder's usual method of tax accounting, the interest actually received
on a PURS.
DISPOSITIONS
Upon the sale, retirement or other taxable disposition of a PURS, the
holder should recognize capital gain or loss equal to the difference between the
amount realized from the disposition and the holder's adjusted tax basis for the
PURS. The amount realized on the disposition of a PURS will not include any
amount received that is attributable to accrued but unpaid interest, which would
be taxable in the manner described above under "Interest". A holder's tax basis
in a PURS will, generally, equal
S-21
<PAGE> 22
the holder's purchase price of the PURS. The capital gain or loss would be
long-term capital gain or loss if the PURS had been held for more than one year
at the time of disposition. In the case of non-corporate holders, long-term
capital gain generally will be taxed at a maximum rate of 20%.
ALTERNATIVE CHARACTERIZATION
A U.S. holder might also be treated as having purchased a PURS for an
amount equal to its fair market value on the date of issuance and effectively
sold the call option to Goldman, Sachs & Co. for an amount equal to the premium
paid by the holder. For this purpose, the premium will be equal to the excess of
the fair market value over the issue price of the PURS.
This characterization of the PURS would not cause a holder to recognize
additional net gain or loss upon the exercise of the put option or the call
option, assuming that the holder had not made an election to amortize premium at
which debt obligations are purchased. However, this characterization of the PURS
would likely cause a holder:
- to include the premium in income, as short-term capital gain, if the
call option is not exercised and the holder gives an effective hold
notice; and
- upon a disposition of the PURS prior to exercise of the put option or
call option, to include as short-term capital gain, with a
corresponding capital loss, an amount equal to any positive difference
between the fair market value of the call option upon issuance of the
PURS and its value as of the time of the disposition.
If the holder had made an election to amortize premium at which debt
obligations are purchased, the holder might effectively be able to reduce
interest included in income over the term of the PURS by an amount not in excess
of the premium. This "amortization" of the premium would reduce the holder's
basis in the PURS. The holder would therefore recognize an offsetting capital
gain equal to the amount of the amortization when the holder disposes of the
PURS pursuant to exercise of the put option or the call option or otherwise.
Finally, under this characterization of the PURS, gain recognized from the
disposition of a PURS also could be treated as ordinary income under specific
rules relating to conversion transactions, or as short-term capital gain by
operation of the rules relating to straddles.
However, it is possible that the PURS would be treated as maturing on the
final maturity date, rather than the reset date, with the result that the PURS
would be governed by Treasury regulations relating to contingent payment debt
obligations. In that case, each holder, regardless of the holder's usual method
of tax accounting, would be required to accrue annually interest on the PURS, as
"original issue discount," at the comparable yield subject to the adjustments
described below, determined in accordance with a projected payment schedule. For
this purpose, the comparable yield is the yield at which we would issue a fixed
rate debt instrument maturing on the final maturity date, with terms and
conditions otherwise similar to those of the PURS.
In this case, the amount of original issue discount required to be accrued
by holders could be greater than the actual cash payments received on the PURS
in a taxable year. In addition, adjustments to income accruals would be required
to be made to account for the differences between actual payments and projected
payments. Further, a holder would be required to treat gain from the disposition
of a PURS, other than a PURS held pursuant to an effective hold notice as
ordinary income. That holder would be permitted to treat loss from the
disposition of a PURS as ordinary loss, to the extent not in excess of
previously accrued interest income from the PURS, with any remaining loss being
treated as capital loss. Finally, upon a disposition of a PURS other than under
the exercise of the put option or the call option, a holder might be required to
include as ordinary income, with a corresponding capital loss, an amount equal
to any positive difference between the fair market value of the call option as
of the time of the disposition and its value upon issuance of the PURS.
S-22
<PAGE> 23
Treasury regulation section 1.1275-6 provides integration rules which, in
general, permit a taxpayer to elect to treat a "qualifying debt instrument" and
some hedges related to a qualifying debt instrument as a "synthetic debt
instrument" for federal income tax purposes. To qualify, the combined cash flows
of the qualifying debt instrument and the hedge must be substantially equivalent
to the cash flows on a fixed or variable rate debt instrument. If integration
treatment is available for a PURS and the call option, a holder might be able to
avoid the treatment described in the above paragraphs under "Alternative
Characterization." Integration treatment will generally only be available if the
resulting synthetic debt instrument has the same term as the remaining term of
the qualifying debt instrument. Holders should consult their own tax advisors
concerning:
- the possible application of these rules to a PURS and the call option,
and the tax consequences thereof; and
- satisfaction of the identification requirements for electing integration
treatment (which requirements must be satisfied on or before the date on
which the holder acquires a PURS).
S-23
<PAGE> 24
UNDERWRITING
Kroger and the underwriters for the offering named below have entered into
an underwriting agreement and a pricing agreement for offering the PURS. Subject
to conditions in these agreements, each underwriter has severally agreed to
purchase the principal amount of PURS indicated in the following table.
<TABLE>
<CAPTION>
Principal
Amount of
Underwriters PURS
------------ ------------
<S> <C>
Goldman, Sachs & Co......................................... $137,500,000
Salomon Smith Barney Inc.................................... 137,500,000
------------
Total............................................. $275,000,000
============
</TABLE>
PURS sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus
supplement. Any PURS sold by the underwriters to securities dealers may be sold
at a discount from the initial public offering price of up to 0.150% of the
principal amount of the PURS. Any such securities dealers may resell any PURS
purchased from the underwriters to certain other brokers or dealers at a
discount from the initial public offering price of up to 0.125% of the principal
amount of the PURS. If all the PURS are not sold at the initial offering price,
the underwriters may change the offering price and the other selling terms.
The PURS are a new issue of securities with no established trading market.
The underwriters have advised Kroger that the underwriters intend to make a
market in the PURS but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the PURS.
In connection with the offering, the underwriters may purchase and sell
PURS in the open market. These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number of PURS than they
are required to purchase in the offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the PURS while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the underwriters have repurchased PURS sold by
or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the PURS. As a result, the price of the PURS may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
One or more of the underwriters or their affiliates have provided and may
in the future provide various commercial or investment banking services and
other services to us and our affiliates. In addition, affiliates of some of the
underwriters are lenders, and in some cases agents or managers for the lenders
under certain of our credit facilities.
Affiliates of the underwriters will in aggregate receive more than 10% of
the proceeds of this offering as a result of the repayment of borrowings under
our credit facilities. Therefore, this offering is being conducted in accordance
with Rule 2710(c)(8) of the National Association of Securities Dealers, Inc.
Kroger estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$200,000.
S-24
<PAGE> 25
The call option holder will pay Kroger 2.22% of the aggregate amount of the
PURS as consideration for the call option.
Kroger has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
VALIDITY OF THE PURS
The validity of the PURS will be passed upon for Kroger by Paul W. Heldman,
Esq., Senior Vice President, Secretary and General Counsel of Kroger, and for
the underwriters by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations), New York, New York. Mr. Heldman may rely
as to matters of New York law upon the opinion of Fried, Frank, Harris, Shriver
& Jacobson, and Fried, Frank, Harris, Shriver & Jacobson may rely as to matters
of Ohio law upon the opinion of Mr. Heldman. As of August 31, 1999, Mr. Heldman
owned approximately 88,236 shares of Kroger's Common Stock and had options to
acquire an additional 409,166 shares. Fried, Frank, Harris, Shriver & Jacobson
from time to time performs legal services for Kroger.
EXPERTS
The financial statements incorporated in this prospectus supplement by
reference to the Annual Report on Form 10-K of The Kroger Co. 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 relating to the Company's change in its 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 supplement by
reference to the 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 supplement 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 the Company's application of
the LIFO method of accounting for store inventories and an explanatory paragraph
that discloses that the supplemental financial statements give retroactive
effect to the merger of The Kroger Co. and Fred Meyer, Inc. on May 27, 1999,
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, incorporated by reference in this
prospectus supplement to the Fred Meyer, Inc. Form 10-K, for the fiscal year
ended January 30, 1999, have been incorporated herein in reliance on the report
of Deloitte & Touche LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
S-25
<PAGE> 26
FORWARD-LOOKING STATEMENTS
The prospectus and this prospectus supplement contain, or incorporate 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
Exchange Act. 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. Such 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 the prospectus and this prospectus supplement 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 such forward-looking statements are not guarantees of future
performance and that actual results, developments and business decisions may
differ from those envisaged by such forward-looking statements.
S-26
<PAGE> 27
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>
S-27
<PAGE> 28
<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>
S-28
<PAGE> 29
PROSPECTUS
$2,000,000,000
THE KROGER CO.
DEBT SECURITIES
PREFERRED STOCK
DEPOSITARY SHARES
COMMON STOCK
WARRANTS
We will provide specific terms of these securities in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you invest.
We may offer any of the following securities from time to time:
- debt securities;
- preferred stock;
- depositary shares relating to preferred stock;
- common stock; and
- warrants to purchase debt securities, common stock or preferred stock.
------------------------
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.
------------------------
September 7, 1999
<PAGE> 30
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
About This Prospectus....................................... 2
Where You Can Find More Information......................... 2
The Kroger Co............................................... 3
Consolidated Ratio of Earnings to Fixed Charges............. 4
Use of Proceeds............................................. 4
Plan of Distribution........................................ 4
Description of Debt Securities.............................. 5
Description of Capital Stock................................ 9
Description of the Depositary Shares........................ 12
Description of the Warrants................................. 15
Experts..................................................... 17
Legal Opinions.............................................. 17
</TABLE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf process, we may
sell any combination of the securities described in this prospectus in one or
more offerings up to a total dollar amount of $2,000,000,000. This prospectus
provides you with a general description of the securities we may offer. Each
time we sell securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The prospectus
supplement may also add, update or change information contained in this
prospectus. You should read both this prospectus and any prospectus supplement
together with additional information described under the heading "Where You Can
Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
Kroger files annual, quarterly and special 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 SEC filings are also available to the public from the SEC's
Web site at http://www.sec.gov.
2
<PAGE> 31
The SEC allows us to "incorporate by reference" the information we file
with them. 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 Securities Exchange Act of 1934 until we sell all of the
securities.
<TABLE>
<CAPTION>
KROGER SEC FILINGS (FILE NO. 1-303) PERIOD
- ----------------------------------- -----------------------------------------
<S> <C>
Annual Report on Form 10-K......... Year ended January 2, 1999 (as amended).
Quarterly Reports 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; May 28, 1999, as
amended; June 17, 1999; June 23, 1999;
June 25, 1999; July 20, 1999; and August
20, 1999.
Registration Statement on Form
8-A/A, dated April 4, 1997, as
amended on Form 8-A/A, dated
October 18, 1998................... Description of preferred stock purchase
rights
</TABLE>
You may request a copy of these filings, other than any exhibits, unless we
have specifically incorporated by reference an exhibit in this prospectus, at no
cost, by writing or telephoning us at the following address:
The Kroger Co.
1014 Vine Street
Cincinnati, Ohio 45202-1100
(513) 762-4000
Attention: Paul Heldman
This prospectus is part of a registration statement we filed with the SEC.
We have incorporated into this registration statement exhibits that include a
form of proposed underwriting agreement and indenture. You should read the
exhibits carefully for provisions that may be important to you.
You should rely on the information incorporated by reference or provided in
this prospectus or any prospectus supplement. We have not authorized anyone to
provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus or the documents incorporated by
reference is accurate as of any date other than the date on the front of this
prospectus or those documents.
THE KROGER CO.
Kroger was founded in 1883 and incorporated in Ohio in 1902. As of January
2, 1999, we were the largest grocery retailer in the United States based on
annual sales. We also manufacture and process food that our supermarkets sell.
Our principal executive offices are located at 1014 Vine Street, Cincinnati,
Ohio 45202-1100, and our telephone number is (513) 762-4000.
3
<PAGE> 32
As of completion of our merger with Fred Meyer, Inc. on May 27, 1999, we
have 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.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The table below presents our consolidated ratio of earnings to fixed
charges for the periods shown:
<TABLE>
<CAPTION>
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)
- ---------- ---------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
3.0 1.7 2.5 2.5 2.2 2.0 1.8
</TABLE>
"Earnings" includes:
- earnings before tax expense; and
- extraordinary loss, plus fixed charges,
and excludes capitalized interest.
"Fixed charges" includes:
- interest, including capitalized interest, on all indebtedness;
- amortization of deferred financing costs; and
- that portion of rental expense that we believe is representative of
interest.
USE OF PROCEEDS
We will use the net proceeds from the sale of the securities to repay
amounts under our bank credit facilities, to retire debt, and for other general
corporate purposes.
PLAN OF DISTRIBUTION
We may sell the securities in any one or more of the following ways:
- directly to investors;
- to investors through agents or dealers;
- through underwriting syndicates led by one or more managing underwriters;
and
- through one or more underwriters acting alone.
If we use underwriters in the sale, the obligations of the underwriters to
purchase the securities will be subject to conditions. The underwriters will be
obligated to purchase all the securities offered, if any are purchased. The
underwriters will acquire the securities for their own account. The underwriters
may resell the securities in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The underwriters may change from time to time any initial
4
<PAGE> 33
public offering price and any discounts or concessions allowed or re-allowed or
paid to dealers.
We may use agents in the sale of securities. Unless indicated in the
prospectus supplement, the agent will be acting on a best efforts basis for the
period of its appointment.
If we use a dealer in the sale of the securities, we will sell the
securities to the dealer as principal. The dealer may then resell the securities
to the public at varying prices it determines at the time of resale.
We also may sell the securities in connection with a remarketing upon their
purchase, in accordance with a redemption or repayment, by a remarketing firm
acting as principal for its own account or as our agent. Remarketing firms may
be deemed to be underwriters in connection with the securities they remarket.
We may authorize underwriters, dealers or agents to solicit offers to
purchase the securities under a delayed delivery contract providing for payment
and delivery at a future date.
We will identify any underwriters or agents and describe their
compensation, including any discounts or commissions, in a prospectus
supplement. Underwriters, dealers and agents that participate in the
distribution of the offered securities may be underwriters as defined in the
Securities Act of 1933. Any discounts or commissions received by them from us
and any profit on the resale of the securities by them may be treated as
underwriting discounts and commissions.
We may have agreements with the underwriters, dealers and agents to
indemnify them against some civil liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters,
dealers or agents may be required to make. Underwriters, dealers or agents may
engage in transactions with, or perform services for, us in the ordinary course
of their business.
DESCRIPTION OF DEBT SECURITIES
This prospectus describes the terms and provisions of the debt securities.
When we offer to sell a particular series of debt securities, we will describe
the specific terms of the securities in a supplement to this prospectus. The
prospectus supplement also will indicate whether the general terms and
provisions described in this prospectus apply to the particular series of debt
securities.
The debt securities will be issued under an indenture between Kroger and a
trustee to be selected by us. The indenture allows us to have different trustees
for each debt security offering.
We have summarized the material terms of the indenture below. The indenture
is included as an exhibit to the registration statement for these securities
that we have filed with the SEC. You should read the indenture for the
provisions that are important to you.
PRINCIPAL TERMS OF THE DEBT SECURITIES
The debt securities will rank equally and ratably with all of our other
unsecured and unsubordinated indebtedness.
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A prospectus supplement relating to any series of debt securities being
offered will include specific terms relating to that series of debt securities.
These terms will include some or all of the following:
- their type and title;
- their total principal amount and currency or currency unit;
- the denominations in which they are authorized to be issued;
- the percentage of their principal amount at which they will be issued;
- the date on which they will mature;
- if they bear interest, the interest rate or the method by which the
interest rate will be determined;
- the times at which any interest will be payable or the manner of
determining the interest payment dates;
- any optional or mandatory redemption periods and the redemption or
purchase price;
- any guarantees by our direct and indirect subsidiaries;
- any sinking fund requirements;
- any special United States federal income tax considerations;
- whether they are to be issued in the form of one or more temporary or
permanent global securities and, if so, the identity of the depositary
for the global securities;
- any information with respect to book-entry procedures;
- the manner in which the amount of any payments of principal and interest
determined by reference to an index are determined; and
- any other specific terms not inconsistent with the indenture.
DENOMINATIONS, REGISTRATION, TRANSFER AND PAYMENT
We will issue the debt securities in registered form without coupons or in
the form of one or more global securities, as described below under "Global
securities." We will issue registered securities denominated in U.S. dollars
only in denominations of $1,000 or any integral multiple of $1,000. We will
issue global securities in a denomination equal to the total principal amount of
outstanding debt securities of the series represented by the global security. We
will describe the denomination of debt securities denominated in a foreign or
composite currency in a prospectus supplement.
You may present registered securities for registration of transfer at the
office of the registrar or at the office of any transfer agent designated by us.
We will pay principal and any premium and interest on registered securities
at the office of the paying agent. We may choose to make any interest payment
(1) by check mailed to the holder's address appearing in the register or (2) by
wire transfer to an account maintained by the holder as specified in the
register. We will make interest payments to the person in whose name the debt
security is registered at the close of business on the day or days specified by
us.
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The trustee's principal office in the City of New York, Chicago,
Cincinnati, or other location, will be designated as the sole paying agent for
payments on registered securities.
GLOBAL SECURITIES
We will deposit global securities with the depositary identified in the
prospectus supplement. A global security is a security, typically held by a
depositary, that represents the beneficial interests of a number of purchasers
of the security.
After we issue a global security, the depositary will credit on its
book-entry registration and transfer system the respective principal amounts of
the debt securities represented by the global security to the accounts of
persons that have accounts with the depositary. These account holders are known
as "participants." The underwriters or agents participating in the distribution
of the debt securities will designate the accounts to be credited. Only a
participant or a person that holds an interest through a participant may be the
beneficial owner of a global security. Ownership of beneficial interests in the
global security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the depositary and its
participants.
We and the trustee will treat the depositary or its nominee as the sole
owner or holder of the debt securities represented by a global security. Except
as set forth below, owners of beneficial interests in a global security will not
be entitled to have the debt securities represented by the global security
registered in their names. They also will not receive or be entitled to receive
physical delivery of the debt securities in definitive form and will not be
considered the owners or holders of the debt securities.
Principal, any premium and any interest payments on debt securities
represented by a global security registered in the name of a depositary or its
nominee will be made to the depositary or its nominee as the registered owner of
the global security. None of Kroger, the trustee or any paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security or for maintaining, supervising or reviewing any records relating to
the beneficial ownership interests.
We expect that the depositary, upon receipt of any payments, will
immediately credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of the global
security as shown on the depositary's records. We also expect that payments by
participants to owners of beneficial interests in the global security will be
governed by standing instructions and customary practices, as is the case with
the securities held for the accounts of customers registered in "street names"
and will be the responsibility of the participants.
If the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by us within ninety days,
we will issue registered securities in exchange for the global security. In
addition, we may at any time in our sole discretion determine not to have any of
the debt securities of a series represented by global securities. In that event,
we will issue debt securities of that series in definitive form in exchange for
the global securities.
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EVENTS OF DEFAULT
When we use the term "Event of Default" in the indenture, here are examples
of what we mean:
- we fail to pay the principal or any premium on any debt security when
due;
- we fail to deposit any sinking fund payment when due;
- we fail to pay interest when due on any security for 30 days;
- we fail to comply with any other covenant in the debt securities 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
that results in an acceleration of maturity; or
- we take specified actions relating to our bankruptcy, insolvency or
reorganization.
The supplemental indenture or the form of security for a particular series
of debt securities may include additional Events of Default or changes to the
Events of Default described above. You should refer to the prospectus supplement
for the Events of Default relating to a particular series of debt securities. A
default under one series of debt securities will not necessarily be a default
under another series.
If an Event of Default for debt securities of any series occurs and is
continuing, the trustee or the holders of at least 25% in principal amount of
all of the debt securities of that series outstanding may require us to
immediately repay all of the principal and interest due on the debt securities
of that series. The holders of a majority in principal amount of all of the debt
securities 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.
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 debt securities or the indenture.
The holders of a majority in principal amount of the debt securities 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 debt
securities:
- 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 holders;
- to add additional Events of Default;
- to add or change provisions necessary to facilitate the issuance of
securities; or
- to entitle the securities 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 debt securities of the series affected by
the amendment. Holders of at least 50% in principal amount of the debt
securities may waive our
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compliance with any provision of the indenture or the debt securities 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 debt securities whose holders must consent to an
amendment or waiver;
- modifies provisions related to rights of holders to redeem securities at
their option; or
- changes other rights of holders as specifically identified in the
indenture
will be effective against any holder without the holder's consent.
OTHER DEBT SECURITIES
In addition to the debt securities described above, we may issue
subordinated debt securities that rank junior to our senior debt securities.
These debt securities will be described in a prospectus supplement and will be
issued pursuant to an indenture entered into between Kroger and a trustee that
we select. The indenture will be filed with the SEC and qualified under the
Trust Indenture Act.
OTHER LIMITATIONS
The prospectus supplement may contain provisions that limit our ability to
consolidate or merge with other companies. It also may contain provisions that
limit our right to incur liens and to engage in sale and leaseback transactions.
DESCRIPTION OF CAPITAL STOCK
Our Amended Articles of Incorporation authorize us to issue 1,000,000,000
shares of common stock, $1 par value per share, and 5,000,000 shares of
cumulative preferred stock, $100 par value per share. At our annual meeting of
shareholders in 1999, our shareholders authorized an increase in the authorized
shares of common stock to 2,000,000,000, but that increase has not yet been
implemented. As of May 22, 1999, there were outstanding 515,577,928 shares of
common stock, adjusted for the distribution in the nature of a two for one stock
split made on June 28, 1999, and no shares of cumulative preferred stock.
COMMON STOCK
All outstanding common stock is, and any stock issued under this prospectus
will be, fully paid and nonassessable. Subject to rights of preferred
stockholders if any preferred stock is issued and outstanding, holders of common
stock
- are entitled to any dividends validly declared;
- will share ratably in our net assets in the event of a liquidation; and
- are entitled to one vote per share, unless they are entitled to
cumulative voting for the election of directors.
The common stock has no conversion rights. Holders of common stock have no
preemption, subscription, redemption, or call rights related to those shares.
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The Bank of New York is the transfer agent and registrar for our common
stock.
PREFERRED STOCK
This prospectus describes the terms and provisions of our preferred stock.
When we offer to sell a particular series of preferred stock, we will describe
the specific terms of the securities in a supplement to this prospectus. The
prospectus supplement will also indicate whether the terms and provisions
described in this prospectus apply to the particular series of preferred stock.
The preferred stock will be issued under a certificate of designations relating
to each series of preferred stock. It is also subject to our Amended Articles of
Incorporation.
We have summarized the material portions of the certificate of designations
below. The certificate of designations will be filed with the SEC in connection
with an offering of preferred stock.
Our Amended Articles of Incorporation authorize us to issue 5,000,000
shares of preferred stock, par value $100 per share. Our Board is authorized to
designate any series of preferred stock and the powers, preferences and rights
of the preferred stock without further shareholder action. As of March 3, 1999,
we had no shares of preferred stock outstanding. On that same date, 50,000
shares were reserved for issuance under our warrant dividend plan. These shares
are designated "Series A Preferred Shares."
Our Board is authorized to determine or fix the following terms for each
series of preferred stock, which will be described in a prospectus supplement:
- the designation and number of shares;
- the dividend rate;
- the payment date for dividends and the date from which dividends are
cumulative;
- our redemption rights and the redemption prices;
- amounts payable to holders on our liquidation, dissolution or winding up;
- the amount of the sinking fund, if any;
- whether the shares will be convertible or exchangeable, and if so the
prices and terms; and
- whether future shares of the series or any future series or other class
of stock is subject to any restrictions, and if so the nature of the
restrictions.
When we issue shares of preferred stock, they will be fully paid and
nonassessable.
Dividends
The holders of preferred stock will be entitled to receive cash dividends
if declared by our Board of Directors out of funds we can legally use for
payment. The prospectus supplement will indicate the dividend rates and the
dates on which we will pay dividends. The rates may be fixed or variable or
both. If the dividend rate is variable, the formula used to determine the
dividend rate will be described in the prospectus supplement. We will pay
dividends to the holders of record as they appear on the record dates fixed by
our Board.
Our Board will not declare and pay a dividend on any series of preferred
stock unless full dividends for all series of preferred stock ranking equal as
to dividends have been
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declared or paid and sufficient funds are set aside for payment. If dividends
are not paid in full, we will declare any dividends pro rata among the preferred
stock of each series and any series of preferred stock ranking equal to any
other series as to dividends. A "pro rata" declaration means that the dividends
we declare per share on each series of preferred stock will bear the same
relationship to each other that the full accrued dividends per share on each
series of the preferred stock bear to each other.
Unless all dividends on the preferred stock have been paid in full, we will
not declare or pay any dividends or set aside sums for payment of dividends or
distributions on any common stock or on any class of security ranking junior to
the series of preferred stock, except for dividends or distributions paid for
with securities ranking junior to the preferred stock. We also will not redeem,
purchase, or otherwise acquire any securities ranking junior to the series of
preferred stock as to dividends or liquidation preferences, except by conversion
into or exchange for stock junior to the series of preferred stock.
Convertibility
We will not convert or exchange any series of preferred stock for other
securities or property, unless otherwise indicated in the prospectus supplement.
Redemption and sinking fund
We will not redeem or pay into a sinking fund any series of preferred
stock, unless otherwise indicated in the prospectus supplement.
Liquidation rights
If we voluntarily or involuntarily liquidate, dissolve or wind up our
business, holders of any series of preferred stock will be entitled to receive
the liquidation preference per share specified in the prospectus supplement and
all accrued and unpaid dividends. We will pay these amounts to the holders of
each series of the preferred stock, and all amounts owing on any preferred stock
ranking equally with that series of preferred stock as to distributions upon
liquidation. These payments will be made out of our assets available for
distribution to shareholders before any distribution is made to holders of
common stock or any class of stock ranking junior to the series of preferred
stock as to dividends and liquidation preferences.
In the event there are insufficient assets to pay the liquidation
preferences for all equally-ranked classes of preferred stock in full, we will
allocate the remaining assets equally among all series of equally-ranked
preferred stock based upon the aggregate liquidation preference for all
outstanding shares for each series. This distribution means that the
distribution we pay to the holders of all shares ranking equal as to
distributions if we dissolve, liquidate or wind up our business will bear the
same relationship to each other that the full distributable amounts for which
the holders are respectively entitled if we dissolve, liquidate or wind up our
business bear to each other. After we pay the full amount of the liquidation
preference to which they are entitled, the holders of shares of a series of
preferred stock will not be entitled to participate in any further distribution
of our assets.
Voting rights
Holders of preferred stock will be entitled to one vote per share, unless
otherwise indicated in the prospectus supplement or otherwise required by law.
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Transfer agent and registrar
The prospectus supplement for each series of preferred stock will name the
transfer agent and registrar.
PREFERRED STOCK PURCHASE RIGHTS
On February 28, 1996, we adopted a shareholders' rights plan providing for
stock purchase rights to owners of Kroger common shares. The shareholders'
rights plan was amended and restated on April 4, 1997, and further amended on
October 18, 1998. Each right, when exercisable, entitles the holder to purchase
from us one ten-thousandth of a share. The rights will become exercisable, and
separately tradeable, ten days after a person or group acquires 10% or more of
our common shares or ten business days following a tender offer or exchange
offer resulting in a person or group having beneficial ownership of 10% or more
of our common shares. In the event the rights become exercisable, each right
will entitle the holder the right, if that holder pays the exercise price, to
purchase Kroger common shares, having a market value of twice the exercise price
of the right. Under other circumstances, including some acquisitions of Kroger
in a merger or other business combination transaction, or if 50% or more of our
assets or earning power are sold under some circumstances, each right will
entitle the holder to receive upon payment of the exercise price, shares of
common stock of the acquiring company with a market value of twice the exercise
price. At our option, the rights, before becoming exercisable, are redeemable in
their entirety at a price of $.01 per right. The rights may be adjusted and
expire March 19, 2006.
This summary is qualified by the full text of the shareholders' rights
plan. A copy of this plan is filed as an exhibit to the registration statement
and is incorporated into this prospectus by reference.
DESCRIPTION OF THE DEPOSITARY SHARES
This prospectus describes the terms and provisions of our depositary
shares. When we offer to sell depositary shares, we will describe the specific
terms for the securities in a supplement to this prospectus. The prospectus
supplement also will indicate whether the terms and provisions described in this
prospectus apply to the depositary shares being offered.
We have summarized the material portions of the deposit agreement below.
The deposit agreement will be filed with the SEC in connection with an offering
of depositary shares.
We may offer fractional interests in preferred stock, rather than full
shares of preferred stock. If we do, we will provide for a depositary to issue
to the public receipts for depositary shares, each of which will represent
ownership of and entitlement to all rights and preferences of a fractional
interest in a share of preferred stock of a specified series. These rights
include dividend, voting, redemption and liquidation rights. The applicable
fraction will be specified in a prospectus supplement. The shares of preferred
stock represented by the depositary shares will be deposited with a depositary
named in a prospectus supplement, under a deposit agreement among us, the
depositary and the holders of the depositary receipts.
The depositary shares will be evidenced by depositary receipts issued under
the deposit agreement. The depositary will be the transfer agent, registrar and
dividend
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disbursing agent for the depositary shares. Holders of depositary receipts agree
to be bound by the deposit agreement, which requires holders to file proof of
residence and pay charges.
DIVIDENDS
The depositary will distribute all cash dividends or other cash
distributions received to the record holders of depositary receipts in
proportion to the number of depositary shares owned by them on the relevant
record date. The record date will be the same date as the record date we fix for
the applicable series of preferred stock.
If we make a non-cash distribution, the depositary will distribute property
to the holders of depositary receipts, unless the depositary determines, after
consultation with us, that it is not feasible to make this distribution. If this
occurs, the depositary may, with our approval, adopt any other method for the
distribution as it deems appropriate, including the sale of the property and
distribution of the net proceeds from the sale.
LIQUIDATION PREFERENCE
If we voluntarily or involuntarily liquidate, dissolve or wind up our
business, the holders of each depositary share will receive the fraction of the
liquidation preference accorded each share of the applicable series of preferred
stock.
REDEMPTION
If we redeem the series of preferred stock underlying the depositary
shares, we will redeem the depositary shares from the redemption proceeds of the
preferred stock held by the depositary. Whenever we redeem any preferred stock
held by the depositary, the depositary will redeem on the same redemption date
the number of depositary shares representing the preferred stock being redeemed.
The depositary will mail the notice of redemption between 30 to 60 days prior to
the date fixed for redemption to the record holders of the depositary receipts.
VOTING
The depositary will promptly mail information contained in any notice of
meeting it receives from us to the record holders of the depositary receipts.
Each record holder of depositary receipts will be entitled to instruct the
depositary as to its exercise of its voting rights pertaining to the number of
shares of preferred stock represented by its depositary shares. The depositary
will try, if practical, to vote the preferred stock underlying the depositary
shares according to the instructions received. We will agree to try to take all
action that the depositary finds necessary in order to enable the depositary to
vote the preferred stock in that manner. The depositary will not vote any of the
preferred stock for which it does not receive specific instructions from the
holders of depositary receipts.
WITHDRAWAL OF PREFERRED STOCK
If holders surrender depositary receipts at the principal office of the
depositary and pay any unpaid amount due to the depositary, the owner of the
depositary shares is entitled to receive the number of whole shares of preferred
stock and all money and other property represented by the depositary shares.
Partial shares of preferred stock will not be issued. If the holder delivers
depositary receipts evidencing a number of depositary shares that represent more
than a whole number of shares of preferred stock, the depositary will issue a
new depositary receipt evidencing the excess number of depositary shares to that
holder.
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Holders of preferred stock received in exchange for depositary shares will no
longer be entitled to deposit these shares under the deposit agreement or to
receive depositary receipts.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may be amended by agreement between us and
the depositary. However, any amendment that materially and adversely alters the
rights of the holders, other than any change in fees, of depositary shares will
not be effective unless approved by the holders of at least a majority of the
depositary shares then outstanding. An amendment may not impair the right of any
owner of any depositary shares to surrender its depositary receipt with
instructions to the depositary in exchange for preferred stock, money and
property, except in order to comply with mandatory provisions of applicable law.
The deposit agreement may be terminated by us or the depositary only if:
- all outstanding depositary shares have been redeemed; or
- there has been a final distribution to the holders of the preferred stock
in connection with the liquidation, dissolution or winding up of our
business, and the distribution has been made to all the holders of
depositary shares.
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges
attributable solely to the depositary arrangements. We will pay the depositary's
charges for the initial deposit of the preferred stock and the initial issuance
of the depositary shares, any redemption of the preferred stock and all
exchanges for preferred stock. Holders of depositary receipts will pay transfer,
income and other taxes and governmental charges and other charges stated in the
deposit agreement to be for their accounts. In some circumstances, the
depositary may refuse to transfer depositary shares, may withhold dividends and
distributions and may sell the depositary shares if those charges are not paid.
OBLIGATIONS OF DEPOSITARY
The depositary will forward to the holders of depositary receipts all
reports and communications from us that are delivered to it and that we are
required to furnish to the holders of the preferred stock. In addition, the
depositary will make available for inspection by holders of depositary receipts
at its principal office, and at other places it deems advisable, any reports and
communications received from us.
We will not assume, and the depositary will not assume, any obligation or
any liability under the deposit agreement to holders of depositary receipts
other than for gross negligence or willful misconduct. We will not be liable,
and the depositary will not be liable, if we are prevented or delayed by law or
any circumstance beyond our control in performing our obligations under the
deposit agreement. Our obligations and the depositary's obligations under the
deposit agreement will be limited to performance in good faith of our and their
duties. We and the depositary will not be obligated to prosecute or defend any
legal proceeding related to any depositary shares or preferred stock unless we
receive satisfactory indemnity. We and the depositary may rely on written advice
of our counsel or accountants, on information provided by holders of depositary
receipts or other persons believed in good faith to be competent to give this
information. We also may rely on documents believed to be genuine and to have
been signed or presented by the proper party or parties.
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RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering to us notice of its
election to do so. At any time we may remove the depositary. The resignation or
removal will take effect after a successor depositary is appointed and has
accepted the appointment. We must appoint a successor within 60 days after
delivery of the notice for resignation or removal and the successor depositary
must be a bank or trust company having its principal office in the United States
and having a combined capital and surplus of at least $150,000,000.
FEDERAL INCOME TAX CONSEQUENCES
Owners of the depositary shares will be treated for federal income tax
purposes as if they were owners of the preferred stock underlying the depositary
shares. Accordingly, the owners will be entitled to take into account for
federal income tax purposes income and deductions to which they would be
entitled if they were holders of the preferred stock. In addition:
- no gain or loss will be recognized for federal income tax purposes upon
the withdrawal of preferred stock in exchange for depositary shares;
- the tax basis of each share of preferred stock to an exchanging owner of
depositary shares will, when exchanged, be the same as the aggregate tax
basis of the depositary shares being exchanged; and
- the holding period for preferred stock in the hands of an exchanging
owner of depositary shares will include the period during which that
person owned the depositary shares.
DESCRIPTION OF THE WARRANTS
This prospectus describes the terms and provisions of the warrants. When we
offer to sell warrants, we will describe the specific terms of the warrants and
warrant agreement in a supplement to this prospectus. The prospectus supplement
also will indicate whether the terms and provisions described in this prospectus
apply to the warrants being offered.
We have summarized the material portions of the warrant agreement below.
The warrant agreement will be filed with the SEC in connection with an offering
of warrants. You should read the warrant agreement for the provisions that are
important to you.
We may issue warrants for the purchase of our debt securities, preferred
stock or common stock. Warrants may be issued alone or together with debt
securities, preferred stock or common stock offered by any prospectus supplement
and may be attached to or separate from those securities. Each series of
warrants will be issued under a separate warrant agreement to be entered into
between us and a bank or trust company, as warrant agent. The warrant agent will
act solely as our agent in connection with the warrants and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of warrants.
DEBT WARRANTS
The prospectus supplement relating to a particular issue of warrants to
issue debt securities will describe the terms of the debt warrants, including
the following:
- their title;
- their offering price;
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- their aggregate number;
- the designation and terms of the debt securities that can be purchased
when they are exercised;
- the designation and terms of the debt securities that are issued with the
warrants and the number of warrants issued with each debt security;
- the date when they and any debt securities issued will be separately
transferable;
- the principal amount of debt securities that can be purchased when they
are exercised and the purchase price;
- the date on which the right to exercise warrants begins and the date on
which the right expires;
- the minimum or maximum amount of warrants that may be exercised at any
one time;
- whether they and the debt securities that may be issued when they are
exercised will be issued in registered or bearer form;
- information about book-entry procedures;
- the currency or currency units in which the offering price and the
exercise price are payable;
- a discussion of material United States federal income tax considerations;
- the antidilution provisions; and
- the redemption or call provisions.
STOCK WARRANTS
The prospectus supplement relating to any particular issue of warrants to
issue common stock or preferred stock will describe the terms of the stock
warrants, including the following:
- their title;
- their offering price;
- their aggregate number;
- the designation and terms of the common stock or preferred stock that can
be purchased when they are exercised;
- the designation and terms of the common stock or preferred stock that is
issued and the number of warrants issued with shares of each common stock
or preferred stock;
- the date when they and any common stock or preferred stock issued will be
separately transferable;
- the number of shares of common stock or preferred stock that can be
purchased when they are exercised and the purchase price;
- the date on which the right to exercise them begins and the date on which
the right expires;
- the minimum or maximum amount that may be exercised at any one time;
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- the currency or currency units in which the offering price and the
exercise price are payable;
- a discussion of material United States federal income tax considerations;
- the antidilution provisions; and
- the redemption or call provisions.
EXPERTS
The financial statements incorporated in this prospectus by reference to
the Annual Report on Form 10-K of The Kroger Co. 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
relating to the Company's change in its application of the LIFO method of
accounting for store inventories as of December 28, 1997) 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
the 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 the Company's application of
the LIFO method of accounting for store inventories and an explanatory paragraph
that discloses that the supplemental financial statements give retroactive
effect to the merger of The Kroger Co. and Fred Meyer, Inc. on May 27, 1999,
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, incorporated in this prospectus by
reference to Kroger's Current Report on Form 8-K dated May 28, 1999, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
Documents incorporated by reference in the future in this prospectus will
include financial statements, related schedules, if required, and auditors'
reports. The financial statements and schedules will have been audited to the
extent and for the periods identified in the reports by the firm submitting the
report. If audited financials are incorporated by reference, it will be based on
reports given on the authority of the issuing firm as experts in accounting and
auditing.
LEGAL OPINIONS
The validity of the securities we are offering will be passed upon for us
by Paul Heldman, Esq., Senior Vice President, Secretary and General Counsel of
Kroger. As of May 30, 1999, Mr. Heldman owned approximately 44,137 shares of
Kroger common stock, and had options to acquire an additional 204,583 shares.
17
<PAGE> 46
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus supplement and
the accompanying prospectus are an
offer to sell only the PURS offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus supplement and the accompanying prospectus is current only as of the
date of this prospectus supplement.
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TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Company.......................... S-2
Recent Developments.................. S-2
Use of Proceeds...................... S-2
Risk Factors......................... S-3
Description of the PURS.............. S-6
U.S. Federal Income Tax
Consequences....................... S-20
Underwriting......................... S-24
Validity of the PURS................. S-25
Experts.............................. S-25
Forward-Looking Statements........... S-26
List of Subsidiary Guarantors........ S-27
Prospectus
About This Prospectus................ 2
Where You Can Find More Information.. 2
The Kroger Co. ...................... 3
Consolidated Ratio of Earnings to
Fixed Charges...................... 4
Use of Proceeds...................... 4
Plan of Distribution................. 4
Description of Debt Securities....... 5
Description of Capital Stock......... 9
Description of the Depositary
Shares............................. 12
Description of the Warrants.......... 15
Experts.............................. 17
Legal Opinions....................... 17
</TABLE>
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$275,000,000
THE KROGER CO.
Puttable Reset Securities
PURSSM due 2010
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[KROGER LOGO]
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GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
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