<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1998
REGISTRATION NO. 333-[ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THE KROGER CO.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OHIO 5411 31-0345740
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer Identification No.)
incorporation or organization) Classification
Code Number)
</TABLE>
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1014 VINE STREET
CINCINNATI, OHIO 45202
(513) 762-4000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------------
PAUL W. HELDMAN, ESQ.
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
THE KROGER CO.
1014 VINE STREET
CINCINNATI, OH 45202
(513) 762-4421
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
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<S> <C> <C> <C>
JEFFREY BAGNER, ESQ. ROGER A. COOKE, ESQ. DANIEL S. STERNBERG, ESQ. MARGARET HILL NOTO, ESQ.
FRIED, FRANK, HARRIS, SHRIVER EXECUTIVE VICE PRESIDENT, CLEARY, GOTTLIEB, STEEN & STOEL RIVES LLP
& JACOBSON GENERAL COUNSEL AND SECRETARY HAMILTON 900 SW FIFTH AVENUE
ONE NEW YORK PLAZA FRED MEYER, INC. ONE LIBERTY PLAZA SUITE 2600
NEW YORK, NEW YORK 10004 3800 SE 22ND AVENUE NEW YORK, NEW YORK 10006 PORTLAND, OREGON 97204
(212) 859-8000 PORTLAND, OREGON 97202 (212) 225-2000 (503) 224-3380
(503) 232-8844
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AMOUNT TO BE REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Shares, $1.00 par value 170,000,000(1) Not Applicable Not Applicable $ 2,497,395.63(2)
per share
Preferred Share Purchase 170,000,000 Not Applicable Not Applicable Not Applicable
Rights(3)
<CAPTION>
TITLE OF EACH CLASS OF SECURITIE
TO BE REGISTERED
<S> <C> <C>
Common Shares, $1.00 par value
per share
Preferred Share Purchase
Rights(3)
</TABLE>
(1) Based on the maximum number of shares of common stock of Fred Meyer, Inc.
("Fred Meyer") that may be outstanding immediately prior to the Merger
described herein, assuming conversion of outstanding options and warrants
exercisable prior to the effective time (170,000,000 shares).
(2) Pursuant to Rule 457(f)(1) and (c), the registration fee has been calculated
based on a price of $52.84375 per share of Fred Meyer common stock (the
average of the high and low price per share of Fred Meyer common stock as
reported on the New York Stock Exchange, Inc. Composite Tape on November 5,
1998), and the maximum number of shares of Fred Meyer common stock that may
be outstanding immediately prior to the Merger as set forth in footnote 1
above.
(3) Associated with The Kroger Co.'s common stock are rights to purchase Series
A Preferred Shares that will not be exercisable or evidenced separately from
Kroger common stock prior to the occurrence of certain events.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE> 2
The information in this Joint Proxy Statement/Prospectus is not complete and may
be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This Joint Proxy
Statement/Prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
The information in this Joint Proxy Statement/Prospectus will be amended or
completed.
[The Kroger Co. Logo] [Fred Meyer, Inc. Logo]
JOINT PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of The Kroger Co. and Fred Meyer, Inc. have agreed
on a merger of our two companies. Before we can complete this merger, the merger
agreement must be approved by each company's shareholders. We are sending you
this Joint Proxy Statement/Prospectus to ask you to vote in favor of the merger
agreement.
The merger will create the nation's largest supermarket company, with more
than 2,200 supermarkets and over 800 convenience stores in 37 states. The
combined company will have assets of approximately $16.1 billion and
shareholders' equity in excess of $1.4 billion.
We believe the merger will provide the combined company with geographic
diversity by combining Fred Meyer's stores, which are concentrated primarily in
the Western United States, with those of Kroger, which are concentrated
primarily in the Midwestern and Southeastern United States. We also believe the
combined company will be positioned to achieve significant synergies and
economies of scale, including purchasing and distribution efficiencies. As a
result of these factors, we believe the merger will enhance our ability to
generate increased earnings and value for shareholders.
As a result of the merger Fred Meyer will become a wholly-owned subsidiary
of Kroger. Each share of Fred Meyer common stock will become one Kroger common
share. Subject to the right of Kroger shareholders to dissent from the merger,
currently outstanding Kroger common shares will remain outstanding following the
merger. Upon completion of the merger, existing Fred Meyer stockholders will own
Kroger common shares that will represent approximately [ ]% of the outstanding
Kroger common shares (based upon the number of outstanding Kroger common shares
and Fred Meyer common stock on the record dates for the applicable special
meeting). The balance of the outstanding Kroger common shares will be held by
existing Kroger common shareholders.
For the five trading days immediately prior to the public announcement of
the execution of the merger agreement, the average closing price of Kroger
common shares was $50.00 per share and the average closing price of Fred Meyer
common stock was $44.13 per share. On [date], 1998, the last practicable trading
day prior to the date of this Joint Proxy Statement/Prospectus, the Kroger
common shares closed at $[ ] per share and the Fred Meyer common stock closed
at $[ ] per share.
We cannot complete the merger unless we obtain the necessary government
approvals and unless shareholders of both companies vote to approve it. Each
company will hold a special meeting of its shareholders to vote on the merger
agreement. YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your
special shareholder meeting, please take the time to vote by completing and
mailing the enclosed proxy card to us. If you sign, date and mail your proxy
card without indicating how you want to vote, your proxy will be counted as a
vote FOR the merger agreement. If you do not vote your shares, the effect will
be a vote against the merger agreement.
The dates, times and places of the meetings are as follows:
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<S> <C>
FOR KROGER SHAREHOLDERS: FOR FRED MEYER STOCKHOLDERS:
[1014 Vine Street [3800 SE 22nd Avenue
Cincinnati, Ohio 45202] Portland, Oregon 97202]
[Date], [time], local time [Date], [time], local time
</TABLE>
This Joint Proxy Statement/Prospectus constitutes a prospectus of Kroger
relating to the issuance of up to 170 million Kroger common shares in connection
with the merger. This document also constitutes a joint proxy statement for both
our companies in connection with the solicitation of proxies for use at our
special shareholder meetings regarding the merger. The issuance of Kroger common
shares also includes the associated preferred share purchase rights issued
pursuant to Kroger's shareholders' rights plan (which rights are not exercisable
until the occurrence of certain events). This Joint Proxy Statement/Prospectus
gives you detailed information about the merger, and includes the merger
agreement as Appendix A. You can also obtain information about our companies
from publicly available documents we have filed with the Securities and Exchange
Commission as described in this Joint Proxy Statement/Prospectus. We encourage
you to read this entire document carefully.
For certain risks in connection with the merger, see "RISK FACTORS"
beginning on page 18.
We are very enthusiastic about the merger and the strength and capabilities
we expect from the combined company. We join all the other members of each
company's Board of Directors in recommending that you vote in favor of the
merger.
<TABLE>
<S> <C>
Joseph A. Pichler Robert G. Miller
Chairman and Chief Executive Officer Vice Chairman and Chief Executive Officer
The Kroger Co. Fred Meyer, Inc.
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES TO BE ISSUED UNDER THIS JOINT PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
JOINT PROXY STATEMENT/PROSPECTUS DATED [ ], 1998, WAS FIRST MAILED
TO SHAREHOLDERS ON OR ABOUT [ ], 1998.
<PAGE> 3
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Joint Proxy Statement/Prospectus (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and business of each of Kroger and Fred Meyer, as
well as certain information relating to the merger, including (i) statements
relating to the cost savings and accretion to reported earnings estimated to
result from the merger, (ii) statements relating to revenues estimated to result
from the merger, (iii) statements relating to integration costs estimated to be
incurred in connection with the merger and (iv) statements preceded by, followed
by or that include the words "believes," "expects," "anticipates," "estimates"
or similar words or expressions.
These forward-looking statements involve certain risks and uncertainties.
Actual results may differ materially from those contemplated by these
forward-looking statements due to the following factors and potential events:
- the combined company is expected to have significant indebtedness which
may limit its financial and operational flexibility;
- fluctuations in interest rates affecting the combined company's floating
rate debt;
- expected cost savings from the merger are not fully realized or are not
realized within the expected time frame or additional or unexpected costs
are incurred;
- revenues following the merger are lower than expected;
- competitive pressures increase in the industry or markets in which the
combined company operates;
- costs or difficulties related to the integration of the businesses of
Kroger and Fred Meyer or other acquired businesses are greater than
expected;
- changes in general economic conditions or in political or competitive
forces;
- technological changes (including "Year 2000" data systems compliance
issues) are more difficult or expensive to implement than anticipated;
- changes occur in the securities markets;
- difficulties in obtaining regulatory approval of the merger under federal
antitrust laws;
- potential loss of key personnel expected to manage the integration of the
two companies; and
- the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
Because these forward-looking statements are subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by these forward-looking statements. Shareholders of Kroger and Fred
Meyer are cautioned not to place undue reliance on these statements, which speak
only as of the date of this Joint Proxy Statement/Prospectus or, in the case of
any document incorporated by reference, the date of that document.
All subsequent written and oral forward-looking statements attributable to
Kroger or Fred Meyer or any person acting on their behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section. Neither Kroger nor Fred Meyer undertakes any obligation to
release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date of this Joint Proxy Statement/Prospectus
or to reflect the occurrence of unanticipated events.
<PAGE> 4
REFERENCES TO ADDITIONAL INFORMATION
This Joint Proxy Statement/Prospectus incorporates important business and
financial information about Kroger and Fred Meyer from documents filed with the
Securities and Exchange Commission that have not been included in or delivered
with this document. This information is available to you without charge upon
your written or oral request. You can obtain documents incorporated by reference
in this Joint Proxy Statement/ Prospectus (other than certain exhibits to those
documents) by requesting them in writing or by telephone from the appropriate
company at the following addresses:
<TABLE>
<S> <C>
The Kroger Co. Fred Meyer, Inc.
1014 Vine Street 3800 SE 22nd Avenue
Cincinnati, Ohio 45202 Portland, Oregon 97202
(513) 762-4000 (503) 232-8844
</TABLE>
If you would like to request documents, please do so by [date] in order to
receive them before the applicable special shareholder meeting.
See "WHERE YOU CAN FIND MORE INFORMATION" on page 90 for more information
about the documents incorporated by reference in this Joint Proxy
Statement/Prospectus.
<PAGE> 5
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DATE]
------------------------
To the Shareholders of The Kroger Co.:
Notice is hereby given that a Special Meeting of Shareholders (the "Kroger
Special Meeting") of The Kroger Co. ("Kroger") will be held on [date], at
[time], local time, at [address] for the following purposes:
To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of October 18, 1998 (the "Merger Agreement"),
among Kroger, Jobsite Holdings, Inc., a Delaware corporation and a
wholly-owned subsidiary of Kroger ("Merger Sub"), and Fred Meyer, Inc.
("Fred Meyer"), and approve the related merger, pursuant to which, subject
to the terms and conditions of the Merger Agreement, Merger Sub will merge
with and into Fred Meyer (the "Merger") and each share of common stock of
Fred Meyer, par value $.01 per share, issued and outstanding immediately
prior to the Merger will be converted into the right to receive one common
share, par value $1.00 per share, of Kroger. A copy of the Merger Agreement
is set forth as Appendix A to the attached Joint Proxy
Statement/Prospectus.
Notwithstanding shareholder approval of the foregoing proposal, Kroger
reserves the right to abandon the Merger at any time prior to the consummation
of the Merger upon the terms and subject to the conditions of the Merger
Agreement.
The Board of Directors of Kroger has fixed the close of business on [date],
1998, as the record date for the determination of shareholders entitled to
notice of and to vote at the Kroger Special Meeting, and only shareholders of
record at such time will be entitled to notice of and to vote at the Kroger
Special Meeting. A list of Kroger shareholders entitled to vote at the Kroger
Special Meeting will be available for examination at the Kroger Special Meeting.
A form of Proxy and a Joint Proxy Statement/Prospectus containing more
detailed information with respect to the matters to be considered at the Kroger
Special Meeting accompany this notice.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER.
You are cordially invited to attend the Kroger Special Meeting in person.
If you attend the Kroger Special Meeting and desire to revoke your Proxy and
vote in person you may do so. In any event, a Proxy may be revoked at any time
before it is voted.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE KROGER SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING
SOLICITED BY THE BOARD OF DIRECTORS, WHETHER OR NOT YOU PLAN TO ATTEND THE
KROGER SPECIAL MEETING. AN ADDRESSED RETURN ENVELOPE WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
By Order of the Board of Directors,
Paul W. Heldman
Senior Vice President,
Secretary and General Counsel
Cincinnati, Ohio
[date], 1998
<PAGE> 6
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ DATE ]
To the Stockholders of Fred Meyer, Inc.:
Notice is hereby given that a Special Meeting of Stockholders (the "Fred
Meyer Special Meeting") of Fred Meyer, Inc. ("Fred Meyer") will be held on
[date], at [time], local time, at [address] for the following purpose:
To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of October 18, 1998 (the "Merger Agreement"),
among The Kroger Co. ("Kroger"), Jobsite Holdings, Inc., a Delaware
corporation and a wholly-owned subsidiary of Kroger ("Merger Sub"), and
Fred Meyer, and approve the related merger, pursuant to which, subject to
the terms and conditions of the Merger Agreement, Merger Sub will merge
with and into Fred Meyer (the "Merger") and each share of common stock of
Fred Meyer, par value $.01 per share, issued and outstanding immediately
prior to the Merger will be converted into the right to receive one common
share, par value $1.00 per share, of Kroger. A copy of the Merger Agreement
is set forth as Appendix A to the attached Joint Proxy
Statement/Prospectus.
Notwithstanding stockholder approval of the foregoing proposal, Fred Meyer
reserves the right to abandon the Merger at any time prior to the consummation
of the Merger upon the terms and subject to the conditions of the Merger
Agreement.
The Board of Directors of Fred Meyer has fixed the close of business on
[date], 1998, as the record date for the determination of stockholders entitled
to notice of and to vote at the Fred Meyer Special Meeting, and only
stockholders of record at such time will be entitled to notice of and to vote at
the Fred Meyer Special Meeting. A list of Fred Meyer stockholders entitled to
vote at the Fred Meyer Special Meeting will be available for examination, during
ordinary business hours, at 3800 SE 22nd Avenue, Portland, Oregon 97202, during
the ten day period prior to the Fred Meyer Special Meeting.
A form of Proxy and a Joint Proxy Statement/Prospectus containing more
detailed information with respect to the matters to be considered at the Fred
Meyer Special Meeting accompany this notice.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER.
You are cordially invited and urged to attend the Fred Meyer Special
Meeting in person. If you attend the Fred Meyer Special Meeting and desire to
revoke your Proxy and vote in person you may do so. In any event, a Proxy may be
revoked at any time before it is voted.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE FRED MEYER SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING
SOLICITED BY THE BOARD OF DIRECTORS, WHETHER OR NOT YOU PLAN TO ATTEND THE FRED
MEYER SPECIAL MEETING. AN ADDRESSED RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
By Order of the Board of Directors,
Roger A. Cooke
Executive Vice President, General
Counsel
and Secretary
Portland, Oregon
[date], 1998
<PAGE> 7
To find any one of the principal sections identified below, simply bend the
document slightly to expose the black tabs and open the document to the tab
which corresponds to the title of the section you wish to read. For your
convenience, we have included an index of frequently used defined terms in this
Joint Proxy Statement/ Prospectus in an Index of Defined Terms, which is printed
at the end of this Joint Proxy Statement/Prospectus to help you locate the
definition of these terms quickly.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER
SUMMARY
RISK FACTORS
THE MEETINGS
THE COMPANIES
THE MERGER
THE MERGER AGREEMENT
RIGHTS OF DISSENTING SHAREHOLDERS
THE STOCK OPTION AND VOTING AGREEMENTS
MANAGEMENT AND OPERATIONS AFTER THE MERGER
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
DESCRIPTION OF KROGER CAPITAL STOCK
COMPARATIVE RIGHTS OF SHAREHOLDERS
CERTAIN OTHER MATTERS
INDEX OF DEFINED TERMS
APPENDICES
<PAGE> 8
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 4
RISK FACTORS................................................ 18
Risks Associated with the Fixed Exchange Ratio............ 18
Significant Indebtedness.................................. 19
Competition............................................... 19
Integration Uncertainties................................. 19
Ability to Achieve Intended Benefits of the Merger; Merger
Related Costs.......................................... 19
Risks Generally Associated with Acquisitions.............. 20
Regulatory Matters........................................ 20
Computer Technologies; Year 2000.......................... 20
Dependence on Key Personnel............................... 21
Certain Anti-Takeover Provisions.......................... 21
THE MEETINGS................................................ 22
Matters to Be Considered at the Special Meetings.......... 22
Votes Required............................................ 22
Voting of Proxies......................................... 23
Revocability of Proxies................................... 23
Record Date; Shares Entitled to Vote; Quorum.............. 23
Solicitation of Proxies................................... 24
THE COMPANIES............................................... 25
Kroger.................................................... 25
Fred Meyer................................................ 25
THE MERGER.................................................. 26
General................................................... 26
Background of the Merger.................................. 26
Reasons for the Merger; Recommendations of the Boards of
Directors.............................................. 28
Opinions of Financial Advisors............................ 32
Interests of Certain Persons in the Merger................ 42
Accounting Treatment...................................... 43
Certain U.S. Federal Income Tax Consequences.............. 44
Regulatory Matters........................................ 45
Resale Restrictions....................................... 46
Amendment of Existing Credit Facilities................... 46
THE MERGER AGREEMENT........................................ 48
The Merger................................................ 48
The Effective Time........................................ 48
Exchange Procedures....................................... 48
Representations and Warranties............................ 49
Certain Covenants......................................... 49
No Solicitation of Transactions........................... 50
Best Efforts.............................................. 51
Benefit Plans............................................. 52
Governance................................................ 53
Indemnification and Insurance............................. 53
Conditions................................................ 54
Termination............................................... 55
</TABLE>
i
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
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Termination Fees; Expense Reimbursement................... 55
Assignment, Amendment and Waiver.......................... 56
RIGHTS OF DISSENTING SHAREHOLDERS........................... 57
Kroger Shareholders....................................... 57
Fred Meyer Stockholders................................... 58
THE STOCK OPTION AND VOTING AGREEMENTS...................... 59
The Fred Meyer Stock Option Agreement..................... 59
The Kroger Stock Option Agreement......................... 61
Voting Agreements......................................... 63
MANAGEMENT AND OPERATIONS AFTER THE MERGER.................. 65
Stock Ownership of Designated New Directors............... 66
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA................. 67
DESCRIPTION OF KROGER CAPITAL STOCK......................... 78
Authorized Capital Stock.................................. 78
Kroger Common Stock....................................... 78
Kroger Preferred Shares................................... 78
Preferred Share Purchase Rights........................... 78
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................... 81
General................................................... 81
Classified Board of Directors............................. 81
Shareholder Rights Plan................................... 81
Number of Directors; Removal of Directors; Vacancies...... 81
Special Meetings; Shareholder Action by Written Consent... 82
Cumulative Voting......................................... 83
Advance Notice Provisions for Shareholder Nominations and
Shareholder Proposals.................................. 83
Amendments to Charter Documents and Bylaws................ 84
Mergers, Acquisitions and Certain Other Transactions...... 85
Business Combinations; Transactions with Interested
Shareholders........................................... 85
Appraisal Rights.......................................... 87
Consideration of Other Constituencies..................... 87
Liability and Indemnification of Directors................ 87
LEGAL MATTERS............................................... 89
EXPERTS..................................................... 89
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETINGS.............. 89
WHERE YOU CAN FIND MORE INFORMATION......................... 90
INDEX OF DEFINED TERMS...................................... 93
APPENDIX A -- AGREEMENT AND PLAN OF MERGER.................. A-1
APPENDIX B -- FRED MEYER STOCK OPTION AGREEMENT............. B-1
APPENDIX C -- KROGER STOCK OPTION AGREEMENT................. C-1
APPENDIX D -- OPINION OF GOLDMAN, SACHS & CO................ D-1
APPENDIX E -- OPINION OF DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION.................................... E-1
APPENDIX F -- OPINION OF SALOMON SMITH BARNEY INC........... F-1
APPENDIX G -- APPRAISAL RIGHTS -- SECTION 1701.85 OF THE
OHIO REVISED CODE......................................... G-1
</TABLE>
ii
<PAGE> 10
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE KROGER AND FRED MEYER PROPOSING TO MERGE?
A: We believe the merger will provide the combined company with geographic
diversity by combining Fred Meyer's stores, which are concentrated primarily
in the Western United States, with those of Kroger, which are concentrated
primarily in the Midwestern and Southeastern United States. We also believe
the combined company will be positioned to achieve significant synergies and
economies of scale, including purchasing and distribution efficiencies. As a
result of these factors, we believe the merger will enhance our ability to
generate increased earnings and value for shareholders.
To review each company's reasons for the merger in greater detail, see
pages 28 through 32.
Q: WHAT WILL FRED MEYER STOCKHOLDERS RECEIVE FOR THEIR FRED MEYER SHARES IN THE
MERGER?
A: If the merger is completed, Fred Meyer stockholders will receive one Kroger
common share in exchange for each of their shares of Fred Meyer common
stock. This one-for-one exchange ratio will not change, even if the market
price of Kroger common shares or Fred Meyer common stock increases or
decreases between now and the date that the merger is completed.
Because the exchange ratio is fixed and the market price of Kroger common
shares that Fred Meyer stockholders will receive in the merger may
fluctuate, Fred Meyer stockholders cannot be sure of the market value of the
Kroger common shares they will receive in the merger. We urge you to obtain
current price quotations with respect to the Kroger common shares and the
Fred Meyer common stock.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this Joint Proxy Statement/Prospectus, just
indicate on your proxy card how you want to vote. Sign and mail the proxy
card in the enclosed prepaid return envelope marked "Proxy" as soon as
possible, so that your shares may be represented and voted at the
appropriate special meeting as indicated below:
Kroger Special Meeting
[Date]
[time], local time
[Address]
Fred Meyer Special Meeting
[Date]
[time], local time
[Address]
In order for the merger to occur, holders of a majority of the outstanding
common shares of each of Kroger and Fred Meyer must approve the merger
agreement, and therefore it is important that shareholders return their
signed proxy cards. If you do not vote your shares, the effect will be a
vote against the merger agreement. THE BOARD OF DIRECTORS OF EACH COMPANY
UNANIMOUSLY RECOMMENDS VOTING "FOR" THE MERGER AGREEMENT.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares for you only if you provide instructions
to your broker on how to vote your shares. You should follow the directions
provided by your broker regarding how to instruct your broker to vote your
shares. Without your instructions, your shares will not be voted on the
merger, which will have the same effect as voting against the merger
agreement.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted. You
can do this in one of three ways. First, you may send a written notice
stating that you would like to revoke your proxy. Second, you may complete
and submit a new proxy card. If you choose either of these two methods, you
must submit your notice of revocation or your new proxy card to the address
indicated on page 22. Third, you may attend your special meeting and vote in
person. Simply attending the special meeting, however, will not revoke your
proxy unless you vote in person at the special meeting. If you have
1
<PAGE> 11
instructed a broker to vote your shares, you must follow directions received
from your broker regarding how to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES AT THIS TIME?
A: No. After the merger is completed, Kroger will send Fred Meyer stockholders
written instructions for exchanging their share certificates. Kroger
shareholders will keep their existing share certificates.
Q: WHAT WILL HOLDERS OF KROGER COMMON SHARES RECEIVE IN THE MERGER?
A: Holders of Kroger common shares will retain the Kroger common shares they
currently own, and the shares will remain unchanged. However, as a result of
the merger they will own shares of a larger, more diversified company, as
more fully described in this Joint Proxy Statement/Prospectus.
Q: ARE ANY REGULATORY APPROVALS NEEDED TO COMPLETE THE MERGER?
A: Yes. The completion of the merger is conditioned upon receipt of appropriate
federal and state regulatory approvals. The principal approvals required
relate to antitrust laws. We filed the required information and materials
with the United States antitrust authorities pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 on November 2, 1998. A
waiting period specified under this act must expire or be terminated before
the merger may be completed. Unless additional information is requested by
the regulatory authorities, the waiting period will expire on December 2,
1998. Each company has agreed to take all steps necessary to receive
regulatory clearance under the applicable antitrust laws, including the
possible sale of stores accounting for up to 7% of Fred Meyer's combined
1997 annual sales.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. We must
first obtain the necessary regulatory clearance and the approvals of
shareholders of each of Kroger and Fred Meyer at the special meetings. We
hope to complete the merger in early 1999. However, we cannot assure you as
to when or if all conditions to completion of the merger will be satisfied
or waived. For a discussion of the conditions to the completion of the
merger, see pages 50 through 51.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A: Fred Meyer Stockholders. We expect that, for United States federal income
tax purposes, your exchange of shares of Fred Meyer common stock for Kroger
common shares generally will not cause you to recognize any gain or loss.
Your tax basis in the Kroger common shares received in the merger generally
will be the same as your tax basis in the Fred Meyer common stock exchanged
in the Merger. Your holding period for the Kroger common shares received in
the merger, which determines how any gain or loss should be treated for
federal income tax purposes when you sell your shares, generally will
include the holding period for the Fred Meyer common stock exchanged in the
merger.
Kroger Shareholders. Except for Kroger shareholders who dissent from the
merger, existing Kroger shareholders will not generally recognize a gain or
loss because of the merger.
For a more complete description of federal income tax considerations, see
pages 44 through 45.
Q: ARE THERE ANY RISKS ASSOCIATED WITH THE MERGER?
A: Yes. For a discussion of certain risk factors that should be considered in
evaluating the merger, see "RISK FACTORS," beginning on page 18.
Q: WILL THE COMPOSITION OF THE KROGER BOARD OF DIRECTORS CHANGE AS A RESULT OF
THE MERGER?
A: Yes. At the time the merger is completed, we expect that the Kroger board of
directors will appoint six of the current directors of Fred Meyer to the
Kroger board of directors. We expect that these six directors will be Robert
D. Beyer, Ronald W. Burkle, Carlton J. Jenkins, Bruce Karatz, Robert G.
Miller and Steven R. Rogel.
Joseph A. Pichler will continue as Chairman and Chief Executive Officer of
the combined company. David Dillon, President and Chief Operating Officer of
Kroger, will remain as President of the combined company. Robert G. Miller,
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Vice Chairman and Chief Executive Officer of Fred Meyer, will become Vice
Chairman and Chief Operating Officer of the combined company. Ronald W.
Burkle, Chairman of the Board of Directors of Fred Meyer, will become
Chairman of the Executive Committee of the combined company's board of
directors.
Q: WILL THE RIGHTS OF FRED MEYER STOCKHOLDERS CHANGE AS A RESULT OF THE MERGER?
A: Yes. Currently, Fred Meyer stockholder rights are governed by Delaware law
and Fred Meyer's Certificate of Incorporation and Bylaws, whereas Kroger
shareholder rights are governed by Ohio law and Kroger's Articles of
Incorporation and Regulations (Bylaws). After the merger, Fred Meyer
stockholders will become shareholders of Kroger, and therefore their rights
will be governed by Ohio law and Kroger's Articles of Incorporation and
Regulations (Bylaws). For a summary of certain differences between the
rights of Fred Meyer stockholders and the rights of Kroger shareholders, see
"COMPARATIVE RIGHTS OF SHAREHOLDERS", beginning on page 81.
Q: DO SHAREHOLDERS HAVE APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER?
A: Kroger Shareholders. Yes. Kroger is an Ohio corporation and under Ohio law
holders of Kroger common shares may dissent from the merger and have the
fair value of their shares paid to them in cash. During pendency of the
appraisal process, the shares of dissenting shareholders will remain common
shares of Kroger, but all rights will be suspended. To exercise this
appraisal right, Kroger shareholders must follow certain procedures,
including filing notices with Kroger and not voting in favor of the merger.
For more information on how to exercise these rights, see "RIGHTS OF
DISSENTING SHAREHOLDERS" on pages 57 through 58 to this Joint Proxy
Statement/Prospectus. If holders of Kroger common shares exercise appraisal
rights representing 10% or more of the value of the Kroger common shares to
be received by Fred Meyer Shareholders, the merger would not qualify as a
pooling of interests for accounting and financial reporting purposes. This
10% threshold may be reduced under certain circumstances. It is a condition
to completion of the merger that the merger qualify as a pooling of
interests.
Fred Meyer Stockholders. No. Fred Meyer is a Delaware corporation and under
Delaware law, Fred Meyer stockholders will not have any appraisal rights.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANIES?
A: Both companies file periodic reports and other information with the
Securities and Exchange Commission. You may read and copy this information
at the Commission's public reference facilities. Please call the Commission
at 1-800-SEC-0330 for information about these facilities. This information
is also available at the Internet site maintained by the Commission at
http://www.sec.gov and at the offices of the New York Stock Exchange. For a
more detailed description of the information available and how to obtain it,
see page 84.
Q. WHO CAN ANSWER MY QUESTIONS?
A: If you are a Kroger shareholder and you have more questions about the
merger, you should contact:
The Kroger Co.
1014 Vine Street
Cincinnati, Ohio 45202
Attention: [Name]
Telephone Number: (513) 762-4000
or
[Proxy Solicitor]
Banks and Brokers Call Collect: [Number]
All Others Call Toll-Free: [Number]
If you are a Fred Meyer stockholder and you have more questions about the
merger, you should contact:
Fred Meyer, Inc.
3800 SE 22nd Avenue
Portland, Oregon 97202
Attention: [Name]
Telephone Number: (503) 232-8844
or
[Proxy Solicitor]
Banks and Brokers Call Collect: [Number]
All Others Call Toll-Free: [Number]
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SUMMARY
This summary highlights selected information from this Joint Proxy
Statement/Prospectus. It does not contain all of the information that is
important to you. We urge you to read carefully the entire Joint Proxy
Statement/Prospectus and the other documents referred to in this Joint Proxy
Statement/Prospectus in order to fully understand the merger. This Joint Proxy
Statement/Prospectus constitutes a prospectus of Kroger relating to the issuance
of Kroger common shares in connection with the merger. It also constitutes a
joint proxy statement for both Kroger and Fred Meyer in connection with the
solicitation of proxies for use at the special shareholder meetings. The
issuance of Kroger common shares also includes the associated preferred share
purchase rights issued pursuant to Kroger's shareholders' rights plan. For more
information on the Kroger common shares and the associated preferred share
purchase rights, see pages 78 to 80. The merger agreement is attached as
Appendix A to this Joint Proxy Statement/Prospectus. We encourage you to read
the merger agreement. It is the legal document that governs the merger. Each
item in this summary includes a page reference directing you to a more complete
description of that item. See "WHERE YOU CAN FIND MORE INFORMATION" on page 90
for a guide as to where you can obtain more information on Kroger and Fred Meyer
generally.
GENERAL
We propose a business combination between Kroger and Fred Meyer in which a
wholly-owned subsidiary of Kroger would be merged with and into Fred Meyer. As a
result of this merger, Fred Meyer would become a wholly-owned subsidiary of
Kroger. Alternatively, under certain circumstances, Kroger may choose in its
discretion to restructure the merger to provide for the merger of Fred Meyer
directly into Kroger. In either case, Fred Meyer stockholders will receive one
Kroger common share in exchange for each of their shares of Fred Meyer common
stock. This one-for-one exchange ratio will not change, even if the market price
of Kroger common shares or Fred Meyer common stock increases or decreases
between now and the date that the merger is completed. We expect to complete the
merger in early 1999.
THE COMPANIES
THE KROGER CO. (SEE PAGE 25)
1014 Vine Street
Cincinnati, Ohio 45202
(513) 762-4000
The Kroger Co. is the largest domestic supermarket operator measured by total
sales for 1997. Kroger was founded in 1883, was incorporated in 1902, and
maintains its principal executive offices in Cincinnati, Ohio. Kroger also
manufactures and processes food for sale by its supermarkets. As of October 3,
1998, Kroger operated 1,398 supermarkets, most of which are leased. Of this
number, 1,138 supermarkets operate principally under the Kroger name in the
Midwestern and Southeastern United States. As of September 26, 1998, Dillon
Companies, Inc., a wholly-owned subsidiary of Kroger, operated 260 supermarkets.
These supermarkets, principally located in Colorado, Kansas, Arizona and
Missouri, operate under the names "King Soopers," "Dillon Food Stores," "Fry's
Food Stores," "City Market," "Gerbes Supermarkets" and "Sav-Mor." As of
September 26, 1998, Kroger, through its Dillon subsidiary, operated directly or
through franchise agreements 811 convenience stores under the trade names of
"Kwik Shop," "Quik Stop Markets," "Tom Thumb Food Stores," "Turkey Hill Minit
Markets," "Loaf 'N Jug" and "Mini Mart."
FRED MEYER, INC. (SEE PAGE 25)
3800 SE 22nd Avenue
Portland, Oregon 97202
(503) 232-8844
Fred Meyer, Inc. is one of the largest domestic food retailers, operating more
than 800 supermarkets and multidepartment stores. In September 1997, Fred Meyer
acquired Smith's Food & Drug Centers, Inc., and in March 1998, Fred Meyer
acquired Quality Food Centers, Inc. and Food 4 Less Holdings, Inc. Fred Meyer is
a geographically diversified food retailer that operates multiple formats that
appeal to customers across a wide range of income brackets. In the Pacific
Northwest, Southwest and Intermountain states, Fred Meyer operates
multidepartment stores principally under the Fred Meyer banner and food and drug
combination stores principally under the Smith's Food & Drug Centers banner; in
Southern California, Fred Meyer operates conventional supermarkets under the
Ralphs banner and price-impact warehouse supermarkets under the Food 4 Less
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banner; and in the Seattle/Puget Sound Region, Fred Meyer operates premium
supermarkets principally under the Quality Food Centers banner. In addition,
Fred Meyer operates 279 mall jewelry stores in 25 states under the names "Fred
Meyer Jewelers," "Littman Jewelers," "Barclay Jewelers," "Merksamer Jewelers"
and "Fox's Jewelers."
THE EXCHANGE RATIO (SEE PAGE 48)
If the merger is completed, Fred Meyer stockholders will receive one Kroger
common share in exchange for each of their shares of Fred Meyer common stock.
This one-for-one exchange ratio will not change, even if the market price of
Kroger common shares or Fred Meyer common stock increases or decreases between
now and the date the merger is completed.
Because the exchange ratio is fixed and the market price of Kroger common shares
that Fred Meyer stockholders will receive in the merger may fluctuate, Fred
Meyer stockholders cannot be sure of the market value of the Kroger common
shares they will receive in the merger. We urge you to obtain current price
quotations with respect to the Fred Meyer common stock and the Kroger common
shares.
REASONS FOR THE MERGER
KROGER (SEE PAGE 28)
The Kroger board of directors determined to recommend shareholder approval of
the merger agreement based on a number of factors, including the following:
1. the long-term interests of Kroger and its shareholders, as well as the
interests of Kroger employees, customers, creditors, suppliers and the
communities in which Kroger operates; and
2. the Kroger board of directors' review of the business, operations, financial
condition, earnings and prospects of both Kroger and Fred Meyer;
3. the opinion of Kroger's financial advisor, Goldman, Sachs & Co.;
4. the merger would create the nation's largest supermarket company with more
than 2,200 supermarkets and over 800 convenience stores in 37 states;
5. the merger would result in the combination of companies with strong positions
in attractive and growing markets;
6. the opportunity to leverage economies of scale and operating efficiencies
through combined purchasing and consolidation of infrastructures;
7. the potential for cost savings and other synergies that could be created by
combining the businesses;
8. the merger is expected to be accretive to cash flow in 1990 and to earnings
in 2000, excluding merger-related costs, and provide for future earnings growth;
9. the terms of the merger agreement, the stock option agreements and the voting
agreements, including the fact that the merger is intended to be a "tax-free"
reorganization for federal income tax purposes and to qualify for pooling of
interests accounting treatment.
FRED MEYER (SEE PAGE 30)
The Fred Meyer board of directors determined to recommend stockholder approval
of the merger agreement based on a number of factors, including the following:
1. the merger would provide Fred Meyer stockholders an opportunity to receive a
premium for their shares of Fred Meyer common stock based on generally
prevailing market prices at the time the board of directors approved the merger;
2. the analyses, opinion and presentation of each of Donaldson, Lufkin &
Jenrette Securities Corporation and Salomon Smith Barney Inc., financial
advisors to Fred Meyer;
3. the current and historical trading prices of Fred Meyer common stock and
Kroger common shares, and the historical operational and financial performance
of Fred Meyer and Kroger;
4. the potential for appreciation in the value of Kroger common shares following
the merger and the opportunity for Fred Meyer stockholders to participate in any
such appreciation through the ownership of approximately 35.5% of the
outstanding Kroger common shares (based on the number of shares of each company
outstanding on the dates specified in the merger agreement), and in particular
the fact that the merger is expected to be accretive to earnings beginning in
2000, excluding merger-related costs;
5. the potential value that could be generated from the various strategic
alternatives available to Fred Meyer;
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6. the complementary geographic fit of the operations of the companies;
7. the fact that following the merger, Kroger would be the largest food retailer
in the United States, and in particular the expected resulting economies of
scale, including increased purchasing power and operational efficiencies;
8. the terms of the merger agreement and the stock option agreements, including
the fact the merger is intended to be a "tax-free" reorganization for federal
income tax purposes and to qualify for pooling of interests accounting
treatment;
9. the historical performance and reputation of the Kroger management team, and
the fact that certain members of the existing Fred Meyer management team would
join Kroger management following the merger; and
10. the social and economic effects of the merger on the employees, customers,
suppliers and other constituents of Fred Meyer and its subsidiaries and on the
communities in which they operate.
OPINIONS OF FINANCIAL ADVISORS
(SEE PAGE 32)
Kroger Shareholders. Goldman, Sachs & Co. has delivered a written opinion to the
Kroger board of directors to the effect that, as of October 18, 1998, the
exchange ratio was fair to Kroger from a financial point of view. This opinion
is not a recommendation to any Kroger shareholder as to how to vote the Kroger
common shares. We have attached this opinion to this document as APPENDIX D. You
should read it completely to understand the assumptions made, matters considered
and limitations of the review undertaken by Goldman, Sachs & Co. in providing
their opinion.
Fred Meyer Stockholders. Donaldson, Lufkin & Jenrette Securities Corporation and
Salomon Smith Barney Inc. have each delivered a written opinion to the Fred
Meyer board of directors to the effect that, as of October 18, 1998, the
exchange ratio was fair to the holders of Fred Meyer common stock from a
financial point of view. These opinions are not recommendations to any Fred
Meyer stockholder as to how to vote the Fred Meyer common stock. We have
attached these opinions to this document as APPENDIX E and APPENDIX F,
respectively. You should read them completely to understand the assumptions
made, matters considered and limitations of the review undertaken by Donaldson,
Lufkin & Jenrette Securities Corporation and Salomon Smith Barney Inc. in
providing their opinions.
THE SPECIAL MEETINGS (SEE PAGE 22)
Kroger Shareholders. The Kroger special meeting will be held on [Date], at
[time], local time, at [Address]. At the Kroger special meeting, Kroger
shareholders will be asked to approve the merger agreement (including the
issuance of Kroger common shares in connection with the merger).
Fred Meyer Stockholders. The Fred Meyer special meeting will be held on [Date],
at [time], local time, at [Address]. At the Fred Meyer special meeting, Fred
Meyer stockholders will be asked to approve the merger agreement.
RECORD DATE; VOTE REQUIRED
(SEE PAGE 22)
Kroger Shareholders. You can vote at the special meeting of Kroger shareholders
if you owned Kroger common shares at the close of business on [date1], 1998. You
can cast one vote for each Kroger common share that you owned at that time. On
[date1], 1998, there were [ ] Kroger common shares outstanding and allowed to
vote. To approve the merger agreement, the holders of a majority of outstanding
Kroger common shares must vote in favor of doing so.
You may vote your shares in person by attending the special meeting or by
mailing Kroger your proxy if you are unable or do not wish to attend. You can
revoke your proxy at any time before the vote at the meeting by sending a
written notice revoking the proxy or a later-dated proxy to the secretary of
Kroger or by attending the meeting and voting in person. If you do not vote your
shares, the effect will be a vote against the merger agreement.
Fred Meyer Stockholders. You can vote at the special meeting of Fred Meyer
stockholders if you owned Fred Meyer common stock at the close of business on
[date2], 1998. You can cast one vote for each share of Fred Meyer common stock
you owned at that time. On [date2], 1998, there were [ ] shares of Fred
Meyer common stock outstanding and allowed to vote. To approve the merger
agreement, the holders of a majority of outstanding shares of Fred Meyer common
stock must vote in favor of doing so.
You may vote your shares in person by attending the special meeting or by
mailing Fred Meyer your
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proxy if you are unable or do not wish to attend. You can revoke your proxy at
any time before the vote at the meeting by sending a written notice revoking the
proxy or a later-dated proxy to the secretary of Fred Meyer or by attending the
meeting and voting in person. If you do not vote your shares, the effect will be
a vote against the merger agreement.
Broker Instructions. Your broker will vote your shares for you only if you
provide instructions on how to vote. You should follow the directions provided
by your broker regarding how to instruct your broker to vote your shares.
Without your instructions, your shares will not be voted on the merger
agreement, which will have the same effect as voting against the merger
agreement.
RECOMMENDATIONS TO SHAREHOLDERS
(SEE PAGES 30 AND 32)
Kroger Shareholders. The board of directors of Kroger unanimously recommends
that you vote "FOR" the proposal to approve the merger agreement.
Fred Meyer Stockholders. The board of directors of Fred Meyer unanimously
recommends that you vote "FOR" the proposal to approve the merger agreement.
EXCHANGE OF SHARES (SEE PAGE 48)
Fred Meyer Stockholders. Upon completion of the merger, each of your shares of
Fred Meyer common stock will automatically become the right to receive one
Kroger common share. You will have to surrender your Fred Meyer common stock
certificates to receive new certificates representing Kroger common shares. This
will not be necessary until after we have completed the merger, and you should
not send any certificates with your proxy card. You will receive written
instructions regarding the surrender of certificates after the merger is
completed.
Kroger Shareholders. Each of your Kroger common shares will remain outstanding
as one common share of the combined company. You will not need to surrender your
shares or exchange them for new ones. Holders of Kroger common shares who do not
vote in favor of the merger and follow certain procedures may exercise their
dissenters' rights from the merger and receive cash equal to the fair value of
these common shares. See page 53.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
(SEE PAGE 16)
Kroger common shares and Fred Meyer common stock are listed on the New York
Stock Exchange. For the five trading days immediately prior to the public
announcement of the execution of the merger agreement, the average closing price
of the Kroger common shares was $50.00 per share and the average closing price
of the Fred Meyer common stock was $44.13 per share. On [date], 1998, the last
practicable trading day prior to the date of this document, Kroger common shares
closed at $[ . ] per share and Fred Meyer common stock closed at $[ . ] per
share.
Based on the one-for-one exchange ratio, the market value of the consideration
that Fred Meyer stockholders will receive in the merger for each share of Fred
Meyer common stock would be $[ ] based on the closing price of Kroger common
shares on [date], 1998. While the exchange ratio is fixed, the market price of
Kroger common shares will fluctuate prior to the merger. We urge you to obtain
current stock price quotations for the Kroger common shares and the Fred Meyer
common stock.
FRED MEYER STOCK OPTIONS AND WARRANTS
(SEE PAGES 28 AND 59)
In the merger, each option to buy Fred Meyer common stock granted under Fred
Meyer's stock option plans that is outstanding immediately before the completion
of the merger will become an option to buy the same number of Kroger common
shares on the same terms. The option will continue to be governed by the terms
of the Fred Meyer stock option plan and stock option agreement under which it
originally was granted. In the merger, existing warrants to buy 3,869,366 shares
of Fred Meyer common stock will become warrants to buy the same number of Kroger
common shares on the same terms.
THE MERGER AGREEMENT
The merger agreement is attached to this document as APPENDIX A. Please read the
merger agreement in its entirety. It is the legal document that governs the
merger.
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CONDITIONS TO COMPLETION OF THE MERGER
AND THE EFFECTIVE TIME (SEE PAGE 54)
The completion of the merger depends on a number of conditions being satisfied,
including the following:
1. approval of the merger agreement by holders of a majority of the outstanding
shares of common stock of each of Kroger and Fred Meyer;
2. expiration of applicable waiting periods under applicable federal antitrust
laws;
3. the absence of any injunction or legal restraint blocking the merger;
4. approval by the New York Stock Exchange of the listing of the Kroger common
shares to be issued in the merger;
5. receipt by each of Kroger and Fred Meyer of legal opinions that the United
States federal income tax treatment of Kroger, Fred Meyer and the holders of
Fred Meyer common stock will be as we have described in this document;
6. receipt by each of Kroger and Fred Meyer of letters from each of their
independent accountants that the merger will qualify for pooling of interests
accounting treatment;
7. the representations and warranties of each of Kroger and Fred Meyer being
true and correct at the time of the completion of the merger (except to the
extent that any failure of representations and warranties to be true and correct
would not reasonably be expected to result in a material adverse effect on that
company);
8. receipt by each of Kroger and Fred Meyer of letters from each of their
independent accountants in scope and substance customary for comfort letters;
9. material compliance by Kroger and Fred Meyer with all agreements and
covenants required by the merger agreement; and
10. receipt of consents from third parties and regulatory authorities necessary
to be obtained to complete the merger (unless the failure to obtain consents or
make a filing or registration would not reasonably be expected to result in a
material adverse effect on Kroger or Fred Meyer, as the case may be).
If the law permits, either Kroger or Fred Meyer could choose to waive a
condition to its obligation to complete the merger even though that condition
has not been satisfied. The merger will occur shortly after all of the
conditions to the completion of the merger have been satisfied. Although we
expect to complete the merger in early 1999, we cannot be certain when the
conditions to the merger will be satisfied or waived or that the merger will be
completed.
ACCOUNTING TREATMENT (SEE PAGE 43)
We expect the merger to qualify as a pooling of interests, which means that the
companies will be treated as if they had always been combined for accounting and
financial reporting purposes.
TERMINATION OF THE MERGER AGREEMENT
(SEE PAGE 55)
The companies may agree in writing to terminate the merger agreement at any time
without completing the merger, even after the shareholders of both companies
have approved it.
In addition, either Kroger or Fred Meyer may decide, without the consent of the
other, to terminate the merger agreement if:
1. the merger has not been completed by September 30, 1999;
2. the shareholders of either company fail to approve the merger agreement;
3. the other company breaches its representations, warranties or obligations
under the merger agreement in a manner that would likely have a material adverse
effect on it or would have the effect of blocking or materially delaying the
merger (and which breach is not curable); or
4. any legal restriction permanently restraining, enjoining or otherwise
prohibiting completion of the merger has become final and non-appealable.
TERMINATION FEES (SEE PAGE 55)
The merger agreement provides for termination fees that could discourage other
companies from trying or proposing to combine with either Fred Meyer or Kroger
before the merger is completed.
Kroger. The merger agreement requires Kroger to pay Fred Meyer an initial
termination fee of $90 million if prior to the Kroger special meeting, Kroger
receives an offer to enter into a merger or similar transaction with a third
party and the merger agreement is terminated because either Kroger shareholders
fail to approve the merger agreement or Kroger is in material breach of its
covenants or agreements under the merger agreement.
If within 18 months after the termination of the merger agreement under the
circumstances described
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in the previous paragraph, Kroger enters into or completes a merger or similar
transaction with a third party, Kroger must pay Fred Meyer an additional
termination fee of $185 million.
Fred Meyer. The merger agreement requires Fred Meyer to pay Kroger an initial
termination fee of $55 million if prior to the Fred Meyer special meeting, Fred
Meyer receives an offer to enter into a merger or similar transaction with a
third party and the merger agreement is terminated because either Fred Meyer
stockholders fail to approve the merger agreement or Fred Meyer is in material
breach of its covenants or agreements under the merger agreement.
If within 18 months after the termination of the merger agreement under the
circumstances described in the previous paragraph, Fred Meyer enters into or
completes a merger or similar transaction with a third party, Fred Meyer must
pay Kroger an additional termination fee of $110 million.
KROGER AND FRED MEYER STOCK OPTION
AGREEMENTS (SEE PAGE 59)
As an inducement to the other company to enter into the merger agreement, Kroger
and Fred Meyer granted the other company an option to purchase shares of its
common stock. Each option provides for the purchase of up to 19.9% of the
outstanding shares of the granting company's common stock. Because they have the
same economic effect as the termination fees, the options could discourage other
companies from trying to or proposing to combine with either Kroger or Fred
Meyer before the merger is completed. In addition, if the option were to become
exercisable, the option may, for a period of time, preclude a third party from
completing a pooling of interests transaction with the company that granted the
option. The Fred Meyer and Kroger stock option agreements are attached to this
document as APPENDIX B and APPENDIX C, respectively.
The purchase price is $50.00 per Kroger common share under the option granted by
Kroger and $44.13 per share of Fred Meyer common stock under the option granted
by Fred Meyer. These prices were based on average closing prices for the five
trading days immediately before the public announcement of the execution of the
merger agreement. If the option becomes exercisable, the holder of the option
may require the company that granted the option to repurchase the option (and/or
any shares purchased under the option).
Either option will become exercisable only if the holder is entitled to receive
the initial and additional termination fees described above.
The total profit that either Fred Meyer or Kroger may receive as a result of the
termination fees provided in the merger agreement and pursuant to the exercise
of its option is limited. Kroger's total profit is limited to $275 million. Fred
Meyer's total profit is limited to $460 million.
VOTING AGREEMENTS (SEE PAGE 63)
As part of the inducement for Kroger to enter into the merger agreement, Mr.
Miller, Mr. Burkle and certain entities controlled by Mr. Burkle entered into
agreements to vote all of their shares of Fred Meyer common stock in favor of
the merger agreement at the Fred Meyer special meeting.
ASSIGNMENT, AMENDMENT AND WAIVER
(SEE PAGE 56)
The merger agreement may be amended prior to the completion of the merger,
including to change the structure of the merger. However, after shareholder
approval of the merger agreement, the merger agreement cannot be amended in any
way that requires further shareholder approval under applicable law without
first obtaining that approval. Also, each company may waive its right to require
the other company to adhere to the terms and conditions of the merger agreement,
to the extent legally permissible.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
(SEE PAGE 42)
Some of Fred Meyer's directors and executive officers have interests in the
merger that are different from, or in addition to, interests of Fred Meyer
stockholders. These interests exist because of rights the executive officers of
Fred Meyer have under employment agreements with Fred Meyer. The employment
agreements provide for the payment of severance benefits and, for some officers,
the acceleration of unvested stock options, if an officer's employment
terminates under specified circumstances following or in connection with the
merger.
We expect that, at the time the merger is completed, the Kroger board of
directors will appoint six of the present directors of Fred Meyer to the Kroger
board of directors. We expect that the six directors will be Robert D. Beyer,
Ronald W. Burkle, Carlton J. Jenkins, Bruce Karatz, Robert G. Miller and Steven
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R. Rogel. Robert G. Miller, Vice Chairman and Chief Executive Officer of Fred
Meyer, will become Vice Chairman and Chief Operating Officer of the combined
company. Ronald W. Burkle, Chairman of the Board of Directors of Fred Meyer,
will become Chairman of the Executive Committee of the combined company's board
of directors.
The members of Fred Meyer's board of directors knew about these additional
interests, and considered them, when they approved the merger agreement.
COMPARISON OF RIGHTS OF FRED MEYER
STOCKHOLDERS AND KROGER SHAREHOLDERS
(SEE PAGE 81)
The rights of Fred Meyer's stockholders are governed by Delaware law and Fred
Meyer's Certificate of Incorporation and Bylaws. The rights of Kroger
shareholders are governed by Ohio law and Kroger's Articles of Incorporation and
Regulations (Bylaws). Upon the completion of the merger, Fred Meyer stockholders
will become shareholders of Kroger, and therefore their rights will be governed
by Ohio law and by Kroger's Articles of Incorporation and Regulations (Bylaws).
As a result of these different governing laws and organizational documents, Fred
Meyer stockholders will have different rights as holders of Kroger common shares
than they now have as holders of Fred Meyer common stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
(SEE PAGE 44)
Fred Meyer stockholders generally will not recognize taxable gain or loss for
United States federal income tax purposes upon the exchange in the merger of
Fred Meyer common stock for Kroger common shares. The tax basis of the Kroger
common shares received in the merger generally will be the same as the tax basis
of the Fred Meyer common stock exchanged. The holding period for the Kroger
common shares received by Fred Meyer stockholders in the merger, which
determines how any gain or loss should be treated for federal income tax
purposes upon future sales of Kroger common shares, generally will include the
holding period for the Fred Meyer common stock exchanged in the merger.
A dissenting Kroger shareholder who receives the fair cash value for that
shareholder's common shares generally will be treated as if that shareholder
sold those shares in a taxable transaction and, therefore, will generally
recognize a taxable gain or loss, as the case may be. The cash received by a
dissenting Kroger shareholder, however, may be taxed as a dividend and not as
gain or loss if such shareholder owns or is deemed to own other Kroger common
shares after the merger.
We have conditioned the merger on our receipt of legal opinions that the federal
income tax treatment will be as we have described in this document.
This tax treatment may not apply to certain stockholders and may depend on your
specific situation and on variables not within our control. You should consult
your own tax advisor for a full understanding of the tax consequences of the
merger to you.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
(SEE PAGE 45)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires us to furnish
certain information and materials to the Antitrust Division of the Department of
Justice and the Federal Trade Commission and requires that a specified waiting
period expire or terminate before the merger can be completed. Kroger and Fred
Meyer filed the required information and materials with the United States
antitrust authorities on November 2, 1998. Unless additional information is
requested by the regulatory authorities, the waiting period will expire on
December 2, 1998. Even after the waiting period expires or terminates, the
Antitrust Division of the Department of Justice and the Federal Trade Commission
will have the authority to challenge the merger on antitrust grounds before or
after the merger is completed.
APPRAISAL RIGHTS FOR DISSENTING SHAREHOLDERS
(SEE PAGE 57)
Kroger Shareholders. Kroger is an Ohio corporation and under Ohio law holders of
Kroger common shares may dissent from the merger and have the fair value of
their shares paid to them in cash. During pendency of the appraisal process, the
shares of dissenting shareholders will remain common shares of Kroger, but all
rights will be suspended. To exercise this appraisal right, Kroger shareholders
must follow certain procedures, including filing notices with Kroger and not
voting in favor of the merger agreement. For more information on how to exercise
these rights, see "RIGHTS OF DISSENTING SHAREHOLDERS" on page 57 and Appendix G
to this Joint Proxy Statement/Prospectus. If holders of Kroger common shares
exercise appraisal rights representing 10% or more of the value of the Kroger
common shares to be received by Fred Meyer stock-
10
<PAGE> 20
holders, the merger would not qualify as a pooling of interests for accounting
and financial reporting purposes. This 10% threshold may be reduced under
certain circumstances. It is a condition to completion of the merger that the
merger qualify as a pooling of interests.
Fred Meyer Stockholders. Fred Meyer is a Delaware corporation, and under
Delaware law Fred Meyer stockholders will not have any appraisal or dissenters'
rights.
FORWARD-LOOKING STATEMENTS MAY PROVE
INACCURATE (SEE INSIDE FRONT COVER)
We have each made forward-looking statements in this document (and in documents
that are incorporated in this document by reference) that are subject to risks
and uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of the combined company,
including the anticipated synergies from the merger. Also, when we use the words
"believes," "expects," "anticipates," "estimates" or similar words or
expressions, we are making forward-looking statements. Shareholders should note
that many factors could affect the future financial and operational results of
the combined company, and could cause these results to differ materially from
those expressed in our forward-looking statements. See "CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING INFORMATION" on the inside front cover of this Joint
Proxy Statement/ Prospectus.
11
<PAGE> 21
SELECTED FINANCIAL DATA AND UNAUDITED COMPARATIVE PER SHARE DATA
The following tables show summary historical financial data for each of our
companies and also show similar information reflecting the merger of our two
companies (which we refer to as "pro forma" information). In presenting the
comparative pro forma information for certain time periods, we assumed that our
companies had been merged throughout those periods. The following tables show
information about our companies' earnings per share and book value per share,
and similar pro forma information.
We also assumed that we will treat our companies as if they had always been
combined for accounting and financial reporting purposes (a method known as
pooling of interests accounting). We computed the information listed as
"equivalent pro forma" for Fred Meyer by multiplying the pro forma amounts by
the exchange ratio of 1.0. Since the exchange ratio for this business
combination is one share of Kroger common shares for each share of Fred Meyer
common stock, the resulting equivalent pro forma basis for Fred Meyer is the
same as the Kroger pro forma basis. We expect that we will incur reorganization
and restructuring expenses as a result of combining our companies. The unaudited
pro forma earnings per share data do not reflect any anticipated reorganization
and restructuring expenses resulting from the merger of our companies, but do
include merger-related costs associated with acquisitions completed by Fred
Meyer since September 1997.
We also anticipate that the merger will provide the combined company with
certain financial benefits that include reduced operating expenses and
opportunities to earn more revenue. However, these anticipated cost savings and
benefits are not reflected in the pro forma information. Therefore, the pro
forma information, while helpful in illustrating the financial characteristics
of the combined company under one set of assumptions, does not attempt to
predict or suggest future results. The pro forma information also does not
attempt to show how the combined company would actually have performed had the
companies been combined throughout these periods. All adjustments, consisting of
only normal recurring adjustments necessary for a fair statement of results of
the unaudited historical interim periods, have been included.
Fred Meyer's fiscal year ends on the Saturday closest to January 31 of each
year. All fiscal years presented are 52 week periods except Fred Meyer's fiscal
year 1995, which is a 53 week period. Unless the context otherwise indicates, a
reference to a Fred Meyer fiscal year refers to the calendar year in which such
fiscal year commences.
We base certain of the information in the following tables on the
historical financial information of our companies that we have presented in our
prior filings with the Securities and Exchange Commission. When you read the
summary financial information we provide in the following tables, you should
also read the historical financial information and the more detailed financial
information we provide in this document, which you can find beginning at page
67, as well as the historical financial information in the other documents to
which we refer. See "WHERE YOU CAN FIND MORE INFORMATION" on page 90 for
instructions on how to obtain documents each of our companies has filed with the
Securities and Exchange Commission. Kroger's audited historical financial
statements were audited by PricewaterhouseCoopers LLP, independent public
accountants, and Fred Meyer's audited historical financial statements were
audited by Deloitte & Touche LLP, independent public accountants. The audited
historical financial statements of Food 4 Less Holdings, Inc., which was
acquired by Fred Meyer in March 1998, were audited by Arthur Andersen LLP,
independent public accountants.
12
<PAGE> 22
KROGER SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The table below sets forth selected historical financial information about
Kroger. You should read this information in conjunction with Kroger's
consolidated financial statements (including the notes that are included with
these financial statements). We derived the consolidated historical financial
data for fiscal years 1993 through 1997 from the consolidated financial
statements of Kroger audited by PricewaterhouseCoopers LLP, independent public
accountants. The statement of earnings data for fiscal years 1995 through 1997,
and the balance sheet data for fiscal years 1997 and 1996, are incorporated into
this document by reference. The statement of earnings data for fiscal years 1994
and 1993, and the balance sheet data for fiscal years 1995, 1994 and 1993, are
not incorporated into this document by reference.
We derived the Kroger consolidated historical financial data for the three
quarters ended October 3, 1998 and October 4, 1997 (40 week periods) from
Kroger's unaudited consolidated financial statements which are incorporated into
this document by reference (except for the balance sheet data for the 1997
interim period). In the opinion of Kroger management, the unaudited consolidated
historical financial statements reflect all adjustments (consisting of only
normal recurring items) that are necessary for the fair presentation of
financial position and results of operations for these periods. See "WHERE YOU
CAN FIND MORE INFORMATION" on page 90.
<TABLE>
<CAPTION>
THREE QUARTERS ENDED FISCAL YEAR ENDED
--------------------------- ---------------------------------------------------------------------
OCTOBER 3, OCTOBER 4, DECEMBER 27, DECEMBER 28 DECEMBER 30 DECEMBER 31, JANUARY 1,
1998 1997 1997 1996 1995 1994 1994
(40 WEEKS)(A) (40 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
------------- ----------- ------------ ----------- ----------- ------------ -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Sales................ $20,854,281 $20,057,847 $26,567,348 $25,170,909 $23,937,795 $22,959,122 $22,384,301
Earnings before
extraordinary loss
and cumulative
effect of change in
accounting......... 270,436 296,927 444,032 352,735 318,866 268,903 170,805
Extraordinary loss
(net of income tax
benefit) (B)....... (10,783) (9,045) (32,376) (2,862) (16,053) (26,707) (23,832)
Cumulative effect of
change in
accounting (net of
income tax benefit)
(C)................ (159,193)
Net earnings
(loss)............. 259,653 287,882 411,656 349,873 302,813 242,196 (12,220)
Diluted earnings
(loss) per share... 1.02 1.13 1.69 1.36 1.28 1.10 .76
Earnings before
extraordinary loss
Extraordinary loss
(B)................ (.04) (.03) (.12) (.01) (.06) (.10) (.10)
Cumulative effect of
change in
accounting (C)..... (.65)
Net earnings......... $ .98 $ 1.10 $ 1.57 $ 1.35 $ 1.22 $ 1.00 $ .01
BALANCE SHEET DATA:
(as of the end of
the period)
Total assets......... $ 6,468,197 $ 6,034,723 $ 6,301,341 $ 5,892,465 $ 5,044,717 $ 4,707,674 $ 4,480,464
Long-term
obligations,
including
obligations under
capital leases..... 3,314,172 3,568,190 3,493,075 3,659,491 3,489,728 3,889,194 4,135,013
Shareowners'
deficit............ $ (603,221) $ (927,958) $ (784,848) $(1,181,706) $(1,603,013) $(2,153,684) $(2,459,642)
</TABLE>
- ---------------
(A) Includes expenses totaling $89.700 ($55,600 after tax, or 21 cents per
diluted share) related to a change in the method of accounting for inventory
and the effect of one-time expenses of $52,400 ($32,500 after tax, or 12
cents per diluted share).
(B) See "extraordinary loss" in the Notes to Consolidated Financial Statements
in Kroger's Annual Reports on Form 10-K or Quarterly Report on Form 10-Q, as
applicable.
(C) See Postretirement Health Care and Life Insurance Benefits in the Notes to
Consolidated Financial Statements in Kroger's Annual Report of Form 10-K for
the year ended January 1, 1994.
13
<PAGE> 23
FRED MEYER SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The table below sets forth selected historical financial information about
Fred Meyer. You should read this information in conjunction with Fred Meyer's
consolidated financial statements (including the notes that are included with
these financial statements). We derived the consolidated historical financial
data for fiscal years 1995 though 1997 from the consolidated financial
statements of Fred Meyer incorporated into this document by reference. These
financial statements have been restated to reflect the acquisition of Quality
Food Centers, Inc. using the pooling of interests method of accounting and have
been audited by Deloitte & Touche LLP, independent public accountants. We
derived the consolidated financial data for each of the fiscal years 1993 and
1994 from the separate consolidated financial statements of Fred Meyer and
Quality Food Centers, Inc. combined using the pooling of interests method of
accounting which are not incorporated into this document by reference. These
separate financial statements have been audited by Deloitte & Touche LLP,
independent public accountants. We derived the Fred Meyer consolidated
historical financial data for the two quarters ended August 15, 1998 and August
16, 1997 (28 week periods) from Fred Meyer's unaudited consolidated financial
statements which are incorporated into this document by reference (except for
the balance sheet data for the 1997 interim period). In the opinion of Fred
Meyer management, the unaudited consolidated historical financial statements
reflect all adjustments (consisting of only normal recurring items) that are
necessary for the fair presentation of financial position and results of
operations for such periods. See "WHERE YOU CAN FIND MORE INFORMATION" on page
90.
<TABLE>
<CAPTION>
28 WEEKS ENDED FISCAL YEAR ENDED
----------------------- -------------------------------------------------------------------
AUGUST 15, AUGUST 16, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29,
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ----------- ----------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales....................... $7,545,380 $3,051,039 $7,359,202 $4,530,120 $4,152,574 $3,698,514 $3,492,085
Gross margin (1)................ 2,237,687 905,866 2,184,074 1,346,716 1,187,251 1,031,201 1,039,500
Operating and administrative
expenses...................... 1,877,706 785,322 1,842,224 1,163,859 1,056,047 938,593 862,497
Merger related costs............ 256,964
Writedown of California
assets........................ 15,978
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations (1)...... 103,017 120,544 341,850 182,857 131,204 76,630 177,003
Interest expense................ 191,775 36,015 102,094 48,855 48,716 24,924 16,724
Recapitalization fees........... 1,400
Provision (benefit) for income
taxes (2)..................... (2,152) 32,564 96,445 50,039 30,586 18,161 63,381
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary
charge/accounting change (1,
2)............................ (86,606) 51,965 143,311 83,963 50,502 33,545 96,898
Extraordinary charge/accounting
change (3, 4)................. (217,610) (91,210) (2,588)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) (1, 2)........ $ (304,216) $ 51,965 $ 52,101 $ 83,963 $ 50,502 $ 33,545 $ 94,310
========== ========== ========== ========== ========== ========== ==========
Diluted earnings per common
share:
Income (loss) before
extraordinary
charge/accounting change (1,
2).......................... $ (0.58) $ 0.56 $ 1.31 $ 1.00 $ 0.58 $ 0.35 $ 1.03
Extraordinary
charge/accounting change (3,
4).......................... (1.46) (0.83) (0.03)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)(1,2).......... $ (2.04) $ 0.56 $ 0.48 $ 1.00 $ 0.58 $ 0.35 $ 1.00
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA
Working capital................. $ 80,331 $ 309,130 $ 434,518 $ 236,659 $ 288,385 $ 273,290 $ 207,065
Total assets.................... 9,739,482 2,751,686 5,422,936 1,996,037 1,953,753 1,771,283 1,507,988
Long-term debt.................. 4,764,735 917,945 2,184,794 666,512 820,760 540,166 321,398
Stockholders' equity............ $2,110,466 $ 942,632 $1,702,360 $ 642,702 $ 614,762 $ 696,798 $ 661,306
</TABLE>
- ---------------
1. For fiscal year ended January 29, 1994, includes a nonrecurring
last-in-first-out credit of $6.2 million.
2. For fiscal year ended January 29, 1994, includes $3.6 million from the
resolution of an Internal Revenue Service audit ($2.3 million) related to the
last-in-first-out credit and a 38% tax rate.
3. For fiscal year ended January 29, 1994, effect of adopting SFAS No. 109
relating to income taxes.
4. For fiscal year ended January 31, 1998, includes a charge for early
extinguishment of debt covering premiums paid and write-off of financing
costs related to debt refinanced in the acquisition of Smith's Food & Drug
Centers, Inc. For the period ended August 15, 1998, charge for early
extinguishment of debt covering premiums paid and write off of financing
costs related to debt refinanced in the acquisitions of Food 4 Less Holdings,
Inc. and Quality Food Centers, Inc.
14
<PAGE> 24
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The table below sets forth selected unaudited pro forma combined financial
data for the combined company and is based on adjustments to the historical
consolidated financial statements of Kroger and Fred Meyer to give effect to the
merger using the pooling of interests method of accounting for business
combinations. We have derived the unaudited pro forma combined financial data
from the Unaudited Pro Forma Combined Financial Data included elsewhere in this
Joint Proxy Statement/Prospectus. You should read this information in
conjunction with the "-- Unaudited Pro Forma Combined Financial Data" on page
62.
To present the fiscal year periods, we have combined Fred Meyer's results
for each fiscal year (determined on the basis of the calendar year in which the
fiscal year commenced) with the corresponding fiscal year of Kroger (which for
the periods presented are comparable with the calendar years). The interim
periods below are 40 week periods of both companies combined. To present the
interim period for 1998, we have combined: (i) Fred Meyer's results for the 40
week period ended August 15, 1998 (which is comprised of Fred Meyer's results
for the 28 week period ended August 15, 1998 and the 12 week period ended
January 31, 1998) with (ii) Kroger's results for the 40 week period ended
October 3, 1998. To present the interim period for 1997, we have combined: (i)
Fred Meyer's results for the 40 week period ended November 8, 1997 with (ii)
Kroger's results for the 40 week period ended October 4, 1997.
The unaudited pro forma combined statement of earnings data do not reflect
any cost savings and other synergies nor merger related expenses anticipated by
management of the combined company as a result of the merger. This data is not
necessarily indicative of either the financial performance which would have
occurred had the merger been consummated at the beginning of the earliest period
presented, or are they necessarily indicative of the combined company's future
financial performance. See "WHERE YOU CAN FIND MORE INFORMATION" on page 90.
<TABLE>
<CAPTION>
1998 1997 1997 1996 1995
INTERIM PERIOD INTERIM PERIOD FISCAL YEAR FISCAL YEAR FISCAL YEAR
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
COMBINED COMBINED COMBINED COMBINED COMBINED
-------------- -------------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Sales............................... $32,768,745 $30,533,006 $41,274,124 $29,701,029 $28,090,369
Costs and expenses
Merchandise costs, including
warehousing and
transportation.................. 24,513,802 23,043,221 30,953,042 22,471,190 21,292,918
Operating, general and
administrative.................. 5,913,196 5,290,125 7,237,995 5,306,658 5,023,950
Rent.............................. 477,895 435,072 592,012 392,927 385,247
Depreciation and amortization..... 651,338 647,663 855,256 480,100 434,827
Net interest expense.............. 493,253 507,283 678,006 348,839 362,801
Merger related costs.............. 291,028
----------- ----------- ----------- ----------- -----------
Total............................... 32,340,512 29,923,364 40,316,311 28,999,714 27,499,743
----------- ----------- ----------- ----------- -----------
Earnings before tax expense and
extraordinary loss................ 428,233 609,642 957,813 701,315 590,626
Tax expense......................... 224,453 256,082 398,118 264,617 221,258
----------- ----------- ----------- ----------- -----------
Earnings before extraordinary
loss.............................. $ 203,780 $ 353,560 $ 559,695 $ 436,698 $ 369,368
=========== =========== =========== =========== ===========
Basic earnings per common share
before extraordinary loss......... $ 0.50 $ 0.88 $ 1.40 $ 1.32 $ 1.17
=========== =========== =========== =========== ===========
Diluted earnings per common share
before extraordinary loss......... $ 0.48 $ 0.85 $ 1.35 $ 1.27 $ 1.09
=========== =========== =========== =========== ===========
Average number of common shares used
in basic calculation.............. 407,623 402,855 400,509 330,773 314,674
Average number of common shares used
in diluted calculation............ 425,384 416,486 414,229 342,905 338,449
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 3, 1998
PRO FORMA
COMBINED
---------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...................... $16,132,679
Total Liabilities................. $14,700,434
Long-term debt and capitalized
lease obligations............... $ 8,260,500
Shareowners' equity............... $ 1,432,245
</TABLE>
15
<PAGE> 25
COMPARATIVE PER SHARE DATA
Set forth below are the earnings from operations before extraordinary items
and book value per common share data for Kroger and Fred Meyer on an historical
basis and a pro forma basis. No cash dividends were paid by either Kroger or
Fred Meyer for the periods presented. We derived the Kroger pro forma data by
combining historical consolidated financial information of Kroger and pro forma
Fred Meyer financial information using the pooling of interests method of
accounting for business combinations, all on the basis described under
"Unaudited Pro Forma Combined Financial Data" on page 67. The exchange ratio for
this business combination is one Kroger common share for each share of Fred
Meyer common stock. Accordingly, the equivalent pro forma basis for Fred Meyer
is the same as the Kroger pro forma basis. The interim periods below are 40 week
periods of both companies combined. See "-- Selected Unaudited Pro Forma
Combined Financial Data" on page 15 for a description of how the Kroger and Fred
Meyer accounting periods were combined.
You should read the respective audited and unaudited consolidated financial
statements and related notes of Kroger and Fred Meyer incorporated by reference
into this Joint Proxy Statement/Prospectus. The unaudited pro forma data set
forth below may not necessarily reflect the financial condition or results of
operations of Kroger that would have actually resulted had the merger occurred
as of the date and for the periods indicated or reflect the future earnings of
Kroger.
<TABLE>
<CAPTION>
INTERIM PERIOD INTERIM PERIOD FISCAL YEAR FISCAL YEAR FISCAL YEAR
1998 1997 1997 1996 1995
-------------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
KROGER HISTORICAL
Earnings per share:
Basic....................... $ 1.06 $1.17 $1.75 $1.41 $1.38
Diluted..................... 1.02 1.13 1.69 1.36 1.28
Book value per share.......... (2.36) -- -- -- --
FRED MEYER HISTORICAL
Earnings (loss) per share: (1)
Basic....................... $(0.58) $0.58 $1.37 $1.05 $0.61
Diluted..................... (0.58) 0.56 1.31 1.00 0.58
Book value per share.......... 13.67 -- -- -- --
KROGER UNAUDITED PRO FORMA
Earnings per share:
Basic....................... $ 0.50 $0.88 $1.40 $1.32 $1.17
Diluted..................... 0.48 0.85 1.35 1.27 1.09
Book value per share.......... 3.51 -- -- -- --
FRED MEYER EQUIVALENT PRO
FORMA
Earnings per share:
Basic....................... $ 0.50 $0.88 $1.40 $1.32 $1.17
Diluted..................... 0.48 0.85 1.35 1.27 1.09
Book value per share.......... 3.51 -- -- -- --
</TABLE>
- ---------------
(1) Earnings per share amount is before extraordinary charge/accounting charge.
16
<PAGE> 26
MARKET PRICES AND DIVIDENDS
Kroger common shares are listed for trading on the New York Stock Exchange
under the trading symbol "KR." Fred Meyer common stock is listed for trading on
the New York Stock Exchange under the trading symbol "FMY." The following table
sets forth, for the calendar periods indicated (e.g., first quarter period is
January 1 through March 31), the range of the high and low sale prices of Kroger
common shares and Fred Meyer common stock, as reported on the New York Stock
Exchange Composite Transactions Tape. During the periods indicated, neither
Kroger nor Fred Meyer paid any cash dividends on its common stock. All
information gives effect to the Kroger two-for-one stock split effected in April
1997 and the Fred Meyer two-for-one stock split effected in September 1997.
<TABLE>
<CAPTION>
FRED MEYER COMMON
KROGER COMMON SHARES STOCK
-------------------- ------------------
HIGH LOW HIGH LOW
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Calendar Year 1996
First Quarter..................................... $20.500 $16.750 $14.938 $10.250
Second Quarter.................................... $22.000 $18.750 $16.000 $13.500
Third Quarter..................................... $22.500 $18.563 $16.875 $13.063
Fourth Quarter.................................... $23.750 $20.375 $18.813 $14.938
Calendar Year 1997
First Quarter..................................... $28.125 $22.688 $21.000 $16.188
Second Quarter.................................... $29.375 $23.813 $25.938 $19.063
Third Quarter..................................... $31.063 $27.938 $28.969 $25.500
Fourth Quarter.................................... $37.313 $28.500 $37.000 $25.000
Calendar Year 1998
First Quarter..................................... $47.313 $34.000 $51.000 $32.750
Second Quarter.................................... $47.500 $40.188 $48.875 $39.938
Third Quarter..................................... $54.125 $42.125 $48.563 $36.625
Fourth Quarter (through November [ ], 1998.)
</TABLE>
Set forth below are the following prices for each of Kroger common shares
and Fred Meyer common stock: (i) the average of the closing price for the five
trading days immediately prior to the public announcement of the execution of
the merger agreement, (ii) the closing price on October 16, 1998, the last
trading day prior to the public announcement of the execution of the merger
agreement, and (iii) the closing price on [date2], 1998, the last practicable
trading day prior to the date of this Joint Proxy Statement/Prospectus. Also set
forth below for each of those prices is the equivalent pro forma price of Fred
Meyer common stock (as determined by multiplying the applicable price of Kroger
common shares by the one-for-one exchange ratio). Because the exchange ratio is
fixed and because the market price of Kroger common shares is subject to
fluctuation, the market value of the Kroger common shares that holders of Fred
Meyer common stock will receive in the merger may increase or decrease prior to
and following the completion of the merger. Holders of Kroger common shares and
Fred Meyer common stock are urged to obtain current market quotations.
<TABLE>
<CAPTION>
KROGER FRED MEYER FRED MEYER
COMMON STOCK COMMON STOCK EQUIVALENT PRO FORMA
------------ ------------ --------------------
<S> <C> <C> <C>
Average Closing Price........................ $50.000 $44.125 $50.000
October 16, 1998............................. $48.750 $49.000 $48.750
[date2], 1998
</TABLE>
Following the completion of the merger, holders of Kroger common shares
will be entitled to receive dividends (if any) from funds legally available
therefor when, as and if declared by the Board of Directors of Kroger. Kroger
currently has no intention to pay cash dividends on any of its common shares
whether or not the merger is completed. The future payment of any dividends by
Kroger will depend upon several factors, including the profitability of the
combined company, capital requirements, financial condition, growth, business
opportunities, tax considerations, industry standards, economic conditions, and
other factors that the Kroger Board of Directors may deem relevant, including
restrictions in any then-existing credit agreements. Pursuant to the terms of
Kroger's existing credit facilities, Kroger is prohibited from paying cash
dividends on its common shares.
17
<PAGE> 27
RISK FACTORS
KROGER AND FRED MEYER SHAREHOLDERS SHOULD CONSIDER THE FOLLOWING MATTERS IN
DECIDING WHETHER TO VOTE IN FAVOR OF THE APPROVAL OF THE MERGER AGREEMENT. A
COPY OF THE MERGER AGREEMENT IS ATTACHED TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AS APPENDIX A. SUBJECT TO THE TERMS AND CONDITIONS OF THE
MERGER AGREEMENT, A SUBSIDIARY OF KROGER WILL MERGE WITH AND INTO FRED MEYER,
AND FRED MEYER WILL BECOME A WHOLLY-OWNED SUBSIDIARY OF KROGER. KROGER MAY, IN
ITS SOLE DISCRETION, RESTRUCTURE THE MERGER TO PROVIDE FOR THE MERGER OF FRED
MEYER WITH AND INTO KROGER, WITH KROGER AS THE SURVIVING CORPORATION. THE
MATTERS BELOW SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION
INCLUDED AND INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
RISKS ASSOCIATED WITH THE FIXED EXCHANGE RATIO
At the time the merger is completed, each share of Fred Meyer common stock
will be converted into the right to receive one Kroger common share. This
one-to-one exchange ratio is fixed and will not be adjusted in the event of any
increase or decrease in the price of the Kroger common shares or the Fred Meyer
common stock. As a result, the value of the consideration received by Fred Meyer
stockholders in the merger could vary depending on fluctuations in the value of
the Kroger common shares. These fluctuations may be the result of changes in the
business, operations or prospects of Kroger or Fred Meyer, market assessments of
the likelihood that the merger will be consummated, the expected date of
completion of the merger, regulatory considerations, industry developments,
general market and economic conditions and other factors. Accordingly, we cannot
assure you that the value of the merger consideration on the date of this Joint
Proxy Statement/Prospectus will be the same as that on the date of the special
meetings of the stockholders of Kroger and Fred Meyer or at the time of the
completion of the merger. Shareholders are urged to obtain current market
quotations for Kroger common shares and Fred Meyer common stock.
SIGNIFICANT INDEBTEDNESS
As of [ ], 1998, the total outstanding indebtedness of Kroger and Fred
Meyer was $[ ] billion, including $[ ] billion under several bank credit
facilities. Completion of the merger would violate the existing terms of Fred
Meyer's bank credit facilities and, in certain circumstances, the existing terms
of Kroger's bank credit facilities. We cannot assure you that the lenders will
approve the amendments required under the terms of these bank credit facilities
to permit the completion of the merger or, absent these amendments, that the
bank credit facilities could be refinanced. Completion of the merger is not
conditioned on these amendments being approved. To increase the likelihood of
the amendments being approved, Kroger has obtained the commitment of Chase
Securities Inc. and The Chase Manhattan Bank to acquire by assignment, if
necessary, up to 51% of the outstanding commitments under each of the existing
bank credit facilities. By doing so, these Chase entities could approve the
required amendments on their own. However, this commitment cannot assure you
that the amendments will be approved. The amendments may not be approved if the
Chase entities are unable to acquire 51% of the commitments under each of the
existing bank credit facilities or certain conditions to their obligations are
not satisfied (see "THE MERGER -- Amendment of Existing Credit Facilities" on
page 46). In connection with obtaining these amendments, the cost of borrowing
under Kroger's existing bank credit facilities will increase. If the merger is
completed without these amendments being approved and replacement financing is
not arranged, all indebtedness under these bank credit facilities would be in
default and would have to be repaid. In addition, completion of the merger would
violate the terms of Fred Meyer's existing $500 million five-year operating
lease facility unless the operating lease facility is amended or repaid from the
bank credit facilities, as currently contemplated. Other indebtedness of the
combined company may also have to be repaid because of a default under the bank
credit facilities and a possible default under the operating lease. These
defaults would have a material adverse effect on the combined company's
business, financial condition and results of operations.
Upon consummation of the merger, Kroger will have greater indebtedness and
a lower earning to fixed charges ratio than it currently has. The increased
indebtedness and lower earning to fixed charges ratio may have the effect, among
other things, of reducing the flexibility of Kroger to respond to changing
business and economic conditions and increasing borrowing costs. On a pro forma
basis after giving effect to the merger, Kroger's ratio of earnings to fixed
charges would have been approximately [ ] for the 1997 fiscal year, and
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approximately [ ] for the 40 week period ended October 3, 1998, as compared to
approximately [ ] and [ ], respectively, for the same periods on a historical
basis.
The degree to which the combined company will be leveraged could adversely
affect the combined company's ability to obtain additional financing for working
capital, acquisitions or other purposes and could make it more vulnerable to
economic downturns and competitive pressures. Future capital requirements and
the sufficiency of available funds will depend on numerous factors that are
difficult to predict, including results of operations, the timing and cost of
acquisitions and efforts to expand existing operations. Based upon the current
level of operations and anticipated cost savings, we believe (subject to the
receipt of the amendments to the existing credit facilities discussed above)
that cash flow from operations, together with borrowings under existing credit
facilities and other sources of liquidity, will be adequate to meet the combined
company's anticipated requirements for working capital, capital expenditures,
interest payments and scheduled principal payments over the next several years.
We cannot assure you, however, that the combined company's business will
generate cash flow at or above current levels or that anticipated cost savings
can be fully achieved. If the combined company is unable to generate sufficient
cash flow from operations in the future to service its debt and make necessary
capital expenditures, the combined company will be required to refinance all or
a portion of its existing debt, obtain additional financing, forego strategic
decisions or delay, scale back or eliminate certain aspects of its operations.
Any of these actions could have a material adverse effect on the combined
company's business, financial condition or results of operations.
COMPETITION
The retail merchandising business in general, and the supermarket industry
in particular, is highly competitive and generally characterized by narrow
profit margins. The combined company's competitors include national and regional
supermarket chains, discount stores, independent and specialty grocers, drug and
convenience stores, large category-dominant stores and the newer "alternative
format" food stores, including warehouse club stores, deep discount drug stores,
"supercenters" and conventional department stores. Competitors include, among
others, Albertson's, Costco, Food Lion, Lucky, Meijer, Safeway, Sam's, Target,
Walgreen's, Wal-Mart and Winn-Dixie. Retail businesses generally compete on the
basis of location, quality of products and service, price, product variety and
store condition. The combined company's ability to compete depends in part on
its ability to maintain and remodel existing stores, develop new stores in
advantageous locations and offer competitive prices and service.
INTEGRATION UNCERTAINTIES
The merger involves the integration of two companies that have previously
operated independently. The integration of businesses involves a number of
special risks, including the diversion of management's attention to the
integration of operations, difficulties in the integration of operations and
systems, the assimilation and retention of employees, challenges in retaining
customers and potential adverse short-term effects on operating results. In
addition, the significant increase in size of Fred Meyer's operations resulting
from its recent acquisitions of Smith's Food & Drug Centers, Inc., Quality Food
Centers, Inc. and Food 4 Less Holdings, Inc. (including Ralphs Grocery Company)
has already imposed substantial integration demands on Fred Meyer's management.
We cannot assure you that the combined company will be able to maintain the
levels of operating efficiency which Kroger and Fred Meyer had achieved or might
achieve separately. If we do not successfully integrate the operations of the
combined company (including the entities which Fred Meyer is continuing to
integrate), or if we experience a loss of key management personnel, customers or
sales, there may be a material adverse effect on the combined company's
business, financial condition or results of operations.
ABILITY TO ACHIEVE INTENDED BENEFITS OF THE MERGER; MERGER RELATED COSTS
We believe that significant business opportunities and cost savings are
achievable as a result of the merger. Our estimates of cost savings are based
upon many assumptions, including future sales levels and other operating
results, the availability of funds for capital expenditures, the timing of
certain events, as well as general industry and business conditions and other
matters. Many of these factors are beyond the control of the combined company.
Our estimates are also based on a management consensus as to what levels of
purchasing and similar
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efficiencies should be achievable by the combined company. Our estimates of
potential cost savings are forward-looking and are inherently uncertain. The
combined company's actual cost savings, if any, could differ from those
projected and these differences could be material. Therefore, you should not
unduly rely on our estimates as predictors of actual cost savings. We cannot
assure you that unforeseen costs and expenses or other factors (whether arising
in connection with the integration of the two companies operations or otherwise)
will not offset the estimated cost savings or other components of the combined
company's plan or result in delays in the realization of certain projected cost
savings.
The merger will result in a charge to operations of approximately $75
million for transaction fees and costs incidental to the merger. The costs of
integration of the two companies will also result in other non-recurring charges
to the results of operations of the combined company; however, the actual amount
of these charges cannot be determined until the transition plan relating to the
integration of operations is completed. It is expected that these charges will
have a material effect on the combined company's results of operations for the
quarter in which the merger is completed and additional significant charges
resulting from the merger may also be recognized in subsequent quarters. See
"AUDITED PRO FORMA COMBINED FINANCIAL DATA."
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
An element of Kroger's growth strategy is the pursuit of strategic
acquisitions that either expand or complement its business, and Kroger routinely
reviews potential acquisition opportunities. Acquisitions involve a number of
special risks, including the risks pertaining to integration of the business
acquired that are noted above under " -- Integration Uncertainties." In
addition, Kroger may incur debt to finance future acquisitions and may issue
securities in connection with future acquisitions which may have a dilutive
effect on its shares. If we are unable to successfully complete and integrate
strategic acquisitions in a timely manner, there could be a material adverse
effect on the business, financial condition, results of operations and growth
strategy of the combined company.
REGULATORY MATTERS
Each company has agreed to take all steps necessary to receive regulatory
clearance for the merger under applicable antitrust laws, including the possible
sale of stores accounting for up to 7% of Fred Meyer's combined 1997 annual
sales. We cannot assure you that one or more governmental entities will not
require the sale of stores in excess of this 7% limitation. Kroger has the right
in its sole discretion to agree to sales of stores in excess of the 7%
limitation if it determines that it is in its best interest to do so in order to
complete the merger. Clearance under applicable antitrust laws may occur after
the special meetings of shareholders of Kroger and Fred Meyer. Any commitments
required to obtain clearance under applicable antitrust laws may result in a
combined company with fewer assets and lower revenues and net income than would
be the case if these sales of stores were not effected. See "THE
MERGER -- Regulatory Matters."
COMPUTER TECHNOLOGIES; YEAR 2000
We have assessed and continue to assess the potential impact of the
situation commonly referred to as the "Year 2000 Issue." The Year 2000 Issue,
which affects most corporations, concerns the inability of information systems,
primarily computer software programs, to properly recognize and process date
sensitive information relating to the year 2000 and beyond. Each of the
companies has conducted an assessment of its computer systems to identify and
address all changes necessary to make its systems Year 2000 compliant. Each of
the companies believes that with modifications to or replacements of existing
systems, Year 2000 issues will not pose significant operational problems in
meeting internal needs or the needs of customers. Kroger and Fred Meyer both
believe that their efforts will result in Year 2000 compliance. However, no
assurance can be given in this regard. Amounts expensed by each company for Year
2000 projects have not been, and neither company anticipates that these costs
will be, significant to either company's results of operations. However, the
impact on business operations or of failure by either of us to achieve
compliance or any failure to achieve compliance by external entities (e.g.,
vendors) which we cannot control, could be material to the combined company's
business, financial condition and results of operations.
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DEPENDENCE ON KEY PERSONNEL
The combined company's success will depend to a significant extent on the
management and other skills of its chief executive, chief operating and chief
financial officers, as well as its ability to retain other officers and key
employees and to attract skilled personnel in the future to manage the
integration of Kroger and Fred Meyer and the combined company's future
operation. Although we believe that the combined company will have incentive and
compensation programs designed to retain key employees, there can be no
assurance that these key employees will remain. We cannot assure you that a
suitable replacement could be found in the event of the departure of any key
employee. See "THE MERGER -- Interests of Certain Persons in the Merger" and
"MANAGEMENT AND OPERATIONS AFTER THE MERGER."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Articles of Incorporation of Kroger and the
Regulations (Bylaws) of Kroger may make an unsolicited acquisition of control of
Kroger more difficult or expensive. Furthermore, Kroger has adopted a
shareholder rights plan which may also make an unsolicited acquisition of Kroger
more difficult or expensive. These factors may have an adverse impact on the
market price of Kroger common shares. See "COMPARATIVE RIGHTS OF SHAREHOLDERS"
and "DESCRIPTION OF KROGER CAPITAL STOCK--Preferred Share Purchase Rights."
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THE MEETINGS
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
Kroger. At the Special Meeting of Shareholders of Kroger (the "KROGER
SPECIAL MEETING"), shareholders of The Kroger Co. ("KROGER") will consider and
vote upon a proposal to approve and adopt the Agreement and Plan of Merger,
dated as of October 18, 1998 (the "MERGER AGREEMENT"), among Kroger, Jobsite
Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of Kroger
("MERGER SUB"), and Fred Meyer, Inc. ("FRED MEYER"), and approve the related
merger, pursuant to which, subject to the terms and conditions of the Merger
Agreement, Merger Sub will merge with and into Fred Meyer (the "MERGER") at the
time of the consummation of the Merger (the "EFFECTIVE TIME"). Kroger may, in
its sole discretion, restructure the Merger to provide for the merger of Fred
Meyer with and into Kroger with Kroger as the surviving corporation. In the
Merger, each share of common stock of Fred Meyer, par value $.01 per share
("FRED MEYER COMMON STOCK"), issued and outstanding immediately prior to the
Merger will be converted into the right to receive one (the "EXCHANGE RATIO")
common share, par value $1.00 per share ("KROGER COMMON STOCK"), of Kroger. A
copy of the Merger Agreement is attached to this Joint Proxy
Statement/Prospectus as APPENDIX A. The shares of Kroger Common Stock issued in
the Merger will also include the associated preferred share purchase rights (the
"RIGHTS") issued pursuant to the Amended and Restated Rights Agreement, dated as
of April 4, 1997 (the "RIGHTS AGREEMENT"), as amended, between Kroger and The
Bank of New York, as Rights Agent. See "DESCRIPTION OF KROGER CAPITAL STOCK."
THE BOARD OF DIRECTORS OF KROGER (THE "KROGER BOARD OF DIRECTORS") HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS OF KROGER VOTE "FOR" APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND APPROVAL OF THE MERGER.
Fred Meyer. At the Special Meeting of Stockholders of Fred Meyer (the "FRED
MEYER SPECIAL MEETING" and, together with the Kroger Special Meeting, the
"SPECIAL MEETINGS"), holders of Fred Meyer Common Stock will consider and vote
upon a proposal to approve and adopt the Merger Agreement and approve the
Merger.
THE BOARD OF DIRECTORS OF FRED MEYER (THE "FRED MEYER BOARD OF DIRECTORS")
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS OF FRED MEYER VOTE "FOR" APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
VOTES REQUIRED
Kroger. The affirmative vote of holders of a majority of the outstanding
shares of Kroger Common Stock is required to approve and adopt the Merger
Agreement and approve the Merger. Each share of Kroger Common Stock is entitled
to one vote.
Only holders of record of Kroger Common Stock at the close of business on
[date], 1998 (the "KROGER RECORD DATE") will be entitled to receive notice of
and vote at the Kroger Special Meeting. At the Kroger Record Date, Kroger
directors and executive officers and their affiliates may be deemed to
beneficially own [ ] shares of Kroger Common Stock (excluding shares which
may be acquired upon exercise of options) or approximately [ . ]% of the then
outstanding shares of Kroger Common Stock. Each of the directors and executive
officers of Kroger has indicated that he or she intends to vote these shares for
the approval and adoption of the Merger Agreement and approval of the Merger.
Fred Meyer. The affirmative vote of the holders of a majority of the
outstanding shares of Fred Meyer Common Stock is required to approve and adopt
the Merger Agreement and approve the Merger. Each share of Fred Meyer Common
Stock is entitled to one vote.
Only holders of record of Fred Meyer Common Stock at the close of business
on [date], 1998 (the "FRED MEYER RECORD DATE") will be entitled to receive
notice of and vote at the Fred Meyer Special Meeting. At the Fred Meyer Record
Date, Fred Meyer's directors and executive officers and their affiliates may be
deemed to beneficially own [ ] shares of Fred Meyer Common Stock (excluding
shares which may be acquired upon exercise of options) or approximately [ ]% of
the then outstanding shares of Fred Meyer Common Stock. Each of the directors
and executive officers of Fred Meyer has indicated that he or she intends to
vote these shares for
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approval and adoption of the Merger Agreement and approval of the Merger.
Additionally, Mr. Miller, Mr. Burkle and certain entities controlled by Mr.
Burkle entered into voting agreements and have agreed to vote all of their
shares of Fred Meyer common stock, approximately 7% of the outstanding voting
power on October 15, 1998, for the Merger at the Fred Meyer Special Meeting.
VOTING OF PROXIES
Shares of Kroger Common Stock or Fred Meyer Common Stock represented by
properly executed proxies received at or prior to the Kroger Special Meeting or
the Fred Meyer Special Meeting, as the case may be, will be voted at the
appropriate meeting in the manner specified by the holders of such shares.
Properly executed proxies that do not contain voting instructions will be voted
"FOR" approval and adoption of the Merger Agreement and approval of the Merger.
A properly executed proxy marked "ABSTAIN," although counted for purposes
of determining whether there is a quorum, will result in the shares represented
thereby not being voted at the relevant Special Meeting. Accordingly, because
the affirmative vote of the holders of a majority of the outstanding shares of
Kroger Common Stock or Fred Meyer Common Stock, as the case may be, is required
for the approval and adoption of the Merger Agreement and approval of the
Merger, a proxy marked "ABSTAIN" will have the effect of a vote against both the
approval and adoption of the Merger Agreement and approval of the Merger.
In accordance with New York Stock Exchange, Inc. ("NYSE") rules, brokers
and nominees who hold shares of stock in their names but are not the beneficial
owners of such shares are precluded from exercising their voting discretion with
respect to these shares. Thus, brokers and nominees are not empowered to vote
shares of Kroger Common Stock or Fred Meyer Common Stock held by them, absent
specific instructions from the beneficial owners of such shares. Accordingly,
because the affirmative vote of the holders of a majority of the outstanding
shares of Kroger Common Stock or Fred Meyer Common Stock, as the case may be, is
required for the approval and adoption of the Merger Agreement and approval of
the Merger, a broker non-vote will have the effect of a vote against both the
approval and adoption of the Merger Agreement and approval of the Merger. As a
result, both abstentions and broker non-votes will have the same effect as a
vote against the Merger.
Your broker will vote your shares for you only if you provide instructions
to your broker on how to vote your shares. You should follow the directions
provided by your broker regarding how to instruct your broker to vote your
shares. Without your instructions, your shares will not be voted on the Merger,
which will have the same effect as voting against approval and adoption of the
Merger Agreement and approval of the Merger.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed Kroger or Fred Meyer form of proxy
does not preclude a holder of stock from voting in person or otherwise revoking
a proxy. Attendance at the relevant meeting will not in and of itself constitute
revocation of a proxy. A Kroger shareholder may revoke a proxy at any time prior
to its exercise by delivering a duly executed revocation or a proxy bearing a
later date to Paul W. Heldman, Senior Vice President, Secretary and General
Counsel of Kroger, 1014 Vine Street, Cincinnati, Ohio 45202 or by giving notice
of revocation at the Kroger Special Meeting. A Fred Meyer Stockholder may revoke
a proxy at any time prior to its exercise by delivering a duly executed
revocation or a proxy bearing a later date to Roger A. Cooke, Executive Vice
President, General Counsel and Secretary of Fred Meyer, 3800 SE 22nd Avenue,
Portland, Oregon 97202. In addition, a proxy will be considered revoked if the
holder of common stock votes such shares in person at the appropriate Special
Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Kroger. Only holders of record of Kroger Common Stock at the close of
business on the Kroger Record Date will be entitled to receive notice of and to
vote at the Kroger Special Meeting. As of the Kroger Record Date, there were
[ ] shares of Kroger Common Stock outstanding. A majority of the outstanding
shares of Kroger Common Stock entitled to vote, present in person or represented
by proxy, will constitute a quorum for the transaction of business at the Kroger
Special Meeting. A list of Kroger shareholders entitled to vote at the Kroger
Special Meeting will be available at the Kroger Special Meeting.
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Fred Meyer. Only holders of record of Fred Meyer Common Stock at the close
of business on the Fred Meyer Record Date will be entitled to receive notice of
and to vote at the Fred Meyer Special Meeting. As of the Fred Meyer Record Date,
there were [ ] shares of Fred Meyer Common Stock outstanding. A majority of
the outstanding shares of Fred Meyer Common Stock entitled to vote, present in
person or represented by proxy, will constitute a quorum for the transaction of
business at the Fred Meyer Special Meeting. A list of Fred Meyer stockholders
entitled to vote at the Fred Meyer Special Meeting will be available for
examination, during normal business hours, at the offices of Fred Meyer, 3800 SE
22nd Avenue, Portland, Oregon 97202 during the ten day period prior to the Fred
Meyer Special Meeting.
SOLICITATION OF PROXIES
Each of Kroger and Fred Meyer will bear the cost of the solicitation of
proxies from its own holders of common stock, except that Kroger and Fred Meyer
will share equally the cost of printing and mailing this Joint Proxy
Statement/Prospectus. In addition to solicitation by mail, the directors,
officers and employees of each company and their respective subsidiaries may
solicit proxies from holders of common stock of such company by telephone, in
person or through other means. These persons will not receive additional
compensation, but will be reimbursed for reasonable out-of-pocket expenses
incurred in connection with such solicitation. Arrangements will also be made
with brokerage firms, nominees, fiduciaries and other custodians for the
forwarding of solicitation materials to the beneficial owners of shares held of
record by such persons, and Kroger and Fred Meyer will reimburse them for their
reasonable out-of-pocket expenses in connection therewith. [Proxy Solicitor]
will assist in the solicitation of proxies by Kroger for a fee of $[ ] plus
reimbursement of reasonable out-of-pocket expenses. [Proxy Solicitor] will
assist in the solicitation of proxies by Fred Meyer for a fee of $[ ] plus
reimbursement of reasonable out-of-pocket expenses. In each case, the proxy
solicitor will be indemnified against certain liabilities and expenses,
including liabilities and expenses under the federal securities laws.
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THE COMPANIES
KROGER
Kroger was founded in 1883 and was incorporated in Ohio in 1902. As of
December 27, 1997, Kroger was the largest grocery retailer in the United States
based on annual sales. Kroger also manufactures and processes food for sale by
its supermarkets. Kroger's principal executive offices are located at 1014 Vine
Street, Cincinnati, Ohio 45202 and its telephone number is (513) 762-4000.
As of October 3, 1998, Kroger operated 1,398 supermarkets, most of which
are leased. Of this number, 1,138 supermarkets were operated, directly or
through a partnership composed of Kroger and wholly-owned subsidiaries of
Kroger, principally under the Kroger name in the Midwestern and Southeastern
United States. As of September 26, 1998, Dillon Companies, Inc. ("DILLON"), a
wholly-owned subsidiary of Kroger, operated 260 supermarkets (the "DILLON
SUPERMARKETS") directly or through wholly-owned subsidiaries. The Dillon
Supermarkets, principally located in Colorado, Kansas, Arizona and Missouri,
operate under the names "King Soopers," "Dillon Food Stores," "Fry's Food
Stores," "City Market," "Gerbes Supermarkets" and "Sav-Mor."
As of September 26, 1998, Kroger, through its Dillon subsidiary, operated
directly or through franchise agreements 811 convenience stores under the trade
names of "Kwik Shop," "Quik Stop Markets," "Tom Thumb Food Stores," "Turkey Hill
Minit Markets," "Loaf 'N Jug," and "Mini Mart." These convenience stores offer a
limited assortment of staple food items and general merchandise and, in most
cases, sell gasoline.
FRED MEYER
Fred Meyer is one of the largest domestic food retailers, operating more
than 800 supermarkets and multidepartment stores. Fred Meyer is incorporated in
Delaware. Fred Meyer's principal executive offices are located at 3800 SE 22nd
Avenue, Portland, Oregon 97202 and its telephone number is (503) 232-8844.
At August 15, 1998, Fred Meyer operated 119 multidepartment stores in the
Pacific Northwest and Intermountain regions. The average Fred Meyer
multidepartment store is 142,100 square feet with a flexible store format
offering a full-service food department and a variety of nonfood departments.
These stores are organized into departments and sections within departments that
specialize in the sale of particular products such as food, apparel, home
electronics, products for the home, general merchandise and fine jewelry. Fred
Meyer's stores are generally positioned as the lowest priced full-service food
retailer in each of Fred Meyer's major markets.
At August 15, 1998, Fred Meyer operated a total of 157 stores through
Smith's Food & Drug Centers, Inc. ("SMITH'S"), averaging 66,800 square feet per
store. Substantially all of the Smith's stores offer shopping convenience
through a food and drug combination format which features a full-line
supermarket with drug and pharmacy departments. Since August 15, 1998, Smith's
has acquired 13 additional stores in Montana and Wyoming.
At August 15, 1998, Fred Meyer operated, through Quality Food Centers, Inc.
("QFC"), 84 QFC stores, primarily in the Seattle/Puget Sound Region. The QFC
stores range in size from 14,600 to 67,200 square feet, averaging 33,630 square
feet per store, and offer a wide variety of high-quality meat, seafood, produce,
deli and bakery items.
At August 15, 1998, Fred Meyer operated in Southern California, through
Food 4 Less Holdings, Inc. ("FOOD 4 LESS") and its subsidiary, Ralphs Grocery
Company ("RALPHS" and, together with Food 4 Less, "RALPHS/FOOD 4 LESS"), 313
conventional supermarkets, averaging 36,800 square feet per store, principally
under the Ralphs banner and 82 price-impact supermarkets in a warehouse format,
averaging 53,300 square feet per store, under the Food 4 Less banner. Ralphs
stocks between 35,000 and 45,000 merchandise items in its stores, including
approximately 2,800 private-label products. Ralphs stores offer name-brand
grocery products, quality and freshness in their produce, meat, seafood,
delicatessen and bakery products and a broad selection in all departments. Most
Ralphs stores offer service delicatessen departments, on-premises bakery
facilities and seafood departments. Food 4 Less is a warehouse-style,
price-impact store which is positioned to offer the lowest overall prices in its
marketing areas by passing on to the consumer savings achieved through labor
efficiencies and lower overhead associated with the warehouse format, while
providing the product selection and variety
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associated with a conventional format. Fred Meyer is in the process of selling
14 of its Ralphs stores pursuant to a settlement agreement with the state of
California entered into at the time of Fred Meyer's acquisitions of Ralphs/ Food
4 Less and QFC.
Fred Meyer owns and operates several food processing facilities to better
support its stores and realize additional profit opportunities. These facilities
include dairies, a bakery, a cultured dairy products plant and an ice cream
processing plant.
THE MERGER
GENERAL
The Merger Agreement provides for a business combination between Kroger and
Fred Meyer in which Merger Sub, a wholly-owned subsidiary of Kroger, would be
merged with and into Fred Meyer, with Fred Meyer surviving the merger as a
wholly-owned subsidiary of Kroger. Kroger may, in its sole discretion,
restructure the Merger to provide for the merger of Fred Meyer with and into
Kroger with Kroger as the surviving corporation. Each share of Fred Meyer Common
Stock will be converted into the right to receive one share of Kroger Common
Stock (the "CONSIDERATION"). The transaction is intended to qualify as a pooling
of interests for accounting purposes and as a tax-free reorganization for U.S.
federal income tax purposes. The average closing prices of Kroger Common Stock
and Fred Meyer Common Stock as reported on the NYSE Composite Transactions Tape
for the five trading days immediately prior to the public announcement of the
execution of the Merger Agreement were $50.00 and $44.13, respectively. Based
upon the average closing prices and the Exchange Ratio, the Consideration had a
value of $50.00 per share of Fred Meyer Common Stock, which represented a 16.32%
premium over the average closing price of Fred Meyer Common Stock for the five
trading days immediately prior to the public announcement of the execution of
the Merger Agreement. On [date2], 1998, the last practicable trading day prior
to the date of this Joint Proxy Statement/Prospectus, based upon the closing
price of Kroger Common Stock on the NYSE Composite Transactions Tape of $[ . ]
and the Exchange Ratio, the Consideration had a value of $[ . ]. At the
Effective Time, the Consideration may have a market value that is greater or
less than these amounts depending on the market price of Kroger Common Stock at
that time. As a result of the Merger, former stockholders of Fred Meyer will
hold approximately [ ]% of the outstanding Kroger Common Stock (based upon the
number of shares of Kroger Common Stock and Fred Meyer Common Stock outstanding
on the Kroger Record Date and the Fred Meyer Record Date, respectively) with the
outstanding Kroger Common Stock held by Kroger common shareholders before the
Merger representing approximately [ ]% of the outstanding shares of Kroger
Common Stock after the Merger.
The discussion in this Joint Proxy Statement/Prospectus of the Merger and
the description of the principal terms and conditions of the Merger Agreement
and the Merger are subject to and qualified in their entirety by reference to
the Merger Agreement, a copy of which is attached to this Joint Proxy
Statement/Prospectus as APPENDIX A and which is incorporated herein by
reference. See "THE MERGER AGREEMENT."
BACKGROUND OF THE MERGER
Retail supermarket chains have undergone increasing consolidation over the
last several years. A number of competitive factors have contributed to this
trend, including benefits achieved through increased purchasing power,
consolidation of infrastructure and geographic diversity. Another important
factor behind this trend is the increased competition in the food retailing
industry, including new market entrants such as mass merchandisers and
membership clubs.
On May 2, 1998, at an industry convention, Robert G. Miller, the Vice
Chairman and Chief Executive Officer of Fred Meyer, indicated to Joseph A.
Pichler, the Chairman of the Board of Directors and Chief Executive Officer of
Kroger, that, if Kroger decided to explore strategic alternatives, Fred Meyer
might be interested in exploring a possible business combination transaction
with Kroger. In August 1998, Ronald W. Burkle, Chairman of the Board of
Directors of Fred Meyer, also indicated to Goldman, Sachs & Co. ("GOLDMAN
SACHS"), Kroger's financial advisor, that Fred Meyer might be interested in
exploring a business combination transaction with Kroger.
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On September 10, 1998, Goldman Sachs, acting on behalf of Kroger, contacted
representatives of Fred Meyer to indicate that Kroger was interested in
exploring the possibility of a transaction with Fred Meyer. On September 14,
1998, Mr. Pichler, W. Rodney McMullen, Senior Vice President and Chief Financial
Officer of Kroger, and representatives of Goldman Sachs met with Messrs. Burkle
and Miller and representatives of Donaldson Lufkin & Jenrette Securities
Corporation ("DLJ") and Salomon Smith Barney Inc. ("SALOMON"). At this meeting,
preliminary discussions regarding a possible business combination transaction
were held. On September 16, 1998, Kroger and Fred Meyer executed reciprocal
confidentiality agreements in order to facilitate an exchange of information,
and members of senior management of Kroger and Fred Meyer, together with their
respective financial advisors, met to discuss the potential strategic,
operational and financial benefits that could be achieved through a combination
of Kroger and Fred Meyer.
On September 20, 1998, at a meeting of the Board of Directors of Kroger,
senior management of Kroger and Kroger's financial and legal advisors reviewed
the status of the discussions with Fred Meyer and made preliminary financial and
legal presentations concerning a potential business combination with Fred Meyer.
The Kroger Board of Directors authorized management to pursue negotiations with
Fred Meyer.
The following day, Kroger delivered a proposed term sheet to Fred Meyer
regarding a possible merger. The proposed term sheet contemplated, a tax-free,
stock-for-stock merger at a fixed exchange ratio, the expansion of the Kroger
Board of Directors to add five directors selected by Fred Meyer, reciprocal
termination fees and reciprocal options in favor of each of Kroger and Fred
Meyer for the purchase of up to 19.9% of the outstanding shares of the other
party's common stock ("STOCK OPTION AGREEMENTS"), which termination fees would
be payable and options exercisable under certain circumstances if a merger
agreement were executed and subsequently terminated. Kroger also informed Fred
Meyer at this time that it would be unwilling to proceed with the proposed
merger without the termination fee and option arrangements being granted by Fred
Meyer, but that as indicated by the proposed term sheet, Kroger would be willing
to accept these arrangements on a reciprocal basis.
On September 22, 1998, at a regularly-scheduled meeting of the Fred Meyer
Board of Directors, senior management of Fred Meyer and representatives of Fred
Meyer's financial and legal advisors reviewed with the Board of Directors the
status of the discussions between Fred Meyer and Kroger and the proposed term
sheet. The Fred Meyer Board of Directors authorized senior management to
continue exploring a potential merger with Kroger.
On September 27, 1998, Messrs. Pichler and McMullen and representatives of
Goldman Sachs met with Messrs. Burkle and Miller and representatives of DLJ and
Salomon to further discuss the terms of a potential merger, including the
exchange ratio and certain corporate governance issues.
During the next two weeks, the financial advisors for Kroger and Fred Meyer
had various discussions. On October 11, 1998, Kroger delivered a revised term
sheet to Fred Meyer regarding a merger on substantially the same terms as the
initial term sheet, except an increased exchange ratio of one share of Kroger
Common Stock for one share of Fred Meyer Common Stock and the expansion of the
Kroger Board of Directors to include six directors selected by Fred Meyer.
The Kroger Board of Directors met on October 12, 1998. At this meeting,
senior management of Kroger, Goldman Sachs and legal counsel updated the Kroger
Board of Directors on the status of negotiations. On the same day, Kroger
provided Fred Meyer with drafts of the Merger Agreement and the Stock Option
Agreements based on the revised term sheet.
On October 13, 1998, the Fred Meyer Board of Directors met with senior
management, DLJ, Salomon and legal counsel to review the proposed terms of the
business combination, including the draft agreements provided by Kroger. The
Fred Meyer Board of Directors authorized the Executive Committee of the Board to
continue discussions with Kroger regarding the proposed merger.
During the week of October 12, 1998, Kroger and Fred Meyer and their
respective legal and financial advisors conducted due diligence in Portland and
Cincinnati. At the same time, representatives of Kroger and Fred Meyer continued
to discuss the terms of the proposed merger.
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<PAGE> 37
The Fred Meyer Board of Directors met on October 17, 1998 to review the
ongoing negotiations and to receive an update on the status of the due diligence
process. During the morning of October 18, 1998, the Fred Meyer Board of
Directors reconvened to review the terms and conditions of the proposed merger.
Following presentations from members of management and its financial and legal
advisors, the Fred Meyer Board of Directors received the oral opinions of DLJ
and Salomon (which were subsequently confirmed in writing) that, as of October
18, 1998, the exchange ratio of 1:1 was fair from a financial point of view to
holders of shares of Fred Meyer Common Stock. See "-- Opinions of Financial
Advisors -- Fred Meyer." Subject to final negotiation of certain of the other
terms of the Merger Agreement and the Stock Option Agreements with Kroger, the
Fred Meyer Board of Directors unanimously approved the Merger Agreement, the
Stock Option Agreements and the transactions contemplated thereby, and
determined to recommend that the stockholders of Fred Meyer vote for approval
and adoption of the Merger Agreement and approval of the Merger. For a
description of the reasons considered by the Fred Meyer Board of Directors in
making its determination, see "-- Reasons for the Merger; Recommendations of the
Boards of Directors."
During the afternoon of October 18, 1998, the Kroger Board of Directors met
in New York. Kroger's senior management, financial advisors and legal counsel
made various presentations concerning the proposed transaction. In addition,
Goldman Sachs rendered its oral opinion (which was subsequently confirmed in
writing) that, as of October 18, 1998, the exchange ratio of 1:1 was fair from a
financial point of view to Kroger. See "-- Opinions of Financial
Advisors -- Kroger." While the Kroger Board of Directors was meeting, members of
the senior management of Kroger and Fred Meyer, together with their financial
and legal advisors, continued to negotiate certain issues relating to the Merger
Agreement. After further discussion and consideration, subject to final
negotiation of the terms of the Merger Agreement and the Stock Option Agreements
with Fred Meyer, the Kroger Board of Directors unanimously approved the Merger
Agreement, the Stock Option Agreements and the transactions contemplated
thereby, and determined to recommend that the shareholders of Kroger vote for
approval and adoption of the Merger Agreement and approval of the Merger. For a
description of the reasons considered by the Kroger Board of Directors in making
its determination, see "-- Reasons for the Merger; Recommendations of the Boards
of Directors."
During the evening of October 18, 1998, Kroger and Fred Meyer finalized the
terms of, and executed, the Merger Agreement and the Stock Option Agreements.
Additionally, Kroger executed a voting agreement with Robert G. Miller and a
voting agreement with Ronald W. Burkle, The Yucaipa Companies ("YUCAIPA") and
certain other entities controlled by Mr. Burkle (collectively the "VOTING
AGREEMENTS").
On the morning of October 19, 1998, prior to the commencement of trading on
the NYSE, Kroger and Fred Meyer issued a joint press release publicly announcing
the execution of the Merger Agreement.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Kroger. Kroger's Board of Directors has unanimously approved the Merger
Agreement and the Merger and recommends approval of the Merger Agreement and the
Merger by the shareholders of Kroger. In reaching its determination, the Kroger
Board of Directors consulted with Kroger management, as well as its financial
and legal advisors, and considered the following material factors:
(i) the long-term interests of Kroger and its shareholders, as well as
the interests of Kroger employees, customers, creditors, suppliers
and the communities in which Kroger operates;
(ii) information concerning the business, earnings, operations, financial
condition and prospects of Kroger and Fred Meyer, both individually
and on a combined basis, including information with respect to the
historic earnings performance of each of Kroger and Fred Meyer;
(iii) the presentation made by Goldman Sachs at the October 18, 1998
meeting of the Kroger Board of Directors, and the opinion of Goldman
Sachs, that as of such date and based upon and subject to the
matters reviewed with the Kroger Board of Directors, the Exchange
Ratio was fair from a financial point of view to Kroger. This
opinion was considered together with the valuation and other
analyses presented to the Kroger Board of Directors by Goldman
Sachs. A description of the opinion and analyses are set forth below
under "-- Opinions of Financial Advisors -- Kroger";
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(iv) the Merger provides Kroger the opportunity to create the nation's
largest, most diverse supermarket company, enabling the combined
company to operate more than 2,200 supermarkets and over 800
convenience stores in 37 states, which should give the combined
company first or second shares in 33 of the nation's largest 100
markets;
(v) the Merger combines companies with strong positions in attractive
markets, providing for complementary strategic and geographic
diversification;
(vi) the opportunity to leverage economies of scale and operating
efficiencies through combined purchasing and consolidation of
infrastructures particularly from the coordination of volume based
transactions and the integration of distribution channels and support
systems;
(vii) the Merger provides Kroger with the scale, geographic scope, product
diversity and complementary competencies to enable it to serve its
customers better, which should allow the combined company to
benefit, over the long term, from increased financial strength,
revenue diversification and financial flexibility as compared to
either company on a stand-alone basis;
(viii) the Merger is expected to be accretive to cash flow in 1999 and to
earnings in 2000, excluding merger related costs, resulting in
increased cash flow, acceleration in earnings growth and improvement
in operating margins;
(ix) the terms of the Merger Agreement, including the conditions that the
Merger be accounted for as a pooling of interests and that the Merger
will be a tax-free reorganization for federal income tax purposes;
(x) the stock option agreement granted by Kroger and the proposed
termination fee to be exercisable or payable under certain
circumstances, including the effect that the stock option agreement
and the termination fee may have on the ability of other parties to
make competing business combination proposals with respect to Kroger;
(xi) the stock option agreement granted by Fred Meyer and the proposed
termination fee to be exercisable or payable under certain
circumstances, including the effect that the stock option agreement
and the termination fee may have on the ability of other parties to
make competing business combination proposals with respect to Fred
Meyer;
(xii) the Merger enables Kroger, through the addition of Fred Meyer, to
gain expertise in the operation of multidepartment stores;
(xiii) the recent and historical trading prices of Fred Meyer Common Stock
and Kroger Common Stock relative to those of other industry
participants, and the potential for appreciation in the value of
Kroger Common Stock following the Merger resulting from
opportunities for enhanced revenue growth and accelerated earnings
growth of the combined company;
(xiv) the fact that Kroger shareholders will continue to own approximately
64.5% of the combined company immediately following the Merger
(based upon the shares of Kroger Common Stock and Fred Meyer Stock
Common Stock outstanding at approximately the time the Merger
Agreement was executed);
(xv) the interests of certain directors and executive officers of Fred
Meyer in the Merger described in "THE MERGER -- Interests of Certain
Persons in the Merger"; and
(xvi) the ability to consummate the Merger, including, in particular, the
likelihood of obtaining regulatory approvals and the terms of the
Merger Agreement regarding the obligations of both companies to
pursue such regulatory approvals.
The foregoing discussion sets forth the material information and factors
considered by the Kroger Board of Directors in its consideration of the Merger.
In view of the wide variety of factors considered, the Kroger Board of Directors
did not find it practicable to, and did not make specific assessments of,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determination. The determination was made after
consideration of all of the factors as a whole. In addition, individual members
of the Kroger Board of Directors may have given different weights to different
factors.
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<PAGE> 39
THE BOARD OF DIRECTORS OF KROGER UNANIMOUSLY RECOMMENDS THAT KROGER
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL
OF THE MERGER.
Fred Meyer. At a meeting duly called and held on October 17, 1998 and
adjourned until, and reconvened on, October 18, 1998, the Fred Meyer Board of
Directors unanimously approved the Merger Agreement and authorized and approved
the Merger. At that meeting, the Fred Meyer Board of Directors resolved to
recommend that the stockholders of Fred Meyer vote in favor of the approval and
adoption of the Merger Agreement and the approval of the Merger at the Fred
Meyer Special Meeting.
In making its determination and recommendation, the Fred Meyer Board of
Directors considered the following material factors:
(i) the Merger will provide Fred Meyer stockholders an opportunity to
receive a premium for their shares of Fred Meyer Common Stock based
on the generally prevailing market prices at the time the Fred Meyer
Board of Directors approved the Merger Agreement and the Merger. As
of October 13, 1998, the Exchange Ratio represented a 25.2% premium
based on the closing prices per share of Fred Meyer Common Stock and
Kroger Common Stock on the preceding trading day, a 19.9% premium
based on the average closing prices per share of Fred Meyer Common
Stock and Kroger Common Stock for the three trading days preceding
October 13, 1998, a 20.5% premium based on the average closing
prices per share of Fred Meyer Common Stock and Kroger Common Stock
for the twenty trading days preceding October 13, 1998, and a 21.4%
premium based on the average closing prices per share of Fred Meyer
Common Stock and Kroger Common Stock for the thirty trading days
preceding October 13, 1998. The Fred Meyer Board of Directors
further noted that the Exchange Ratio represented a premium over the
average exchange ratio for each of the one-year period (.952), the
ninety-day period (.906), and the thirty-day period (.825), ended
October 12, 1998;
(ii) the opinion of each of DLJ (attached as APPENDIX E to this Joint
Proxy Statement/Prospectus) and Salomon (attached as APPENDIX F to
this Joint Proxy Statement/Prospectus), financial advisors to the
Fred Meyer Board of Directors, to the effect that, as of October 18,
1998, the Exchange Ratio was fair to the stockholders of Fred Meyer
from a financial point of view. These opinions were considered
together with the valuation and other analyses presented to the Fred
Meyer Board of Directors by DLJ and Salomon. A description of the
opinions and analyses is set forth below under "-- Opinions of
Financial Advisors -- Fred Meyer";
(iii) the current and historical trading prices of Fred Meyer Common Stock
and Kroger Common Stock relative to each other and to those of other
participants in the food retailing sector;
(iv) the historical operational and financial performance of Fred Meyer
and Kroger;
(v) the potential for appreciation in the value of Kroger Common Stock
following the Merger and the opportunity for Fred Meyer stockholders
to participate in any such appreciation through the ownership of
approximately 35.5% of the outstanding shares of Kroger Common Stock
(based upon the number of shares of Kroger Common Stock outstanding
as of October 13, 1998 and the number of shares of Fred Meyer Common
Stock outstanding as of October 15, 1998). In this respect, the Fred
Meyer Board of Directors considered Kroger's expected financial
performance following the Merger, including:
- the combined business, operations, financial condition, operating
results and prospects of Fred Meyer and Kroger, including the fact
that the Merger is expected to be accretive to earnings per share
in 2000, excluding merger-related costs;
- the potential for cost savings and other synergies that would be
created by combining the respective businesses of Fred Meyer and
Kroger, considered in light of the successful cost savings recently
achieved by food retailers following similar transactions, and
weighed against the potential initial costs that likely would be
incurred by Kroger to achieve such cost savings; and
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- Kroger's expected post-Merger capital structure, including the
expectation that Kroger would have a higher credit rating following
the Merger than Fred Meyer on a stand-alone basis and the effect of
Kroger's capital structure on its ability to finance future growth
opportunities;
(vi) the potential value to Fred Meyer and its stockholders that could be
generated from the various strategic alternatives available to Fred
Meyer, including the alternative of remaining independent;
(vii) the complementary geographic fit of the operations of the companies,
including the general lack of overlap in the markets served by the
companies. In this respect, the Fred Meyer Board of Directors noted
in particular that Kroger has a leading position in certain major
markets in which Fred Meyer currently does not operate, including
markets in the Southeastern and Midwestern United States;
(viii) the fact that following the Merger, Kroger will have more than 2,200
retail food stores, over 800 convenience stores, and operations in
37 states making it the largest food retailer in the United States
and a substantially larger enterprise than either Kroger or Fred
Meyer on a stand-alone basis. The Fred Meyer Board of Directors
considered this factor in light of the continued consolidation and
the developing competitive environment in the food and
multidepartment retail industry generally, including the acquisition
of American Stores Company by Albertson's, Inc., acquisitions by
Safeway Inc., and the entrance into food retailing by Wal-Mart
Stores, Inc. In this respect, the Fred Meyer Board of Directors also
considered the conclusion of Fred Meyer management that economies of
scale, including increased purchasing power and operational
efficiencies, likely will be a prerequisite to financial and
operational success in the food and multidepartment retailing
sectors in the near future;
(ix) the historical performance and reputation of the Kroger management
team, and the belief of Fred Meyer management that Kroger and Fred
Meyer have complementary business philosophies that will facilitate
the integration of the two companies and the successful operation of
the combined company;
(x) the fact that certain members of the existing Fred Meyer management
team will join Kroger management following the Merger. In particular,
the Fred Meyer Board of Directors noted that pursuant to the Merger
Agreement: (A) Ronald W. Burkle, the current Chairman of the Board of
Fred Meyer, will become Chairman of the Executive Committee of the
Kroger Board of Directors; (B) Robert G. Miller, the current Vice
Chairman and Chief Executive Officer of Fred Meyer, will become Vice
Chairman of the Kroger Board of Directors and Chief Operating Officer
of Kroger; and (C) four other current members of the Fred Meyer Board
of Directors, will become members of the Kroger Board of Directors;
(xi) the belief of the Fred Meyer Board of Directors that Fred Meyer and
its management is well positioned to work toward the successful
integration of Fred Meyer's businesses with those of Kroger as a
result of the substantial success to date in the integration of
businesses recently acquired by Fred Meyer;
(xii) the measures taken by the parties to provide reasonable assurance to
each other that the Merger will be consummated. These include the
reciprocal expense reimbursement and termination fee provisions of
the Merger Agreement requiring Fred Meyer or Kroger, as the case may
be, to compensate the other in certain circumstances in the event
the Merger Agreement is terminated, the "no-shop" provisions of the
Merger Agreement that restrict the ability of Fred Meyer and Kroger
to engage in discussions with third parties with respect to
alternative business combination transactions, and the terms of the
Stock Option Agreements that provide each party the right, under
certain circumstances in which it is entitled to receive a
termination fee under the Merger Agreement, to purchase up to 19.9%
of the other party's outstanding common stock. The Fred Meyer Board
of Directors weighed the increased certainty provided by these
provisions against the fact that such provisions may serve to deter
third parties from proposing an alternative business combination
transaction with respect to Fred Meyer;
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(xiii) the terms of the Merger Agreement not discussed above, including the
following:
- the fact that the Merger Agreement does not contain any provisions
for adjustment of the Exchange Ratio based on fluctuations in the
price of Kroger Common Stock or Fred Meyer Common Stock prior to the
Merger; the required approval of the shareholders of Fred Meyer and
Kroger;
- the customary conditions to each party's obligation to consummate the
Merger set forth in the Merger Agreement; and
- the reciprocal representations, warranties and covenants set forth in
the Merger Agreement;
(xiv) the ability of Fred Meyer and Kroger to consummate the Merger,
including the likelihood of obtaining necessary regulatory approvals
and the obligations of both companies to pursue such regulatory
approvals under the terms of the Merger Agreement;
(xv) the social and economic effects of the Merger on the employees,
customers, suppliers and other constituents of Fred Meyer and its
subsidiaries and on the communities in which they operate. In this
respect, the Fred Meyer Board of Directors lent substantial weight to
Kroger's agreement to continue Fred Meyer's financial support of
certain charitable foundations;
(xvi) the interests of Fred Meyer's officers and directors in the Merger
as described in "-- Interests of Certain Persons in the Merger"; and
(xvii) the understanding of the Fred Meyer Board of Directors that pooling
of interests accounting treatment should be available for the Merger
and that the Merger will be consummated as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended (the "CODE").
The foregoing discussion sets forth the material factors considered by the
Fred Meyer Board of Directors in its consideration of the Merger Agreement and
the Merger. In view of the variety of factors considered, the Fred Meyer Board
of Directors did not find it practicable to, and did not make specific
assessments of, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. The determination was made
after consideration of all of the factors together. In addition, individual
members of the Fred Meyer Board of Directors may have given different weights to
different factors.
THE BOARD OF DIRECTORS OF FRED MEYER UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF FRED MEYER VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE APPROVAL OF THE MERGER.
OPINIONS OF FINANCIAL ADVISORS
Kroger
Goldman Sachs. On October 18, 1998, Goldman Sachs rendered to the Kroger
Board an oral opinion which was confirmed by delivery of its written opinion,
dated October 18, 1998 (the "GOLDMAN SACHS OPINION"), that as of such date, the
Exchange Ratio pursuant to the Merger Agreement was fair from a financial point
of view to Kroger.
THE FULL TEXT OF THE GOLDMAN SACHS OPINION WHICH SETS FORTH ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION
WITH THE OPINION, IS SET FORTH IN APPENDIX D TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE GOLDMAN SACHS
OPINION REFERRED TO HEREIN WAS PROVIDED FOR THE INFORMATION AND ASSISTANCE OF
THE KROGER BOARD OF DIRECTORS IN CONNECTION WITH ITS CONSIDERATION OF THE MERGER
AND THE GOLDMAN SACHS OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER
OF KROGER COMMON STOCK AS TO HOW ANY SHAREHOLDER SHOULD VOTE AT THE KROGER
SPECIAL MEETING. THE SUMMARY OF THE GOLDMAN SACHS OPINION SET FORTH HEREIN IS
QUALIFIED BY THE FULL TEXT THEREOF, AND KROGER SHAREHOLDERS ARE URGED TO, AND
SHOULD, READ THE GOLDMAN SACHS OPINION IN ITS ENTIRETY.
In connection with the Goldman Sachs Opinion, Goldman Sachs reviewed (i)
the Merger Agreement; (ii) the Annual Reports to Shareholders and Annual Reports
on Form 10-K of Kroger for the five fiscal years ended
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December 27, 1997; (iii) the Annual Reports to Stockholders and Annual Reports
on Form 10-K of Fred Meyer for the five fiscal years ended January 31, 1998;
(iv) certain interim reports to shareholders and Quarterly Reports on Form 10-Q
of Kroger; (v) certain interim reports to stockholders and Quarterly Reports on
Form 10-Q of Fred Meyer; (vi) certain other communications from Kroger and Fred
Meyer to their respective shareholders and stockholders; and (vii) certain
internal financial analyses and forecasts for Kroger and Fred Meyer prepared by
their respective managements, including analyses of certain cost savings and
operating synergies projected by the management of Kroger to result from the
Merger (the "SYNERGIES"). Furthermore, Goldman Sachs reviewed (i) the
Registration Statement on Form S-4, including the Joint Proxy
Statement/Prospectus, dated August 6, 1997, relating to the Special Meetings of
Stockholders of Fred Meyer and Smith's; and (ii) the Registration Statement on
Form S-4, including the Joint Proxy and Consent Solicitation
Statement/Prospectus, dated January 27, 1998, relating to the Special Meetings
of Stockholders of Fred Meyer and QFC; and the consent of the stockholders of
Food 4 Less. Goldman Sachs also held discussions with members of the senior
managements of Kroger and Fred Meyer regarding the strategic rationale for, and
the potential benefits of, the Merger and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, Goldman Sachs reviewed the Commitment Letter, dated
October 18, 1998, between Kroger, The Chase Manhattan Bank ("CHASE") and Chase
Securities Inc. (the "CSI"), relating to amendments to the Kroger and Fred Meyer
bank loan agreements (the "COMMITMENT LETTER"), and the reported price and
trading activity for the Kroger Common Stock and the Fred Meyer Common Stock,
compared certain financial and stock market information for Kroger and Fred
Meyer with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the supermarket industry specifically and in other
industries generally and performed such other studies and analyses as Goldman
Sachs considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs assumed, with the Kroger Board of Directors' consent, that the financial
forecasts prepared by the managements of Kroger and Fred Meyer, including, the
Synergies, were reasonably prepared on a basis reflecting the best currently
available judgments and estimates of Kroger and Fred Meyer, and that these
forecasts and Synergies would be realized in the amounts and time periods
contemplated thereby. In addition, with the Kroger Board of Directors' consent,
Goldman Sachs has assumed that the transactions described in the Commitment
Letter will be consummated. Goldman Sachs did not make an independent evaluation
or appraisal of the assets and liabilities of Kroger or Fred Meyer or any of
their subsidiaries and was not furnished with any evaluation or appraisal.
Goldman Sachs also assumed, with the Kroger Board of Directors' consent, that
the merger will be accounted for as a pooling of interests transaction under
generally accepted accounting principles. The opinion of Goldman Sachs was
provided for the information and assistance of the Kroger Board of Directors in
connection with its consideration of the Merger and this opinion does not
constitute a recommendation as to how any holder of Kroger Common Stock should
vote with respect to the Merger.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Kroger, having provided investment banking services to Kroger from
time to time, including having acted as lead manager of numerous equity and debt
financings, and having acted as its financial advisor in connection with, and
having participated in certain of the negotiations leading to, the Merger
Agreement.
Goldman Sachs is familiar with Fred Meyer, having provided certain
investment banking services to Fred Meyer from time to time, including having
acted as lead-managing underwriter of a public offering of 3,850,000 shares of
Fred Meyer Common Stock in September 1996, as a co-managing underwriter of a
public offering of 8,997,795 shares of Fred Meyer Common Stock in July 1998, as
a co-managing underwriter of a public offering of $250,000,000 principal amount
of its 7.15% Notes due March 1, 2003, $750,000,000 principal amount of Fred
Meyer's 7.375% Notes due March 1, 2005 (the "7.375% NOTES"), and $750,000,000
principal amount of Fred Meyer's 7.45% Notes due March 1, 2008 (the "7.45%
NOTES") (each in March 1998), as a managing agent of a
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<PAGE> 43
$3,985,000,000 bank loan and synthetic lease financing in March 1998 and as a
financial advisor in connection with its acquisitions of QFC and Food 4 Less, in
March 1998.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Kroger or Fred Meyer for Goldman Sachs' own account and for the accounts of
its customers. As of October 16, 1998, the last business day prior to the
rendering of the Goldman Sachs Opinion, Goldman Sachs accumulated a long
position of 49,085 shares of Kroger Common Stock against which it was short
44,732 shares of Kroger Common Stock, and a long position of $4,800,000
principal amount of 6.375% Senior Notes due March 1, 2008 issued by Kroger.
Goldman Sachs also had accumulated a long position of 32,420 shares of Fred
Meyer Common Stock against which it was short 26,400 shares of Fred Meyer Common
Stock, and short positions of $325,000 principal amount of the 7.375% Notes and
$7,850,000 principal amount of the 7.45% Notes issued by Fred Meyer.
Pursuant to a letter agreement, dated October 10, 1998 (the "GOLDMAN SACHS
ENGAGEMENT LETTER"), Kroger engaged Goldman Sachs to render financial advisory
and investment banking services to Kroger in connection with the possible
acquisition of all or a portion of the stock or assets of Fred Meyer. Pursuant
to the terms of the Goldman Sachs Engagement Letter, an opinion fee (the
"OPINION FEE") of $6,000,000 became payable to Goldman Sachs by Kroger upon
delivery of the Goldman Sachs Opinion. To the extent paid, the Opinion Fee will
be credited against a transaction fee of $24,000,000, which is payable upon
consummation of the Merger. Kroger also agreed to pay Goldman Sachs a fee equal
to 20% of any break-up or similar fee received by Kroger in connection with the
termination of the Merger Agreement. In addition, Kroger has agreed to reimburse
Goldman Sachs for its reasonable out-of-pocket expenses, including the fees and
expenses of Goldman Sachs' attorneys, and to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal securities
laws.
Financial Analysis Used by Goldman Sachs. The following is a summary of
certain of the financial analyses used by Goldman Sachs in connection with
providing its written opinion to the Kroger Board on October 18, 1998.
(i) Exchange Ratio Analysis. Goldman Sachs calculated the average of
the quotients of the closing prices per share of Fred Meyer Common Stock
and the closing prices per share of Kroger Common Stock for the two year,
one year, six months, three months and one month periods ended October 16,
1998 (the "AVERAGE EXCHANGE RATIOS"). Such analyses indicated that for such
periods the Average Exchange Ratios were 0.88, 0.95, 0.94, 0.86 and 0.84,
respectively, compared to the proposed Exchange Ratio of 1.0.
(ii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to Kroger and Fred Meyer to
corresponding financial information, ratios and public market multiples for
seven publicly traded corporations: Safeway Inc.; Albertson's, Inc.;
Winn-Dixie Stores, Inc.; Food Lion, Inc.; Hannaford Brothers Co.; Weis
Markets Inc.; and Great Atlantic & Pacific Tea Co., Inc. (A&P) (the
"GOLDMAN SACHS SELECTED COMPANIES"). Goldman Sachs calculated and compared
various financial multiples and ratios. The multiples of the Goldman Sachs
Selected Companies were calculated using closing stock prices as of October
16, 1998. The multiples for Kroger and Fred Meyer were calculated using
closing stock prices as of September 16, 1998 and October 16, 1998. The
multiples and ratios for Kroger and Fred Meyer and for each of the Goldman
Sachs Selected Companies were based on the most recent publicly available
information. Estimates for earnings before interest, taxes, depreciation
and amortization ("EBITDA") are based on fiscal year, while earnings per
share ("EPS") estimates are calendarized. The analysis showed, among other
things, that the ratio of levered market value (i.e. market value of common
equity plus book value of debt less cash and cash equivalents) as a
multiple of EBITDA for the Goldman Sachs Selected Companies, (a) using
estimated 1998 EBITDA, ranged from a low of 4.3x to a high of 12.1x (with a
median of 10.2x and a mean of 9.0x), compared to 10.5x for Kroger and 10.2x
for Fred Meyer based on October 16, 1998 closing stock prices (10.4x for
Kroger and 9.4x for Fred Meyer based on September 16, 1998 closing stock
prices) (b) using estimated 1999 EBITDA, ranged from a low of 4.0x to a
high of 10.8x (with a median 8.8x and a mean of 8.1x), compared to 9.5x for
Kroger and 8.8x for Fred Meyer based on October 16, 1998 closing stock
prices (9.4x for Kroger and 8.2x for Fred Meyer based
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on September 16, 1998 closing stock prices). This analysis also showed,
among other things, that the price/earnings ratio for the Goldman Sachs
Selected Companies, (x) using estimated 1998 earnings, ranged from a low of
13.4x to a high of 34.0x (with a median of 23.9x and a mean of 22.7x),
compared to 24.6x for Kroger and 34.0x for Fred Meyer, based on October 16,
1998 closing stock prices (24.1x for Kroger and 29.8x for Fred Meyer based
on September 16, 1998 closing stock prices) and (y) using estimated 1999
earnings, ranged from a low of 11.4x to a high of 25.3x (with a median of
20.2x and a mean of 19.2x), compared to 21.7x for Kroger and 25.3x for Fred
Meyer, based on October 16, 1998 closing stock prices (21.3x for Kroger and
22.1x for Fred Meyer based on September 16, 1998 closing stock prices).
Earnings estimates used in the foregoing analysis were based on
Institutional Brokers Estimates System ("IBES") earnings estimates. IBES is
a data service that monitors and publishes compilations of earnings
estimates by selected research analysts regarding companies of interest to
institutional investors. EBITDA estimates used in the foregoing analysis
were based upon estimates of reputable research analysts.
(iii) Selected Transactions Analysis. Goldman Sachs reviewed and
analyzed levered value as a multiple of (x) the latest twelve months
("LTM") EBITDA and (y) forward estimates for the following fiscal year in
selected merger or acquisition transactions involving other companies in
the supermarket chain industries that Goldman Sachs deemed relevant (the
"GOLDMAN SELECTED TRANSACTIONS"). EBITDA estimates used in the foregoing
analysis were based upon estimates of reputable research analysts. Among
other matters, this review by Goldman Sachs indicated that the merger and
acquisition transaction environment varies over time because of
macroeconomic factors such as interest rate and equity market fluctuations
and microeconomic factors such as industry results and growth expectations.
Goldman Sachs noted that no transaction reviewed was identical to the
Kroger/Fred Meyer Merger and that, accordingly, an assessment of the
results of the following analysis necessarily involves considerations and
judgments concerning differences in financial and operating characteristics
of Fred Meyer and other factors that would affect the acquisition value of
the companies to which it is being compared. This analysis indicated that,
for the Goldman Selected Transactions, levered value as a multiple of LTM
EBITDA, ranged from a low of 8.2x to a high of 13.8x prior to accounting
for total estimated synergies publicly disclosed for each Goldman Selected
Transaction, and levered value as a multiple of LTM EBITDA after adjusting
for such synergies ranged from a low of 7.2x to a high of 11.1x. In
addition, levered value as a multiple of forward EBITDA ranged from a low
of 8.7x to a high of 10.6x prior to accounting for total estimated
synergies publicly disclosed for each Goldman Selected Transaction, and
levered value as a multiple of forward EBITDA after adjusting for such
synergies ranged from a low of 7.1x to a high of 8.9x. Goldman Sachs also
calculated levered value as a multiple of EBITDA for the Merger using an
October 16, 1998 closing price of $48.75 per share of Kroger Common Stock.
The analysis indicated that the levered value/EBITDA ratio (i) without any
of the cost savings expected to be realized as a result of the Merger, (A)
using 1998 estimated EBITDA, was 9.7x; (B) using 1999 estimated EBITDA, was
8.7x; and (C) using 2000 estimated EBITDA, was 8.0x; (ii) with $225 million
of cost savings (equal to the cost savings expected to be realized as a
result of the Merger as estimated by Kroger management) (A) using 1998
estimated EBITDA, was 8.3x; (B) using 1999 estimated EBITDA, was 7.6x; and
(C) using 2000 estimated EBITDA, was 7.0x.
(iv) Discounted Cash Flow Analysis. Goldman Sachs performed a
discounted cash flow analysis of Fred Meyer utilizing stand-alone Fred
Meyer management projections for Fred Meyer for the years 1999 through
2004. Goldman Sachs calculated the net present value of free cash flows for
the years 1999 through 2004 using discount rates ranging from 8% to 13%.
Goldman Sachs calculated terminal values in the year 2004 based on
multiples ranging from 8.0x EBITDA to 12.0x EBITDA and then discounted
these terminal values using discount rates ranging from 8% to 13%. This
analysis showed that the implied per share values for the Common Stock
ranged from a low of $35.64 to a high of $84.80.
(v) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma
analyses of the financial impact of the Merger using projections provided
by Kroger and Fred Meyer managements and based on Kroger and Fred Meyer
Business Plans, but excluding consideration of any write-offs related to
the Merger, related fees and expenses and any potential effect of asset
divestitures. Using the related earnings estimates, for the years 1999 and
2000 as adjusted to reflect the Synergies, Goldman Sachs determined the EPS
of the common stock for the combined companies on a pro forma basis. This
analysis assumed an effective tax rate of 38%
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and an exchange ratio of 1.0. The analysis indicated that the Merger would
be neutral to slightly accretive to the shareholders on an EPS basis for
the fiscal year 1999 and accretive for the fiscal year 2000 relative to the
then current IBES estimates for Kroger, assuming the transaction closed on
January 1, 1999.
(vi) Contribution Analysis. Goldman Sachs reviewed certain historical
and estimated future operating and financial information, (including sales,
EBITDA, earnings before interest and taxes ("EBIT") and net income) for
Kroger and Fred Meyer (based on their respective managements' estimates)
and the pro forma combined entity resulting from the Merger (this analysis
compares Kroger's fiscal year ending in December and Fred Meyer's fiscal
year ending in January). The analysis indicated that (a) the Kroger
shareholders would own 61.7% of the outstanding common equity of the
combined entity (as compared to 38.3% for Fred Meyer) assuming the Exchange
Ratio of 1.0; (b) in 1998, Kroger would have contributed 64.9% to revenues,
54.3% to EBITDA (before Synergies), and 57.4% to EBIT (before Synergies),
and Fred Meyer would have contributed 35.1% to revenues, 45.7% to EBITDA
(before Synergies), and 42.6% to EBIT (before Synergies); (c) in 1999,
Kroger would have contributed 64.1% to revenues, 54.2% to EBITDA (before
Synergies), 56.6% to EBIT (before Synergies), and 66.2% to net income
(57.6% after Synergies), and Fred Meyer would have contributed 35.9% to
revenues, 45.8% to EBITDA (before Synergies), 43.4% to EBIT (before
Synergies) and 33.8% to net income (42.4% after Synergies); (d) in 2000,
Kroger would have contributed 64.0% to revenues, 54.4% to EBITDA (before
Synergies), 56.2% to EBIT (before Synergies), and 63.9% to net income
(56.8% after Synergies), and Fred Meyer would have contributed 36.0% to
revenues, 45.6% to EBITDA (before Synergies), 43.8% to EBIT (before
Synergies), and 36.1% to net income (43.2% after Synergies).
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all these analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Kroger or Fred Meyer or the contemplated transaction. The analyses were prepared
solely for the purpose of Goldman Sachs' providing its opinion to the Kroger
Board of Directors as to the fairness from a financial point of view of the
Exchange Ratio and do not purport to be appraisals or necessarily reflect the
prices at which business or securities actually may be sold. Analyses based upon
forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because these analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond of the control of the parties
or their respective advisors, none of Kroger, Fred Meyer, Goldman Sachs or any
other person assumes responsibility if future results are materially different
from those forecast. As described above, Goldman Sachs opinion to the Kroger
Board of Directors was one of many factors taken into consideration by the
Kroger Board of Directors in making its determination to approve the Merger
Agreement. The foregoing summary does not purport to be a complete description
of the analysis performed by Goldman Sachs and is qualified by reference to the
written opinion of Goldman Sachs set forth in APPENDIX D.
Fred Meyer
DLJ. In its role as financial advisor to Fred Meyer, DLJ was asked by Fred
Meyer to render an opinion as to the fairness from a financial point of view to
the common stockholders of Fred Meyer of the Exchange Ratio. On October 18,
1998, DLJ delivered its written opinion (the "DLJ OPINION") to the effect that,
as of the date of the opinion, and based upon and subject to the assumptions,
limitations and qualifications set forth in the opinion, the Exchange Ratio is
fair to the holders of Fred Meyer Common Stock from a financial point of view.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS APPENDIX E. FRED MEYER
STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION CAREFULLY IN ITS ENTIRETY FOR THE
ASSUMPTIONS MADE, THE PROCEDURES FOLLOWED, THE MATTERS CONSIDERED AND THE LIMITS
OF THE REVIEW MADE BY DLJ IN CONNECTION WITH SUCH OPINION.
The DLJ Opinion was prepared for the Fred Meyer Board of Directors and
addresses only the fairness of the Exchange Ratio to the holders of Fred Meyer
Common Stock from a financial point of view. The DLJ Opinion does not constitute
a recommendation to any stockholder as to how such stockholder should vote on
the Merger.
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DLJ was not retained as an advisor or agent to Fred Meyer's stockholders or any
other persons, other than as an advisor to Fred Meyer. The Exchange Ratio was
determined in arm's-length negotiations between Kroger and Fred Meyer, in which
negotiations DLJ advised Fred Meyer. No restrictions or limitations were imposed
by Fred Meyer upon DLJ with respect to the investigations made or the procedures
followed by DLJ in rendering the DLJ Opinion. DLJ was not requested to, and did
not solicit the interest of any other party in any other transaction with Fred
Meyer.
In arriving at its opinion, DLJ reviewed the draft dated October 17, 1998
of the Merger Agreement, including exhibits thereto, as well as financial and
other information that was publicly available or furnished to it by Kroger and
Fred Meyer including information provided during discussions with their
respective managements. Included in the information provided during discussions
with the respective managements were certain financial projections of Fred Meyer
prepared by management of Fred Meyer and certain financial projections of Kroger
prepared by management of Kroger. In addition, DLJ compared certain financial
and securities data of Kroger and Fred Meyer with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the Fred Meyer Common Stock and Kroger Common Stock,
reviewed prices and premiums paid in certain other business combinations and
conducted such other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by Fred Meyer and Kroger or
their respective representatives, or that was otherwise reviewed by it. DLJ
relied upon the estimates of the management of Fred Meyer of operating savings
and other benefits and cost reductions achievable as a result of the Merger and
upon its discussions of such operating synergies assumptions with the management
of Kroger. DLJ also assumed that the financial projections were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of Fred Meyer and Kroger, as to the future operating
and financial performance of Fred Meyer and Kroger. DLJ did not assume any
responsibility for making an independent evaluation of Fred Meyer's and Kroger's
assets or liabilities or any independent verification of any of the information
reviewed by it.
The DLJ Opinion is necessarily based upon economic, market, financial and
other conditions as they existed on, and on the information made available to it
as of, the date of the DLJ Opinion. DLJ does not have any obligation to update,
revise or reaffirm its opinion.
Pursuant to a letter agreement between Fred Meyer and DLJ, dated October
13, 1998 (the "DLJ ENGAGEMENT LETTER"), DLJ is entitled to (i) a fee of $250,000
payable upon execution of the DLJ Engagement Letter, (ii) an additional fee of
$1.5 million payable following the execution of the Merger Agreement and the
delivery of the DLJ Opinion and (iii) an additional fee payable upon the closing
of the Merger of $20.0 million, reduced by amounts payable under clauses (i) and
(ii). Fred Meyer has also agreed to pay DLJ a fee equal to 15% (but in no event
more than $7 million) of any break-up or similar fee or profit resulting from
any option on shares of Kroger Common Stock received by Fred Meyer in connection
with the termination of the Merger Agreement. Fred Meyer has agreed to reimburse
DLJ for its out of pocket expenses, including reasonable fees and expenses of
its counsel, and to indemnify DLJ for liabilities and expenses arising out of
the Merger, including liabilities under federal securities laws. The terms of
the fee arrangement with DLJ, which DLJ and Fred Meyer believe are customary in
transactions of this nature, were negotiated at arms' length between Fred Meyer
and DLJ, and the Fred Meyer Board was aware of such arrangement, including the
fact that a significant portion of the aggregate fee payable to DLJ is
contingent upon consummation of the Merger.
DLJ, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. DLJ has performed investment banking and other services for Fred Meyer
in the past and has been compensated for such services.
Salomon. Fred Meyer engaged Salomon to act as its financial advisor in
connection with the transactions contemplated by the Merger Agreement based upon
Salomon's qualifications, expertise and reputation as well as Salomon's prior
investment banking relationship and familiarity with Fred Meyer. On October 18,
1998, Salomon rendered to the Fred Meyer Board of Directors an oral opinion,
which was confirmed by delivery of its written
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opinion, dated October 18, 1998 (the "SALOMON OPINION"), to the effect that, as
of such date, and based upon and subject to the assumptions, limitations and
qualifications set forth in such opinion, the Exchange Ratio was fair, from a
financial point of view, to the holders of Fred Meyer Common Stock.
THE FULL TEXT OF THE SALOMON OPINION IS SET FORTH IN APPENDIX F TO THIS
JOINT PROXY STATEMENT/ PROSPECTUS AND SHOULD BE READ CAREFULLY IN ITS ENTIRETY,
INCLUDING WITHOUT LIMITATION, THE DESCRIPTIONS OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW
UNDERTAKEN IN ARRIVING AT SUCH OPINION. THE SALOMON OPINION REFERRED TO HEREIN
WAS PROVIDED FOR THE INFORMATION AND ASSISTANCE OF THE FRED MEYER BOARD IN
CONNECTION WITH ITS CONSIDERATION OF THE MERGER. THE SALOMON OPINION ADDRESSES
ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE EXCHANGE RATIO TO THE
HOLDERS OF FRED MEYER COMMON STOCK AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER OF FRED MEYER OR KROGER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THEIR RESPECTIVE SPECIAL MEETINGS. THE SUMMARY OF THE SALOMON OPINION SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE SALOMON OPINION.
The Salomon Opinion does not constitute an opinion as to the price at which
the Kroger Common Stock will actually trade at any time. No restrictions or
limitations were imposed upon Salomon with respect to the investigations made or
procedures followed by Salomon in rendering its opinion. In addition, Salomon
received no instructions to, and did not, seek or solicit alternative
transactions. In arriving at its opinion, Salomon reviewed, among other things,
the Merger Agreement, including exhibits thereto, as well as certain publicly
available information concerning Fred Meyer and Kroger, respectively, and
certain internal information, primarily financial in nature, concerning the
business and operations of Fred Meyer and Kroger provided to it by Fred Meyer
and Kroger, respectively, for purposes of analysis, including information
provided during discussions with their respective managements regarding their
businesses and prospects. Included in the information provided during
discussions with the respective managements were certain financial forecasts and
other information including forecasts and pro forma financial information giving
effect to the Merger, relating to the past and current business operations,
financial condition and prospects of Fred Meyer and Kroger prepared by their
respective managements. In addition, Salomon compared certain financial and
securities data of Kroger and Fred Meyer with various other companies whose
securities are traded in public markets, reviewed the historical stock prices of
Kroger Common Stock and Fred Meyer Common Stock, reviewed prices and premiums
paid in certain other business combinations and conducted such other financial
studies, analyses and investigations as Salomon deemed appropriate for purposes
of rendering its opinion. Salomon also considered such other information,
financial studies, analyses, investigations and financing, economic and market
criteria that Salomon deemed relevant.
In rendering its opinion, Salomon did not attempt to independently verify
or assume responsibility for verifying any of the information reviewed by it and
assumed the accuracy and completeness of all of the financial and other
information reviewed by it. Salomon did not conduct a physical inspection of the
properties or facilities, nor did it make or obtain or assume responsibility for
obtaining any independent evaluation or appraisal of any assets (including
properties and facilities) or liabilities, of Fred Meyer or Kroger. Salomon
relied upon the estimates of the respective managements of Fred Meyer and Kroger
of the cost savings achievable as a result of the Merger. Salomon also assumed
that the financial forecasts (including pro forma financial information) and
supporting assumptions (including anticipated cost savings resulting from the
combination of Fred Meyer and Kroger) were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of Fred Meyer and Kroger as to the respective future
financial performance of their companies. Salomon expressed no opinion with
respect to such forecasts or the assumptions on which they are based. In
addition, with the consent of Fred Meyer, Salomon took into account the advice
of Fred Meyer's independent accountants with respect to the likely accounting
treatment of the Merger. Salomon also assumed that the conditions precedent to
the Merger Agreement would be satisfied (and not waived) and the Merger would be
consummated in accordance with the terms of the Merger Agreement. The opinion of
Salomon does not imply any conclusion as to the likely trading range for Kroger
Common Stock following the consummation of the Merger, which may vary depending
upon, among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. The Salomon Opinion is limited to the
fairness, from a financial point of view, of the Exchange Ratio to the holders
of
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Fred Meyer Common Stock and does not address Fred Meyer's underlying business
decision to effect the Merger or constitute a recommendation concerning how
holders of Fred Meyer Common Stock should vote with respect to the Merger. While
Salomon believes that its review as described herein is an adequate basis for
the Salomon Opinion, the Salomon Opinion is necessarily based upon financial,
economic, monetary, political, market and other conditions that existed and
could be evaluated as of the date of the Salomon Opinion. Salomon does not have
any obligation to update, revise or reaffirm its opinion as a result of any such
change in such conditions or otherwise.
Salomon is not affiliated with Fred Meyer or Kroger. Salomon and its
affiliates (including Citigroup Inc. and its affiliates) have previously
rendered certain financial advisory and investment banking, broker-dealer
related and lending and other banking services to Fred Meyer and Kroger, for
which they received customary compensation. In the ordinary course of its
business, Salomon actively trades the securities of Fred Meyer and Kroger for
its own account and the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities. Pursuant to an engagement
letter, dated October 13, 1998 (the "SALOMON ENGAGEMENT LETTER"), Fred Meyer
engaged Salomon to provide financial advisory and investment banking services to
Fred Meyer in connection with the possible combination (by merger, tender offer
or otherwise) with Kroger or any of its subsidiaries. Pursuant to the terms of
the Salomon Engagement Letter, Fred Meyer has paid Salomon $1.75 million and has
agreed to pay Salomon an additional fee of $18.25 million contingent upon the
consummation of the Merger. Fred Meyer also agreed to pay to Salomon a fee equal
to 15% (but in no event more than $7 million) of any break-up or similar fee or
profit resulting from any option on shares of Kroger Common Stock received by
Fred Meyer in connection with the termination of the Merger Agreement. In
addition, Fred Meyer agreed to reimburse Salomon for reasonable travel and
out-of-pocket expenses incurred by Salomon in connection with its engagement
(including reasonable travel expenses and fees and expenses of Salomon's
counsel). Fred Meyer further agreed to indemnify Salomon and certain related
persons against certain liabilities, including liabilities under the federal
securities laws, relating to or arising out of its engagement.
FINANCIAL ANALYSES PERFORMED BY DLJ AND SALOMON. The following is a summary
of certain of the financial analyses performed by DLJ and Salomon in connection
with providing their respective written opinions to the Fred Meyer Board of
Directors on October 18, 1998 and in presentations to the Fred Meyer Board of
Directors on October 13, 17 and 18, 1998. The analyses were performed solely for
purposes of DLJ and Salomon providing their opinions to the Fred Meyer Board of
Directors as to the fairness to the holders of Fred Meyer Common Stock from a
financial point of view of the Exchange Ratio pursuant to the Merger Agreement,
and such opinions were among many factors taken into consideration by the Fred
Meyer Board of Directors in making its determination to approve the Merger
Agreement. The summary set forth below does not purport to be a complete
description of the analyses performed by DLJ and Salomon, but describes, in
summary form, the principal elements of the material analyses made by DLJ and
Salomon in arriving at the DLJ Opinion and the Salomon Opinion, respectively.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, such an opinion
is not readily summarized. Each of the analyses conducted by DLJ and Salomon was
carried out in order to provide a different perspective on the transaction and
add to the total mix of information available. DLJ and Salomon did not form a
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness from a financial point
of view. Rather, in reaching their conclusions, DLJ and Salomon considered the
results of the analyses in light of each other and ultimately reached their
opinions based on the results of the analyses taken as a whole. Further, DLJ's
and Salomon's conclusions involved significant elements of judgment and
qualitative analyses as well as the financial and quantitative analyses.
Accordingly, notwithstanding the separate factors summarized below, DLJ and
Salomon believe that their analyses must be considered as a whole and that
selecting portions of their analyses and the factors considered by them, without
considering all analyses and factors, could create an incomplete or misleading
view of the evaluation process underlying their opinions. In performing their
analyses, DLJ and Salomon made numerous assumptions with respect to industry
performance, general business, financial, economic and market conditions and
other matters, many of which are beyond the control of Fred Meyer and Kroger. No
company or transaction used in the analyses as a comparison is directly
comparable to Fred Meyer, Kroger or the contemplated transaction. In addition,
analyses relating to the value of the businesses or securities do not purport to
be appraisals, or to reflect the prices at which such businesses or securities
can actually be sold.
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The analyses performed by DLJ and Salomon are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of Fred Meyer, Kroger,
DLJ, Salomon or any other person assumes responsibility if future results are
materially different from those forecast. All analyses discussed below are based
on the Fred Meyer Common Stock closing price on October 12, 1998 of $39.88 and
the Kroger Common Stock closing price on that date of $49.94.
(i) Historical Exchange Ratio Analysis. DLJ and Salomon analyzed the
historical implied exchange ratio between Fred Meyer Common Stock and
Kroger Common Stock over several time periods. For each period selected the
average implied exchange ratios were calculated. The time periods (ending
October 12, 1998) selected for analysis were the last 90 trading days and
last 30 trading days and the average Exchange Ratio for each of these time
periods was 0.906 and 0.825, respectively. In addition, DLJ and Salomon
also analyzed the implied exchange ratio between Fred Meyer Common Stock
and Kroger Common Stock for the twelve month period ended October 12, 1998.
During this period, the Exchange Ratio averaged 0.952.
(ii) Relative Contribution Analysis. DLJ and Salomon analyzed the
relative contributions of Fred Meyer and Kroger to the EBITDA and net
income of the combined company for the projected fiscal years ending 1998,
1999, 2000 and 2001. Based on the projected fiscal years 1998, 1999 and
2000, Fred Meyer's EBITDA (calculated before allocating any cost savings)
represents 45.7%, 45.8% and 45.6%, respectively, of EBITDA for the combined
company. The exchange ratio implied by Fred Meyer's estimated relative
contribution to EBITDA for the fiscal years 1998, 1999 and 2000 is 1.097,
1.101 and 1.090, respectively. Based on the projected fiscal years 1999,
2000 and 2001, Fred Meyer's net income (calculated before allocating any
cost savings) represents 33.8%, 36.2% and 36.9%, respectively, of the net
income of the combined company. The exchange ratio implied by Fred Meyer's
estimated relative contribution to net income for the fiscal years 1999,
2000, and 2001 is 0.829, 0.922 and 0.949, respectively. The Kroger common
shares (including shares underlying all outstanding options without
adjustment for any assumed cash exercise of the options) to be issued to
the Fred Meyer stockholders under the Exchange Ratio will represent
approximately 38.0% of Kroger's outstanding shares pro forma for the
Merger. The results of the relative contribution analysis are not
necessarily indicative of the relative contributions that the respective
businesses may actually have in the future.
(iii) Selected Companies Analysis. DLJ and Salomon reviewed and
compared certain financial information relating to Fred Meyer and Kroger to
corresponding financial information, ratios and public market multiples for
five other publicly traded supermarket corporations: Albertson's, Inc.
(assuming consummation of its combination with American Stores Company);
Food Lion, Inc.; Koninklijke Ahold N.V.; Safeway Inc.; and Winn-Dixie
Stores, Inc. (collectively, the "DLJ AND SALOMON SELECTED COMPANIES"). DLJ
and Salomon calculated and compared various financial multiples and ratios.
The multiples of the DLJ and Salomon Selected Companies, Fred Meyer and
Kroger were calculated using closing stock prices as of October 12, 1998.
The multiples and ratios for Fred Meyer, Kroger and for each of the DLJ and
Salomon Selected Companies were based on the most recent publicly available
information. The analysis showed, among other things, that the ratio of
firm value (i.e., market value of common equity plus book value of debt
less cash) as a multiple of EBITDA for the DLJ and Salomon Selected
Companies, (i) using estimated 1998 EBITDA, ranged from a low of 6.6x to a
high of 11.6x (with a median of 10.2x), compared to 8.8x for Fred Meyer and
11.0x for Kroger and (ii) using estimated 1999 EBITDA, ranged from a low of
6.1x to a high of 10.7x (with a median of 9.2x), compared to 7.9x for Fred
Meyer and 10.1x for Kroger. This analysis also showed, among other things,
that the price/earnings ratio for the DLJ and Salomon Selected Companies,
(i) using estimated 1998 earnings, ranged from a low of 16.3x to a high of
36.1x (with a median of 25.2x), compared to 27.5x for Fred Meyer and 25.2x
for Kroger and (ii) using estimated 1999 earnings, ranged from a low of
14.2x to a high of 28.5x (with a median of 20.6x), compared to 20.3x for
Fred Meyer and 22.0x for Kroger. Earnings estimates for the DLJ and Salomon
Selected Companies were based on the First Call Research Network company
earnings estimates. EBITDA estimates used in the foregoing analysis were
based upon estimates of research analysts at DLJ, Salomon and other
investment banks.
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No company utilized in the DLJ and Salomon Selected Companies Analysis
is identical to Fred Meyer or Kroger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics
of Fred Meyer and Kroger and those of the DLJ and Salomon Selected
Companies, as well as other factors that could affect the public trading
value of the DLJ and Salomon Selected Companies or company to which they
are being compared. Mathematical analysis (such as determining the mean or
median) is not in itself a meaningful method of using selected company
data.
(iv) Selected Transactions Analysis. DLJ and Salomon reviewed and
analyzed firm value as a multiple of the LTM EBITDA in selected merger or
acquisition transactions where the transaction values exceeded $1 billion
involving other companies in the supermarket industry that they deemed
relevant (the "DLJ AND SALOMON SELECTED TRANSACTIONS"). Among other
matters, such review by DLJ and Salomon indicated that the merger and
acquisition transaction environment varies over time because of
macroeconomic factors such as interest rate and equity market fluctuations
and microeconomic factors such as industry results and growth expectations.
DLJ and Salomon noted that no transaction reviewed was identical to the
Merger and that, accordingly, an assessment of the results of the following
analysis necessarily involves considerations and judgments concerning
differences between the financial and operating characteristics of Fred
Meyer and Kroger and those companies involved in the DLJ and Salomon
Selected Transactions and other factors that would affect the acquisition
value of the companies involved in the DLJ and Salomon Selected
Transactions. Such analysis indicated that, for the Selected Transactions,
firm value as a multiple of LTM EBITDA, ranged from a low of 6.9x to a high
of 10.5x with both a median and mean of 8.5x. The analysis also indicated
that, for the Selected Transactions, firm value as a percentage of LTM
sales, ranged from a low of 43.2% to a high of 73.0% with a median of 61.6%
and a mean of 59.9%. For purposes of this analysis, DLJ and Salomon assumed
an exchange ratio of 1.0 and a per share price for Kroger Common Stock
equal to Kroger's closing stock price on October 12, 1998. Based on this
analysis, DLJ and Salomon calculated the firm value as a multiple of LTM
EBITDA for Fred Meyer to be 11.1x, and the firm value as a percentage of
LTM sales for Fred Meyer to be 85.6%.
(v) Discounted Cash Flow Analysis. DLJ and Salomon performed a
discounted cash flow analysis for the period from fiscal 1999 to fiscal
2004 on the stand-alone operating free cash flows of Fred Meyer and Kroger,
based upon financial projections prepared by the respective managements of
each company. Operating free cash flows were calculated as the after-tax
operating earnings of Fred Meyer and Kroger, respectively, plus
depreciation and amortization, plus net changes in working capital, minus
projected capital expenditures, plus (or minus) net changes in other
assets. Cost synergies were not allocated to the projections for either
company. DLJ and Salomon calculated terminal values by applying a range of
estimated EBITDA multiples of 8.0x to 10.0x for Fred Meyer and 9.0x to
11.0x for Kroger in the fiscal year 2004. The operating free cash flows and
terminal values were then discounted to the present using a range of
discount rates of 8.0% to 10.0% representing an estimated range of the
weighted average cost of capital of Fred Meyer and Kroger. Based on this
analysis, DLJ and Salomon calculated per share equity values of Fred Meyer
ranging from $49.00 to $73.00 and of Kroger ranging from $52.00 to $72.00
resulting in implied exchange ratios ranging from 0.940 to 1.010.
(vi) Pro Forma Merger Analysis. DLJ and Salomon also prepared pro
forma analyses of the financial impact of the Merger using earnings
estimates for Fred Meyer and Kroger for the period from fiscal 1998 through
2001. These analyses assumed the Merger was accounted for as a pooling of
interests and assumed cost savings resulting from the Merger, as provided
by Fred Meyer management, of $100 million in 1999, $150 million in 2000 and
$200 million in 2001. These analyses are also based on a number of other
assumptions provided by Fred Meyer and Kroger management, including, among
other things, the cost of integration, the projected financial performance
of Fred Meyer and Kroger and prevailing interest rates. Based on the
Exchange Ratio of 1.0, the analysis indicated that, on a pro forma basis,
the Merger is expected to be accretive to Kroger's stand-alone EPS
estimates beginning in 2000 while having a neutral impact on such estimates
in 1999.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the respective recommendations of the Kroger Board of
Directors and the Fred Meyer Board of Directors, the shareholders of Kroger and
the stockholders of Fred Meyer should be aware that, as described below, certain
executive officers of Fred Meyer and certain members of the Fred Meyer Board of
Directors may have interests in the Merger that are different from, or in
addition to, the interests of the stockholders of Fred Meyer generally, and that
may create potential conflicts of interest. The Kroger Board of Directors and
the Fred Meyer Board of Directors were aware of these interests of Fred Meyer's
directors and officers when they approved the Merger and the Merger Agreement.
Except as described below, to the knowledge of Fred Meyer, the executive
officers and directors of Fred Meyer do not have any material interest in the
Merger, apart from their interests as holders of Fred Meyer Common Stock.
Employment Agreement with Robert G. Miller. Mr. Miller is a party to an
employment agreement with Fred Meyer, dated August 27, 1991, as amended October
13, 1998 (the "MILLER EMPLOYMENT AGREEMENT"), that provides for an annual base
salary of $1 million and a target annual bonus equal to 60% of his base salary.
The Miller Employment Agreement also provides for the payment of severance
compensation and benefits upon a "qualifying termination" in connection with a
change in control that he would not otherwise receive upon termination under
other circumstances. The approval of the Merger by Fred Meyer's stockholders
will constitute a change in control under the Miller Employment Agreement. A
qualifying termination includes any (i) termination of employment initiated by
Mr. Miller for any reason within 18 months after the consummation of a change of
control; (ii) termination of employment initiated by Mr. Miller due to
constructive discharge outside the 18-month period referred to in clause (i)
above if the termination is in anticipation of or within three years after a
change in control; and (iii) termination of Mr. Miller's employment by Fred
Meyer for any reason, other than for cause, in anticipation of or within three
years after a change in control. Constructive discharge is defined as a material
reduction (other than for cause) in Mr. Miller's compensation, benefits or
responsibilities as Chief Executive Officer of Fred Meyer and a member of the
Fred Meyer Board of Directors or an irreconcilable disagreement with the Fred
Meyer Board of Directors over policy matters materially impairing his ability to
carry out his responsibilities as Chief Executive Officer of Fred Meyer.
Severance compensation due upon a qualifying termination under the Miller
Employment Agreement consists of (i) accrued and unpaid compensation through the
date of termination, (ii) a pro rata bonus for the year of termination, (iii) a
payment equivalent to three times his highest base salary and applicable bonus
rate, (iv) a payment equal to the actuarially determined present value of his
projected accruals from three years of ongoing participation in Fred
Meyer-sponsored qualified and non-qualified retirement plans, (v) continuation
of health and welfare benefit coverage for 36 months, and (vi) an additional
payment, if and to the extent necessary, to make him whole for any excise tax
payable by Mr. Miller with respect to excess parachute payments.
Payment of severance compensation under the Miller Employment Agreement is
conditioned on his not making unauthorized disclosure of confidential
information relating to Fred Meyer or its affiliates for a period of three years
after termination and not engaging directly or indirectly in material
competition with Fred Meyer or its affiliates during that three year period.
Pursuant to the Merger Agreement, as of the Effective Time, Mr. Miller will
be elected to the Kroger Board of Directors and will be elected and appointed
Vice Chairman of the Kroger Board of Directors and Chief Operating Officer of
Kroger.
Employment Protection Agreements with Other Executive Officers. The other
12 executive officers of Fred Meyer are parties to employment protection
agreements with Fred Meyer. Under these agreements, severance compensation is
payable upon a termination of employment by Fred Meyer without cause or by the
executive for good reason in anticipation of a change of control or during the
18 month period following a change of control. The agreement with George G.
Golleher also provides for the payment of severance if Mr. Golleher terminates
his employment for any reason within 18 months following a change of control.
Severance compensation consists of: (i) accrued and unpaid compensation through
the date of termination; (ii) continued payment of annual base salary (plus the
target percentage of this base salary that was payable under the terms of Fred
Meyer's annual bonus plan for its senior executives for the year in which the
Merger is completed) for the Applicable Severance Period (as defined below)
following the date of termination; (iii) a lump sum payment of each executive's
pro rata
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annual incentive bonus as of the termination date; (iv) continued health and
welfare benefits for the Applicable Severance Period; and (v) accelerated
vesting of outstanding stock options held by the executive under Fred Meyer's
stock option and stock incentive plans. Fred Meyer is obligated to make an
additional payment, if and to the extent necessary to make the executives whole
for any excise tax payable by the executive with respect to excess parachute
payments. Executives will also continue to accrue annual retirement allocations
and other benefits under the Fred Meyer Supplemental Income Plan or other
supplemental retirement plans applicable to them for the Applicable Severance
Period following the date of termination. Cash compensation provided pursuant to
these agreements will be reduced on a dollar for dollar basis by the amount of
comparable cash compensation paid to the executives under any other severance
agreement applicable to the executive. Other benefits provided by the employment
protection agreements will be similarly reduced.
The "Applicable Severance Period" means, in the case of seven of Fred
Meyer's executive officers, three years, and in the case of all other covered
executive officers, two years.
Employee Benefits. Under the Merger Agreement, Kroger has agreed that,
until December 31, 1999, it will cause Fred Meyer and its subsidiaries to
continue the current base salary or hourly wage rate of their respective
employees and to maintain employee benefits, including severance benefits, that
are at least as favorable to such employees as those in effect prior to the
Merger. See "THE MERGER AGREEMENT -- Benefit Plans." As a result of these
arrangements, current executive officers of Fred Meyer will continue to receive
salaries and employee benefits that are at least as favorable as those currently
provided to them by Fred Meyer.
Interests of Ronald W. Burkle and Yucaipa. As of October 18, 1998, Ronald
W. Burkle, Yucaipa and certain of their affiliates owned 10,631,333 outstanding
shares of Fred Meyer Common Stock, constituting approximately 7.0% of the
outstanding shares of Fred Meyer Common Stock. Yucaipa is also the record holder
of a currently exercisable warrant entitling it to purchase up to 3,869,366
additional shares of Fred Meyer Common Stock for a price of approximately $23.81
per share. As of the Effective Time, Kroger will execute a supplemental warrant
agreement pursuant to which Yucaipa will have the right to purchase the same
number of shares of Kroger Common Stock at the same price per share.
Fred Meyer and Yucaipa are parties to a Management Services Agreement.
Under the terms of the Management Services Agreement, Yucaipa will provide
management consultation and advice to Fred Meyer until September 9, 2002. Fred
Meyer pays Yucaipa an annual management fee of $500,000 and reimburses Yucaipa
for its reasonable out-of-pocket costs and expenses incurred in connection with
the performance of its obligations under the Management Services Agreement. If
the Management Services Agreement is terminated under certain circumstances,
Fred Meyer will pay or cause to be paid to Yucaipa a termination payment equal
to the greater of $2.5 million or twice the total consulting fees that would
have been earned by Yucaipa during the remaining term of the Management Services
Agreement as if this agreement had not been terminated and without regard to
sums previously paid by Fred Meyer to Yucaipa as part of its management fee. It
is anticipated that the Management Services Agreement will be terminated as of
the Effective Time in connection with the Merger. Assuming the Effective Time is
December 31, 1998, Fred Meyer will pay Yucaipa a termination fee of
approximately $3.7 million.
Pursuant to the Merger Agreement, at the Effective Time Mr. Burkle will be
elected to the Kroger Board of Directors and will be chairman of the Executive
Committee of the Board of Directors of the combined company so long as he
remains a director of the combined company.
New Directors of Kroger. Kroger has agreed to elect the following current
Fred Meyer directors to the Kroger Board of Directors as of the Effective Time:
Robert D. Beyer, Ronald W. Burkle, Carlton J. Jenkins, Bruce Karatz, Robert G.
Miller and Steven R. Rogel. See "MANAGEMENT AND OPERATIONS AFTER THE MERGER."
ACCOUNTING TREATMENT
Kroger and Fred Meyer believe that the Merger will qualify as a pooling of
interests for accounting and financial reporting purposes. Under this method of
accounting, the assets and liabilities of Kroger and Fred Meyer will be combined
based on the respective carrying values of the accounts in the historical
financial statements of
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each entity. Results of operations of the combined company will include income
of Kroger and Fred Meyer for the entire fiscal period in which the combination
occurs and the historical results of operations of the separate companies for
fiscal years prior to the Merger will be combined and reported as the results of
operations of the combined company.
[At the time the registration statement of which this Joint Proxy
Statement/Prospectus forms a part is declared effective, Kroger received a
letter from Fred Meyer's independent public accountants, stating that the
accountants concur with Fred Meyer management's conclusion that no conditions
exist related to Fred Meyer that would preclude Kroger's ability to account for
the Merger as a "pooling of interests," and Fred Meyer has received a letter
from Kroger's independent public accountants, stating that such accountants
concur with Kroger management's conclusion that no conditions exist that would
preclude Kroger accounting for the Merger as a pooling of interests. Each of the
accountants' letters is based on representations of management and does not
address any matters occurring subsequent to the date of such letters.
Consummation of the Merger is conditioned upon the receipt by each of Kroger and
Fred Meyer of a second letter from the other party's independent public
accountants, dated as of the Effective Time, reaffirming the statements made in
the earlier letters.] See "THE MERGER AGREEMENT -- Conditions" and "UNAUDITED
PRO FORMA COMBINED FINANCIAL DATA." Certain events, including certain
transactions with respect to Fred Meyer Common Stock or Kroger Common Stock by
affiliates of Fred Meyer or Kroger, respectively, may prevent the Merger from
qualifying as a "pooling of interests." See"-- Resale Restrictions."
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The income tax discussion set forth in this section describes the principal
U.S. federal income tax consequences of the Merger under currently applicable
law based upon the Code, applicable Treasury Regulations thereunder and
administrative rulings and judicial authority as of the date hereof. All of the
foregoing are subject to change, possibly retroactively, and any change could
affect the continuing validity of the discussion. The discussion is based upon
(i) certain representations of Kroger and Fred Meyer contained in certificates
signed by appropriate officers of Kroger and Fred Meyer and (ii) the assumption
that the Merger will be consummated in accordance with the terms of the Merger
Agreement. The discussion assumes that Fred Meyer stockholders hold their shares
of Fred Meyer Common Stock as a capital asset and does not address the tax
consequences that may be relevant to a particular stockholder subject to special
treatment under certain federal income tax laws, such as dealers in securities,
banks, insurance companies, tax-exempt organizations, non-United States persons
and stockholders who acquired shares of Fred Meyer Common Stock pursuant to the
exercise of options or otherwise as compensation or through a tax-qualified
retirement plan. The discussion also does not address any consequences arising
under the laws of any state, locality or foreign jurisdiction. No rulings have
been or will be sought from the Internal Revenue Service with respect to any
matters relating to the Merger.
Based on certain assumptions and upon representations and assumptions
contained in certificates signed by appropriate officers of Kroger and Fred
Meyer, it is the opinion of each of Fried, Frank, Harris, Shriver & Jacobson,
tax counsel to Kroger, and Cleary, Gottlieb, Steen & Hamilton, tax counsel to
Fred Meyer, that:
(a) no gain or loss will be recognized by Kroger, Fred Meyer or Merger
Sub as a result of the Merger; and
(b) no gain or loss will be recognized by the stockholders of Fred
Meyer who exchange their Fred Meyer Common Stock solely for Kroger Common
Stock pursuant to the Merger.
In addition, the Merger will have the following U.S. federal income tax
consequences:
(i) the tax basis of the Kroger Common Stock received by Fred Meyer
stockholders who exchange all of their Fred Meyer Common Stock for Kroger
Common Stock in the Merger will be the same as the tax basis of the Fred
Meyer Common Stock surrendered in exchange therefor;
(ii) the holding period of the shares of Kroger Common Stock received
will include the holding period of shares of Fred Meyer Common Stock
surrendered in exchange therefor; and
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(iii) any Kroger shareholder who dissents from the merger and who
receives cash in exchange for the holder's shares of Kroger Common Stock
generally will be treated as if the shareholder sold the shares in a
taxable transaction and will recognize gain or loss equal to the difference
between the cash received and the shareholder's tax basis in the shares of
Kroger Common Stock surrendered. In certain instances, however, the cash
received by a dissenting Kroger shareholder may be taxed as a dividend.
These circumstances may arise if a dissenting Kroger shareholder owns (or
is treated as owning) shares of Kroger Common Stock (including shares
received in the Merger in exchange for shares of Fred Meyer Common Stock)
after the Merger (other than shares with respect to which dissenters'
rights have been exercised). For these purposes, a stockholder is treated
as owning the stock owned by certain family members, stock subject to an
option to acquire such stock, stock owned by certain estates and trusts of
which the stockholder is a beneficiary and stock owned by certain
affiliated entities. Whether the receipt of cash will be taxed as a
dividend will depend on the stockholder's particular circumstances. The
Internal Revenue Service has indicated in published rulings that a
distribution that results in any actual reduction in interest of a small
minority stockholder in a publicly held corporation generally will not
constitute a dividend if the stockholder exercises no control with respect
to corporate affairs. In general, therefore, the cash received by such a
dissenting Kroger shareholder will be taxed as a dividend only if the
shareholder's percentage ownership interest in Kroger after the Merger is
greater than or equal to the shareholder's percentage ownership interest in
Kroger before the Merger, taking into account, in both cases, Kroger Common
Stock actually owned by the dissenting shareholder or deemed to be owned by
the dissenting shareholder as described above. Because of the complexity of
these rules, each dissenting Kroger shareholder who believes these rules
may apply to him or her is particularly urged to contact his or her own tax
advisor.
It is a condition to the Merger that Kroger and Fred Meyer each receive a
tax opinion from its tax counsel that the Merger qualifies as a reorganization
within the meaning of Section 368(a) of the Code. These opinions will be based
upon updated representations of Kroger and Fred Meyer contained in certificates
signed by appropriate officers of Kroger and Fred Meyer to be delivered at the
Effective Time. The tax opinions cannot be relied upon if any of these factual
assumptions or representations is, or later becomes, inaccurate. No ruling from
the Internal Revenue Service concerning the tax consequences of the Merger has
been requested, and the tax opinions will not be binding upon the Internal
Revenue Service or the courts.
Any cash payments to which a dissenting Kroger shareholder is entitled
pursuant to the exercise of dissenters rights generally will be subject to
backup withholding at a rate of 31% unless either (i) the shareholder provides
its taxpayer identification number (social security or employer identification
number) and certifies that such number is correct or (ii) an exemption from
backup withholding applies under the applicable laws and regulations.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. EACH FRED MEYER
STOCKHOLDER IS ADVISED TO CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER, INCLUDING TAX
RETURN REPORTING REQUIREMENTS, THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR ACT"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger cannot be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION") and
the specified waiting period requirements have been satisfied. Kroger and Fred
Meyer filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on November 2, 1998. Unless additional information and
documentary material is requested by the FTC or the Antitrust Division, the
waiting period will expire on December 2, 1998. However, if a request from the
FTC or the Antitrust Division for additional information and documentary
material is received on or prior to that date, the waiting period will not
terminate until 20 days after Kroger and Fred Meyer have "substantially
complied" (as this term is defined under the HSR Act) with each request unless
the FTC or the Antitrust Division terminates the waiting period earlier.
Consequently, there can be no assurance that the
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consummation of the Merger will not be delayed by reason of the HSR Act. At any
time before or after consummation of the Merger, the Antitrust Division, the
FTC, a state governmental authority or a private person or entity could seek
under the antitrust laws to enjoin the Merger or to cause Kroger to divest, in
whole or in part, any of its assets or businesses (including assets and
businesses of Fred Meyer). There can be no assurance that a challenge to the
Merger will not be made or that, if a challenge is made, Kroger will prevail.
The obligations of Kroger and Fred Meyer to consummate the Merger are subject to
the condition that there be no order, decree or injunction of any court of
competent jurisdiction that prohibits the consummation of the Merger. See "THE
MERGER AGREEMENT -- Best Efforts" for a description of the obligations of Kroger
and Fred Meyer to seek regulatory approvals.
RESALE RESTRICTIONS
All shares of Kroger Common Stock received by Fred Meyer stockholders in
the Merger will be freely transferable, except that shares of Kroger Common
Stock received by persons who are deemed to be "affiliates" (as that term is
defined under the Securities Act of 1933, as amended (the "SECURITIES ACT")), of
Fred Meyer at the time of the Fred Meyer Special Meeting may be resold by them
only in transactions permitted by the resale provisions of Rule 145 promulgated
under the Securities Act (or Rule 144 in the case of such persons who become
affiliates of Kroger) or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of Fred Meyer or Kroger generally
include individuals or entities that control, are controlled by, or are under
common control with, that party and may include certain officers and directors
of that party as well as principal holders of stock of that party. The Merger
Agreement requires Fred Meyer to use its reasonable best efforts to cause each
of its affiliates to execute a written agreement to comply with the foregoing
requirements. In order for the Merger to qualify for pooling of interests
accounting treatment, an affiliate of either Kroger or Fred Meyer may not sell,
transfer or dispose (subject to certain de minimis exceptions), or in any other
way reduce his or her risk relative to, shares of Kroger Common Stock or shares
of Fred Meyer Common Stock (as the case may be) during the period beginning 30
days prior to the Effective Time and ending at such time as Kroger publishes
results covering at least 30 days of combined operations of Kroger and Fred
Meyer. The Merger Agreement requires Kroger and Fred Meyer to use their
reasonable best efforts to cause each of their respective affiliates to execute
a written agreement to comply with these requirements. Under the terms of the
Merger Agreement, certificates surrendered for exchange by any affiliate of Fred
Meyer will not be exchanged for shares of Kroger Common Stock until Kroger has
received these agreements from the affiliate of Fred Meyer. See " -- Accounting
Treatment."
AMENDMENT OF EXISTING CREDIT FACILITIES
It is anticipated that, following consummation of the Merger, the combined
company will require bank credit facilities providing for an aggregate of $5.5
billion in borrowings (the "FACILITIES"). The Facilities will be comprised of
(i) $2.0 billion of Kroger's existing bank credit facilities (the "EXISTING
KROGER CREDIT FACILITIES"), consisting of a $500 million 364-day credit facility
and a $1.5 billion multi-year credit facility, and (ii) $3.5 billion of Fred
Meyer's existing bank credit facilities (the "EXISTING FRED MEYER CREDIT
FACILITIES" and, collectively with the Existing Kroger Credit Facilities, the
"EXISTING CREDIT FACILITIES"), consisting of a $1.625 billion five-year term
note and a $1.875 billion five-year revolving credit facility. It is further
anticipated that Fred Meyer's existing $500 million five-year operating lease
facility (the "OPERATING LEASE FACILITY") will be repaid or $500 million of
other commitments will be reduced at the Effective Time from additional
borrowings under the Existing Kroger Credit Facilities. The Operating Lease
Facility refinanced $303 million in existing lease financing facilities and
currently provides funds for land and construction costs for new stores. As of
, 1998, there was an aggregate of $ outstanding under the
Existing Credit Facilities, and $ outstanding under the Operating Lease
Facility.
Completion of the Merger would violate the existing terms of the Existing
Fred Meyer Credit Facilities and the Operating Lease Facility and, in certain
circumstances, the terms of the Existing Kroger Credit Facilities unless the
terms of these facilities were modified or amended. Accordingly, as of the
Effective Time, Kroger and Fred Meyer intend to effect certain amendments to
each of the Existing Credit Facilities and the Operating Lease Facility (the
"AMENDMENTS") to permit the consummation of the Merger without a violation of
the terms of the
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Existing Credit Facilities and the Operating Lease Facility and to provide that
the obligations of Fred Meyer under the Existing Fred Meyer Credit Facilities
and the Operating Lease Facility will remain the obligations of Fred Meyer (as
the surviving corporation and a wholly-owned subsidiary of Kroger) following the
Effective Time. The Amendments require the approval of lenders holding a
majority of the commitments under each of the Existing Credit Facilities and the
Operating Lease Facility. Kroger has entered into the Commitment Letter with
Chase (which currently serves as syndication agent under the Existing Fred Meyer
Credit Facilities and administrative agent under the Existing Kroger Credit
Facilities) and CSI pursuant to which (i) CSI has agreed to act as exclusive
advisor, arranger and book manager for the Facilities, and (ii) in support of
the solicitation of the approvals required in connection with the Amendments,
Chase has provided a commitment to acquire by assignment up to 51% of the
commitments under each of the Existing Credit Facilities and to structure the
Amendments, in each case upon the terms and conditions to be agreed upon by
Kroger, Chase and CSI. The agreement of CSI and the commitment of Chase
described in the immediately preceding sentence are subject to certain
conditions, including (i) no material adverse condition or material adverse
change in or affecting the business, operations, property, condition (financial
or otherwise) or prospects of Kroger and its subsidiaries, taken as a whole, or
Fred Meyer and its subsidiaries, taken as a whole, occurring or becoming known
to CSI and Chase and (ii) no material disruption of, or material adverse change
in, financial, banking or capital market conditions occurring after the date of
the Commitment Letter that, in the judgment of CSI and Chase, could materially
impair the syndication of Chase's commitment with respect to the Facilities
and/or the solicitation of the required approvals in respect of the Amendments.
Chase, CSI, Kroger and Fred Meyer anticipate that certain additional
amendments to each of the Existing Credit Facilities will be required in order
to obtain the approvals of the requisite lenders and to provide greater
flexibility with respect to the integration of Fred Meyer with Kroger following
consummation of the Merger. It is anticipated that the Facilities will provide
for (i) the Existing Fred Meyer Credit Facilities to remain secured by the
collateral currently securing the Existing Fred Meyer Credit Facilities (which
collateral consists of the capital stock of all of the subsidiaries of Fred
Meyer), (ii) a guarantee by Fred Meyer and its material subsidiaries of the
Existing Kroger Credit Facilities, (iii) a guarantee by Kroger and its material
subsidiaries of the Existing Fred Meyer Credit Facilities, (iv) an increase to
market rate in the interest rates and facility fees applicable to the Existing
Kroger Credit Facilities, and (v) the modification of the covenants contained in
the Existing Fred Meyer Credit Facilities to make these covenants substantially
similar to the covenants contained in the Existing Kroger Credit Facilities.
The effectuation of the Amendments is not a condition to the obligation of
Kroger or Fred Meyer to complete the Merger. Although Chase has provided a
commitment to acquire by assignment up to 51% of the amounts outstanding under
each of the Existing Credit Facilities (thus enabling Chase, on its own, to
approve the Amendments required to permit the completion of the Merger without
violating the terms of the Existing Credit Facilities), there can be no
assurance that the Amendments will be approved or that alternative financing
will be available on acceptable terms. In addition, completion of the Merger
would violate the terms of the Operating Lease Facility without the contemplated
repayment or amendment thereof at the Effective Time. If the Merger is completed
and the Amendments have not been approved and effected, or alternative financing
has not been arranged, the indebtedness of each of Kroger and Fred Meyer under
each of the Existing Credit Facilities and the indebtedness of Fred Meyer under
the Operating Lease Facility would become due and payable, and other
indebtedness of each of Kroger and Fred Meyer may also become due and payable as
a result thereof, which would have a material adverse effect on the combined
company's business, financial condition and results of operations.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is attached as APPENDIX A to this Proxy Statement/Prospectus and
is incorporated by reference. This summary is qualified in its entirety by
reference to the full text of the Merger Agreement. Any capitalized terms used
in this summary and not otherwise defined in this Joint Proxy
Statement/Prospectus have the meanings given to them in the Merger Agreement.
THE MERGER
Pursuant to the Merger Agreement, subject to its terms and conditions, at
the Effective Time, Merger Sub will be merged with and into Fred Meyer. As a
result, Fred Meyer will become a wholly-owned subsidiary of Kroger. The Merger
will have the effects specified in the Delaware General Corporation Law (the
"DGCL").
Upon the satisfaction or waiver of all conditions to the Merger, and
provided that the Merger Agreement has not been terminated or abandoned, Kroger
and Fred Meyer will cause a Certificate of Merger to be executed, acknowledged
and filed with the Secretary of State of the State of Delaware as provided in
Section 251 of the DGCL.
As a result of the Merger and without any action on the part of the
holders, each share of Fred Meyer Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive one share of Kroger Common Stock (and one associated Right) and will
cease to be outstanding and will be canceled and retired. Each holder of a
certificate representing any such shares of Fred Meyer Common Stock (a "FRED
MEYER STOCK CERTIFICATE") will thereafter cease to have any rights with respect
to the shares of Fred Meyer Common Stock, except for the right to receive,
without interest, shares of Kroger Common Stock upon the surrender of the Fred
Meyer Stock Certificate (as described in "-- Exchange Procedures"). Each share
of Fred Meyer Common Stock held in Fred Meyer's treasury or held by Kroger or by
any of their respective subsidiaries at the Effective Time will cease to be
outstanding and will be canceled and retired without payment of any
consideration. Fred Meyer will take all action necessary with respect to the
options to purchase Fred Meyer Common Stock that are outstanding immediately
prior to the Effective Time to entitle the holder to acquire upon exercise of
the options the same number of shares of Kroger Common Stock at the same
exercise price. Additionally, in connection with the Merger, existing warrants
to purchase 3,869,366 shares of Fred Meyer Common Stock will become warrants to
buy the same number of shares of Kroger Common Stock on the same terms as
currently in effect.
Notwithstanding the Merger Agreement, Kroger, may in its sole discretion,
restructure the merger to provide for the merger of Fred Meyer with and into
Kroger with Kroger as the surviving corporation.
THE EFFECTIVE TIME
The Merger will become effective upon (i) the filing of a Certificate of
Merger with the Secretary of State of the State of Delaware, or (ii) upon such
later time as may be agreed upon by the parties and specified in the Certificate
of Merger. The Merger Agreement provides that the parties will cause the
Certificate of Merger to be filed on the second business day after the
satisfaction or waiver of all conditions set forth in the Merger Agreement. It
is expected that the Merger will be consummated in early 1999, although there
can be no assurance as to when, or if, all the conditions to consummation of the
Merger will be satisfied or waived. See
"-- Conditions."
EXCHANGE PROCEDURES
Promptly after the Effective Time, The Bank of New York (the "EXCHANGE
AGENT") will mail to each person who was, at the Effective Time, a holder of
record of shares of Fred Meyer Common Stock, a letter of transmittal to be used
by the holder in forwarding his or her Fred Meyer Stock Certificates, and
instructions for effecting the surrender of the Fred Meyer Stock Certificates in
exchange for certificates representing shares of Kroger Common Stock ("KROGER
STOCK CERTIFICATES"). Upon surrender to the Exchange Agent of a Fred Meyer Stock
Certificate for cancellation, together with a letter of transmittal, the holder
of a Fred Meyer Stock
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Certificate will be entitled to receive a Kroger Stock Certificate and unpaid
dividends and distributions, if any, which the holder has the right to receive
in respect of the Fred Meyer Stock Certificate surrendered, and the Fred Meyer
Stock Certificate so surrendered will be canceled. FRED MEYER STOCKHOLDERS
SHOULD NOT SEND IN THEIR FRED MEYER STOCK CERTIFICATES UNTIL THEY RECEIVE A
LETTER OF TRANSMITTAL.
No dividends (if any) on shares of Kroger Common Stock will be paid with
respect to any shares of Kroger Common Stock represented by a Fred Meyer Stock
Certificate until that Fred Meyer Stock Certificate is surrendered for exchange
as provided in the Merger Agreement. Subject to the effect of applicable laws,
following surrender of any Fred Meyer Stock Certificate, there will be delivered
to the holder of the certificate, a Kroger Stock Certificate issued in exchange
therefor plus (i) at the time of the surrender, the amount of any dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to the shares of Kroger Common Stock represented by the
Kroger Stock Certificate and not paid, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to the surrender and a payment date subsequent to the
surrender with respect to the shares of Kroger Common Stock, in each case less
the amount of any withholding taxes which may be required.
After the Effective Time, there will be no transfers on the transfer books
of Fred Meyer of shares of Fred Meyer Common Stock that were outstanding
immediately prior to the Effective Time.
Any portion of the Exchange Fund that remains unclaimed by the former
stockholders of Fred Meyer one year after the Effective Time will be delivered
to Kroger. Any former stockholders of Fred Meyer who have not theretofore
complied with the exchange procedures in the Merger Agreement may thereafter
look only to Kroger for payment of shares of Kroger Common Stock, and any unpaid
dividends and distributions on shares of Kroger Common Stock, deliverable in
respect of each such unsurrendered Fred Meyer Stock Certificate. Notwithstanding
the foregoing, none of Fred Meyer, Kroger, the Exchange Agent or any other
person will be liable to any former holder of shares of Fred Meyer Common Stock
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
No interest will be paid or accrued on unpaid dividends and distributions,
if any, which will be paid upon surrender of the Fred Meyer Stock Certificates.
In the event that any Fred Meyer Stock Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the Fred Meyer Stock Certificate to be lost, stolen or destroyed and, if
required by Kroger, the posting by that person of a bond in such reasonable
amount as Kroger may direct as indemnity against any claim that may be made
against it with respect to the Fred Meyer Stock Certificate, the Exchange Agent
will issue in exchange for the lost, stolen or destroyed Fred Meyer Stock
Certificate the shares of Kroger Common Stock, and any unpaid dividends and
distributions on shares of Kroger Common Stock, as described above.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties,
including representations and warranties relating to: (a) due organization,
power and standing of Fred Meyer and Kroger and other corporate matters; (b)
authorization, execution, delivery and enforceability of the Merger Agreement;
(c) the capital structure of Fred Meyer and Kroger; (d) subsidiaries of Fred
Meyer and Kroger; (e) conflicts under charters, bylaws or regulations, as
applicable, violations of any instruments or law, and required consents and
approvals; (f) certain documents filed by each of Fred Meyer and Kroger with the
Securities and Exchange Commission (the "COMMISSION") and the accuracy of the
information in those documents; (g) litigation and liabilities; (h) conduct of
business in the ordinary course and the absence of certain changes and material
adverse effects; (i) tax matters; (j) retirement and other employee benefit
plans, (k) labor matters; (l) qualification for pooling of interests accounting
treatment; (m) brokers' and finders' fees with respect to the Merger; (n)
receipt of fairness opinions; (o) ownership of the capital stock of the other
company; (p) compliance with applicable laws; (q) environmental matters; (r)
intellectual property; (s) insurance; (t) contracts and commitments; (u) Year
2000 compliance; and (v) with respect to Kroger, the Kroger Equity Rights.
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CERTAIN COVENANTS
Fred Meyer has agreed (and has agreed to cause its subsidiaries) prior to
the consummation of the Merger, unless Kroger agrees in writing or as otherwise
expressly contemplated by the Merger Agreement, to conduct its business in all
material respects in the ordinary and usual course and, to the extent consistent
therewith, to use its reasonable best efforts to preserve its business
organization intact in all material respects, keep available the services of its
officers and employees as a group (subject to changes in the ordinary course)
and maintain its existing relations and goodwill with customers, suppliers,
regulators, distributors, creditors, lessors, and others having business
dealings with it.
In addition, Fred Meyer has agreed that prior to the consummation of the
Merger, unless Kroger agrees in writing or as otherwise required or permitted by
the Merger Agreement, Fred Meyer will not (i) issue, deliver, grant or sell any
additional shares of Fred Meyer Common Stock or Fred Meyer Equity Rights other
than (x) the issuance, delivery, grant or sale of shares of Fred Meyer Common
Stock or Fred Meyer Equity Rights pursuant to the exercise or conversion of Fred
Meyer Equity Rights outstanding as of the date of the Merger Agreement or
pursuant to the exercise of New Fred Meyer Options, and (y) if the Merger is not
consummated by April 30, 1999, the issuance or delivery of Fred Meyer options
(the "NEW FRED MEYER OPTIONS") to Fred Meyer employees at the vice president
level or below, exercisable, in the aggregate, for no more than 1,500,000 shares
of Fred Meyer Common Stock (provided that (A) these options have a vesting
schedule substantially similar to the vesting schedule that was applicable to
the options granted by Fred Meyer to this same group of employees in 1998 and
(B) the vesting of these options shall not accelerate by reason of the
consummation of the Merger, including upon termination of employment following
the consummation of the Merger), (ii) amend its Certificate of Incorporation
(the "FRED MEYER CERTIFICATE"), or its Bylaws (the "FRED MEYER BYLAWS") or adopt
any stockholders rights plan or enter into any agreement with any of its
stockholders in their capacity as such, (iii) split, combine, subdivide or
reclassify its outstanding shares of capital stock, (iv) declare any dividend,
(v) repurchase, redeem or otherwise acquire any shares of its capital stock or
any Fred Meyer Equity Rights, (vi) with certain exceptions, enter into, adopt or
amend any agreement or arrangement relating to severance or any employee benefit
plan or employment or consulting agreement or grant any stock option or other
equity awards, (vii) with certain exceptions, incur or amend the terms of any
indebtedness for borrowed money or guarantee any such indebtedness, (viii) make
any capital expenditures in excess of Fred Meyer's capital expenditure budget
for fiscal 1998 and fiscal 1999, (ix) with certain exceptions, transfer, lease,
license, sell, mortgage, pledge, encumber or otherwise dispose of any of its or
its subsidiaries' property or assets that is material to Fred Meyer and its
subsidiaries taken as a whole, except pursuant to existing contracts, (x) take
any action that to the knowledge of Fred Meyer would prevent the Merger from
qualifying for pooling of interests accounting treatment under generally
accepted accounting principles or would prevent the Merger from qualifying as a
reorganization under Section 368 of the Code, (xi) with certain exceptions,
issue, deliver, sell or encumber shares of Fred Meyer Common Stock or any
securities convertible into or any rights, warrants or options to acquire Fred
Meyer Common Stock, (xii) with certain exceptions, acquire any business,
including stores or other facilities, (xiii) change its accounting policies,
practices or methods except as required by generally accepted accounting
principles or the rules and regulations of the Commission, (xiv) take any action
to cause the shares of Fred Meyer Common Stock to cease to be listed on the
NYSE, (xv) enter into certain contracts and (xvi) with certain exceptions,
change or, other than in the ordinary course of business consistent with past
practice, make any material tax election or settle any audit or tax controversy.
Kroger has agreed (and has agreed to cause its subsidiaries) prior to the
consummation of the Merger, unless Fred Meyer agrees in writing or as otherwise
expressly contemplated by the Merger Agreement, to conduct its business in all
material respects in the ordinary and usual course and, to the extent consistent
therewith, to use its reasonable best efforts to preserve its business
organization intact in all material respects, keep available the services of its
officers and employees as a group (subject to changes in the ordinary course)
and maintain its existing relations and goodwill with customers, suppliers,
regulators, distributors, creditors, lessors, and others having business
dealings with it. However, nothing contained in these provisions prohibits
Kroger from acquiring, or exploring the acquisition of, any retail business,
including any stores or facilities, whether by merger, consolidation, purchase
of property or assets or otherwise, if the acquisition could not reasonably be
expected to interfere with or delay (in any material respect) the consummation
of the Merger (including, without
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limitation, by delaying in any material respect the receipt of any necessary
consent, requiring receipt of any additional material consent not theretofore
required in connection with the Merger or creating any potential material
impediment under any antitrust, competition or trade regulation law).
In addition, Kroger has agreed that, among other things, prior to the
consummation of the Merger, unless Fred Meyer agrees in writing or as otherwise
required or permitted by the Merger Agreement, Kroger shall not (i) with certain
exceptions, issue, deliver, grant or sell any additional shares of Kroger Common
Stock or securities convertible into, or any rights, warrants or options to
acquire, Kroger Common Stock, (ii) amend its Articles of Incorporation (the
"KROGER ARTICLES"), its Regulations (Bylaws) (the "KROGER REGULATIONS (BYLAWS)")
or the Rights Agreement or redeem the Kroger Rights, (iii) reclassify the Kroger
Common Stock, (iv) declare any dividend, (v) repurchase, redeem or otherwise
acquire any shares of its capital stock or any Kroger Equity Rights (as defined
in the Merger Agreement), (vi) change its accounting policies, practices or
methods except as required by generally accepted accounting principles or the
rules and regulations of the Commission, (vii) with certain exceptions,
transfer, lease, license, sell, mortgage, pledge, encumber or otherwise dispose
of any of its or its subsidiaries' property or assets material to Kroger and its
subsidiaries taken as a whole, except pursuant to existing contracts and for any
sale or disposition of assets which have a fair market value of not more than $1
billion) (viii) take any action that to the knowledge of Kroger would prevent
the Merger from qualifying for pooling of interests accounting treatment under
generally accepted accounting principles or would prevent the Merger from
qualifying as a reorganization under Section 368 of the Code and (ix) take any
action to cause the shares of Kroger Common Stock to cease to be listed on the
NYSE.
Both Fred Meyer and Kroger have agreed: (a) to cooperate in the prompt
preparation and filing of certain documents under federal and state securities
laws and with applicable government entities and (b) to use their reasonable
best efforts to obtain and deliver to each other certain letters from
"affiliates," as defined under Rule 145 under the Securities Act. See "-- Best
Efforts" and "THE MERGER -- Resale Restrictions."
Prior to the Effective Time, with the consent of Kroger, Fred Meyer may
make a charitable donation of up to a total of $20,000,000 to The Fred Meyer
Foundation and the Ralphs/Food 4 Less Foundation (the "CHARITABLE
CONTRIBUTION"). To the extent the Charitable Contribution is not made in full
prior to the Effective Time, the balance of the Charitable Contribution will be
made by Kroger within seven years of the Effective Time. Other than the
Charitable Contribution, prior to the Effective Time, neither Fred Meyer nor its
Subsidiaries will make any charitable contribution other than in the ordinary
course of business consistent with past practice.
NO SOLICITATION OF TRANSACTIONS
Subject to the exceptions described in the next paragraph, each of Fred
Meyer and Kroger has agreed that it will not, and each will use its best efforts
to cause its respective officers and directors, employees, financial advisors,
agents and representatives (each a "REPRESENTATIVE") not to, (a) initiate,
solicit or encourage (including furnishing information) or take any other action
to facilitate directly or indirectly, any inquiries or the making of any
proposal with respect to (i) a merger, consolidation or similar transaction
involving it, or any of its subsidiaries whose business constitutes 15% or more
of its consolidated net revenues, net income or assets, (ii) a direct or
indirect acquisition of a business of such company or any of its subsidiaries,
that constitutes 15% or more of its consolidated net revenues, net income or
assets, (iii) a direct or indirect acquisition or purchase of 15% or more of any
class of its equity securities or that of any of its subsidiaries whose business
constitutes 15% or more of its consolidated net revenues, net income or assets,
or (iv) a tender offer or exchange offer that if consummated would result in any
person beneficially owning 15% or more of its capital stock (any such inquiry,
proposal or offer being hereinafter referred to as an "ACQUISITION PROPOSAL"),
or (b) accept, or engage in any discussions or negotiations relating to, an
Acquisition Proposal. Each of Fred Meyer and Kroger has agreed to immediately
cease and terminate any existing solicitation, initiation, encouragement,
activity, discussion or negotiation with any parties conducted prior to the date
of the Merger Agreement with respect to any of the foregoing.
Fred Meyer and Kroger have each agreed that their respective Boards of
Directors will not (i) withdraw or modify, or propose publicly to withdraw or
modify, in a manner adverse to the other party, the approval or recommendation
by such Board of Directors of the Merger Agreement and the Merger (subject to
the respective
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Board of Directors concluding in good faith, after considering applicable
provisions of state law, and after consultation with outside counsel, that
withdrawal or modification of its approval or recommendation of the Merger
Agreement and the Merger is required for it to act in a manner consistent with
its fiduciary duties under applicable law), (ii) approve or recommend, or
propose publicly to approve or recommend any Acquisition Proposal, or (iii)
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement related to any Acquisition Proposal.
BEST EFFORTS
Each of Kroger and Fred Meyer has agreed (except as set forth below) that
it will take any and all steps necessary to avoid or eliminate each and every
impediment under any antitrust, competition or trade regulation law that may be
asserted by any Governmental Entity with respect to the Merger so as to enable
the closing of the Merger (the "CLOSING") to occur as soon as reasonably
possible (and in any event no later than September 30, 1999), including
proposing, negotiating, committing to and effecting, by consent decree, hold
separate order, or otherwise, the sale, divestiture or disposition of its assets
or businesses (or any of its subsidiaries) or otherwise take or commit to take
any actions that limit its freedom of action with respect to, or its ability to
retain, any of the businesses, product lines or assets of Kroger, Fred Meyer or
their respective subsidiaries, as may be required in order to avoid the entry
of, or to effect the dissolution of, any injunction, temporary restraining
order, or other order in any suit or proceeding, which would otherwise have the
effect of preventing or delaying the Closing. If requested by Kroger, Fred Meyer
will divest, hold separate, or otherwise take or commit to take any action that
limits its freedom of action with respect to, or its ability to retain, any of
the businesses, product lines or assets of Fred Meyer or any of its
subsidiaries, provided that any such action is conditioned upon the consummation
of the Merger. Fred Meyer has agreed and acknowledged that, in connection with
any filing or submission required, action to be taken or commitment to be made
by Kroger, Fred Meyer or any of its respective subsidiaries to consummate the
Merger or other transactions contemplated in the Merger Agreement, neither Fred
Meyer nor any of its subsidiaries will, without Kroger's prior written consent,
divest any assets, commit to any divestiture of assets or businesses of Fred
Meyer and its subsidiaries or take any other action or commit to take any action
that would limit Fred Meyer's, Kroger's or any of their respective subsidiaries'
freedom of action with respect to, or their ability to retain, any of their
businesses, product lines or assets. Each of Kroger and Fred Meyer has also
agreed to use its reasonable best efforts to avoid the entry of, or to have
vacated or terminated, any decree, order, or judgment that would restrain,
prevent or delay the Closing, on or before September 30, 1999, including without
limitation defending through litigation on the merits any claim asserted in any
court by any party.
Notwithstanding the foregoing, (a) Kroger is not required to agree to the
sale, transfer, divestiture or other disposition of stores of Kroger, Fred Meyer
or any of their subsidiaries having aggregate gross annual sales for the 1997
fiscal year in excess of 7% of the combined gross annual sales of Fred Meyer and
its subsidiaries taken as a whole for such period and (b) other than the sale,
transfer, divestiture or other disposition of stores having revenues up to the
gross annual amount referenced in clause (a) of this paragraph, neither Kroger
nor Fred Meyer is required to take any actions or make any commitments or
agreements, if, individually or in the aggregate, it would be reasonably likely
to result in a Kroger Material Adverse Effect. A "KROGER MATERIAL ADVERSE
EFFECT" is defined as any change, circumstance, event or effect (x) that is or
will be materially adverse to the business, results of operations, financial
condition or prospects of Kroger and its subsidiaries taken as a whole, or (y)
that will prevent or materially impair Kroger's ability to consummate the
Merger; however, the term Kroger Material Adverse Effect does not include
changes or effects (1) relating to economic conditions or financial markets in
general or the retail food and drug industry in general or (2) resulting from
actions required to be taken by the terms of the Merger Agreement. A decline in
the stock market price of the shares of Kroger Common Stock in and of itself
will not be deemed a Kroger Material Adverse Effect.
BENEFIT PLANS
Kroger has agreed that, from and after the Effective Time, it will cause
Fred Meyer and its subsidiaries to honor, in accordance with their terms, all
employment, protection and severance agreements to which Fred Meyer or any of
its subsidiaries is a party and all of Fred Meyer's and its subsidiaries'
obligations under their benefit plans. Kroger has agreed that, until December
31, 1999, each employee of Fred Meyer and its subsidiaries (other
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than those represented by collective bargaining agreements) will be provided (w)
a base salary or hourly wage, as applicable, at an annual or hourly rate,
respectively, that is not less than the rate in effect for that individual
immediately prior to the Effective Time, (x) pension, welfare, fringe and other
employee benefits, including severance benefits, that, in each case, are at
least as favorable to that employee as the benefits provided to that employee
immediately prior to the Effective Time, (y) annual cash bonus opportunities
that are at least as favorable to that employee as the bonus opportunities
available to that employee immediately prior to the Effective Time and (z) if
the Merger is consummated on or prior to April 30, 1999, equity awards that are
at least as favorable to that employee (if that employee is at the vice
president level or below) as the awards granted to similarly situated employees
of Kroger and its subsidiaries during or for this period are to the employees of
Kroger and its subsidiaries. These obligations will not apply, however, (i) to
changes in benefits of Fred Meyer employees related to the planned consolidation
of Fred Meyer benefit plans that may be implemented before December 31, 1999, or
(ii) to any Fred Meyer employee whose status changes as a result of Fred Meyer's
customary business practices. Notwithstanding the foregoing, subject to the
terms of permitted employment agreements, Kroger will not be obligated to
continue to employ any employee of Fred Meyer or its subsidiaries for any
particular length of time. Employees of Fred Meyer and its subsidiaries will
also receive (i) credit for years of service with Fred Meyer for purposes of
eligibility and vesting (but not for benefit accrual) under any Kroger benefit
plans in which they may participate (only to the extent that those years of
service would have been credited under the relevant Kroger benefit plan), (ii) a
waiver of any pre-existing condition exclusions and actively at work
requirements under any Kroger medical, dental, vision or other welfare benefit
plan (a "KROGER WELFARE BENEFIT PLAN") in which they may participate, and (iii)
credit under any Kroger Welfare Benefit Plan in which they may participate for
eligible expenses incurred on or before the Effective Time for the purpose of
satisfying all deductible and similar requirements for the applicable plan year.
On or prior to the Effective Time, Fred Meyer shall take all actions as are
necessary to terminate its and its subsidiaries' employee stock purchase plans
at or prior to the Effective Time. Fred Meyer shall, in connection with this
termination, cause all participants in these plans not to be permitted to have
Fred Meyer increase the percentage or amount of any monies withheld by Fred
Meyer for investment in these plans after the date of the Merger Agreement, and
cause each participant either to receive previously invested cash or purchase
Fred Meyer Common Stock pursuant to these plans prior to the Effective Time.
GOVERNANCE
Kroger has agreed to cause Robert D. Beyer, Ronald W. Burkle, Carlton J.
Jenkins, Bruce Karatz, Robert G. Miller and Steven R. Rogel, who are directors
of Fred Meyer, to be appointed as directors of Kroger promptly after the
Effective Time. If, prior to the Effective Time, any of those persons decline or
is unable to serve as a director, Fred Meyer is permitted to designate another
person to serve in that person's stead, which person must be reasonably
acceptable to Kroger. See "MANAGEMENT AND OPERATIONS AFTER THE MERGER."
INDEMNIFICATION AND INSURANCE
From and after the Effective Time, Kroger has agreed to, or to cause the
surviving corporation of the Merger to, indemnify and hold harmless each present
and former director and officer of Fred Meyer or any of its subsidiaries (when
acting in said capacity), against all costs or expenses (including reasonable
attorneys' fees) judgments, fines, losses, claims, damages, or liabilities in
connection with any claim, action, suit, proceeding or investigation (whether
civil, criminal, administrative or investigative) for acts or omissions,
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time to the fullest extent permitted
under the DGCL or other applicable law.
For a period of six years after the Effective Time, Kroger has agreed to
maintain, or cause the surviving corporation to maintain, a policy of directors'
and officers' liability insurance ("D&O INSURANCE") for acts and omissions
occurring prior to the Effective Time with coverage in amount and scope at least
as favorable as Fred Meyer's existing D&O Insurance coverage. However, if the
existing D&O Insurance expires, is terminated or canceled or if the annual
premium therefor is increased to an amount in excess of 200% of the last
annualized premium paid prior to the date of the execution of the Merger
Agreement (the "CAP"), Kroger or the surviving
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corporation in the Merger is only required to obtain D&O Insurance in an amount
and scope as great as can be obtained for the remainder of such period for a
premium not in excess (on an annualized basis) of the Cap.
CONDITIONS
The respective obligations of Fred Meyer and Kroger to consummate the
Merger are subject to the fulfillment of each of the following conditions: (a)
the approval and adoption of the Merger Agreement and the approval of the Merger
by holders of a majority of the outstanding shares of Fred Meyer Common Stock,
as well as by holders of a majority of the outstanding shares of Kroger Common
Stock; (b) the expiration or termination of the waiting period applicable to the
consummation of the Merger under the HSR Act; (c) none of the parties to the
Merger Agreement will be subject to any order, decree or injunction making the
Merger illegal or otherwise prohibiting the consummation of the Merger; (d) the
registration statement on Form S-4 of which this Joint Proxy
Statement/Prospectus is a part (the "REGISTRATION STATEMENT") will have been
declared effective by the Commission under the Securities Act and no stop order
with respect thereto shall be in effect; (e) all required consents, approvals,
authorizations, filings, qualifications, licenses or permits under state
securities or "blue sky" laws have been obtained and (f) the shares of Kroger
Common Stock to be issued pursuant to the Merger will have been duly approved
for listing on the NYSE, subject to official notice of issuance.
The obligations of each of Fred Meyer and Kroger to effect the Merger are
also subject to the satisfaction by the other party prior to the Effective Time
of the following conditions: (a) the representations and warranties of the other
party set forth in the Merger Agreement shall be true and correct as of the
Closing Date (except to the extent these representations and warranties have
been expressly made as of an earlier date, in which case the representations and
warranties shall have been true and correct as of the earlier date) with the
same force and effect as if made on and as of the Closing Date except to the
extent that any failures of the representations and warranties to be so true and
correct (determined without regard to materiality qualifiers or limitations
contained therein), individually or in the aggregate, would not reasonably be
expected to have resulted in a Fred Meyer Material Adverse Effect (as defined
below) or a Kroger Material Adverse Effect, as the case may be; (b) the other
party shall have complied in all material respects with all agreements and
covenants required by the Merger Agreement to be performed or complied with by
it on or before the Effective Time; (c) each party will have received an opinion
of tax counsel that the Merger will be treated for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code; (d) Fred
Meyer and Kroger will have each received from the other party's independent
public accountants (i) comfort letters (one dated a date within two business
days before the date the Registration Statement becomes effective and one dated
the Closing Date) covering matters customarily included in these comfort letters
relating to registration statements similar to the Registration Statement and
(ii) letters (one dated the date on which the Registration Statement becomes
effective and one dated the Closing Date) stating as of the respective dates of
the letters that, in the case of the letters to be received by Kroger, Fred
Meyer's independent accountants are not aware of any conditions that exist that
would preclude Fred Meyer's ability to be a party in a business combination to
be accounted for as a pooling of interests and, in the case of the letters to be
received by Fred Meyer, that accounting for the Merger as a pooling of interests
under Opinion 16 of the Accounting Principles Board and applicable Commission
rules and regulations is appropriate if the Merger is closed and consummated as
contemplated by the Merger Agreement; and (e) the other party shall have
obtained all consents from, and shall have made all filings necessary with any
person (including any governmental entity) necessary to be obtained in order to
consummate the Merger, unless the failure to obtain these consents or make such
filings would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the other party.
For purposes of the Merger Agreement, "FRED MEYER MATERIAL ADVERSE EFFECT"
means any change, circumstance, event or effect (x) that is or will be
materially adverse to the business, results of operations, financial condition
or prospects of Fred Meyer and its subsidiaries taken as a whole, or (y) that
will prevent or materially impair Fred Meyer's ability to consummate the Merger;
provided that a Fred Meyer Material Adverse Effect shall not include changes or
effects (1) relating to economic conditions or financial markets in general or
the retail food and drug industry in general, (2) resulting from the voluntary
termination of employment by employees of Fred Meyer and its subsidiaries
between the date of the Merger Agreement and the Closing Date or (3) resulting
from actions required to be taken by the terms of the Merger Agreement. A
decline in the stock
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market price of the shares of Fred Meyer Common Stock in and of itself shall not
be deemed a Fred Meyer Material Adverse Effect.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time: (a) by the mutual consent of Fred Meyer
and Kroger; or (b) by either Fred Meyer or Kroger if (i) the Merger is not
consummated by September, 30, 1999, provided that the right to terminate the
Merger Agreement shall not be available to any party whose failure to fulfill
any obligation has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before September, 30, 1999, (ii) the required
approvals of the shareholders of the other party is not obtained at a duly held
shareholders' meeting, including any adjournments or postponements of that
meeting, (iii) any governmental entity issues a final and nonappealable order,
decree or injunction having the effect of making the Merger illegal or
permanently prohibiting the consummation of the Merger; provided that the party
seeking to terminate the Merger Agreement shall have used its reasonable best
efforts to have this injunction, order or decree lifted or vacated, (iv) any of
the representations, warranties, covenants or agreements of the other party
contained in the Merger Agreement is materially breached, which breach would
result in the failure to satisfy one or more of the conditions to the
terminating party's obligations under the Merger Agreement, and this breach
shall be incapable of being cured or, if capable of being cured, shall not have
been cured within 30 days after written notice is received by the party alleged
to be in breach.
TERMINATION FEES; EXPENSE REIMBURSEMENT
Termination Fees Payable by Fred Meyer. The Merger Agreement obligates Fred
Meyer to pay Kroger a termination fee of $55 million (the "INITIAL FRED MEYER
TERMINATION FEE") if (i) (a) Kroger terminates the Merger Agreement because of
Fred Meyer's failure to comply (and failure to cure this non-compliance within
30 days' notice of the same) in all material respects with its covenants under
the Merger Agreement, or (b) the Merger Agreement is terminated because of the
failure of Fred Meyer to obtain stockholder approval for the Merger Agreement
and the transactions contemplated thereby at a duly held stockholders' meeting,
and (ii) prior to the meeting of Fred Meyer's stockholders a Fred Meyer Business
Combination Proposal shall have been made to Fred Meyer and made known to its
stockholders generally or shall have been made directly to its stockholders
generally or any person shall have publicly announced an intention (whether or
not conditional) to make a Fred Meyer Business Combination Proposal (whether or
not this offer has been rejected or withdrawn). In addition, if, within 18
months following any termination as a result of which the Initial Fred Meyer
Termination Fee becomes payable, Fred Meyer consummates, or enters into an
agreement to consummate, a Fred Meyer Business Combination Proposal, the Merger
Agreement obligates Fred Meyer to pay Kroger an additional $110 million
termination fee (the "ADDITIONAL FRED MEYER TERMINATION FEE"). "FRED MEYER
BUSINESS COMBINATION PROPOSAL" means any Acquisition Proposal involving Fred
Meyer, provided that all references in the definition of Fred Meyer Acquisition
Proposal to "15%" shall be deemed to be references to "50%." If Kroger becomes
entitled to the Initial Termination Fee and the Additional Termination Fee, the
stock option granted by Fred Meyer becomes exercisable. See "THE STOCK OPTION
AND VOTING AGREEMENTS."
Termination Fees Payable by Kroger. The Merger Agreement obligates Kroger
to pay Fred Meyer a termination fee of $90 million (the "INITIAL KROGER
TERMINATION FEE") if (i) (a) Fred Meyer terminates the Merger Agreement because
of Kroger's failure to comply (and failure to cure this non-compliance within 30
days' notice of the same) in all material respects with its covenants under the
Merger Agreement, or (b) the Merger Agreement is terminated because of the
failure of Kroger to obtain shareholder approval for the Merger Agreement and
the transactions contemplated thereby at a duly held shareholders' meeting, and
(ii) prior to the meeting of Kroger's shareholders a Kroger Business Combination
Proposal shall have been made to Kroger and made known to its shareholders
generally or shall have been made directly to its shareholders generally or any
person will have publicly announced an intention (whether or not conditional) to
make a Kroger Business Combination Proposal (whether or not such offer has been
rejected or withdrawn). In addition, if, within 18 months following any
termination as a result of which the Initial Kroger Termination Fee becomes
payable, Kroger consummates, or enters into an agreement to consummate, a Kroger
Business Combination Proposal, the
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Merger Agreement obligates Kroger to pay Fred Meyer an additional $185 million
termination fee (the "ADDITIONAL KROGER TERMINATION FEE"). "KROGER BUSINESS
COMBINATION PROPOSAL" means any Acquisition Proposal involving Kroger provided
that all references in the definition of Kroger Acquisition Proposal to "15%"
shall be deemed to be references to "50%". If Fred Meyer becomes entitled to the
Initial Termination Fee and the Additional Termination Fee, the stock option
granted by Kroger becomes exercisable. See "THE STOCK OPTION AND VOTING
AGREEMENTS."
If the Merger Agreement is terminated by reason of the failure of either
party's shareholders to approve the Merger Agreement and the Merger, that party
is obligated to reimburse the other party for all fees and expenses incurred and
paid by the other party in connection with the Merger Agreement and the Merger.
In no event will any party that is in material breach of its obligations under
the Merger Agreement be entitled to receive a termination fee or to receive
reimbursement of its fees and expenses.
Subject to the expense reimbursement provisions described above, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring these expenses, except as otherwise provided in the
Merger Agreement. The Merger Agreement provides that the following expenses will
be shared equally by Kroger and Fred Meyer: (a) the filing fee in connection
with the filing of the Registration Statement and this Joint Proxy
Statement/Prospectus with the Commission, (b) all filing fees in connection with
any filings, permits or approvals required under applicable state securities or
"blue sky" laws, (c) the expenses incurred in connection with printing and
mailing the Registration Statement and this Joint Proxy Statement/Prospectus and
(d) any commitment fee payable in connection with any planned refinancing or
replacement by Kroger of, or commitment to obtain the consent of the requisite
lenders to consummate the Merger under, certain existing financing facilities of
Kroger and Fred Meyer.
ASSIGNMENT, AMENDMENT AND WAIVER
Notwithstanding anything in the Merger Agreement to the contrary, Kroger
may, in its sole discretion, restructure the Merger so as to substitute Kroger
for Merger Sub as one of the constituent corporations in the Merger so that Fred
Meyer shall merge with and into Kroger with Kroger continuing as the surviving
corporation in the Merger, provided that this restructuring cannot reasonably be
expected to interfere with or delay (in any material respect) the consummation
of the Merger by reason of any Consent (as defined in the Merger Agreement)
relating to Kroger that would not have been required to have been obtained by
Kroger had the Merger not been so restructured. The parties may amend the Merger
Agreement by written agreement at any time prior to the Effective Time, to the
extent permitted by applicable law. The conditions to each party's obligation to
consummate the Merger may be waived by the other party in whole or in part to
the extent permitted by applicable law.
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RIGHTS OF DISSENTING SHAREHOLDERS
KROGER SHAREHOLDERS
The following is a summary of the principal steps which a Kroger
shareholder must take to perfect dissenters' rights with respect to the Merger.
The summary does not purport to be complete and is qualified in its entirety by
reference to Section 1701.85 of the OGCL (defined below), a copy of which is
attached as APPENDIX G and incorporated in this Joint Proxy Statement/Prospectus
by reference. FAILURE TO TAKE ANY ONE OF THE REQUIRED STEPS MAY RESULT IN
TERMINATION OF THE RIGHTS OF THE SHAREHOLDER'S DISSENTERS' RIGHTS UNDER THE OHIO
GENERAL CORPORATION LAW (THE "OGCL"). If a Kroger shareholder has a beneficial
interest in Kroger Common Stock that is held of record in the name of another
person, and this shareholder desires to perfect whatever dissenters' rights the
beneficial shareholder may have, such beneficial shareholder must act promptly
to cause the shareholder of record timely and properly to follow the steps
summarized below. Any holder of shares of Kroger Common Stock who is considering
dissenting should consult his or her legal advisor.
To perfect dissenters' rights, a Kroger shareholder must satisfy each of
the following conditions:
1. No Vote in Favor of the Merger. Kroger Common Stock (the "DISSENTING
KROGER SHARES") as to which a dissenting Kroger shareholder (a "KROGER
DISSENTING SHAREHOLDER") seeks relief must not be voted in favor of the approval
and adoption of the Merger Agreement and approval of the Merger at the Kroger
Special Meeting. This requirement will be satisfied (i) if a properly executed
proxy is submitted with instructions to vote "against" the approval and adoption
of the Merger Agreement and approval of the Merger or to "abstain" from this
vote, (ii) if no proxy is returned and no vote is cast at the Kroger Special
Meeting in favor of the approval and adoption of the Merger Agreement and
approval of the Merger, or (iii) if a Kroger Dissenting Shareholder revokes a
proxy and thereafter "abstains" from or votes "against" the approval and
adoption of the Merger Agreement and approval of the Merger. A VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER
CONSTITUTES A WAIVER OF DISSENTERS' RIGHTS. A proxy that is returned signed but
on which no voting preference is indicated will be voted in favor of the
approval and adoption of the Merger Agreement and approval of the Merger and
will constitute a waiver of dissenters' rights. Failure to vote does not
constitute a waiver of dissenters' rights.
2. Filing Written Demand. A Kroger Dissenting Shareholder must serve a
written demand for the "fair cash value" of Dissenting Kroger Shares upon Kroger
on or before the tenth day after the shareholder vote approving the Merger and
must otherwise comply with Section 1701.85 of the OGCL. Kroger will not inform
shareholders of the expiration of the ten-day period and, therefore,
shareholders are advised to retain this Joint Proxy Statement/Prospectus. The
required written demand must specify the shareholder's name and address, the
number and class of Dissenting Kroger Shares held of record on the record date
and the amount claimed as the "fair cash value" of the Dissenting Kroger Shares.
Voting against the approval and adoption of the Merger Agreement and the Merger
will not of itself constitute a written demand as required by Section 1701.85 of
the OGCL.
If requested by Kroger, Kroger Dissenting Shareholders must submit their
certificates for Dissenting Kroger Shares to Kroger within 15 days after the
sending of such request for endorsement thereon by Kroger of a legend that
demand for fair cash value has been made. Such certificates will be returned
promptly to the Kroger Dissenting Shareholders by Kroger. Kroger intends to make
such a request to Kroger Dissenting Shareholders.
3. Petitions to Be Filed in Court. If Kroger and any Kroger Dissenting
Shareholder cannot agree on the "fair cash value" of the Dissenting Kroger
Shares, either party may, within three months after service of the demand by the
shareholder, file a complaint in the Court of Common Pleas of Hamilton County,
Ohio (the county of Kroger's principal office) (the "COURT") for a determination
of the "fair cash value" of the Dissenting Kroger Shares. The Court, if it
determines that the Dissenting Kroger Shareholder is entitled to be paid the
"fair cash value" of the Dissenting Kroger Shares, may appoint one or more
appraisers to determine the value of the shares. The Court thereupon shall make
a finding as to the fair cash value per share and will render judgment therefor,
and the costs of the proceeding, including reasonable compensation to the
appraisers, will be assessed or apportioned as the Court considers equitable.
"FAIR CASH VALUE" is the amount that a willing seller, under no compulsion to
sell, would be willing to accept, and that a willing buyer, under no compulsion
to purchase, would
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be willing to pay, but in no event in excess of the amount specified in the
Kroger Dissenting Shareholder's demand. Fair cash value is determined as of the
day prior to that on which the shareholder vote is taken at the Kroger Special
Meeting and excludes any appreciation or depreciation in market value of
Dissenting Kroger Shares resulting from the Merger. Exercise of dissenters'
rights under the OGCL may result in a judicial determination that the fair cash
value of the dissenting shareholder's shares is higher, the same, or lower than
the market value of the shares of Kroger Common Stock on the date of the
consummation of the Merger. Kroger does not intend to file such a complaint.
Therefore, a Kroger Dissenting Shareholder must timely file such a complaint to
protect his or her rights to a judicial determination under the OGCL.
The right of any Kroger Dissenting Shareholder to be paid the "fair cash
value" of the Kroger Dissenting Shares will terminate if: (i) for any reason the
Merger does not become effective; (ii) the Kroger Dissenting Shareholder fails
to serve an appropriate timely written demand upon Kroger; (iii) the Kroger
Dissenting Shareholder does not, upon request of Kroger, timely surrender
certificates for an endorsement thereon of a legend to the effect that demand
for the "fair cash value" of the Dissenting Kroger Shares has been made; (iv)
the demand is withdrawn by the Kroger Dissenting Shareholder, with the consent
of the Kroger Board of Directors; (v) Kroger and the Kroger Dissenting
Shareholder have not come to an agreement as to the fair cash value of the
Kroger Dissenting Shares and neither has filed a complaint in the Court as
described above; or (vi) the Kroger Dissenting Shareholder has otherwise not
complied with the requirements of Section 1701.85 of the OGCL.
From the time a Kroger Dissenting Shareholder's demand is made until either
the termination of the right arising from that demand, or the purchase of the
Dissenting Kroger Shares by Kroger, all rights accruing from the Dissenting
Kroger Shares, including voting, dividend or distribution rights, shall be
suspended. If, during the suspension, any cash dividend is paid with respect to
Kroger Common Stock, an amount equal to the dividend is to be paid to the holder
of record of the Dissenting Kroger Shares as a credit upon the fair cash value
thereof. If the right to receive "fair cash value" is terminated other than by
purchase of the Dissenting Kroger Shares by Kroger, all rights with respect to
Kroger Dissenting Shares will be restored to the Kroger Dissenting Shareholder
and any distribution that would have been made to the Kroger Dissenting
Shareholder, but for the suspension, will be made at the time of the
termination.
If holders of Kroger Common Stock exercise appraisal rights representing
10% if or more of the value of the Kroger Common Stock to be received by Fred
Meyer shareholders, the ability of the Merger to qualify as a pooling of
interests for accounting and financial reporting purposes may be adversely
affected. This 10% threshold may be reduced under certain circumstances. The
qualification of the Merger for pooling of interests accounting is a condition
of the respective obligations of Kroger and Fred Meyer to effect the Merger. See
("THE MERGER -- Accounting Treatment").
FRED MEYER STOCKHOLDERS
Under the DGCL, appraisal rights are available only in connection with
statutory mergers or consolidations. Even in these cases, unless the certificate
of incorporation otherwise provides, the DGCL does not recognize dissenters'
rights for any class or series of stock which is either listed on a national
securities exchange or held of record by more than 2,000 shareholders except
that appraisal rights are available for holders of stock who, by the terms of
the merger or consolidation, are required to accept anything except (i) stock of
the corporation surviving or resulting from the merger or consolidation, (ii)
shares which at the effective time of the merger or consolidation are either
listed on a national securities exchange or held of record by more than 2,000
shareholders, (iii) cash in lieu of fractional shares of stock described in the
foregoing clauses (i) and (ii), or (iv) any combination of stock and cash in
lieu of fractional shares described in the foregoing clauses (i), (ii) or (iii).
Fred Meyer stockholders will not have any appraisal rights in connection
with, or as a result of, the matters to be acted upon at the Fred Meyer Special
Meeting.
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THE STOCK OPTION AND VOTING AGREEMENTS
THE FRED MEYER STOCK OPTION AGREEMENT
General. Concurrently with the execution of the Merger Agreement and the
Kroger Stock Option Agreement (as defined below), Kroger and Fred Meyer also
entered into a stock option agreement (the "FRED MEYER STOCK OPTION AGREEMENT"),
pursuant to which Fred Meyer granted Kroger an option (the "FRED MEYER OPTION")
to purchase, pursuant to its terms and conditions, up to 30,799,665 shares of
Fred Meyer Common Stock at an exercise price of $44.125 per share (subject to
adjustment upon certain events as provided in the Fred Meyer Stock Option
Agreement). However, in no event will the number of shares for which the Fred
Meyer Option is exercisable exceed 19.9% of the shares of Fred Meyer Common
Stock issued and outstanding at the time of exercise (without giving effect to
the shares issued or issuable thereunder). The Fred Meyer Stock Option Agreement
provides that, upon proper notice to Fred Meyer, Kroger may exercise the Fred
Meyer Option in whole or in part from time to time following the occurrence of a
Fred Meyer Triggering Event and prior to a Fred Meyer Exercise Termination Event
(as these terms are defined below).
The following is a summary of the Fred Meyer Stock Option Agreement, a copy
of which is attached as APPENDIX B and is incorporated by reference in its
entirety. This summary is qualified in its entirety by reference to the full
text of the Fred Meyer Stock Option Agreement. Capitalized terms that are used
in this section and are not otherwise defined in this Joint Proxy
Statement/Prospectus have the respective meanings given to them in the Fred
Meyer Stock Option Agreement.
Termination. The right to exercise the Fred Meyer Option will terminate
upon either (i) the occurrence of the Effective Time or (ii) (A) if a notice of
exercise has not previously been given, the close of business on the earlier of
(x) the day that is 150 days after the date of a Fred Meyer Triggering Event,
(y) the date upon which the Merger Agreement is terminated if no termination fee
could be payable by Fred Meyer pursuant to the terms of the Merger Agreement
upon the occurrence of certain events or the passage of time, and (z) 700 days
following the date upon which the Merger Agreement is terminated, and (B) if a
notice of exercise has previously been given, 150 days after that notice of
exercise (the events in (i) and (ii) each being referred to as a "FRED MEYER
EXERCISE TERMINATION EVENT").
Fred Meyer Triggering Event. For purposes of the Fred Meyer Stock Option
Agreement, a "FRED MEYER TRIGGERING EVENT" will have occurred at the time at
which Kroger becomes entitled under the Merger Agreement to receive the
Additional Fred Meyer Termination Fee from Fred Meyer. If it were to become
exercisable, the Fred Meyer Option may, for a period of time, preclude a third
party from consummating a pooling transaction with Fred Meyer. See "THE MERGER
AGREEMENT -- Termination Fees; Expense Reimbursement."
Certain Covenants. Fred Meyer and Kroger have each agreed that, if a filing
or any clearance is required under the HSR Act, or prior notification to or
prior approval from any regulatory authority is required under any other law,
statute, rule or regulation (including applicable rules and regulations of
national securities exchanges) in connection with the exercise of the Fred Meyer
Option, Kroger or any other person that becomes a holder of all or part of the
Fred Meyer Option in accordance with the terms of the Fred Meyer Stock Option
Agreement (each such person, including Kroger, being referred to as "FRED MEYER
HOLDER") or Fred Meyer, as required, promptly after the Notice Date, will file
all necessary notices and applications for approval and expeditiously process
the same.
Registration Rights. At any time after a Fred Meyer Triggering Event has
occurred and prior to a Fred Meyer Exercise Termination Event, Fred Meyer has
agreed, if requested by Kroger in the written notice of exercise, as promptly as
practicable to prepare, file and keep current a shelf registration statement
under the Securities Act, covering any or all shares issued and issuable
pursuant to the Fred Meyer Option. Fred Meyer has also agreed to use its
reasonable best efforts to cause this registration statement to remain effective
for a period of 365 days or such shorter time as is reasonably appropriate to
permit the disposition of any shares of Fred Meyer Common Stock issued upon
total or partial exercise of the Fred Meyer Option in accordance with any plan
of disposition reasonably requested by Kroger. Kroger may demand two
registrations.
Repurchase. Upon the occurrence of a Fred Meyer Triggering Event and prior
to a Fred Meyer Exercise Termination Event, Fred Meyer has agreed (i) at the
written request of a Fred Meyer Holder delivered within 150 days of this
occurrence (or such later period as provided in the Fred Meyer Stock Option
Agreement), to
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repurchase the Fred Meyer Option from this Fred Meyer Holder, in whole or in
part, at a price equal to the number of shares of Fred Meyer Common Stock then
purchasable upon exercise of the Fred Meyer Option (or such lesser number of
shares as may be designated in the repurchase notice) multiplied by the amount
by which the Fred Meyer Market/Offer Price (as defined below) exceeds the
exercise price or (ii) at the written request of any owner of shares of Fred
Meyer Common Stock issued under the Fred Meyer Option (a "FRED MEYER OWNER")
delivered within 150 days of this occurrence (or such later period as provided
in the Fred Meyer Stock Option Agreement) to repurchase from the Fred Meyer
Owner the number of shares as is designated in the repurchase notice at a price
per share equal to the Fred Meyer Market/Offer Price.
The term "FRED MEYER MARKET/OFFER PRICE" means the highest of (x) the price
per share of Fred Meyer Common Stock at which a tender or exchange offer for
Fred Meyer Common Stock either has been consummated, or at which a person has
publicly announced its intention to commence a tender or exchange offer, after
October 18, 1998, and prior to the delivery of the repurchase notice, and which
offer either has been consummated and not withdrawn or terminated as of the date
payment of the repurchase price is made, or has been publicly announced and the
intention to make a tender or exchange offer has not been withdrawn as of the
date payment of the repurchase price is made, (y) the price per share of Fred
Meyer Common Stock to be paid by any third party pursuant to a valid agreement
with Fred Meyer for a merger, share exchange, consolidation or reorganization
entered into after October 18, 1998 and on or prior to the delivery of the
repurchase notice and (z) the average closing price for shares of Fred Meyer
Common Stock on the NYSE for the twenty consecutive trading days immediately
preceding the delivery of the repurchase notice. In the event that a tender or
exchange offer is made for the Fred Meyer Common Stock or an agreement is
entered into for a merger, share exchange, consolidation or reorganization
involving consideration other than cash, the value of the securities or other
property issuable or deliverable in exchange for the Fred Meyer Common Stock
shall be determined in good faith by a nationally recognized investment banking
firm mutually selected by Fred Meyer and the party seeking such repurchase.
Standstill Provision. Kroger has agreed that, from the date of exercise of
the Fred Meyer Option and for as long as Kroger owns shares of Fred Meyer Common
Stock acquired pursuant to the exercise of the Fred Meyer Option that represent
at least 2% of the then outstanding voting securities of Fred Meyer, it will
not, and will not permit its affiliates to, without the prior consent of the
Fred Meyer Board of Directors, (i) acquire or agree, offer, seek or propose to
acquire, ownership of more than 20% of any class of voting securities of Fred
Meyer, or any rights or options to acquire such ownership; (ii) propose a
merger, consolidation or similar transaction involving Fred Meyer; (iii) offer,
seek or propose to purchase, lease or otherwise acquire all or a substantial
portion of the assets of Fred Meyer; (iv) seek or propose to influence or
control the management or policies of Fred Meyer or to obtain representation on
the Board of Directors of Fred Meyer, or solicit or participate in the
solicitation of any proxies or consents with respect to the securities of Fred
Meyer; (v) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing; or
(vi) seek or request permission to do any of the foregoing or seek any
permission to make any public announcement with respect to any of the foregoing.
Additionally, Kroger has agreed not to sell, transfer any beneficial interest
in, pledge, hypothecate or otherwise dispose of any voting securities of Fred
Meyer at any time except pursuant to a tender offer, exchange offer, merger or
consolidation of Fred Meyer, or in connection with a sale of all or
substantially all of the assets of Fred Meyer, pursuant to a registered public
offering or in compliance with Rule 144 promulgated under the Securities Act (or
any similar rule). Kroger has also agreed to be present in person or to be
represented by proxy at all stockholder meetings of Fred Meyer so that all
shares of voting securities of Fred Meyer beneficially owned by it or its
affiliates may be counted for the purpose of determining the presence of a
quorum at such meetings. Kroger has also agreed to vote or cause to be voted all
voting securities of Fred Meyer beneficially owned by it or its affiliates
proportionately with the votes cast by all other stockholders present and
voting. The standstill provisions described in this paragraph will terminate at
such time as Kroger beneficially owns more than 50% of the outstanding Fred
Meyer Common Stock.
Limitation on Profit. Notwithstanding any other provision of the Fred Meyer
Stock Option Agreement, in no event will the Kroger Total Profit (as defined
below) plus any "FRED MEYER LIQUIDATION AMOUNTS" (defined as the aggregate of
all termination fees and reimbursement of expenses payable or paid to Kroger
under the Merger Agreement) exceed in the aggregate $275 million, and, if it
otherwise would exceed this amount, Kroger,
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at its sole election, will either (i) reduce the number of shares of Fred Meyer
Common Stock subject to the Fred Meyer Option, (ii) deliver to Fred Meyer for
cancellation shares of Fred Meyer Common Stock previously purchased by Kroger or
any other Fred Meyer Holder or Fred Meyer Owner upon exercise of the Fred Meyer
Option, (iii) pay to Fred Meyer cash or refund in cash Fred Meyer Liquidation
Amounts previously paid, or reduce or waive the amount of any Fred Meyer
Liquidation Amount payable pursuant to the Merger Agreement, or (iv) any
combination thereof, so that Kroger Total Profit realized by Kroger, when
aggregated with any Fred Meyer Liquidation Amounts, shall not exceed $275
million after taking into account the foregoing actions.
"KROGER TOTAL PROFIT" means the aggregate amount (before taxes) of the
following: (i) the amount received by Kroger, any other Fred Meyer Holder and
any other Fred Meyer Owner pursuant to Fred Meyer's repurchase of the Fred Meyer
Option (in whole or in part) or any shares issued pursuant to exercise of the
Fred Meyer Option less, in the case of any repurchase of shares issued pursuant
to exercise of the Fred Meyer Option, Kroger or such Fred Meyer Holder's or Fred
Meyer Owner's purchase price for such shares, (ii) the net cash amounts (and the
fair market value of any other consideration) received by Kroger or another Fred
Meyer Holder or Fred Meyer Owner pursuant to the sale of shares purchased upon
exercise of the Fred Meyer Option (or any other securities into which such
shares are converted or exchanged) to any unaffiliated party, less Kroger or
such Fred Meyer Holder's or Fred Meyer Owner's purchase price of such shares,
and (iii) the net cash amounts (and the fair market value of any other
consideration) received by Kroger or another Fred Meyer Holder or Fred Meyer
Owner on the transfer of the Fred Meyer Option (or any portion thereof) to any
unaffiliated party.
Certain Adjustments. In the event of any change in Fred Meyer Common Stock
by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges or shares or the like, the
type and number of securities subject to the Fred Meyer Option and the exercise
price will be adjusted appropriately.
THE KROGER STOCK OPTION AGREEMENT
General. Concurrently with the execution of the Merger Agreement and the
Fred Meyer Stock Option Agreement, Kroger and Fred Meyer also entered into a
stock option agreement (the "KROGER STOCK OPTION AGREEMENT"), pursuant to which
Kroger granted Fred Meyer an option (the "KROGER OPTION") to purchase, pursuant
to its terms and conditions, up to 55,906,472 shares of Kroger Common Stock at
an exercise price of $50.00 per share (subject to adjustment upon certain events
as provided in the Kroger Stock Option Agreement). However, in no event will the
number of shares for which the Kroger Option is exercisable exceed 19.9% of the
shares of Kroger Common Stock issued and outstanding at the time of exercise
(without giving effect to the shares issued or issuable thereunder). The Kroger
Stock Option Agreement provides that, upon proper notice to Kroger, Fred Meyer
may exercise the Kroger Option in whole or in part from time to time following
the occurrence of a Triggering Event and prior to a Kroger Exercise Termination
Event (as these terms are defined below).
The following is a summary of the Kroger Stock Option Agreement, a copy of
which is attached as APPENDIX C and is incorporated by reference in its
entirety. This summary is qualified in its entirety by reference to the full
text of the Kroger Stock Option Agreement. Capitalized terms that are used in
this section and are not otherwise defined in this Joint Proxy
Statement/Prospectus have the respective meanings given to them in the Kroger
Stock Option Agreement.
Termination. The right to exercise the Kroger Option will terminate upon
either (i) the occurrence of the Effective Time or (ii) (A) if a notice of
exercise has not previously been given, the close of business on the earlier of
(x) the day that is 150 days after the date of a Kroger Triggering Event, (y)
the date upon which the Merger Agreement is terminated if no termination fee
could be payable by Kroger pursuant to the terms of the Merger Agreement upon
the occurrence of certain events or the passage of time, and (z) 700 days
following the date upon which the Merger Agreement is terminated, and (B) if a
notice of exercise has previously been given, 150 days after that notice of
exercise (the events in (i) and (ii) being referred to as a "KROGER EXERCISE
TERMINATION EVENT").
Kroger Triggering Event. For purposes of the Kroger Stock Option Agreement,
a "KROGER TRIGGERING EVENT" will have occurred at the time at which Fred Meyer
becomes entitled under the Merger Agreement to
61
<PAGE> 71
receive the Additional Kroger Termination Fee from Kroger. If it were to become
exercisable, the Kroger Stock Option may, for a period of time, preclude a third
party from consummating a pooling transaction with Kroger. See "THE MERGER
AGREEMENT -- Termination Fees; Expense Reimbursement."
Certain Covenants. Fred Meyer and Kroger have each agreed that, if a filing
or any clearance is required under the HSR Act, or prior notification to or
prior approval from any regulatory authority is required under any other law,
statute, rule or regulation (including applicable rules and regulations of
national securities exchanges) in connection with the exercise of the Kroger
Option, Fred Meyer or any other person that becomes a holder of all or part of
the Kroger Option in accordance with the terms of the Kroger Stock Option
Agreement (each such person, including Fred Meyer, being referred to as "KROGER
HOLDER") or Kroger, as required, promptly after the Notice Date, will file all
necessary notices and applications for approval and expeditiously process the
same.
Registration Rights. At any time after a Kroger Triggering Event has
occurred and prior to a Kroger Exercise Termination Event, Kroger has agreed if
requested by Fred Meyer in the written notice of exercise, as promptly as
practicable to prepare, file and keep current a shelf registration statement
under the Securities Act, covering any or all shares issued and issuable
pursuant to the Kroger Option and Kroger has also agreed to use its reasonable
best efforts to cause this registration statement remain effective for a period
of 365 days or such shorter time as is reasonably appropriate to permit the
disposition of any shares of Kroger Common Stock issued upon total or partial
exercise of the Kroger Option in accordance with any plan of disposition
reasonably requested by Fred Meyer. Fred Meyer may demand two registrations.
Repurchase. Upon the occurrence of a Kroger Triggering Event and prior to a
Kroger Exercise Termination Event, Kroger has agreed (i) at the written request
of a Kroger Holder delivered within 150 days of this occurrence (or such later
period as provided in the Kroger Stock Option Agreement), to repurchase the
Kroger Option from such Kroger Holder, in whole or in part, at a price equal to
the number of shares of Kroger Common Stock then purchasable upon exercise of
the Kroger Option (or such lesser number of shares as may be designated in the
repurchase notice) multiplied by the amount by which the Kroger Market/Offer
Price (as defined below) exceeds the exercise price or (ii) at the written
request of any owner of Kroger Common Stock issued under the Kroger Option (a
"KROGER OWNER") delivered within 150 days of this occurrence (or such later
period as provided in the Kroger Stock Option Agreement) to repurchase from the
Kroger Owner the number of shares as is designated in the repurchase notice at a
price per share equal to the Kroger Market/Offer Price.
The term "KROGER MARKET/OFFER PRICE" means the highest of (x) the price per
share of Kroger Common Stock at which a tender or exchange offer for Kroger
Common Stock either has been consummated, or at which a person has publicly
announced its intention to commence a tender or exchange offer, after October
18, 1998 and prior to the delivery of the repurchase notice, and which offer
either has been consummated and not withdrawn or terminated as of the date
payment of the repurchase price is made, or has been publicly announced and the
intention to make a tender or exchange offer has not been withdrawn as of the
date payment of the repurchase notice price is made, (y) the price per share of
Kroger Common Stock to be paid by any third party pursuant to a valid agreement
with Kroger for a merger, share exchange, consolidation or reorganization
entered into after October 18, 1998 and on or prior to the delivery of the
repurchase notice and (z) the average closing price for shares of Kroger Common
Stock on the NYSE for the twenty consecutive trading days immediately preceding
the delivery of the repurchase notice. In the event that a tender or exchange
offer is made for the Kroger Common Stock or an agreement is entered into for a
merger, share exchange, consolidation or reorganization involving consideration
other than cash, the value of the securities or other property issuable or
deliverable in exchange for the Kroger Common Stock shall be determined in good
faith by a nationally recognized investment banking firm mutually selected by
Kroger and the party seeking such repurchase.
Standstill Provision. Fred Meyer has agreed that, from the date of exercise
of the Kroger Option and for as long as Fred Meyer owns shares of Kroger Common
Stock acquired pursuant to the exercise of the Kroger Option that represent at
least 2% of the then outstanding voting securities of Kroger, it will not, and
will not permit its affiliates to, without the prior consent of the Kroger Board
of Directors, (i) acquire or agree, offer, seek or propose to acquire, ownership
of more than 20% of any class of voting securities of Kroger, or any rights or
options to acquire such ownership; (ii) propose a merger, consolidation or
similar transaction involving Kroger; (iii) offer, seek or propose to purchase,
lease or otherwise acquire all or a substantial portion of the assets of
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<PAGE> 72
Kroger; (iv) seek or propose to influence or control the management or policies
of Kroger or to obtain representation on the Board of Directors of Kroger, or
solicit or participate in the solicitation of any proxies or consents with
respect to the securities of Kroger; (v) enter into any discussions,
negotiations, arrangements or understandings with any third party with respect
to any of the foregoing; or (vi) seek or request permission to do any of the
foregoing or seek any permission to make any public announcement with respect to
any of the foregoing. Additionally, Fred Meyer has agreed not to sell, transfer
any beneficial interest in, pledge, hypothecate or otherwise dispose of any
voting securities of Kroger at any time except pursuant to a tender offer,
exchange offer, merger or consolidation of Kroger, or in connection with a sale
of all or substantially all of the assets of Kroger, pursuant to a registered
public offering or in compliance with Rule 144 promulgated under the Securities
Act (or any similar rule). Fred Meyer has also agreed to be present in person or
to be represented by proxy at all shareholder meetings of Kroger so that all
shares of voting securities of Kroger beneficially owned by it or its affiliates
may be counted for the purpose of determining the presence of a quorum at such
meetings. Fred Meyer has also agreed to vote or cause to be voted all voting
securities of Kroger beneficially owned by it or its affiliates proportionately
with the votes cast by all other shareholders present and voting. The standstill
provisions described in this paragraph will terminate at such time as Fred Meyer
beneficially owns more than 50% of the outstanding Common Stock of Kroger.
Limitation on Profit. Notwithstanding any other provision of the Kroger
Stock Option Agreement, in no event will the Fred Meyer Total Profit (as defined
below) plus any "KROGER LIQUIDATION AMOUNTS" (defined as the aggregate of all
termination fees and reimbursement of expenses payable or paid to Fred Meyer
under the Merger Agreement) exceed in the aggregate $460 million, and, if it
otherwise would exceed this amount, Fred Meyer, at its sole election, will
either (i) reduce the number of shares of Kroger Common Stock subject to the
Kroger Option, (ii) deliver to Kroger for cancellation shares of Kroger Common
Stock previously purchased by Fred Meyer or any other Kroger Holder or Kroger
Owner upon exercise of the Kroger Option, (iii) pay to Kroger cash or refund in
cash Kroger Liquidation Amounts previously paid, or reduce or waive the amount
of any Kroger Liquidation Amount payable pursuant to the Merger Agreement, or
(iv) any combination thereof, so that Fred Meyer Total Profit realized by Fred
Meyer, when aggregated with any Kroger Liquidation Amounts, will not exceed $460
million after taking into account the foregoing actions.
"FRED MEYER TOTAL PROFIT" means the aggregate amount (before taxes) of the
following: (i) the amount received by Fred Meyer, any other Kroger Holder and
any other Kroger Owner pursuant to Kroger's repurchase of the Kroger Option (in
whole or in part) or any shares issued pursuant to exercise of the Kroger Stock
Options less, in the case of any repurchase of shares issued pursuant to
exercise of the Kroger Option, Fred Meyer's or such Kroger Holder's or Kroger
Owner's purchase price for such shares, (ii) the net cash amounts (and the fair
market value of any other consideration) received by Fred Meyer or another
Kroger Holder or Kroger Owner pursuant to the sale of shares purchased upon
exercise of the Kroger Option (or any other securities into which such shares
are converted or exchanged) to any unaffiliated party, less Fred Meyer's or such
Kroger Holder's or Kroger Owner's purchase price of such shares, and (iii) the
net cash amounts (and the fair market value of any other consideration) received
by Fred Meyer or another Kroger Holder or Kroger Owner on the transfer of the
Kroger Option (or any portion thereof) to any unaffiliated party.
Certain Adjustments. In the event of any change in Kroger Common Stock by
reason of stock dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges or shares of the like, the type and number
of securities subject to the Kroger Option and the exercise price will be
adjusted appropriately.
VOTING AGREEMENTS
Concurrently with the execution of the Merger Agreement, the Fred Meyer
Stock Option Agreement and the Kroger Stock Option Agreement, Kroger also
entered into (i) a voting agreement, dated as of October 18, 1998 (the "MILLER
VOTING AGREEMENT"), with Robert G. Miller, and (ii) a voting agreement, dated as
of October 18, 1998 with Ronald W. Burkle, Yucaipa and certain other entities
(collectively, the "YUCAIPA STOCKHOLDERS") controlled by Mr. Burkle (the
"YUCAIPA VOTING AGREEMENT"). Pursuant to the Miller Voting Agreement and the
Yucaipa Voting Agreement, each of Robert G. Miller and the Yucaipa Stockholders,
respectively, have agreed to vote, or if applicable, give consents with respect
to, 132,973 shares of Fred Meyer Common Stock held by Mr. Miller (representing
approximately [.086%] of the outstanding Common Stock of Fred Meyer as of
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<PAGE> 73
October 15, 1998) and the 10,631,333 shares of Fred Meyer Common Stock held by
the Yucaipa Stockholders (representing approximately 7% of the outstanding
Common Stock of Fred Meyer as of October 15, 1998), respectively (collectively,
the "SUBJECT SHARES"), in favor of the Merger Agreement and the Merger, and if
requested by Kroger, to grant to Kroger an irrevocable proxy with respect to the
Subject Shares for such purpose. In addition, subject to certain exceptions, Mr.
Miller and the Yucaipa Stockholders have agreed not to dispose of the Subject
Shares (until the consummation of the Merger or the termination of the Merger
Agreement).
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<PAGE> 74
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Upon consummation of the Merger, Joseph A. Pichler will continue as
Chairman and Chief Executive Officer of Kroger. David B. Dillon, presently
President and Chief Operating Officer of Kroger, will remain as President of
Kroger. Ronald W. Burkle, Chairman of the Board of Directors of Fred Meyer, will
become Chairman of the Executive Committee of the combined company's board of
directors. Robert G. Miller, Vice Chairman and Chief Executive Officer of Fred
Meyer, will become Vice Chairman and Chief Operating Officer of the combined
company. Kroger corporate headquarters will remain in Cincinnati, Ohio. Kroger
presently intends to retain the store names currently used by both companies,
although the names of individual stores may change, depending on their size,
location and other factors.
At the Effective Time, Kroger will cause the number of directors on the
Kroger Board of Directors to be increased by six directors. To fill the
vacancies resulting from these newly created directorships, Kroger has agreed to
cause Robert D. Beyer, Ronald W. Burkle, Carlton J. Jenkins, Bruce Karatz,
Robert G. Miller and Steven R. Rogel to be appointed as directors of Kroger for
terms expiring at the first annual meeting of Kroger shareholders following the
Effective Time. If, prior to the Effective Time, any of these persons declines
or is unable to serve as a director, Fred Meyer is permitted to designate
another person to serve in such person's stead, which person must be reasonably
acceptable to Kroger. Biographical information with respect to the designated
new directors of Kroger is set forth below.
ROBERT D. BEYER
Mr. Beyer, age 38, has been the Group Managing Director at Trust Company of
the West, an investment management firm, since 1995. From 1991 to 1995, Mr.
Beyer was the co-Chief Executive Officer of Crescent Capital Corporation, an
investment management firm that he co-founded in 1991. Mr. Beyer is also a
member of the Board of Directors of American Restaurant Group, Inc. Mr. Beyer
has served as a Fred Meyer director since 1998.
RONALD W. BURKLE
Mr. Burkle, age 45, has been Chairman of the Board of Fred Meyer since
September 1997. He is the Managing General Partner of Yucaipa, a private
investment group specializing in the acquisition and management of supermarket
chains, which he founded in 1986. Until its merger with Fred Meyer in March
1998, Mr. Burkle served as director and Chairman of the Board of Food 4 Less and
its subsidiary, Ralphs. From May 1996 to September 1997, Mr. Burkle was a
director and the Chief Executive Officer of Smith's, now a subsidiary of Fred
Meyer. Mr. Burkle also serves as Chairman of the Board of Dominick's
Supermarkets, Inc. and as a director of Kaufman & Broad Home Corporation. Mr.
Burkle has served as a Fred Meyer director since 1997.
CARLTON J. JENKINS
Mr. Jenkins, age 43, has served as Chairman, President and Chief Executive
Officer of Founders National Bank of Los Angeles since January 1991. Mr. Jenkins
has served as a Fred Meyer director since 1998.
BRUCE KARATZ
Mr. Karatz, age 53, has been the Chairman of the Board of Kaufman & Broad
Home Corporation since July 1993 and its President, Chief Executive Officer and
a director since 1986. Mr. Karatz is also a director of Honeywell, Inc. and
National Golf Properties, Inc. and a Trustee of the National Park Foundation and
the RAND Corporation. Mr. Karatz has served as a Fred Meyer director since 1997.
ROBERT G. MILLER
Mr. Miller, age 54, became Chief Executive Officer of Fred Meyer in August
1991. Prior to that time he was employed by Albertson's, Inc., where his most
recent positions were Executive Vice President of Retail Operations from 1989 to
1991 and Senior Vice President and Regional Manager from 1985 to 1989. Mr.
Miller is
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<PAGE> 75
a director of PacifiCorp, Pathmark Stores, Inc. and Supermarkets General
Holdings Corp. Mr. Miller has served as a Fred Meyer director since 1991.
STEVEN R. ROGEL
Mr. Rogel, age 56, has been President and Chief Executive Officer and a
director of Weyerhaeuser Company since December 1997. Prior to that time he was
Chief Executive Officer, President and a director of Willamette Industries, Inc.
He served as Chief Operating Officer of Willamette Industries, Inc. until
October 1995 and, prior to that time, as an executive and group vice president
for more than five years. He serves on various boards, including the American
Forest & Paper Association, World Forestry Center, National Council for Air and
Stream Improvement and the Cascade Pacific Council Boy Scouts of America. Mr.
Rogel has served as a Fred Meyer director since 1996.
Stock Ownership of Designated New Directors
Set forth below is information concerning beneficial ownership of shares of
Fred Meyer Common Stock and options to purchase shares of Fred Meyer Common
Stock held by the designated new directors of Kroger. All information is as of
October 15, 1998.
<TABLE>
<CAPTION>
FRED MEYER
COMMON
NAME OF BENEFICIAL OWNER STOCK (1)
------------------------ -------------
<S> <C>
Robert D. Beyer 365,792(2)
Ronald W. Burkle 14,500,699(3)
Carlton J. Jenkins 161(4)
Bruce Karatz 2,651(4)
Robert G. Miller 934,996(5)
Steven R. Rogel 6,812(6)
</TABLE>
- ---------------
(1) These totals include, pursuant to the rules of the Commission, shares as to
which sole or shared voting power or dispositive power is possessed.
(2) 365,088 shares are held in various investment accounts over which Mr. Beyer
has shared voting and investment powers. Beneficial ownership is disclaimed
as to such shares. 704 shares are held in the Fred Meyer, Inc. Non-Employee
Directors' Deferred Compensation Plan (the "DIRECTORS' PLAN").
(3) Includes 13,673,378 shares owned by affiliates of Mr. Burkle as follows: (a)
Yucaipa -- 4,856,211 (including currently exercisable warrants to purchase
3,869,366 shares); (b) Yucaipa Arizona Partners, L.P. -- 574,522; (c)
Yucaipa Smitty's Partners, L.P. -- 631,400; (d) Yucaipa Smitty's Partners
II, L.P. -- 287,264; (e) Yucaipa SSV Partners, L.P. -- 2,744,595; (f) F4L
Equity Partners, L.P. -- 3,798,526; (g) FFL Partners -- 365,429; (h) Yucaipa
Capital Fund -- 335,712; and (i) Yucaipa/F4L Partners -- 79,719. Mr. Burkle
disclaims beneficial ownership as to these shares (except to the extent of
his pecuniary interest therein). Mr. Burkle has the sole power to vote or to
direct the vote, and to dispose or direct the disposition of shares
beneficially held by him.
(4) Shares are held in the Directors' Plan.
(5) Includes 797,418 shares subject to options that are exercisable as of the
date of this table or become exercisable within 60 days of the date of this
table. Also includes 4,605 shares of stock that will vest in January 1999
pursuant to the Fred Meyer Capital Bonus Plan.
(6) 1,418 shares are held in the Directors' Plan.
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UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The unaudited pro forma combined financial statements are based on the
historical consolidated financial statements of Kroger and Fred Meyer and give
effect to the Merger as a pooling of interests. Such pro forma information
includes (i) the historical results of operations of Kroger for the 40 weeks
ended October 3, 1998 and October 4, 1997, the fiscal years ended December 27,
1997, December 28, 1996, and December 30, 1995, and the historical balance sheet
of Kroger as of October 3, 1998; and (ii) the historical results of operations
of Fred Meyer for the 40 weeks ended August 15, 1998 (which is comprised of Fred
Meyer's 28 weeks ended August 15, 1998 and the 12 weeks ended January 31, 1998)
and the 40 weeks ended November 8, 1997, the fiscal years ended January 31,
1998, February 1, 1997 and February 3, 1996, and the historical balance sheet of
Fred Meyer as of August 15, 1998. The unaudited pro forma combined statements of
earnings assume that the Merger had been consummated on January 29, 1995 and
that Fred Meyer's acquisitions of Smith's and Food 4 Less occurred on February
2, 1997. The unaudited pro forma combined balance sheet data assume that the
Merger had been consummated on October 3, 1998. The unaudited pro forma
adjustments described in the accompanying notes are based upon preliminary
estimates and certain assumptions that the managements of Kroger and Fred Meyer
believe are reasonable. Actual adjustments may differ from those reflected in
the unaudited pro forma combined financial statements. Kroger and Fred Meyer are
still in the process of reviewing their respective accounting policies relative
to those followed by the other entity. As a result of this review, it may be
necessary to restate certain amounts in Kroger's or Fred Meyer's financial
statements to conform to those accounting policies that are most appropriate. In
management's opinion, any such restatements will not be material.
All fiscal years presented are 52 week periods except Fred Meyer's fiscal
year 1995, which is a 53 week period. Unless the context otherwise indicates, a
reference to a Fred Meyer fiscal year refers to the calendar year in which such
fiscal year commences.
The unaudited pro forma financial statements are not necessarily indicative
of the actual or future financial position or results of operations that would
have or will occur upon consummation of the Merger, and should be read in
conjunction with the audited and unaudited historical consolidated financial
statements, including the notes thereto, of Kroger and Fred Meyer incorporated
by reference or appearing elsewhere in this Joint Proxy Statement/Prospectus.
See "WHERE YOU CAN FIND MORE INFORMATION" on page 90.
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<PAGE> 77
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 INTERIM PERIOD
----------------------------------------------------------------------
KROGER
40 WEEKS FRED MEYER
ENDED 40 WEEKS ENDED
OCTOBER 3, 1998 AUGUST 15, 1998 PRO FORMA PRO FORMA
HISTORICAL (A) PRO FORMA COMBINED (B) ADJUSTMENTS COMBINED
--------------- ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales................................ $20,854,281 $11,914,464 $ -- $32,768,745
Costs and expenses
Merchandise costs, including
warehousing and transportation... 15,958,653 8,555,149 -- 24,513,802
Operating, general and
administrative................... 3,669,521 2,451,675 (208,000)(c) 5,913,196
Rent............................... 269,895 0 208,000(c) 477,895
Depreciation and amortization...... 315,903 335,435 -- 651,338
Net interest expense............... 204,116 289,137 -- 493,253
Merger related costs............... 291,028 -- 291,028
----------- ----------- --------- -----------
Total................................ 20,418,088 11,922,424 -- 32,340,512
----------- ----------- --------- -----------
Earnings (loss) before tax expense
and extraordinary loss............. 436,193 (7,960) -- 428,233
Tax expense.......................... 165,757 58,696 -- 224,453
----------- ----------- --------- -----------
Earnings (loss) before extraordinary
loss............................... $ 270,436 ($ 66,656) $ 203,780
=========== =========== ========= ===========
Basic earnings (loss) per common
share before extraordinary loss.... $ 1.06 ($ 0.44) -- $ 0.50
=========== =========== ========= ===========
Diluted earnings (loss) per common
share before extraordinary loss.... $ 1.02 ($ 0.44) -- $ 0.48
=========== =========== ========= ===========
Average number of common shares used
in basic calculation............... 255,701 151,922 -- 407,623
Average number of common shares used
in diluted calculation............. 265,237 151,922 8,225(d) 425,384
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 INTERIM PERIOD
----------------------------------------------------------------------
KROGER
40 WEEKS FRED MEYER
ENDED 40 WEEKS ENDED
OCTOBER 4, 1997 NOVEMBER 8, 1997 PRO FORMA PRO FORMA
HISTORICAL PRO FORMA COMBINED (E) ADJUSTMENTS COMBINED
--------------- ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales................................ $20,057,847 $10,475,159 $ -- $30,533,006
Costs and expenses
Merchandise costs, including
warehousing and transportation... 15,292,020 7,751,201 -- 23,043,221
Operating, general and
administrative................... 3,520,788 1,952,337 (183,000)(c) 5,290,125
Rent............................... 252,072 0 183,000(c) 435,072
Depreciation and amortization...... 285,584 362,079 -- 647,663
Net interest expense............... 223,313 283,970 -- 507,283
----------- ----------- --------- -----------
Total................................ 19,573,777 10,349,587 -- 29,923,364
----------- ----------- --------- -----------
Earnings before tax expense and
extraordinary loss................. 484,070 125,572 -- 609,642
Tax expense.......................... 187,143 68,939 -- 256,082
----------- ----------- --------- -----------
Earnings before extraordinary loss... $ 296,927 $ 56,633 -- $ 353,560
=========== =========== ========= ===========
Basic earnings per common share
before extraordinary loss.......... $ 1.17 $ 0.38 -- $ 0.88
=========== =========== ========= ===========
Diluted earnings per common share
before extraordinary loss.......... $ 1.13 $ 0.37 -- $ 0.85
=========== =========== ========= ===========
Average number of common shares used
in basic calculation............... 254,184 148,671 -- 402,855
Average number of common shares used
in diluted calculation............. 262,575 153,911 -- 416,486
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
69
<PAGE> 79
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRED MEYER PRO FORMA COMBINED FINANCIAL STATEMENTS, 1997 INTERIM PERIOD
-----------------------------------------------------------------------------------------------------
FRED MEYER SMITH'S PERIOD
40 WEEKS FROM FEBRUARY 2, FOOD 4 LESS 36
ENDED 1997 THROUGH SMITH'S PRO WEEKS ENDED FOOD 4 LESS
NOVEMBER 8,1997 SEPTEMBER 8, 1997 FORMA OCTOBER 12, 1997 PRO FORMA PRO FORMA
HISTORICAL HISTORICAL(F) ADJUSTMENTS (G) HISTORICAL ADJUSTMENTS COMBINED
--------------- ----------------- --------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales..................... $4,836,584 $1,860,105(f) $ $3,778,470 $ $10,475,159
Costs and expenses
Merchandise costs,
including warehousing
and transportation.... 3,355,008 1,433,984 2,962,209 7,751,201
Operating, general and
administrative........ 1,143,292 254,728 (287) 557,604 (3,000)(h) 1,952,337
Depreciation and
amortization.......... 146,264 57,472 10,189 121,047 27,107(i) 362,079
Net interest expense.... 63,625 74,891 (36,449) 191,528 (9,625)(j) 283,970
---------- ---------- -------- ---------- ------- -----------
Total..................... 4,708,189 1,821,075 (26,547) 3,832,388 14,482 10,349,587
---------- ---------- -------- ---------- ------- -----------
Earnings (loss) before tax
expense and
extraordinary loss...... 128,395 39,030 26,547 (53,918) (14,482) 125,572
Tax expense............... 51,410 16,490 10,182 (9,143)(k) 68,939
---------- ---------- -------- ---------- ------- -----------
Earnings (loss) before
extraordinary loss...... $ 76,985 $ 22,540 $ 16,365 ($ 53,918) (5,339) $ 56,633
========== ========== ======== ========== ======= ===========
Basic earnings per common
share before
extraordinary loss...... $ 0.77 $ 0.38
========== ========== ======== ========== ======= ===========
Diluted earnings per
common share before
extraordinary loss...... $ 0.73 $ 0.37
========== ========== ======== ========== ======= ===========
Average number of common
shares used in basic
calculation............. 100,360 25,811 22,500 148,671
Average number of common
shares used in diluted
calculation............. 105,106 26,305 22,500 153,911
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
70
<PAGE> 80
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR 1997
------------------------------------------------------------------------
FRED MEYER
KROGER FISCAL YEAR ENDED
FISCAL YEAR ENDED JANUARY 31, 1998
DECEMBER 27, 1997 PRO FORMA PRO FORMA PRO FORMA
HISTORICAL COMBINED (E) ADJUSTMENTS COMBINED
----------------- ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales.............................. $26,567,348 $14,706,776 $ -- $41,274,124
Costs and expenses
Merchandise costs, including
warehousing and
transportation................. 19,996,381 10,956,661 -- 30,953,042
Operating, general and
administrative................. 4,861,426 2,637,569 (261,000)(c) 7,237,995
Rent............................. 331,012 0 261,000(c) 592,012
Depreciation and................. 380,221 475,035 -- 855,256
amortization
Net interest expense............. 285,945 392,061 -- 678,006
----------- ----------- --------- -----------
Total.............................. 25,854,985 14,461,326 40,316,311
----------- ----------- --------- -----------
Earnings before tax expense and
extraordinary loss............... 712,363 245,450 -- 957,813
Tax expense........................ 268,331 129,787 -- 398,118
----------- ----------- --------- -----------
Earnings before extraordinary
loss............................. $ 444,032 $ 115,663 $ 559,695
=========== =========== ========= ===========
Basic earnings per common share
before extraordinary loss........ $ 1.75 $ 0.79 -- $ 1.40
=========== =========== ========= ===========
Diluted earnings per common share
before extraordinary loss........ $ 1.69 $ 0.76 -- $ 1.35
=========== =========== ========= ===========
Average number of common shares
used in basic calculation........ 254,284 146,225 -- 400,509
Average number of common shares
used in diluted calculation...... 262,860 151,369 -- 414,229
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
71
<PAGE> 81
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRED MEYER PRO FORMA COMBINED FINANCIAL STATEMENTS, FISCAL YEAR 1997
-------------------------------------------------------------------------
SMITH'S PERIOD FOOD 4 LESS
FRED MEYER FROM FISCAL YEAR
FISCAL YEAR FEBRUARY 2, 1997 ENDED
ENDED TO SMITH'S PRO FEBRUARY 1,
JANUARY 31, 1998 SEPTEMBER 8, 1997 FORMA 1998
HISTORICAL HISTORICAL(F) ADJUSTMENTS (G) HISTORICAL
---------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Sales....................... $7,359,202 $1,860,105 $ -- $5,487,469
Costs and expenses
Merchandise costs,
including warehousing
and transportation...... 5,175,128 1,433,984 4,347,549
Operating, general and
administrative.......... 1,630,519 254,728 (287) 756,609
Depreciation and
amortization............ 211,705 57,472 10,189 178,710
Net interest expense...... 102,094 74,891 (36,449) 277,653
---------- ---------- -------- ----------
Total....................... 7,119,446 1,821,075 (26,547) 5,560,521
---------- ---------- -------- ----------
Earnings before tax expense
and extraordinary loss.... 239,756 39,030 26,547 (73,052)
Tax expense................. 96,445 16,490 10,182 0
---------- ---------- -------- ----------
Earnings before
extraordinary loss........ $ 143,311 $ 22,540 $ 16,365 ($ 73,052)
========== ========== ======== ==========
Basic earnings per common
share before extraordinary
loss...................... $ 1.37
========== ========== ======== ==========
Diluted earnings per common
share before extraordinary
loss...................... $ 1.31
========== ========== ======== ==========
Average number of common
shares used in basic
calculation............... 104,520 20,035(l)
Average number of common
shares used in diluted
calculation............... 109,591 20,108(l)
<CAPTION>
FRED MEYER PRO FORMA COMBINED FINANCIAL STATEMENTS, FISCAL YEAR 1997
--------------------------
FOOD 4 LESS
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- -----------
<S> <C> <C>
Sales....................... $ -- $14,706,776
Costs and expenses
Merchandise costs,
including warehousing
and transportation...... 10,956,661
Operating, general and
administrative.......... (4,000)(h) 2,637,569
Depreciation and
amortization............ 16,959(i) 475,035
Net interest expense...... (26,128)(j) 392,061
-------- -----------
Total....................... (13,169) 14,461,326
-------- -----------
Earnings before tax expense
and extraordinary loss.... 13,169 245,450
Tax expense................. 6,670(k) 129,787
-------- -----------
Earnings before
extraordinary loss........ $ 6,499 $ 115,663
======== ===========
Basic earnings per common
share before extraordinary
loss...................... $ 0.79
======== ===========
Diluted earnings per common
share before extraordinary
loss...................... $ 0.76
======== ===========
Average number of common
shares used in basic
calculation............... 21,670(l) 146,225
Average number of common
shares used in diluted
calculation............... 21,670(l) 151,369
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
72
<PAGE> 82
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR 1996
----------------------------------------------------------------------
KROGER
FISCAL YEAR
ENDED FRED MEYER FISCAL
DECEMBER 28, YEAR ENDED PRO FORMA PRO FORMA
1996 FEBRUARY 1, 1997 ADJUSTMENTS COMBINED
--------------- ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales................................ $25,170,909 $ 4,530,120 $ -- $29,701,029
Costs and expenses
Merchandise costs, including
warehousing and transportation... 19,287,786 3,183,404 -- 22,471,190
Operating, general and
administrative................... 4,370,428 1,163,859 (227,629)(m) 5,306,658
Rent............................... 301,629 91,298(m) 392,927
Depreciation and amortization...... 343,769 136,331(m) 480,100
Net interest expense............... 299,984 48,855 -- 348,839
----------- ----------- --------- -----------
Total....................... 24,603,596 4,396,118 28,999,714
----------- ----------- --------- -----------
Earnings before tax expense
and extraordinary
charge.................... 567,313 134,002 -- 701,315
Tax Expense........................ 214,578 50,039 -- 264,617
----------- ----------- --------- -----------
Earnings before
extraordinary loss........ $ 352,735 $ 83,963 -- $ 436,698
=========== =========== ========= ===========
Basic earnings per Common Share
before extraordinary loss........ $ 1.41 $ 1.05 -- $ 1.32
=========== =========== ========= ===========
Diluted earnings per Common Share
before extraordinary loss........ $ 1.36 $ 1.00 -- $ 1.27
=========== =========== ========= ===========
Average number of shares used in
basic calculation................ 250,979 79,794 -- 330,773
Average number of shares used in
diluted calculation.............. 258,837 84,068 -- 342,905
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
73
<PAGE> 83
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR 1995
----------------------------------------------------------------------
KROGER
FISCAL YEAR
ENDED FRED MEYER FISCAL
DECEMBER 30, YEAR ENDED PRO FORMA PRO FORMA
1995 FEBRUARY 3, 1996 ADJUSTMENTS COMBINED
--------------- ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales................................ $23,937,795 $ 4,152,574 $ -- $28,090,369
Cost and Expenses
Merchandise costs, including
warehousing and transportation... 18,327,595 2,965,323 -- 21,292,918
Operating, general and
administrative................... 4,176,877 1,056,047 (208,974)(m) 5,023,950
Rent............................... 299,828 85,419(m) 385,247
Depreciation and amortization...... 311,272 123,555(m) 434,827
Net interest expense............... 312,685 50,116 -- 362,801
----------- ----------- --------- -----------
Total....................... 23,428,257 4,071,486 27,499,743
----------- ----------- --------- -----------
Earnings before tax expense
and extraordinary
charge.................... 509,538 81,088 -- 590,626
Tax expense........................ 190,672 30,586 -- 221,258
----------- ----------- --------- -----------
Earnings before
extraordinary loss........ $ 318,866 $ 50,502 -- $ 369,368
=========== =========== ========= ===========
Basic earnings per common share:
before extraordinary loss........ $ 1.38 $ 0.61 -- $ 1.17
=========== =========== ========= ===========
Diluted earnings per common share
before extraordinary loss........ $ 1.28 $ 0.58 -- $ 1.09
=========== =========== ========= ===========
Average number of shares used in
basic calculation................ 231,468 83,206 -- 314,674
Average number of shares used in
diluted calculation.............. 251,716 86,733 -- 338,449
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
74
<PAGE> 84
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
KROGER FRED MEYER
AS OF AS OF
OCTOBER 3, AUGUST 15, PRO FORMA PRO FORMA
1998 1998 ADJUSTMENTS COMBINED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash.................................. $ 74,845 $ 165,955 $ (75,000) $ 165,800
Receivables........................... 381,756 113,439 -- 495,195
Inventories:
FIFO cost.......................... 2,186,980 1,794,803 -- 3,981,783
Less LIFO reserve.................. (480,931) (62,800) -- (543,731)
---------- ---------- ----------- -----------
1,706,049 1,732,003 -- 3,438,052
Property held for sale................ 12,919 -- 12,919
Prepaid and other current assets...... 173,748 295,980 -- 469,728
---------- ---------- ----------- -----------
Total current assets.......... 2,349,317 2,307,377 (75,000) 4,581,694
Property, plant and equipment, net...... 3,644,044 3,488,608 -- 7,132,652
Goodwill, net........................... 28,971 3,557,732 -- 3,586,703
Investments and other assets............ 445,865 385,765 -- 831,630
---------- ---------- ----------- -----------
Total Assets.................. $6,468,197 $9,739,482 $ (75,000) $16,132,679
========== ========== =========== ===========
LIABILITIES
Current liabilities
Current portion of long-term debt and
obligations under capital leases... $ 164,959 $ 102,134 -- $ 267,093
Accounts payable...................... 1,684,968 1,071,659 -- 2,756,627
Other current liabilities............. 1,287,972 1,053,253 -- 2,341,225
---------- ---------- ----------- -----------
Total current liabilities..... 3,137,899 2,227,046 -- 5,364,945
Long-term debt.......................... 3,121,234 4,764,735 -- 7,885,969
Obligations under capital leases........ 192,938 181,593 -- 374,531
Other long-term liabilities............. 619,347 455,642 -- 1,074,989
---------- ---------- ----------- -----------
Total Liabilities............. 7,071,418 7,629,016 14,700,434
---------- ---------- ----------- -----------
SHAREOWNERS' EQUITY/(DEFICIT)
Common capital stock.................... 772,322 1,544 $ 1,885,337(n) 2,584,203
(75,000)(o)
Additional paid-in capital.............. 1,885,337 (1,885,337)(n) 0
Notes receivable from officers.......... (352) -- (352)
Unearned compensation................... (3,245) -- (3,245)
Retained earnings/(accumulated
deficit).............................. (924,741) 227,182 -- (697,559)
Common stock in treasury, at cost....... (450,802) -- (450,802)
---------- ---------- ----------- -----------
Total Shareowners'
Equity/(Deficit)............ (603,221) 2,110,466 (75,000) 1,432,245
---------- ---------- ----------- -----------
Total Liabilities and
Shareowners'
Equity/(Deficit)............ $6,468,197 $9,739,482 $ (75,000) $16,132,679
========== ========== =========== ===========
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
75
<PAGE> 85
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<S> <C>
(a) The results for the 40 week period ended October 3, 1998
include the effect of one-time expenses of $52,400 ($32,500
after tax or 12 cents per diluted share). These expenses
relate to logistics initiatives which became operational in
the second quarter, $40,800; and expenses primarily related
to closing facilities resulting from the consolidation of
Texas operations, $11,600. In addition, the results for the
40 week period ended October 3, 1998 include expenses
totaling $89,700 or ($55,600 after tax, or 21 cents pre
diluted share) related to a change in the method of
accounting for inventory.
(b) Represents the pro forma combined financial statements of
Fred Meyer. The Fred Meyer historical results have been
adjusted on a pro forma basis to reflect the acquisition of
Food 4 Less as if it had been acquired on November 9, 1997
and include sales of approximately $1.8 million and loss
before extraordinary loss of approximately $73 million, for
the period from November 9, 1997 to the date of acquisition.
The Fred Meyer results for the 40 week period ended August
15, 1998 include the results of operations for the 12 week
period ended January 31, 1998, which are also included in
the unaudited pro forma combined statement of operations of
Fred Meyer for the fiscal year ended January 31, 1998. For
the 12 week period ended January 31, 1998 Fred Meyer had
sales of approximately $3.8 billion and loss before
extraordinary loss of approximately $80 million.
(c) Represents the reclassification of rent expense to conform
the presentation of Fred Meyer results to that of Kroger.
(d) Represents additional shares used in pro forma combined
diluted earnings per share computation. These shares were
excluded from the Fred Meyer diluted earnings per share
computation because they were anti-dilutive.
(e) Represents the pro forma combined financial statements of
Fred Meyer. The Fred Meyer historical results have been
adjusted on a pro forma basis to reflect the acquisition of
Smith's in September 1997 and the acquisition of Food 4 Less
in March of 1998 as if they had been acquired at the
beginning of the period presented.
(f) The historical results of operations of Fred Meyer include
the results of Smith's from September 9, 1997.
(g) The Smith's acquisition was accounted for as a purchase by
Fred Meyer. Under purchase accounting, the purchase price is
allocated to assets acquired and liabilities assumed based
on their estimated fair values. The pro forma adjustments
included in the unaudited pro forma combined statement of
operations represent a preliminary determination of these
adjustments based upon available information. Pro forma
adjustments include: (i) the adjustment for additional
depreciation and amortization expense resulting from the
allocation of the purchase price for Smith's to the assets
acquired, including an increase in property, plant, and
equipment, leasehold interest, and identifiable intangible
assets to their estimated fair market values and the
recording of goodwill associated with the acquisition; (ii)
the adjustment to interest expense associated with the
transaction financing and the corresponding adjustments to
the amortization of related financing fees; and (iii) the
adjustment to the provision for income taxes based upon a
tax rate of 39% applied to the pro forma operating income
before income taxes adjusted for amortization of goodwill.
The Smith's condensed combined statement of operations does
not reflect an extraordinary charge of approximately $91
million (net of income taxes) relating to refinancing
certain debt.
(h) To eliminate management fees paid by Food 4 Less which will
no longer be paid subsequent to the mergers.
(i) To decrease depreciation and amortization expense for
revaluation of property and equipment and increase
amortization of goodwill as a result of the merger with Food
4 Less. The adjustment to depreciation and amortization
expense assumes an average useful life of acquired property
and equipment of 11 years and adjustment to goodwill
amortization assumes an amortization period for acquired
goodwill of 40 years.
(j) Represents the effect of approximately $4.1 billion in debt
refinancing completed subsequent to the Food 4 Less
acquisition, including an adjustment for the change in
amortization of deferred financing costs as a result of
refinancings.
(k) The pro forma adjustment to the tax expense is based upon a
tax rate of 39% applied to pro forma income before income
taxes and extraordinary charge adjusted for amortization of
goodwill.
</TABLE>
76
<PAGE> 86
<TABLE>
<S> <C>
(l) >Represents the additional shares issued in connection with
the Food 4 Less acquisition and the effect of the shares
issued in the Smith's acquisition as if they had been
outstanding for the full year.
(m) Represents the reclassification of rent expense,
depreciation and amortization to conform the presentation of
Fred Meyer results to that of Kroger.
(n) Represents the conversion of Fred Meyer Common Stock into
Kroger Common Stock.
(o) Kroger and Fred Meyer estimate that they will incur direct
transaction costs of approximately $75 million associated
with the merger. These costs consist primarily of investment
banking, legal, bank amendment fees, accounting, printing
and regulatory filing fees. The unaudited pro forma combined
balance sheet reflects such expense as if they had been paid
as of October 3, 1998.
</TABLE>
77
<PAGE> 87
DESCRIPTION OF KROGER CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Kroger's authorized capital stock presently consists of 1,000,000,000
shares of Kroger Common Stock, par value $1.00 per share and 5,000,000 shares of
preferred stock, par value $100.00 per share (the "KROGER PREFERRED SHARES").
KROGER COMMON STOCK
The holders of Kroger Common Stock are entitled to one vote for each share
on all matters voted on by the shareholders (except for cumulative voting in the
case of the election of directors). The holders of Kroger Common Stock do not
have any conversion, redemption or preemptive rights. Subject to any
preferential rights of any outstanding series of Kroger Preferred Shares
designated by the Kroger Board of Directors from time to time, the holders of
Kroger Common Stock are entitled to dividends as may be declared from time to
time by the Kroger Board of Directors from funds available, and upon liquidation
are entitled to receive pro rata all assets of Kroger available for distribution
to such holders.
KROGER PREFERRED SHARES
The holders of Kroger Preferred Shares are entitled to one vote for each
share on all matters voted on by the shareholders (except for cumulative voting
in the case of election of directors.) The Kroger Board of Directors is
authorized to provide for the issuance of Kroger Preferred Shares, in one or
more series, and to fix for each series (i) the designation and number of
shares, (ii) the dividend rate, (iii) the dates of payment of dividends on
shares and the dates from which they are cumulative, (iv) the redemption rights
of Kroger and the price or prices at which shares may be redeemed, (v) the
amount or amounts payable on any voluntary or involuntary liquidation,
dissolution or winding up of Kroger, which may be different for voluntary and
involuntary liquidation, dissolution, or winding up, (vi) the amount of the
sinking fund, if any, to be applied to the purchase or redemption of shares and
the manner of its application, (vii) whether or not the shares will be made
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same class of stock of Kroger, and if made so
convertible or exchangeable, the conversion price or prices, or the rates of
exchange, and the adjustments, if any, at which such conversion or exchange may
be made, (viii) whether or not the issue of any additional shares of such series
or any future series in addition to such series or any other class of stock will
be subject to any restrictions and, if so, the nature of these restrictions and
(ix) any other designations, powers, preferences, rights, qualifications,
limitations and restrictions as are permitted by the OGCL. In connection with
the adoption of the Rights Agreement, the Kroger Board of Directors authorized
the issuance of up to 50,000 Kroger Preferred Shares designated as the Series A
Preferred Shares (the "SERIES A PREFERRED SHARES").
PREFERRED SHARE PURCHASE RIGHTS
The Kroger Board of Directors has adopted a shareholders' rights plan,
pursuant to which one Right is associated with each outstanding share of Kroger
Common Stock. Each Right entitles the registered holder to purchase from Kroger
one ten-thousandth of a Kroger Preferred Share designated as the Series A
Preferred Shares at a purchase price of $87.50, subject to adjustment (the
"RIGHTS PURCHASE PRICE").
Until the earlier to occur of (i) ten days (the "STOCK ACQUISITION DATE"),
following a public announcement that, without the prior consent of the Kroger
Board of Directors, a person or group, including any affiliates or associates of
such person or group (an "ACQUIRING PERSON"), acquired, or obtained the right to
acquire, beneficial ownership of 10% or more of the outstanding shares of Kroger
Common Stock or (ii) ten business days (or such later date as the Kroger Board
of Directors may determine) following the commencement or announcement of an
intention (which is not subsequently withdrawn) to make a tender offer or
exchange offer which would result in any person or group (and related persons)
having beneficial ownership of 10% or more of the outstanding Kroger Common
Stock without the prior consent of the Kroger Board of Directors (the earlier of
such dates being called the "DISTRIBUTION DATE"), the Rights will be attached to
all Kroger Common Stock certificates and will be evidenced, with respect to any
of the Kroger Common Stock certificates outstanding as of
78
<PAGE> 88
April 4, 1997, by the Kroger Common Stock certificates. The Rights Agreement
provides that, until the Distribution Date, the Rights will be transferred with
and only with the Kroger Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Kroger Common Stock certificates
issued after April 4, 1997 (or as soon thereafter as is reasonably practicable)
upon transfer, replacement, or new issuance of Kroger Common Stock will contain
a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any Kroger Common Stock certificates outstanding as of
April 4, 1997, even without such a notation, will also constitute the transfer
of the Rights associated with the Kroger Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("RIGHTS CERTIFICATES") will be mailed to
holders of record of the Kroger Common Stock as of the close of business on the
Distribution Date, and the separate Rights Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date and the Rights
will expire on March 19, 2006, unless earlier redeemed by Kroger as described
below.
In the event that any person becomes an Acquiring Person, each holder of a
Right generally will thereafter have the right for a 60 day period (or such
other period set by the Kroger Board of Directors) to receive upon exercise of
the Right that number of shares of Common Stock (or, under certain
circumstances, of units of one ten-thousandth of a Series A Preferred Share)
having a market value (immediately prior to the occurrence of an Acquiring
Person) of two times the exercise price of the Right (such right being called
the "SUBSCRIPTION RIGHT"). Notwithstanding the foregoing, following the
occurrence of an Acquiring Person, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by the
Acquiring Person or any affiliate or associate thereof will be null and void.
In the event that, at any time following the Stock Acquisition Date, Kroger
is acquired in a merger or other business combination transaction or 50% or more
of Kroger's assets or earning power are sold (in one transaction or a series of
transactions), proper provision shall be made so that each holder of a Right
will thereafter have the right to receive, upon exercise at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company (or, in the event there is more than one acquiring company,
the acquiring company receiving the greatest portion of the assets or earning
power transferred) which at the time of this transaction would have a market
value of two times the exercise price of the Right (such Right being called the
"MERGER RIGHT"). The holder of a Right will continue to have the Merger Right
whether or not such holder exercises the Subscription Right.
The Rights Purchase Price payable, the number of Rights, and the number of
shares of Series A Preferred Stock or other securities or property issuable,
upon exercise of the Rights are subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination, or reclassification of the Series A Preferred Shares; (ii) upon the
grant to holders of the Series A Preferred Shares of certain rights or warrants
to subscribe for Series A Preferred Shares or shares having the same rights,
privileges, and preferences as the Series A Preferred Shares at less than the
current market price of the Series A Preferred Shares; or (iii) upon the
distribution to holders of the Series A Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash dividends and excluding
dividends payable in Series A Preferred Shares) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Rights Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Rights Purchase Price. No fractional shares will be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Series A Preferred Shares (or the Kroger Common Stock ) on the last trading date
prior to the date of exercise.
At any time prior to the earlier to occur of (i) the close of business on
the Stock Acquisition Date or (ii) the expiration of the Rights, Kroger may
redeem the Rights in whole, but not in part, at a price of $.01 per Right (the
"REDEMPTION PRICE"), which redemption will be effective upon the action of the
Kroger Board of Directors. Additionally, following the Stock Acquisition Date
and the expiration of the period during which the Subscription Right is
exercisable, Kroger may redeem the then outstanding Rights in whole, but not in
part, at the Redemption Price, provided that this redemption is in connection
with a merger or other business combination transaction or series of
transactions involving Kroger in which all holders of Common Stock are treated
alike but
79
<PAGE> 89
not involving an Acquiring Person or its affiliates or associates. Upon the
effective date of the redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
All of the provisions of the Rights Agreement may be amended by the Kroger
Board of Directors prior to the Distribution Date. After the Distribution Date,
the provisions of the Rights Agreement may be amended by the Kroger Board of
Directors in order to cure any ambiguity, defect, or inconsistency, to make
changes which do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person), or, subject to certain
limitations, to shorten or lengthen any time period under the Rights Agreement.
The Series A Preferred Shares purchasable upon exercise of the Rights will
be nonredeemable and junior to any other series of preferred stock that Kroger
may issue (unless otherwise provided in the terms of such stock). Each Series A
Preferred Share will have a preferential quarterly dividend in an amount equal
to 10,000 times the dividend declared on each share of Kroger Common stock, but
in no event less than $100. In the event of liquidation, the holders of Series A
Preferred Shares will receive a preferred liquidation payment per share equal to
the greater of $25,000 or 10,000 times the payment made per each share of Kroger
Common Stock. Each Series A Preferred Share will have one vote, voting together
with the Kroger Common Stock. In the event of any merger, consolidation, or
other transaction in which shares of Kroger Common Stock are exchanged, each
Series A Preferred Share will be entitled to receive 10,000 times the amount and
type of consideration received per share of Kroger Common Stock. The rights of
the Series A Preferred Shares, as to dividends, liquidation, and voting, and in
the event of mergers and consolidations, are protected by customary
anti-dilution provisions. Fractional Series A Preferred Shares will be issuable;
however, Kroger may elect to distribute depositary receipts in lieu of such
fractional shares. In lieu of fractional shares other than fractions that are
multiples of one ten-thousandth of a share, an adjustment in cash will be made
based on the market price of the Series A Preferred Shares on the last trading
date prior to the date of exercise.
Until a Right is exercised, the holder thereof, as such, has no rights as a
shareholder of Kroger, including, without limitation, the right to vote or to
receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Kroger
without conditioning the offer on the Rights being redeemed or a substantial
number of Rights being acquired. However, the Rights will not interfere with any
merger or other business combination approved by the Kroger Board of Directors.
On October 18, 1998, in connection with the execution of the Merger
Agreement and the Kroger Stock Option Agreement, the Rights Agreement was
amended to provide that Fred Meyer will not be deemed to be an Acquiring Person
to the extent Fred Meyer becomes the beneficial owner of shares of Kroger Common
Stock solely by reason of (i) the execution of the Kroger Stock Option Agreement
or (ii) the consummation of the transactions contemplated by the terms of the
Kroger Stock Option Agreement. The Rights Agreement was further amended to
provide that no Distribution Date, Stock Acquisition Date, or any other event
which would result in Rights becoming exercisable shall occur or be deemed to
occur, in either case solely by reason of the execution of the Kroger Stock
Option Agreement or the announcement or the consummation of the transactions
contemplated thereby.
The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the Rights Agreement, a copy of which is filed as an
exhibit to the Registration Statement and is incorporated in this Joint Proxy
Statement/Prospectus by reference.
80
<PAGE> 90
COMPARATIVE RIGHTS OF SHAREHOLDERS
GENERAL
As a result of the Merger, stockholders of Fred Meyer will become
shareholders of Kroger and the rights of all such former Fred Meyer stockholders
will be thereafter governed by the Kroger Articles, the Kroger Regulations
(Bylaws) and the OGCL. The rights of holders of Fred Meyer common stock are
presently governed by the Fred Meyer Certificate, Fred Meyer Bylaws, and the
DGCL. The following summary, which does not purport to be a complete statement
of the general differences between rights of the holders of Kroger Common Stock
and Fred Meyer Common Stock, sets forth certain differences between the laws of
Delaware and those of Ohio, and between the Fred Meyer Certificate and the Fred
Meyer Bylaws and the Kroger Articles and the Kroger Regulations (Bylaws). This
summary is qualified in its entirety by reference to the full text of each of
such documents and the DGCL and OGCL. For information as to how such documents
may be obtained, see "WHERE YOU CAN FIND MORE INFORMATION" on page 90.
CLASSIFIED BOARD OF DIRECTORS
The OGCL provides that a corporation's board of directors may be divided
into up to three classes of at least three directors each with staggered terms
of office. The Kroger Regulations (Bylaws) provide that the Kroger Board of
Directors is classified into three classes with each class elected in staggered
elections and serving a three-year term.
The DGCL provides that a corporation's board of directors may be divided
into up to three classes with staggered terms of office. The Fred Meyer
Certificate and Fred Meyer Bylaws provide that the Fred Meyer Board of Directors
is classified into three classes with the directors in each class elected in
staggered elections and serving a three-year term.
Classification of directors has the effect of making it more difficult for
stockholders to change the composition of the board of directors. At least two
annual meetings of stockholders, instead of one, will generally be required to
effect a change in the majority of the board of directors. This delay may help
ensure that the board of directors, if confronted by a holder attempting to
force a proxy contest, a tender or exchange offer or other extraordinary
corporate transaction, would have sufficient time to review the proposal as well
as any available alternatives to the proposal and to act in what it believes to
be the best interests of the stockholders.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of Kroger or Fred Meyer, even though such a
transaction could be beneficial to Kroger or Fred Meyer, as the case may be, or
their respective shareholders.
SHAREHOLDER RIGHTS PLAN
Kroger has adopted the Rights Agreement and issued the Rights to protect
Kroger's shareholders from coercive or unfair takeover tactics. For further
discussion of the Rights and the Rights Agreement, see "DESCRIPTION OF KROGER
CAPITAL STOCK -- Preferred Share Purchase Rights."
Fred Meyer does not have a stockholder rights plan.
NUMBER OF DIRECTORS; REMOVAL OF DIRECTORS; VACANCIES
The Kroger Regulations (Bylaws) provide that the number of directors shall
not be less than nine nor more than 21. The Kroger Board of Directors currently
consists of 13 directors. At the Effective Time, Kroger will cause the number of
directors to be increased by six directors. The Kroger Regulations (Bylaws)
provide that the number of directors will be determined by resolution of the
Kroger Board of Directors or by an affirmative vote of the holders of at least
three-quarters of the outstanding shares of Kroger Common Stock.
The Fred Meyer Certificate provides that the Fred Meyer Board of Directors
will consist of not less than three nor more than 25 directors and that the
number of directors shall be 11 until otherwise determined by an
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affirmative vote of a majority of the Fred Meyer Board of Directors. The Fred
Meyer Board of Directors has increased the current number of directors to 17.
The Fred Meyer Certificate provides that the number of directors shall not be
reduced by shortening the term of any director at the time in office.
The OGCL provides that, if shareholders have the right to vote
cumulatively, the shareholders may remove any or all directors without cause by
the affirmative vote of a majority in voting power entitled to elect directors,
unless the articles of incorporation or regulations require a supermajority vote
or provide that no director may be removed from office. However, unless all
directors, or all directors of a particular class, are removed, no individual
director can be removed if the votes of a sufficient number of shares are voted
against the director's removal that, if cumulatively voted at an election of all
the directors, or all the directors of a particular class, would be sufficient
to elect at least one director. In the event of the removal of a director, the
shareholders may elect a new director at the same meeting for the unexpired term
of the director removed. Failure to elect a new director is deemed to create a
vacancy. The Kroger Regulations (Bylaws) provide that the shareholders may
remove any director, class of directors or the entire board of directors from
office only for cause and by an affirmative vote of three-quarters (3/4) of the
voting power of the holders of Kroger Common Stock entitled to elect directors.
At the same meeting a new director nominated in accordance with the Kroger
Regulations (Bylaws) may be elected for the unexpired term. The Kroger
Regulations (Bylaws) do not define the term "for cause."
Under the DGCL, unless otherwise provided in a corporation's certificate of
incorporation, directors serving on a classified board of directors may be
removed by the stockholders only for cause. The Fred Meyer Certificate provides
that stockholders may remove any director or the entire board of directors from
office only for cause and by an affirmative vote of three-quarters (3/4) of the
voting power of the holders of Fred Meyer Common Stock entitled to elect
directors. The Fred Meyer Certificate does not define the term "for cause."
Under the OGCL, unless the articles of incorporation or regulations provide
otherwise, the remaining directors (even if less than a majority of the
authorized number of directors) may by the affirmative vote of a majority of
such remaining directors fill any vacancy on the board of directors for the
unexpired term. A vacancy exists if the shareholders do not elect the number of
authorized directors or if the shareholders increase the number of directors and
fail, at the meeting at which the number of directors was increased, to elect
additional directors.
The Kroger Regulations (Bylaws) and the OGCL provide that a vacancy may be
filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum. Any director so elected shall serve for the
remainder of the unexpired term.
The Fred Meyer Certificate and Fred Meyer Bylaws provide that vacancies and
newly created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors then in office, even
if less than a quorum, or by a sole remaining director. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the entire Board of Directors (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent of the total number of
the shares at the time outstanding having the right to vote for these directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office.
SPECIAL MEETINGS; SHAREHOLDER ACTION BY WRITTEN CONSENT
The OGCL provides that a special meeting of shareholders may be called by
the chairman of the board of directors, the president, the directors at a
meeting, or a majority of the directors without a meeting, persons holding 25%
or more of the shares entitled to vote at this meeting (unless the articles of
incorporation or regulations specify a greater or lesser percentage but not more
than a majority) or the other officers or persons specified in the articles of
incorporation or regulations. The Kroger Articles and Kroger Regulations
(Bylaws) do not alter the OGCL provision.
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The DGCL provides that special meetings of stockholders may be called by a
corporation's board of directors or by such person(s) as may be authorized by
the corporation's certificate of incorporation or bylaws. The Fred Meyer Bylaws
provide that a special meeting of the stockholders of Fred Meyer may be called
by the president or chairman of the Fred Meyer Board of Directors and will be
called by the chairman, president or secretary upon direction of a majority of
the Fred Meyer Board of Directors.
Under the OGCL, unless a corporation's articles of incorporation or
regulations prohibit the taking of action without a meeting, any action required
or permitted to be taken at a meeting of the shareholders may be taken without a
meeting with the affirmative vote in a writing setting forth the action signed
by all shareholders who would be entitled to notice of a meeting. The Kroger
Articles and the Kroger Regulations (Bylaws) do not prohibit the taking of
action by the shareholders by consent in writing without a meeting.
The DGCL provides that, unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of such stockholders of a corporation may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing setting
forth the action so taken, will be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting. The Fred Meyer Certificate prohibits
the taking of action by stockholders by consent in writing without a meeting.
CUMULATIVE VOTING
Under the OGCL, unless otherwise provided in a corporation's articles of
incorporation, each shareholder is entitled to cumulate such shareholder's votes
in the election of directors if the shareholder gives notice to the corporation.
The Kroger Articles do not prohibit cumulative voting.
The DGCL permits the certificate of incorporation of a corporation to
provide that, in all elections of directors, each stockholder is entitled to
cumulate such stockholder's votes. The Fred Meyer Certificate does not provide
for cumulative voting.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
The Kroger Articles and Regulations (Bylaws) contain no provisions
regarding an advance notice procedure for shareholders to make nominations of
candidates for election as directors or bring other business before an annual
meeting of shareholders.
Under the Fred Meyer Bylaws, for stockholders to properly introduce
business to be transacted at the annual or any special meeting of stockholders,
a stockholder of record, on the date both of giving such notice and of
determining stockholders entitled to vote at the annual or special meeting, must
give timely notice of such proposal in a proper written form to Fred Meyer's
corporate secretary, as provided in the Fred Meyer Bylaws. To be timely, a
stockholder's notice to the secretary must be delivered to or mailed and
received at Fred Meyer's principal executive offices not more than 90 nor less
than 60 days prior to the first anniversary of the preceding year's annual
meeting of stockholders, or, in the case of a special meeting, not more than 90
nor less than the later of 60 days prior to such special meeting or 10 days
after the day on which a public announcement is first made of the date of the
special meeting; provided, however, that in the event that the date of the
annual meeting is more than 30 days before or more than 60 days after the first
anniversary date of the preceding year's annual meeting, notice by the
stockholder to be timely must be so delivered not more than 90 nor less than 60
days prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by Fred Meyer.
Generally, the Fred Meyer Bylaws require that a stockholder's notice
include: (i) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business, the reasons for
conducting such business and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (ii) as the stockholder giving the notice and the beneficial owner, if
any, on whose behalf the proposal is made, (a) the name and address of such
stockholder, as they appear on Fred Meyer's books, and of such beneficial owner
and (b) the class and number of shares of Fred Meyer which are owned
beneficially and of record by such stockholder and such beneficial owner.
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The Fred Meyer Bylaws permit stockholders to nominate persons for election
to the Fred Meyer Board at any annual meeting of the stockholders, or at any
special meeting if the Fred Meyer Board has determined that directors will be
elected at such meeting, if they are stockholders of record as of both the date
of giving such notice and the date of determining stockholders entitled to vote
at the annual or special meeting. A stockholder must give timely notice thereof
in a proper written form to the corporate secretary, as provided in the Fred
Meyer Bylaws. To be timely, the stockholder's notice must meet the same
timeliness requirements as described above for providing advance notice of
business to be transacted at a stockholder's meeting; provided, however, that if
the number of directors to be elected to the Fred Meyer Board is increased and
there is no public announcement by Fred Meyer naming all of the nominees for
director or specifying the size of the increased Fred Meyer Board at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it is delivered to
the secretary at the principal executive offices of Fred Meyer not later than
the 10th day following the day on which such public announcement is first made
by Fred Meyer.
To be in proper written form, a stockholder's notice to the secretary must
set forth (i) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"); and (ii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination is made, (a) the name
and address of such stockholder, as they appear on Fred Meyer's books, and of
such beneficial owner and (b) the class and number of shares of Fred Meyer which
are owned beneficially and of record by such stockholder and such beneficial
owner. Such notice must be accompanied by a written consent of each proposed
nominee to being named as a nominee and to serving as a director if elected.
AMENDMENTS TO CHARTER DOCUMENTS AND BYLAWS
Under the OGCL, an amendment to the articles of incorporation requires the
affirmative vote of two-thirds of the voting power of a corporation unless a
greater or lesser percentage (which cannot be less than a majority) is specified
in the corporation's articles of incorporation.
The Kroger Articles generally reduce the required vote to a majority. The
affirmative vote of 75% of shares entitled to vote is required to amend the Fair
Price Provision of the Kroger Articles (described below). See "-- Business
Combinations; Transactions with Interested Shareholders."
Under the OGCL, the power to adopt, alter and repeal the regulations of a
corporation is vested in the shareholders. Such action can be taken by the
affirmative vote of a majority of the voting power of the corporation or without
a meeting by the written consent of the holders of two-thirds 2/3 of the voting
power of the corporation unless the articles of incorporation or regulations
provide for a greater percentage.
The Kroger Regulations (Bylaws) may be amended or repealed by the
affirmative vote of a majority of the voting power except that the affirmative
vote of 75% of the voting power is required to amend, alter, change or repeal
provisions of the Kroger Regulations (Bylaws) relating to the number and removal
of directors, indemnification of officers, directors, and employees, or
amendment of the Kroger Regulations (Bylaws).
The DGCL provides that the certificate of incorporation of a corporation
may be amended upon adoption by the board of directors of a resolution setting
forth the proposed amendment and declaring its advisability, followed by the
favorable vote of the holders of a majority of the outstanding stock entitled to
vote on the amendment. It also provides that a certificate of incorporation may
require a greater vote than would otherwise be required by the DGCL. Except as
set forth below, the Fred Meyer Certificate may be amended by the affirmative
vote of holders of a majority of the outstanding shares of capital stock
entitled to vote on such amendment.
Under the DGCL, the power to adopt, alter and repeal the bylaws is vested
in the stockholders unless the certificate of incorporation vests such power in
the directors. Vesting such power in the directors does not divest the
stockholders of power to adopt, alter or repeal the bylaws. The Fred Meyer
Certificate provides that the Fred Meyer Board of Directors may alter, amend or
repeal the Fred Meyer Bylaws.
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Notwithstanding any other provision of the Fred Meyer Certificate or the
Fred Meyer Bylaws (and in addition to any other vote that may be required by
law, the Fred Meyer Certificate or the Fred Meyer Bylaws), the affirmative vote
of the holders of three-fourths (3/4) of the outstanding stock of Fred Meyer
entitled to vote in elections of directors is required for the Fred Meyer
stockholders to amend, alter, change or repeal the provisions in the Fred Meyer
Bylaws or the Fred Meyer Certificate relating to the classified board, the
number of directors, the filling of directors vacancies, the removal of
directors or advance notice of stockholder proposals (including the nomination
of directors).
MERGERS, ACQUISITIONS AND CERTAIN OTHER TRANSACTIONS
The OGCL generally requires approval of mergers, dissolutions, dispositions
of all or substantially all of a corporation's assets, and majority share
acquisitions and combinations involving issuance of shares representing
one-sixth or more of the voting power of the corporation (other than so-called
parent-subsidiary mergers), by two-thirds of the voting power of the corporation
unless the articles of incorporation specify a different proportion (not less
than a majority). The Kroger Articles provide that the affirmative vote of
holders of a majority of shares entitled to vote is necessary for the approval
of mergers, dissolutions, dispositions of all or substantially all of a
corporation's assets, and majority share acquisitions and combinations involving
issuance of shares representing one-sixth or more of the voting power of the
corporation.
The DGCL requires approval of mergers, consolidations and dispositions of
all or substantially all of a corporation's assets (other than so-called
parent-subsidiary mergers) by a majority of the voting power of the corporation,
unless the certificate of incorporation specifies a different percentage. The
Fred Meyer Certificate does not provide for a different percentage. The DGCL
does not require stockholder approval for majority share acquisitions or for
combinations involving the issuance of less than 20% of the voting power of the
corporation, except for "business combinations" subject to Section 203 of the
DGCL.
BUSINESS COMBINATIONS; TRANSACTIONS WITH INTERESTED SHAREHOLDERS
Chapter 1704 of the Ohio Revised Code ("Chapter 1704") prohibits, subject
to certain exceptions, certain business combinations and transactions between an
issuing public corporation and a beneficial owner of 10% or more of the shares
of the corporation (an "interested shareholder") for at least three years after
the interested shareholder attains 10% ownership, unless the board of directors
of the issuing public corporation approves the transaction before the interested
shareholder attained 10% ownership. An "issuing public corporation" is defined
in the OGCL as an Ohio corporation with 50 or more shareholders that has its
principal place of business, principal executive offices, or substantial assets
within the state of Ohio, and as to which no close corporation agreement exists.
Kroger is an "issuing public corporation."
Examples of transactions regulated by Chapter 1704 include the disposition
of assets, mergers, consolidations, voluntary dissolutions and the transfer of
shares ("CHAPTER 1704 TRANSACTIONS"). Subsequent to the three-year period, a
Chapter 1704 Transaction may take place provided that certain conditions are
satisfied, including that (a) the board of directors approves the transaction,
(b) the transaction is approved by the holders of shares with at least
two-thirds (2/3) of the voting power of the corporation (or a different
proportion set forth in the articles of incorporation), including at least a
majority of the outstanding shares after excluding shares controlled by the
interested shareholder, or (c) the business combination results in shareholders,
other than the interested shareholder, receiving a fair price (as determined by
Section 1704.03(A)(4)) for their shares.
One significant effect of Chapter 1704 is to encourage a person to
negotiate with the board of directors of a corporation prior to becoming an
interested shareholder, although in the articles of incorporation or
regulations, shareholders may elect that a corporation will not be governed by
Chapter 1704. Neither the Kroger Articles nor the Kroger Regulations (Bylaws)
contain such an election to be excluded from Chapter 1704.
Although Chapter 1704 is similar to DGCL Section 203 in some respects,
there are significant differences. Chapter 1704 provisions are triggered by the
acquisition of 10% of the voting power of a subject Ohio corporation rather than
15%. If prior to the acquisition of shares by which a person becomes an
interested shareholder, the board of directors of the corporation approves the
transaction by which the person would become an interested shareholder, then
Chapter 1704's prohibition does not apply. The prohibition imposed by Chapter
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1704 continues indefinitely after the initial three-year period unless the
subject transaction is approved by the requisite vote of the shareholders or
satisfies statutory conditions relating to the fairness of consideration
received by shareholders, other than the interested shareholder. Chapter 1704
does not provide any exemption for an interested shareholder who acquires a
significant percentage of stock in the transaction which resulted in the
shareholder becoming an "interested shareholder" as does DGCL Section 203.
Chapter 1704's definition of "beneficial owner" of shares is essentially similar
to that of DGCL Section 203 except that Chapter 1704 does not expressly exclude
from the definition of beneficial owner a person who has the right to vote stock
pursuant to an agreement which arises solely from a revocable proxy.
Section 1707.043 of the Ohio Revised Code provides that, if a shareholder
disposes of an Ohio company's stock at a profit within 18 months after making a
proposal (or announcement) to acquire control of the company, the company may
recover that profit if in excess of $250,000. These provisions do not apply if
the shareholder proves in court that (i) its sole purpose in making the proposal
was to acquire control of the company and it had reasonable grounds to believe
it would so succeed, or (ii) it did not make the proposal to manipulate the
market, increase profit or decrease loss, and the proposal did not have a
material adverse effect on the price or trading volume of the shares.
Section 1701.831 of the OGCL (the "CONTROL SHARE ACQUISITION ACT") provides
that certain notice and informational filings and special shareholder meetings
and voting procedures must occur prior to consummation of a proposed "CONTROL
SHARE ACQUISITION," which is defined as any acquisition of an issuer's shares
that would entitle the acquirer to exercise or direct the voting power of the
issuer in the election of directors within any of the following ranges: (a)
one-fifth or more but less than one-third of such voting power; (b) one-third or
more but less than a majority of such voting power; or (c) a majority or more of
such voting power. Assuming compliance with the notice and information filing
requirements prescribed by the statute, the proposed Control Share Acquisition
may take place only if, at a duly convened special meeting of shareholders, the
acquisition is approved by both a majority of the voting power of the issuer
represented at the meeting and a majority of the voting power remaining after
excluding the combined voting power of the intended acquirer, directors of the
issuer who are also employees and officers of the issuer, and persons that
acquire specified amounts of shares after the public disclosure of the proposed
Control Share Acquisition. The Control Share Acquisition Act does not apply to a
corporation whose articles of incorporation or regulations so provide. Kroger
has not opted out of the application of the Control Share Acquisition Act. The
DGCL contains no provisions comparable to the Control Share Acquisition Act.
The expressed purpose of the Control Share Acquisition Act is to give
shareholders of Ohio corporations a reasonable opportunity to express their
views on a proposed shift in control, thereby reducing the coercion inherent in
an unfriendly takeover.
The Control Share Acquisition Act applies not only to traditional offers
but also to open market purchases, privately negotiated transactions and
original issuances by an Ohio corporation, whether friendly or unfriendly. The
procedural requirements of the Control Share Acquisition Act could render
approval of any Control Share Acquisition difficult in that the transaction must
be authorized at a special meeting of shareholders, at which a quorum is
present, by the affirmative vote of the majority of the voting power represented
and by a majority of the portion of such voting power excluding "interested
shares."
The Kroger Articles provide that the affirmative vote of three-fourths
(3/4) of shares entitled to vote is necessary for certain business combinations
with interested shareholders (defined as beneficial owners of 10% of shares
entitled to vote) without (i) board approval of the transaction or the 10%
acquisition or (ii) the vote of two-thirds of the continuing directors unless
the consideration to be paid in the transaction meets certain financial
conditions (the "FAIR PRICE PROVISION").
Section 203 of the DGCL provides that, subject to certain exceptions, a
corporation shall not engage in any business combination with any interested
stockholder for a three-year period following the date that such stockholder
becomes an interested stockholder unless (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the
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corporation outstanding at the time the transaction commenced (excluding shares
held by directors who are also officers and employee stock purchase plans in
which employee participants do not have the right to determine confidentially
whether plan shares will be tendered in a tender or exchange offer) or (iii) at
or subsequent to such time, the business combination is approved by the board of
directors of the corporation and by the affirmative vote at an annual or special
meeting, and not by written consent, of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder. Except as
specified in Section 203 of the DGCL, an interested stockholder is defined to
include (a) any person that is the owner of 15% or more of the outstanding
voting stock of the corporation or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation, at any time within three years immediately prior to the
relevant date and (b) the affiliates and associates of any such person.
Under certain circumstances, Section 203 of the DGCL may make it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although in the corporation's certificate of incorporation or bylaws,
stockholders may elect that a corporation will not be governed by DGCL Section
203. Neither the Fred Meyer Certificate nor the Fred Meyer Bylaws contains an
election to be excluded from DGCL Section 203.
APPRAISAL RIGHTS
Under the OGCL, dissenting shareholders are entitled to appraisal rights in
connection with the transfer of all or substantially all of the assets of a
corporation and in connection with certain amendments to a corporation's
articles of incorporation. Shareholders of an Ohio corporation being merged into
or consolidated with another corporation are also entitled to dissenters'
rights. In addition, shareholders of an acquiring corporation are entitled to
dissenters' rights in any merger, combination or majority share acquisition in
which the shareholders of the acquiring corporation are entitled to vote. The
OGCL provides shareholders of an acquiring corporation voting rights if the
acquisition involves the transfer of shares of the acquiring corporation
entitling the recipients thereto to exercise one-sixth or more of the voting
power of the acquiring corporation. See "RIGHTS OF DISSENTING SHAREHOLDERS."
Under the DGCL, appraisal rights are available only in connection with
statutory mergers or consolidations. Even in such cases, unless the certificate
of incorporation otherwise provides, the DGCL does not recognize dissenters'
rights for any class or series of stock which is either listed on a national
securities exchange or held of record by more than 2,000 shareholders except
that appraisal rights are available for holders of stock who, by the terms of
the merger or consolidation, are required to accept anything except (i) stock of
the corporation surviving or resulting from the merger or consolidation, (ii)
shares which at the effective time of the merger or consolidation are either
listed on a national securities exchange or held of record by more than 2,000
shareholders, (iii) cash in lieu of fractional shares of stock described in the
foregoing clauses (i) and (ii), or (iv) any combination of stock and cash in
lieu of fractional shares described in the foregoing clauses (i), (ii) or (iii).
CONSIDERATION OF OTHER CONSTITUENCIES
The OGCL provides that in determining what a director reasonably believes
to be in the best interests of the corporation such director shall consider the
interests of the corporation's shareholders, and, in such director's discretion,
may consider the interests of the corporation's employees, suppliers, creditors
and customers, the economy of the State of Ohio and the U.S., community and
societal considerations and the long-term as well as the short-term interests of
the corporation and its shareholders, including the possibility that these
interests may be best served by the continued independence of the corporation.
The DGCL does not contain provisions relating to the ability of a board of
directors to consider the impact of constituencies other than stockholders.
LIABILITY AND INDEMNIFICATION OF DIRECTORS
The OGCL provides, with certain limited exceptions, that a director may be
held liable in damages for acts or omissions as a director only if it is proved
by clear and convincing evidence that the director undertook the act
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or omission with deliberate intent to cause injury to the corporation or with
reckless disregard for its best interests.
Under the OGCL, Ohio corporations may indemnify directors from liability if
the director acted in good faith and in a manner reasonably believed by the
director to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal actions, if the director had no reason to believe
the action was unlawful. In the case of an action by or on behalf of a
corporation, indemnification may not be made (i) if the person seeking
indemnification is adjudged liable for negligence or misconduct, unless the
court in which such action was brought determines such person is fairly and
reasonably entitled to indemnification or (ii) if liability asserted against
such person concerns certain unlawful distributions. The indemnification
provisions of the OGCL require indemnification of a director who has been
successful on the merits or otherwise in defense of any action, suit or
proceeding that he or she was a party to by reason of the fact that he or she is
or was a director of the corporation. The indemnification authorized by the OGCL
is not exclusive and is in addition to any other rights granted to directors
under the articles of incorporation or regulations of the corporation or to any
agreement between the directors and the corporation.
The Kroger Regulations (Bylaws) provide for indemnification of each present
or former director, officer or employee and each person presently or formerly
serving at Kroger's request as a director, officer or employee of another
corporation against all expenses actually and necessarily incurred by that
person and against judgments, decrees, fines, penalties or amounts paid in
settlement, in connection with the defense of any pending or threatened criminal
or civil action to which that person is or may be made a party by reason of
being or having been a director, officer or employee, provided that (i) the
person is adjudicated or determined not to have been negligent or guilty of
misconduct in the performance of his or her duty to Kroger or the other
corporation, (ii) the person is determined to have acted in good faith in what
he or she reasonably believed to be the best interest of Kroger or the other
corporation, and (iii) in any matter the subject of a criminal action, the
person is determined to have had no reasonable cause to believe that his or her
conduct was unlawful.
Kroger is authorized to purchase and maintain (and Kroger maintains)
insurance on behalf of its directors, officers, employees and agents.
Additionally, the Merger Agreement requires such insurance to be maintained by
Kroger covering present and former officers, directors, employees, trustees and
agents of Fred Meyer for a period of at least six years following the Effective
Time, subject to certain limitations. See "THE MERGER
AGREEMENT -- Indemnification and Insurance."
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for damages for breach of the
director's or officer's fiduciary duty, subject to certain limitations. The Fred
Meyer Certificate provides that a director will not be personally liable to Fred
Meyer or its stockholders for monetary damages for breach of fiduciary duty as a
director except to the extent not permitted under the DGCL. While this provision
provides directors with protection from awards for monetary damages for breaches
of their duty of care, it does not eliminate such duty. Accordingly, this
provision will have no effect on the availability of equitable remedies such as
an injunction or rescission based on a director's breach of his or her duty of
care.
The DGCL permits a corporation to indemnify officers, directors, employees
and agents against expenses, judgments and other amounts actually and reasonably
incurred if such person acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The DGCL provides that a corporation may advance expenses
of defense (upon receipt of a written undertaking to reimburse the corporation
if indemnification is not appropriate) and must reimburse a successful officer
or director defendant for expenses, including attorney's fees, actually and
reasonably incurred, and permits a corporation to purchase and maintain
liability insurance for its directors and officers. The DGCL provides that
indemnification may not be made for any claim, issue or matter as to which a
person has been adjudged by a court of competent jurisdiction to be liable to
the corporation, unless and only to the extent a court determines that the
person is entitled to indemnity for such expenses as the court deems proper.
The Fred Meyer Certificate and the Fred Meyer Bylaws provide that each
person who is a party to any actual or threatened action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
88
<PAGE> 98
fact that he or she is or was a director, officer, employee or agent of Fred
Meyer, or is or was serving at the request of Fred Meyer as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan, will be indemnified by Fred Meyer to the extent permitted by the DGCL. The
indemnification rights conferred by the Fred Meyer Certificate are not exclusive
of any other right to which a person seeking indemnification may be entitled
under any law, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
LEGAL MATTERS
The validity of the issuance of the shares of Kroger Common Stock being
offered hereby will be passed upon for Kroger by Paul W. Heldman, Esq., Senior
Vice President, Secretary and General Counsel of Kroger. Fried, Frank, Harris,
Shriver & Jacobson, New York, New York (a partnership including professional
corporations), special counsel for Kroger, and Cleary, Gottlieb, Steen &
Hamilton, New York, New York, special counsel for Fred Meyer, will be delivering
opinions concerning certain federal income tax consequences of the Merger. See
"THE MERGER -- Certain U.S. Federal Income Tax Consequences."
EXPERTS
The consolidated financial statements of Kroger appearing in Kroger's 1997
Annual Report on Form 10-K, incorporated by reference in this Joint Proxy
Statement/Prospectus, and which are referred to and made a part of the
Registration Statement, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their report included therein and
incorporated herein by reference. Such financial statements have been
incorporated herein by reference in reliance upon the reports of such firm given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Fred Meyer appearing in Fred
Meyer's 1997 Annual Report on Form 10-K, and the financial statements of Fred
Meyer which have been restated and filed on Form 8-K/A, dated March 9, 1998,
incorporated by reference in this Joint Proxy Statement/Prospectus, and which
are referred to and made a part of the Registration Statement, have been audited
by Deloitte & Touche LLP, independent auditors, as set forth in their reports
with respect thereto, included therein. Such consolidated financial statements
are incorporated herein by reference in reliance on such reports given upon the
authority of such firm as experts in accounting and auditing.
The consolidated balance sheets of Food 4 Less, as of February 1, 1998,
February 2, 1997 and January 28, 1996 and the related consolidated statements of
operations, cash flows and stockholders' equity for the 52 weeks ended February
1, 1998, the 53 weeks ended February 2, 1997 and the 52 weeks ended January 28,
1996 and the related financial statement schedules included in the Food 4 Less
Annual Report on Form 10-K for the year ended February 1, 1998 and incorporated
by reference, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Kroger Special Meeting, and representatives of Deloitte & Touche LLP are
expected to be present at the Fred Meyer Special Meeting. In each case, such
representatives will have the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETINGS
As described in Kroger's proxy statement on Schedule 14A relating to its
1998 Annual Meeting of Shareholders, any proposals that shareholders of Kroger
wish to be considered for inclusion in the Proxy Statement for the 1999 Annual
Meeting of Shareholders must be received by Kroger at its principal executive
offices no later than December 14, 1998. Any shareholder proposals included in
Kroger's proxy solicitation materials for its 1999 annual meeting or otherwise
to be considered at such meeting shall be subject to the requirements of the
proxy rules adopted under the Exchange Act. See "COMPARATIVE RIGHTS OF
SHAREHOLDERS -- Advance Notice Provisions for Shareholder Nominations and
Shareholder Proposals."
89
<PAGE> 99
As described in Fred Meyer's proxy statement on Schedule 14A relating to
its 1998 Annual Meeting of Stockholders, in order for proposals of stockholders
of Fred Meyer to be considered for inclusion in the proxy statement for the 1999
Annual Meeting of Stockholders of Fred Meyer (if the Merger is not consummated
prior to such meeting), such proposals must have been received by the Corporate
Secretary of Fred Meyer no later than January 15, 1999. Under the Fred Meyer
Bylaws, in order for a stockholder proposal to be eligible to be considered at
the Fred Meyer 1999 Annual Meeting of Stockholders (if held), written notice
must be given to Fred Meyer's Corporate Secretary not later than April 23, 1999
(i.e., no less than 60 days before the anniversary date of the immediately
preceding annual meeting of shareholders) but not prior to March 24, 1999 (i.e.,
no more than 90 days before the anniversary date of the immediately preceding
annual meeting of stockholders). Any stockholder proposals included in Fred
Meyer's proxy solicitation materials for its 1999 annual meeting or otherwise to
be considered at such meeting shall be subject to the requirements of the Fred
Meyer Bylaws and the proxy rules promulgated under the Exchange Act. See
"COMPARATIVE RIGHTS OF SHAREHOLDERS -- Advance Notice Provisions for Shareholder
Nominations and Shareholder Proposals."
WHERE YOU CAN FIND MORE INFORMATION
Kroger has filed with the Commission a Registration Statement under the
Securities Act that registers the distribution to Fred Meyer Stockholders of the
shares of Kroger Common Stock to be issued in connection with the Merger. The
Registration Statement, including the attached exhibits and schedules, contains
additional relevant information about Kroger and Fred Meyer. The rules and
regulations of the Commission allow us to omit certain information included in
the Registration Statement from this Joint Proxy Statement/Prospectus.
In addition, Kroger and Fred Meyer file reports, proxy statements and other
information with the Commission under the Exchange Act. Please call the
Commission at 1-800-SEC- 0330 for further information on the public reference
rooms. You may read and copy this information at the following locations of the
Commission:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains an
Internet world wide web site that contains reports, proxy statements and other
information about issuers, like Kroger and Fred Meyer, who file electronically
with the Commission. The address of that site is http://www.sec.gov. You can
also inspect reports, proxy statements and other information about Kroger and
Fred Meyer at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
The Commission allows Kroger and Fred Meyer to "incorporate by reference"
information into this Joint Proxy Statement/Prospectus. This means that the
companies can disclose important information to you by referring you to another
document filed separately with the Commission. The information incorporated by
reference is considered to be a part of this Joint Proxy Statement/Prospectus,
except for any information that is superseded by information that is included
directly in this document.
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<PAGE> 100
This Joint Proxy Statement/Prospectus incorporates by reference the
documents listed below that Kroger and Fred Meyer have previously filed with the
Commission. They contain important information about our companies and their
financial condition. Some of these filings have been amended by later filings,
which are also listed.
<TABLE>
<CAPTION>
DESCRIPTION OR
KROGER COMMISSION FILINGS (FILE NO. 1-303) PERIOD/AS OF DATE
------------------------------------------ --------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 27, 1997 (as amended on
April 27, 1998)
Quarterly Reports on Form 10-Q Quarters ended March 21, 1998 and June 13,
Current Reports on Form 8-K 1998 January 22, 1998; February 25, 1998;
April 15, 1998; May 6, 1998; May 11, 1998;
June 26, 1998, July 15, 1998, October 20,
1998 and October 22, 1998
Registration Statement on Form 8-A/A, dated Description of preferred share purchase
April 4, 1997 as amended on Form 8-A/A, rights.
dated October 18, 1998
</TABLE>
<TABLE>
<CAPTION>
FRED MEYER COMMISSION FILINGS (FILE NO. 1-13339)
- ------------------------------------------------
<S> <C>
Annual Report on Form 10-K Quarterly Reports on Year ended January 31, 1998
Form 10-Q Quarters ended May 23, 1998 (as amended on
July 28, 1998) and August 15, 1998
Current Reports on Form 8-K February 13, 1998; February 20, 1998:
February 27, 1998; March 4, 1998; March 9,
1998 (as amended on May 15, 1998 and
November 5, 1998); March 12, 1998; June 18,
1998; June 30, 1998, July 8, 1998 and
October 18, 1998.
</TABLE>
<TABLE>
<CAPTION>
FOOD 4 LESS COMMISSION FILINGS (FILE NO. 33-88894)
- --------------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended February 1, 1998
</TABLE>
Kroger and Fred Meyer incorporate by reference additional documents that
either company may file with the Commission between the date of this Joint Proxy
Statement/Prospectus and the dates of the Kroger Special Meeting and the Fred
Meyer Special Meeting. These documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through Kroger or Fred Meyer, as the case may be, or from the
Commission through the Commission's web site at the address described above.
Documents incorporated by reference are available from the companies without
charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this Joint Proxy
Statement/Prospectus. You can obtain documents incorporated by reference in this
Joint Proxy Statement/ Prospectus by requesting them in writing or by telephone
from the appropriate company at the following addresses:
<TABLE>
<S> <C>
The Kroger Co. Fred Meyer, Inc.
Investor Relations Investor/Public Relations
1014 Vine Street 3800 SE 22nd Avenue
Cincinnati, Ohio 45202 Portland, Oregon 97202
(513) 762-4808 (503) 232-8844
</TABLE>
91
<PAGE> 101
If you would like to request documents, please do so by December [ ], 1998
to receive them before the special meetings. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that differs from, or adds to,
the information in this Joint Proxy Statement/Prospectus or in our documents
that are publicly filed with the Securities and Exchange Commission. Therefore,
if anyone does give you different or additional information, you should not rely
on it.
If you are in a jurisdiction where it is unlawful to offer to exchange or
sell, or to ask for offers to exchange or buy, the securities offered by this
Joint Proxy Statement/Prospectus or to ask for proxies, or if you are a person
to whom it is unlawful to direct such activities, then the offer presented by
this Joint Proxy Statement/Prospectus does not extend to you.
The information contained in this Joint Proxy Statement/Prospectus speaks
only as of its date unless the information specifically indicates that another
date applies. Information in this Joint Proxy Statement/Prospectus about Kroger
has been supplied by Kroger, and information about Fred Meyer has been supplied
by Fred Meyer.
92
<PAGE> 102
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
7.375% Notes............................. 33
7.45% Notes.............................. 33
Acquiring Person......................... 78
Acquisition Proposal..................... 51
Additional Fred Meyer Termination Fee.... 55
Additional Kroger Termination Fee........ 56
Amendments............................... 46
Antitrust Division....................... 45
Average Exchange Ratios.................. 34
Cap...................................... 53
Chapter 1704............................. 85
Chapter 1704 Transactions................ 85
Charitable Contribution.................. 51
Chase.................................... 33
Closing.................................. 52
Code..................................... 32
Commission............................... 49
Commitment Letter........................ 33
Consideration............................ 26
Control Share Acquisition................ 86
Control Share Acquisition Act............ 86
Court.................................... 57
CSI...................................... 33
D&O Insurance............................ 53
DGCL..................................... 48
Dillon................................... 25
Dillon Supermarkets...................... 25
Directors' Plan.......................... 66
Dissenting Kroger Shares................. 57
Distribution Date........................ 78
DLJ...................................... 27
DLJ and Salomon Selected Companies....... 40
DLJ and Salomon Selected Transactions.... 41
DLJ Engagement Letter.................... 37
DLJ Opinion.............................. 36
EBIT..................................... 36
EBITDA................................... 34
Effective Time........................... 22
EPS...................................... 34
Exchange Act............................. 84
Exchange Agent........................... 48
Exchange Ratio........................... 22
Existing Credit Facilities............... 46
Existing Fred Meyer Credit Facilities.... 46
Existing Kroger Credit Facilities........ 46
Facilities............................... 46
fair cash value.......................... 57
Fair Price Provision..................... 86
Food 4 Less.............................. 25
Fred Meyer............................... 22
Fred Meyer Board of Directors............ 22
Fred Meyer Business Combination
Proposal............................... 55
Fred Meyer Bylaws........................ 50
Fred Meyer Certificate................... 50
Fred Meyer Common Stock.................. 22
Fred Meyer Exercise Termination Event.... 59
Fred Meyer Holder........................ 59
Fred Meyer Liquidation Amounts........... 60
Fred Meyer Market/Offer Price............ 60
Fred Meyer Material Adverse Effect....... 54
Fred Meyer Option........................ 59
Fred Meyer Owner......................... 60
Fred Meyer Record Date................... 22
Fred Meyer Special Meeting............... 22
Fred Meyer Stock Certificate............. 48
Fred Meyer Stock Option Agreement........ 59
Fred Meyer Total Profit.................. 63
Fred Meyer Triggering Event.............. 59
FTC...................................... 45
Goldman Sachs............................ 26
Goldman Sachs Engagement Letter.......... 34
Goldman Sachs Opinion.................... 32
Goldman Sachs Selected Companies......... 34
Goldman Selected Transactions............ 35
HSR Act.................................. 45
IBES..................................... 35
Initial Fred Meyer Termination Fee....... 55
Initial Kroger Termination Fee........... 55
Kroger................................... 22
Kroger Articles.......................... 51
Kroger Board of Directors................ 22
Kroger Business Combination Proposal..... 56
Kroger Common Stock...................... 22
Kroger Dissenting Shareholder............ 57
Kroger Exercise Termination Event........ 61
Kroger Holder............................ 62
Kroger Liquidation Amounts............... 63
Kroger Market/Offer Price................ 62
Kroger Material Adverse Effect........... 52
Kroger Option............................ 61
Kroger Owner............................. 62
Kroger Preferred Shares.................. 78
Kroger Record Date....................... 22
Kroger Regulations (Bylaws).............. 51
Kroger Special Meeting................... 22
Kroger Stock Certificates................ 48
Kroger Stock Option Agreement............ 61
Kroger Total Profit...................... 61
Kroger Triggering Event.................. 61
Kroger Welfare Benefit Plan.............. 53
LTM...................................... 35
Merger................................... 22
</TABLE>
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<PAGE> 103
<TABLE>
<S> <C>
Merger Agreement......................... 22
Merger Right............................. 79
Merger Sub............................... 22
Miller Employment Agreement.............. 42
Miller Voting Agreement.................. 63
New Fred Meyer Options................... 50
NYSE..................................... 23
OGCL..................................... 57
Operating Lease Facility................. 46
Opinion Fee.............................. 34
QFC...................................... 25
Ralphs................................... 25
Ralphs/Food 4 Less....................... 25
Redemption Price......................... 79
Registration Statement................... 54
Representative........................... 51
Rights................................... 22
Rights Agreement......................... 22
Rights Certificates...................... 79
Rights Purchase Price.................... 78
Salomon.................................. 27
Salomon Engagement Letter................ 39
Salomon Opinion.......................... 38
Securities Act........................... 46
Series A Preferred Shares................ 78
Smith's.................................. 25
Special Meetings......................... 22
Stock Acquisition Date................... 78
Stock Option Agreements.................. 27
Subject Shares........................... 64
Subscription Right....................... 79
Synergies................................ 33
Voting Agreements........................ 28
Yucaipa.................................. 28
Yucaipa Stockholders..................... 63
Yucaipa Voting Agreement................. 63
</TABLE>
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<PAGE> 104
APPENDIX A
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
DATED AS OF
OCTOBER 18, 1998
BY AND BETWEEN
THE KROGER CO. ,
JOBSITE HOLDINGS, INC.
AND
FRED MEYER, INC.
<PAGE> 105
APPENDIX A
CONFORMED COPY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I................................................... A-1
Section 1.1 The Merger............................... A-1
Section 1.2 The Closing; Effective Time.............. A-2
Section 1.3 Subsequent Actions....................... A-2
Section 1.4 Certificate of Incorporation; Bylaws;
Directors and Officers of the Surviving
Corporation......................................... A-2
ARTICLE II.................................................. A-2
Section 2.1 Treatment of Capital Stock............... A-2
Section 2.2 Conversion of Common Stock............... A-2
Section 2.3 Cancellation of Excluded Shares.......... A-3
Section 2.4 Conversion of Common Stock of Jobsite
Holdings............................................ A-3
Section 2.5 Exchange Agent; Exchange Procedures...... A-3
Section 2.6 Transfer Books........................... A-4
Section 2.7 Termination of Exchange Fund............. A-4
Section 2.8 Options to Purchase Fred Meyer Shares.... A-4
Section 2.9 Warrants to Purchase Fred Meyer Shares... A-5
Section 2.10 Appraisal Rights........................ A-5
Section 2.11 Certain Adjustments..................... A-5
Section 2.12 Restricted Stock........................ A-5
Section 2.13 Assignment.............................. A-5
ARTICLE III................................................. A-5
Section 3.1 Organization and Qualification;
Subsidiaries........................................ A-5
Section 3.2 Certificate of Incorporation and
Bylaws.............................................. A-6
Section 3.3 Capitalization........................... A-6
Section 3.4 Power and Authority; Authorization; Valid
& Binding........................................... A-7
Section 3.5 No Conflict; Required Filings and
Consents............................................ A-7
Section 3.6 SEC Reports; Financial Statements........ A-8
Section 3.7 Absence of Certain Changes............... A-8
Section 3.8 Litigation and Liabilities............... A-9
Section 3.9 No Violation of Law; Permits............. A-9
Section 3.10 Employee Matters; ERISA................. A-9
Section 3.11 Labor Matters........................... A-11
Section 3.12 Environmental Matters................... A-11
Section 3.13 Board Action; Vote Required............. A-12
Section 3.14 Opinion of Financial Advisor............ A-12
Section 3.15 Brokers................................. A-12
Section 3.16 Tax Matters............................. A-13
Section 3.17 Intellectual Property................... A-13
Section 3.18 Insurance............................... A-14
Section 3.19 Contracts and Commitments............... A-14
Section 3.20 Accounting and Tax Matters.............. A-14
Section 3.21 Ownership of Shares of Kroger........... A-14
Section 3.22 Year 2000 Compliance.................... A-15
</TABLE>
A-i
<PAGE> 106
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE IV.................................................. A-15
Section 4.1 Organization and Qualification;
Subsidiaries........................................ A-15
Section 4.2 Articles of Incorporation and
Regulations......................................... A-15
Section 4.3 Capitalization........................... A-15
Section 4.4 Power and Authority; Authorization; Valid
& Binding........................................... A-16
Section 4.5 No Conflict; Required Filings and
Consents............................................ A-16
Section 4.6 SEC Reports; Financial Statements........ A-17
Section 4.7 Absence of Certain Changes............... A-18
Section 4.8 Litigation and Liabilities............... A-18
Section 4.9 No Violation of Law; Permits............. A-18
Section 4.10 Employee Matters; ERISA................. A-19
Section 4.11 Labor Matters........................... A-20
Section 4.12 Environmental Matters................... A-20
Section 4.13 Board Action; Vote Required............. A-21
Section 4.14 Opinion of Financial Advisor............ A-21
Section 4.15 Brokers................................. A-21
Section 4.16 Tax Matters............................. A-21
Section 4.17 Intellectual Property................... A-22
Section 4.18 Insurance............................... A-22
Section 4.19 Contracts and Commitments............... A-22
Section 4.20 Accounting and Tax Matters.............. A-23
Section 4.21 Ownership of Shares of Fred Meyer....... A-23
Section 4.22 Rights Agreement........................ A-23
Section 4.23 Year 2000 Compliance.................... A-23
ARTICLE V................................................... A-23
Section 5.1 Interim Operations of Fred Meyer......... A-23
Section 5.2 Interim Operations of Kroger............. A-25
Section 5.3 No Solicitation by Fred Meyer............ A-26
Section 5.4 No Solicitation by Kroger................ A-27
Section 5.5 Charitable Contribution.................. A-28
ARTICLE VI.................................................. A-28
Section 6.1 Meetings of Stockholders................. A-28
Section 6.2 Filings Best Efforts..................... A-29
Section 6.3 Publicity................................ A-30
Section 6.4 Registration Statement................... A-30
Section 6.5 Authorized Shares; Listing Application... A-30
Section 6.6 Further Action........................... A-31
Section 6.7 Expenses................................. A-31
Section 6.8 Notification of Certain Matters.......... A-31
Section 6.9 Access to Information.................... A-31
Section 6.10 Review of Information................... A-32
Section 6.11 Indemnification; Directors' and
Officers' Insurance................................. A-32
Section 6.12 Employee Benefit Plans.................. A-32
Section 6.13 Kroger Board of Directors and
Officers............................................ A-33
Section 6.14 Affiliates.............................. A-34
Section 6.15 Pooling-of-Interests.................... A-34
Section 6.16 Tax-Free Reorganization................. A-34
Section 6.17 Accountant's Comfort Letters............ A-34
Section 6.18 Accountant's Pooling Letters............ A-34
</TABLE>
A-ii
<PAGE> 107
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VII................................................. A-35
Section 7.1 Conditions to Obligations of the Parties
to Consummate the Merger............................ A-35
Section 7.2 Additional Conditions to Obligations of
Kroger and Jobsite Holdings......................... A-35
Section 7.3 Additional Conditions to Obligations of
Fred Meyer.......................................... A-36
ARTICLE VIII................................................ A-36
Section 8.1 Termination.............................. A-36
Section 8.2 Effect of Termination and Abandonment.... A-37
Section 8.3 Amendment................................ A-38
ARTICLE IX.................................................. A-38
Section 9.1 Non-Survival of Representations,
Warranties and Agreements........................... A-38
Section 9.2 Notices.................................. A-38
Section 9.3 Certain Definitions; Interpretation...... A-39
Section 9.4 Headings................................. A-40
Section 9.5 Severability............................. A-40
Section 9.6 Entire Agreement; No Third-Party
Beneficiaries....................................... A-40
Section 9.7 Assignment............................... A-40
Section 9.8 Governing Law............................ A-40
Section 9.9 Counterparts............................. A-41
Exhibits
Exhibit A Certificate of Incorporation of
Surviving Corporation
Exhibit B Affiliate Letters
Exhibit C Pooling Letters
</TABLE>
A-iii
<PAGE> 108
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION
------------ -------
<S> <C>
Additional Fred Meyer Termination Fee....................... 8.2(b)(i)
Additional Kroger Termination Fee........................... 8.2(b)(ii)
affiliate................................................... 9.3(a)(v)
Agreement................................................... preamble
Closing..................................................... 1.2(a)
Closing Date................................................ 1.2(a)
Code........................................................ recitals
Confidentiality Agreement................................... 6.9(b)
Consents.................................................... 7.2(d)
control..................................................... 9.3(a)(vi)
Current Premium............................................. 6.11(b)
D&O Insurance............................................... 6.11(b)
Deloitte.................................................... 6.18
DGCL........................................................ 1.1
Effective Time.............................................. 1.2(b)
Environmental Claim......................................... 3.12
Environmental Laws.......................................... 3.12
Environmental Permits....................................... 3.12
ERISA....................................................... 9.3(a)(vii)
Exchange Act................................................ 3.5(b)
Exchange Agent.............................................. 2.5(a)
Exchange Fund............................................... 2.5(a)
Exchange Ratio.............................................. 2.2(a)
Excluded Shares............................................. 2.2(a)
Fees and Expenses........................................... 8.2(c)
Filings..................................................... 7.2(d)
Form S-4.................................................... 6.4
Fred Meyer.................................................. preamble
Fred Meyer Acquisition Proposal............................. 5.3(c)
Fred Meyer Acquisition Transaction.......................... 5.3(c)
Fred Meyer Benefit Plan..................................... 3.10(a)
Fred Meyer Business Combination Proposal.................... 8.2(b)(i)
Fred Meyer Capital Stock Disclosure Date.................... 3.3(a)
Fred Meyer Certificate of Incorporation..................... 3.2. 1.4(a)
Fred Meyer Common Stock..................................... recitals
Fred Meyer Contracts........................................ 3.19
Fred Meyer Disclosure Letter................................ Article III
Fred Meyer Employee......................................... 3.10(b)
Fred Meyer Employees........................................ 3.10(b)
Fred Meyer Equity Rights.................................... 3.3(a)
Fred Meyer ERISA Affiliate.................................. 3.10(d)
Fred Meyer Material Adverse Effect.......................... 9.3(a)(i)
Fred Meyer Multiemployer Plan............................... 3.10(a)
Fred Meyer Options.......................................... 2.8(a)
Fred Meyer Pension Plan..................................... 3.10(c)
Fred Meyer Preferred Stock.................................. 3.3(a)
Fred Meyer SEC Reports...................................... 3.6(a)
Fred Meyer Shares........................................... recitals
Fred Meyer Stock Option Agreement........................... recitals
GAAP........................................................ recitals
Governmental Entity......................................... 3.5(b)
Hazardous Materials......................................... 3.12
HSR Act..................................................... 3.5(b)
</TABLE>
A-iv
<PAGE> 109
<TABLE>
<CAPTION>
DEFINED TERM SECTION
------------ -------
<S> <C>
Indemnified Parties......................................... 6.11(a)
Initial Fred Meyer Termination Fee.......................... 8.2(b)(i)
Initial Kroger Termination Fee.............................. 8.2(b)(ii)
Jobsite Holdings............................................ preamble
knowledge................................................... 9.3(a)(viii)
Kroger...................................................... preamble
Kroger Acquisition Proposal................................. 5.4(c)
Kroger Acquisition Transaction.............................. 5.4(c)
Kroger Articles of Incorporation............................ Article IV
Kroger Benefit Plan......................................... 4.10(a)
Kroger Business Combination Proposal........................ 8.2(b)(ii)
Kroger Capital Stock Disclosure Date........................ 4.3(a)
Kroger Common Stock......................................... recitals
Kroger Contracts............................................ 4.19
Kroger Disclosure Letter.................................... Article IV
Kroger Employee............................................. 4.10(b)
Kroger Employees............................................ 4.10(b)
Kroger Equity Rights........................................ 4.3(a)
Kroger ERISA Affiliate...................................... 4.10(d)
Kroger Material Adverse Effect.............................. 9.3(a)(ii)
Kroger Multiemployer Plan................................... 4.10(a)
Kroger Pension Plan......................................... 4.10(c)
Kroger Preferred Stock...................................... 4.3(a)
Kroger Right................................................ 2.2(a)
Kroger Rights............................................... 4.22
Kroger Rights Agreement..................................... 4.22. 2.2(a)
Kroger SEC Reports.......................................... 4.6(a)
Kroger Shares............................................... recitals
Kroger Stock Option Agreement............................... recitals
Merger...................................................... recitals
Merger Sub.................................................. preamble
New Fred Meyer Options...................................... 2.8(a)
NYSE........................................................ 4.4
OGCL........................................................ 2.10
Parties..................................................... preamble
Party....................................................... preamble
Pension Plan................................................ 3.10(c)
Person...................................................... 9.3(a)(ix)
Proxy Statement/Prospectus.................................. 6.4
PwC......................................................... 6.18
Release..................................................... 3.12
Representative.............................................. 5.3(b)
SEC......................................................... recitals
Securities Act.............................................. 3.5(b)
Significant Subsidiary...................................... 9.3(a)(x)
Stock Option Agreements..................................... recitals
Subsidiary.................................................. 9.3(a)(xi)
Surviving Corporation....................................... 1.1
Tax......................................................... 3.16
Tax Return.................................................. 3.16
Taxable..................................................... 3.16
Taxes....................................................... 3.16
Termination Date............................................ 8.1(b)
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 18, 1998 (this
"Agreement"), by and among The Kroger Co. ("Kroger"), an Ohio corporation,
Jobsite Holdings, Inc. ("Jobsite Holdings" or "Merger Sub"), a Delaware
corporation and a wholly-owned subsidiary of Kroger, and Fred Meyer, Inc. ("Fred
Meyer"), a Delaware corporation. Kroger and Fred Meyer are sometimes referred to
herein, individually, as a "Party," and together, as the "Parties."
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Kroger, Jobsite Holdings and
Fred Meyer have each determined that the merger of Jobsite Holdings with and
into Fred Meyer (the "Merger") upon the terms and subject to the conditions set
forth in this Agreement is advisable, fair to and in the best interests of their
respective corporations and stockholders and have approved the Merger;
WHEREAS, it is intended that, for federal income tax purposes, the Merger
will qualify as a tax-free reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the rules and regulations
promulgated thereunder;
WHEREAS, it is intended that, for accounting purposes, the Merger will be
accounted for as a pooling-of-interests under United States generally accepted
accounting principles ("GAAP") and applicable rules and regulations of the
Securities and Exchange Commission (the "SEC").
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Kroger's willingness to enter into this
Agreement, Kroger and Fred Meyer have executed and delivered a Stock Option
Agreement, dated as of the date hereof (the "Fred Meyer Stock Option
Agreement"), pursuant to which Fred Meyer is granting to Kroger an option to
purchase, under certain circumstances, up to a number of shares of common stock,
par value $.01 per share, of Fred Meyer (the "Fred Meyer Common Stock" or "Fred
Meyer Shares") equal to 19.9% of the outstanding shares of Fred Meyer Common
Stock with an exercise price of $44.125 per share.
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Fred Meyer's willingness to enter into this
Agreement, Fred Meyer and Kroger have executed and delivered a Stock Option
Agreement, dated as of the date hereof (the "Kroger Stock Option Agreement" and
together with the Fred Meyer Stock Option Agreement, the "Stock Option
Agreements"), pursuant to which Kroger is granting to Fred Meyer an option to
purchase, under certain circumstances, up to a number of shares of common stock,
par value $1.00 per share, of Kroger, together with the associated preferred
stock purchase rights (the "Kroger Common Stock" or "Kroger Shares") equal to
19.9% of the outstanding shares of Kroger Common Stock with an exercise price of
$50.00 per share.
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Kroger's willingness to enter into this
Agreement, Kroger and certain stockholders of Fred Meyer have executed and
delivered Voting Agreements, dated as of this date.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained in this Agreement, and intending to be legally bound
hereby, the parties agree as follows (certain capitalized terms used herein are
defined in Section 9.3):
ARTICLE I
Section 1.1 The Merger. At the Effective Time (as defined) and subject to
and upon the terms and conditions of this Agreement and in accordance with the
Delaware General Corporation Law (the "DGCL"), Jobsite Holdings shall be merged
with and into Fred Meyer and the separate corporate existence of Jobsite
Holdings shall cease. Fred Meyer shall continue as the surviving corporation
(sometimes referred to as the "Surviving Corporation") in the Merger, and as of
the Effective Time shall be a wholly-owned subsidiary of Kroger. The Merger
shall have the effects specified in Section 259(a) of the DGCL.
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Section 1.2 The Closing; Effective Time. (a) The closing of the Merger (the
"Closing") shall take place (i) at the offices of Fried, Frank, Harris, Shriver
& Jacobson, One New York Plaza, New York, New York, 10004, at 10:00 A.M. local
time, on the second business day following the date on which the last to be
satisfied or waived of the conditions set forth in Article VII (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the satisfaction or, where permitted, waiver of those conditions) shall be
satisfied or waived in accordance with this Agreement or (ii) at such other
place, time and/or date as Kroger and Fred Meyer shall agree (the date of the
Closing, the "Closing Date").
(b) On the Closing Date, Kroger, Fred Meyer and Jobsite Holdings shall
cause a certificate of merger in respect of the Merger to be properly executed
and filed with the Secretary of State of the State of Delaware as provided in
Section 251 of the DGCL. The Merger shall become effective at such time at which
the certificate of merger shall be duly filed with Secretary of State of
Delaware or at such later time reflected in the certificate of merger as shall
be agreed by Kroger and Fred Meyer (the time that the Merger becomes effective,
the "Effective Time").
Section 1.3 Subsequent Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in the
Surviving Corporation's right, title or interest in, to or under any of the
rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger, or otherwise to carry out the
intent of this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of either of the constituent corporations of the Merger, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and on
behalf of each of such corporations or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties, privileges,
franchises or assets in the Surviving Corporation (as defined) or otherwise to
carry out the intent of this Agreement.
Section 1.4 Certificate of Incorporation; Bylaws; Directors and Officers of
the Surviving Corporation. Unless otherwise agreed by Kroger and Fred Meyer
prior to the Closing, at the Effective Time:
(a) The certificate of incorporation attached hereto as Exhibit A
shall be at and after the Effective Time (until amended as provided by law
and by that certificate of incorporation) the certificate of incorporation
of the Surviving Corporation.
(b) The bylaws of Jobsite Holdings as in effect immediately prior to
the Effective Time shall be at and after the Effective Time (until amended
as provided by law, the certificate of incorporation of the Surviving
Corporation and the bylaws of the Surviving Corporation, as applicable) the
bylaws of the Surviving Corporation;
(c) The officers of Fred Meyer immediately prior to the Effective Time
shall continue to serve in their respective offices of the Surviving
Corporation from and after the Effective Time, until their successors are
elected or appointed and qualified or until their resignation or removal;
and
(d) The directors of Jobsite Holdings immediately prior to the
Effective Time shall be the directors of the Surviving Corporation from and
after the Effective Time, until their successors are elected or appointed
and qualified or until their resignation or removal.
ARTICLE II
Section 2.1 Treatment of Capital Stock. The manner and basis of converting
the shares of common stock of Fred Meyer and Jobsite Holdings, by virtue of the
Merger and without any action on the part of any holder thereof, shall be as set
forth in this Article II.
Section 2.2 Conversion of Common Stock. (a) Each share of Fred Meyer Common
Stock issued and outstanding immediately prior to the Effective Time (excluding
those held in the treasury of Fred Meyer, by any
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of its Subsidiaries (as defined) or by Kroger or any of its Subsidiaries
(collectively, the "Excluded Shares")), and all rights in respect thereof, shall
at the Effective Time, without any action on the part of any holder, forthwith
cease to exist and be converted into the right to receive one (1) (the "Exchange
Ratio") validly issued, fully paid and nonassessable share of Kroger Common
Stock. Holders of Shares of Fred Meyer Common Stock shall also have the right to
receive together with each share of Kroger Common Stock issued at the Effective
Time, one associated right (an "Kroger Right") in accordance with the Rights
Agreement, dated as of April 4, 1997, between Kroger and the Bank of New York,
as Rights Agent (the "Kroger Rights Agreement"). Reference to the shares of
Kroger Common Stock issuable at the Effective Time shall be deemed to include
the associated Kroger Rights.
(b) Except as otherwise provided, commencing immediately after the
Effective Time, each certificate which, immediately prior to the Effective Time,
represented issued and outstanding shares of Fred Meyer Common Stock shall
evidence the right to receive shares of Kroger Common Stock on the basis set
forth in paragraph (a) above.
Section 2.3 Cancellation of Excluded Shares. At the Effective Time, each
Excluded Share, by virtue of the Merger and without any action on the part of
the holder thereof, shall cease to be outstanding, shall be canceled and
retired, and no shares of stock or other securities of Kroger or the Surviving
Corporation shall be issuable, and no payment or other consideration shall be
made or paid in respect of the Excluded Share.
Section 2.4 Conversion of Common Stock of Jobsite Holdings. At the
Effective Time, each share of common stock of Jobsite Holdings issued and
outstanding immediately prior to the Effective Time, and all rights in respect
thereof, shall, without any action on the part of Kroger, forthwith cease to
exist and be converted into one validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation.
Section 2.5 Exchange Agent; Exchange Procedures. (a) Subject to the terms
and conditions of this Agreement, at or prior to the Effective Time, Kroger
shall appoint Bank of New York, or such other exchange agent selected by Kroger
that is reasonably acceptable to Fred Meyer (the "Exchange Agent"), to effect
the exchange of Fred Meyer Shares for shares of Kroger Common Stock in
accordance with the provisions of this Article II. As soon as reasonably
practicable following the Effective Time, Kroger shall deposit, or cause to be
deposited, with the Exchange Agent certificates representing the shares of
Kroger Common Stock to be issued in the Merger, and the amount of any dividends
or distributions in accordance with Section 2.5(b) (the "Exchange Fund").
(b) As soon as reasonably practicable after the Effective Time, Kroger
shall instruct the Exchange Agent to mail to each record holder of a certificate
or certificates which immediately prior to the Effective Time represented Fred
Meyer Shares (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to such certificates shall pass,
only upon delivery to the Exchange Agent and shall be in such form and have such
other provisions as Kroger shall reasonably specify) and (ii) instructions for
use in effecting the surrender of certificates which immediately prior to the
Effective Time represented Fred Meyer Shares for certificates representing
shares of Kroger Common Stock. Commencing immediately after the Effective Time,
upon the surrender to the Exchange Agent of such certificate or certificates
representing Fred Meyer Shares, together with a duly executed and completed
letter of transmittal and all other documents and other materials required by
the Exchange Agent to be delivered in connection therewith, the holder shall be
entitled to receive a certificate or certificates representing the number of
whole shares of Kroger Common Stock into which the shares of Fred Meyer Common
Stock which immediately prior to the Effective Time were represented by the
certificate or certificates so surrendered shall have been converted in
accordance with the provisions of Section 2.2. Unless and until any certificate
or certificates which immediately prior to the Effective Time represented shares
of Fred Meyer Common Stock are so surrendered, no dividend or other
distribution, if any, payable to the holders of record of shares of Kroger
Common Stock as of any date subsequent to the Effective Time shall be paid to
the holder of such certificate or certificates. Except as otherwise provided,
upon the surrender of any certificate or certificates which immediately prior to
the Effective Time represented Fred Meyer Shares, the record holder of the
certificate or certificates representing shares of Kroger Common Stock issued in
exchange therefor shall be entitled to receive (i) at the time of surrender, the
amount of any dividends or other distributions (net of any applicable tax
withholdings) having a record date after the Effective Time and a payment date
prior to the
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surrender date, payable in respect of such shares of Kroger Common Stock and
(ii) at the appropriate payment date, the amount of dividends or other
distributions (net of any applicable tax withholdings) having a record date
after the Effective Time and a payment date subsequent to the date of such
surrender, payable in respect of such shares of Kroger Common Stock. No interest
shall be payable in respect of the payment of dividends or distributions
pursuant to the immediately preceding sentence.
(c) Notwithstanding anything in this Agreement to the contrary,
certificates surrendered for exchange by any "affiliate" (as defined) of Fred
Meyer shall not be exchanged for shares of Kroger Common Stock until Kroger
shall have received a signed agreement from the "affiliate" as provided in
Section 6.14.
Section 2.6 Transfer Books. The stock transfer books of Fred Meyer shall be
closed at the Effective Time and no transfer of any Fred Meyer Shares will
thereafter be recorded on any of the stock transfer books. In the event of a
transfer of ownership of any Fred Meyer Shares that is not registered in the
stock transfer records of Fred Meyer at the Effective Time, a certificate or
certificates representing the number of full shares of Kroger Common Stock into
which such Fred Meyer Shares shall have been converted in the Merger shall be
issued to the transferee together with a cash payment in accordance with Section
2.5(b) of dividends or distributions, if any, only if the certificate or
certificates which immediately prior to the Effective Time represented such Fred
Meyer Shares are surrendered as provided in Section 2.5, accompanied by all
documents required to evidence and effect such transfer and by evidence of
payment of any applicable stock transfer taxes.
Section 2.7 Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed one year after the Effective Time shall be delivered
to Kroger upon demand, and each holder of Fred Meyer Shares who had not
theretofore surrendered certificates or certificates which immediately prior to
the Effective Time represented Fred Meyer Shares in accordance with the
provisions of this Article II shall thereafter look only to Kroger for
satisfaction of such holder's claims for shares of Kroger Common Stock and any
dividends or distributions payable in accordance with Section 2.5(b).
Notwithstanding the foregoing, none of Kroger, the Surviving Corporation, the
Exchange Agent or any other Person shall be liable to any former holder of Fred
Meyer Shares for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
Section 2.8 Options to Purchase Fred Meyer Shares. (a) Prior to the
Effective Time, Fred Meyer shall take all action reasonably necessary with
respect to each of the Fred Meyer Benefit Plans (as defined) pursuant to which
options to purchase Fred Meyer Shares (the "Fred Meyer Options") will be
outstanding immediately prior to the Effective Time such that as of and after
the Effective Time each Fred Meyer Option shall entitle the holder to purchase
that number of shares of Kroger Common Stock as is equal to the product of (x)
the number of shares of Fred Meyer Common Stock subject to the option
immediately prior to the Effective Time and (y) the Exchange Ratio; and the
exercise price per share of Kroger Common Stock subject to such option shall be
equal to (x) the exercise price per share of Fred Meyer Common Stock immediately
prior to the Effective Time divided by (y) the Exchange Ratio. Except as
required by the terms of such Fred Meyer Option, (i) Fred Meyer shall take no
action to cause any Fred Meyer Option which pursuant to its terms as in effect
as of this date would not become vested or exercisable by reason of the
transactions contemplated by this Agreement to become vested or exercisable in
connection herewith, and (ii) nothing contained in this Agreement shall be
interpreted as causing any such Fred Meyer Option to become vested or
exercisable.
(b) Notwithstanding the foregoing, the exercise price shall be rounded, if
necessary, to the nearest one one-hundredth of a cent. Other than as provided in
paragraph (a) above and in the prior sentence of this paragraph (b), as of and
after the Effective Time, each Fred Meyer Option shall be subject to the same
terms and conditions as in effect immediately prior to the Effective Time, but
giving effect to the Merger (it being understood that all Fred Meyer Options
exercisable at the same price and granted on the same date shall be aggregated
for this purpose).
(c) As soon as practicable after the Effective Time, Kroger shall deliver
to each holder of Fred Meyer Options a notice stating the number of shares of
Kroger Common Stock then covered by such Fred Meyer Options, the exercise price
per share for each such share of Kroger Common Stock and an acknowledgment that,
except for the conversion of the Fred Meyer Options into options to purchase
shares of Kroger Common Stock as described in such notice, the provisions of the
Fred Meyer Benefit Plans pursuant to which such Fred Meyer
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Options were originally granted and the agreements evidencing the grants of such
Fred Meyer Options shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 2.8 after giving effect to
the Merger and the terms of the relevant Fred Meyer Benefit Plan).
(d) Kroger shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Kroger Common Stock for delivery upon
exercise of all of the Fred Meyer Options in accordance with this Section 2.8.
As soon as practicable after the Effective Time, Kroger shall file a
registration statement on Form S-8 (or any successor or other appropriate forms)
with respect to the shares of Kroger Common Stock subject to the Fred Meyer
Options and shall use all reasonable efforts to maintain the effectiveness of
this registration statement (and maintain the current status of the prospectus
or prospectuses contained therein) for so long as the Fred Meyer Options remain
outstanding.
Section 2.9 Warrants to Purchase Fred Meyer Shares. At the Effective Time,
Kroger will execute a supplemental warrant agreement as required by Section 9(l)
of that certain Warrant Agreement, dated May 23, 1996, among Smith's Food & Drug
Centers, Inc. and The Yucaipa Companies, as supplemented by the Supplemental
Warrant Agreement, dated as of September 9, 1997.
Section 2.10 Appraisal Rights. In accordance with Section 262 of the DGCL,
no appraisal rights shall be available to holders of Fred Meyer Shares in
connection with the Merger. Appraisal rights shall be available to holders of
Kroger in connection with the Merger in accordance with Sections 1701.84(D) and
1701.85 of the Ohio General Corporation Law (the "OGCL").
Section 2.11 Certain Adjustments. If between the date of this Agreement and
the Effective Time, the outstanding shares of Fred Meyer Common Stock or Kroger
Common Stock shall be changed into a different number of shares by reason of any
stock split, combination of shares, or any dividend payable in stock shall be
declared thereon with a record date within such period, the Exchange Ratio shall
be appropriately adjusted and provisions shall be made for appropriate payments
in lieu of the issuance of fractional shares of Kroger Common Stock in order to
provide the holders of Fred Meyer Shares the same economic effect as
contemplated by this Agreement prior to such event.
Section 2.12 Restricted Stock. At the Effective Time, any shares of Fred
Meyer Common Stock awarded pursuant to any plan, arrangement or transaction and
outstanding immediately prior to the Effective Time shall be converted into
shares of Kroger Common Stock in accordance with Section 2.2, subject to the
same terms, conditions and restrictions as in effect immediately prior to the
Effective Time, except to the extent that these terms, conditions and
restrictions may be altered in accordance with their terms as a result of the
transactions contemplated hereby.
Section 2.13 Assignment. Notwithstanding anything in this Agreement to the
contrary, Kroger may, in its sole discretion, restructure the Merger so as to
substitute Kroger for Jobsite Holdings as one of the constituent corporations in
the Merger and so that Fred Meyer shall merge with and into Kroger with Kroger
continuing as the surviving corporation in the Merger, provided that such
restructuring could not reasonably be expected to interfere with or delay (in
any material respect) the consummation of the Merger by reason of any Consent
relating to Kroger that would not have been required to have been obtained by
Kroger had the Merger not been so restructured. In the event of such
restructuring, the Parties shall promptly enter into any amendment to this
Agreement necessary or desirable to provide for such restructuring.
ARTICLE III
Except as set forth in the corresponding sections or subsections of the
disclosure letter, dated this date, delivered by Fred Meyer to Kroger (the "Fred
Meyer Disclosure Letter"), Fred Meyer hereby represents and warrants to Kroger
and Jobsite Holdings as follows:
Section 3.1 Organization and Qualification; Subsidiaries. (a) Fred Meyer is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of the Subsidiaries of Fred Meyer is a
corporation or other business entity duly organized, validly existing and in
good standing under the
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laws of its jurisdiction of incorporation or organization, and each of Fred
Meyer and its Subsidiaries has the requisite corporate or other organizational
power and authority to own, operate or lease its properties and to carry on its
business as it is now being conducted, and is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary, in each case except as would not,
individually or in the aggregate, reasonably be expected to have a Fred Meyer
Material Adverse Effect (as defined).
(b) All of the outstanding shares of capital stock and other equity
securities of the Subsidiaries of Fred Meyer have been validly issued and are
fully paid and nonassessable, and are owned, directly or indirectly, by Fred
Meyer, free and clear of all pledges and security interests. There are no
subscriptions, options, warrants, calls, commitments, agreements, conversion
rights or other rights of any character (contingent or otherwise) entitling any
Person to purchase or otherwise acquire from Fred Meyer or any of its
Subsidiaries at any time, or upon the happening of any stated event, any shares
of capital stock or other equity securities of any of the Subsidiaries of Fred
Meyer. The Fred Meyer Disclosure Letter lists the name and jurisdiction of
incorporation or organization of each Subsidiary of Fred Meyer.
(c) Except for interests in its Subsidiaries, neither Fred Meyer nor any of
its Subsidiaries owns directly or indirectly any equity interest in any Person
or has any obligation or made any commitment to acquire any such interest or
make any such investment.
Section 3.2 Certificate of Incorporation and Bylaws. Fred Meyer has
furnished, or otherwise made available, to Kroger a complete and correct copy of
its Certificate of Incorporation (the "Fred Meyer Certificate of Incorporation")
and its bylaws, as amended to the date of this Agreement. The Fred Meyer
Certificate of Incorporation and the bylaws of Fred Meyer are in full force and
effect. Fred Meyer is not in violation of any of the provisions of the Fred
Meyer Certificate of Incorporation or its bylaws.
Section 3.3 Capitalization. (a) The authorized capital stock of Fred Meyer
consists of 400,000,000 shares of Fred Meyer Common Stock and 100,000,000 shares
of Preferred Stock, par value $.01 per share (the "Fred Meyer Preferred Stock").
At the close of business on October 15, 1998 (the "Fred Meyer Capital Stock
Disclosure Date"), (i) 154,772,188 shares of Fred Meyer Common Stock, and no
shares of Fred Meyer Preferred Stock, were issued and outstanding and (ii) no
shares of Fred Meyer Common Stock or Fred Meyer Preferred Stock, were held by
Fred Meyer in its treasury. The Fred Meyer Disclosure Letter lists the number of
shares of Fred Meyer Common Stock and Fred Meyer Preferred Stock reserved for
issuance as of the Fred Meyer Capital Stock Disclosure Date under each of the
Fred Meyer Benefit Plans (as defined) or otherwise. Since the Fred Meyer Capital
Stock Disclosure Date until the date of this Agreement, no shares of Fred Meyer
Common Stock or Fred Meyer Preferred Stock have been issued or reserved for
issuance, except in respect of the exercise, conversion or exchange of Fred
Meyer Equity Rights (as defined) outstanding as of the Fred Meyer Capital Stock
Disclosure Date and in connection with the Fred Meyer Stock Option Agreement.
For purposes of this Agreement, "Fred Meyer Equity Rights" shall mean
subscriptions, options, warrants, calls, commitments, agreements, conversion
rights or other rights of any character (contingent or otherwise) to purchase or
otherwise acquire from Fred Meyer or any of its Subsidiaries at any time, or
upon the happening of any stated event, any shares of the capital stock of Fred
Meyer. The Fred Meyer Disclosure Letter sets forth the number and type of Fred
Meyer Equity Rights (including the number and class of Fred Meyer's capital
stock for or into which the Fred Meyer Equity Rights are exercisable,
convertible or exchangeable and any Fred Meyer Benefit Plan pursuant to which
such Fred Meyer Equity Rights were granted or issued) outstanding as of the Fred
Meyer Capital Stock Disclosure Date. Other than (i) the Fred Meyer Equity Rights
disclosed in the Fred Meyer Disclosure Letter; (ii) Fred Meyer Equity Rights
granted pursuant to the Fred Meyer Stock Option Agreement and (iii) a warrant
for 3,869,366 shares of Fred Meyer Common Stock, Fred Meyer does not have
outstanding any Fred Meyer Equity Rights as of the date of this Agreement.
Except as disclosed in the Fred Meyer SEC Reports (as defined), no stockholders
of Fred Meyer are party to any voting agreement, voting trust or similar
arrangement with respect to Fred Meyer Shares to which Fred Meyer or any
Subsidiary of Fred Meyer is a Party.
(b) There are no outstanding obligations of Fred Meyer or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Fred Meyer
Common Stock or any Fred Meyer Equity Rights (except in connection with the
exercise, conversion or exchange of outstanding Fred Meyer Equity Rights). All
of the issued
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and outstanding shares of Fred Meyer Common Stock are validly issued, fully
paid, nonassessable and free of preemptive rights. No shares of Fred Meyer
Common Stock have been repurchased by Fred Meyer or any of its Subsidiaries
since October 1, 1996.
Section 3.4 Power and Authority; Authorization; Valid & Binding. Fred Meyer
has the necessary corporate power and authority to enter into and deliver this
Agreement and the Stock Option Agreements and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby, except that the Merger is subject to the adoption and approval of
this Agreement and the Merger by Fred Meyer's stockholders as required by the
DGCL. The execution and delivery of this Agreement and the Stock Option
Agreements by Fred Meyer, the performance by it of its obligations hereunder and
thereunder and the consummation by Fred Meyer of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action
on the part of Fred Meyer (other than with respect to the Merger and the
adoption and approval of this Agreement and the Merger by its stockholders as
required by the DGCL). This Agreement and the Stock Option Agreements have been
duly executed and delivered by Fred Meyer and, assuming the due authorization,
execution and delivery of this Agreement by Kroger and Merger Sub and the
execution and delivery of the Stock Option Agreements by Kroger, each agreement
constitutes a legal, valid and binding obligation of Fred Meyer enforceable
against it in accordance with the terms hereof or thereof, subject to
bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
Section 3.5 No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement and the Stock Option Agreements by Fred Meyer
does not, and the performance by Fred Meyer of its obligations hereunder and
thereunder and the consummation by Fred Meyer of the transactions contemplated
hereby, and thereby will not, (i) violate or conflict with the Fred Meyer
Certificate of Incorporation or the bylaws of Fred Meyer, (ii) subject to
obtaining or making the notices, reports, filings, waivers, consents, approvals
or authorizations referred to in paragraph (b) below, conflict with or violate
any law, regulation, court order, judgment or decree applicable to Fred Meyer or
any of its Subsidiaries or by which any of their respective property is bound or
affected or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, cancellation, vesting, modification,
alteration or acceleration of any obligation under, result in the creation of a
lien, claim or encumbrance on any of the properties or assets of Fred Meyer or
any of its Subsidiaries pursuant to, result in the loss of any material benefit
under (including an increase in the price paid by, or cost to, Fred Meyer or any
of its Subsidiaries), require the consent of any other party to, or result in
any obligation on the part of Fred Meyer or any of its Subsidiaries to
repurchase (with respect to a bond or a note), any agreement, contract,
instrument, bond, note, indenture, permit, license or franchise to which Fred
Meyer or any of its Subsidiaries is a party or by which Fred Meyer, any of its
Subsidiaries or any of their respective property is bound or affected, except,
in the case of clauses (ii) and (iii) above, as would not, individually or in
the aggregate, reasonably be expected to have a Fred Meyer Material Adverse
Effect.
(b) Except for applicable requirements, if any, under the premerger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the filing of a certificate of merger with
respect to the Merger as required by the DGCL, filings with the SEC under the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), any filings required
pursuant to any state securities or "blue sky" laws, any filings required
pursuant to any state liquor, gaming or pharmacy laws, any applicable
requirements of any Environmental Laws (as defined) governing the transfer of
any interest in real property or of business operations (including, without
limitation, transfer acts, notifications and deed restrictions), the transfer of
application requirements with respect to the environmental permits of Fred Meyer
or its Subsidiaries, filings or other actions required pursuant to the rules and
regulations of any stock exchange on which the Fred Meyer Shares are listed, and
approval of stockholders under the DGCL or under the rules and regulations of
the NYSE, neither Fred Meyer nor any of its Subsidiaries is required to submit
any notice, report or other filing with any Governmental Entity (as herein
defined) in connection with the execution, delivery, performance or consummation
of this Agreement, the Stock Option Agreements or the Merger, except for such
notices, reports or filings that, if not made, would not, individually or
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in the aggregate, reasonably be expected to have a Fred Meyer Material Adverse
Effect. Except as set forth in the immediately preceding sentence, no waiver,
consent, approval or authorization of any governmental or regulatory authority,
court, agency, commission or other governmental entity or any securities
exchange or other self-regulatory body, domestic or foreign ("Governmental
Entity"), is required to be obtained by Fred Meyer or any of its Subsidiaries in
connection with its execution, delivery, performance or consummation of this
Agreement, the Stock Option Agreements or the transactions contemplated hereby
and thereunder except for such waivers, consents, approvals or authorizations
that, if not obtained or made, would not, individually or in the aggregate,
reasonably be expected to have, a Fred Meyer Material Adverse Effect.
Section 3.6 SEC Reports; Financial Statements. (a) Fred Meyer and its
predecessors have filed all forms, reports and documents (including all
Exhibits, Schedules and Annexes thereto) required to be filed by them with the
SEC since January 29, 1995, including any amendments or supplements
(collectively, including any such forms, reports and documents filed after this
date, the "Fred Meyer SEC Reports"), and, with respect to the Fred Meyer SEC
Reports filed by Fred Meyer after the date hereof and prior to the Closing Date,
will deliver or make available to Kroger all of its Fred Meyer SEC Reports in
the form filed with the SEC. The Fred Meyer SEC Reports (i) were (and any Fred
Meyer SEC Reports filed after this date will be) in all material respects in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and regulations promulgated thereunder, and (ii)
as of their respective filing dates, did not (and any Fred Meyer SEC Reports
filed after this date will not) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) The financial statements, including all related notes and schedules,
contained in the Fred Meyer SEC Reports (or incorporated therein by reference)
fairly present in all material respects (or, with respect to financial
statements contained in the Fred Meyer SEC Reports filed after this date, will
fairly present in all material respects) the consolidated financial position of
Fred Meyer and its consolidated subsidiaries as of the respective dates and the
consolidated results of operations, retained earnings and cash flows of Fred
Meyer and its consolidated subsidiaries for the respective periods indicated, in
each case in accordance with GAAP applied on a consistent basis throughout the
periods involved (except for changes in accounting principles disclosed in the
notes) and the rules and regulations of the SEC, except with respect to interim
financial statements for normal year-end adjustments which were not or are not
expected to be, as the case may be, individually or in the aggregate, material
in amount and did not or will not, as the case may be, include certain notes
which may be required by GAAP but which are not required by Form 10-Q of the
SEC.
Section 3.7 Absence of Certain Changes. Except as disclosed in the Fred
Meyer SEC Reports filed prior to this date, (a) since the end of Fred Meyer's
fiscal year last ended, Fred Meyer and each of its Subsidiaries has conducted
its business in all material respects in the ordinary and usual course of its
business consistent with past practice and there has not been any change in the
financial condition, business, prospects or results of operations of Fred Meyer
and its Subsidiaries, or any development or combination of developments that,
individually or in the aggregate, has had or would reasonably be expected to
have a Fred Meyer Material Adverse Effect and (b) since the end of Fred Meyer's
fiscal year last ended until this date there has not been (i) any declaration,
setting aside or payment of any dividend or other distribution in respect of the
capital stock of Fred Meyer; (ii) any change by Fred Meyer to its accounting
policies, practices or methods; (iii) other than in the ordinary course of
business consistent with past practice, any material tax election made or
changed, any audit settled or any amended Tax Returns (as defined) filed; (iv)
any amendment or change to the terms of any of its indebtedness material to Fred
Meyer and its Subsidiaries taken as a whole; (v) any incurrence of any material
indebtedness outside of the ordinary course of business; (vi) outside the
ordinary course of business, any transfer, lease, license, sale, mortgage,
pledge, encumbrance or other disposition of assets or properties material to
Fred Meyer and its Subsidiaries taken as a whole; (vii) any material damage,
destruction or other casualty loss with respect to any asset or property owned,
leased or otherwise used by Fred Meyer or its Subsidiaries material to Fred
Meyer and its Subsidiaries taken as a whole, whether or not covered by
insurance; (viii) except in the ordinary course of business consistent with past
practice for employees other than executive officers or directors, or except as
required by applicable law or pursuant to a contractual obligation in effect as
of the date of this Agreement, (A) any execution, adoption or amendment of any
agreement or arrangement relating to severance or any
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employment or consulting agreement with any officer, director or other key
employee, or any amendment to any Fred Meyer Benefit Plan or adoption or
execution of any new employee benefit plan for the benefit of any officer,
director or other key employee (including, without limitation, the Fred Meyer
Benefit Plans referred to in Section 3.10) or (B) any grant of any stock options
or other equity related award; or (ix) any agreement or commitment entered into
with respect to any of the foregoing.
Section 3.8 Litigation and Liabilities. (a) Except as disclosed in the Fred
Meyer SEC Reports filed prior to this date, there are no civil, criminal or
administrative actions, suits or claims, proceedings (including condemnation
proceedings) or, to the knowledge of Fred Meyer, hearings or investigations,
pending or, to the knowledge of Fred Meyer, threatened against Fred Meyer or any
of its Subsidiaries or any of their respective properties and assets, except for
any of the foregoing which would not, individually or in the aggregate,
reasonably be expected to have a Fred Meyer Material Adverse Effect.
(b) Neither Fred Meyer nor any of its Subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) the existence of which would,
individually or in the aggregate, reasonably be expected to have a Fred Meyer
Material Adverse Effect except (i) liabilities described in the Fred Meyer SEC
Reports filed with the SEC prior to the date hereof or reflected on Fred Meyer's
consolidated balance sheet (and related notes thereto) as of the end of its most
recently completed fiscal year filed in the Fred Meyer SEC Reports or (ii)
liabilities permitted to be incurred pursuant to Section 5.1.
Section 3.9 No Violation of Law; Permits. The business of Fred Meyer and
each of its Subsidiaries is being conducted in accordance with all applicable
statutes of law, ordinances, regulations, judgments, orders or decrees of any
Governmental Entity, and not in violation of any permits, franchises, licenses,
authorizations or consents granted by any Governmental Entity, and Fred Meyer
and each of its Subsidiaries has obtained all permits, franchises, licenses,
authorizations or consents necessary for the conduct of its business, except, in
each case, as would not, individually or in the aggregate, reasonably be
expected to have a Fred Meyer Material Adverse Effect. Neither Fred Meyer nor
any of its Subsidiaries is subject to any cease and desist or other order,
judgment, injunction or decree issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, is a party to
any commitment letter or similar undertaking to, is subject to any order or
directive by, or has adopted any board resolutions at the request of, any
Governmental Entity that materially restricts the conduct of its business
(whether the type of business, the location or otherwise) and which,
individually or in the aggregate, would reasonably be expected to have a Fred
Meyer Material Adverse Effect, nor to the knowledge of Fred Meyer, has Fred
Meyer been advised in writing that any Governmental Entity has proposed issuing
or requesting any of the foregoing.
Section 3.10 Employee Matters; ERISA. (a) Set forth in the Fred Meyer
Disclosure Letter is a complete list of each Fred Meyer Benefit Plan and each
Fred Meyer Multiemployer Plan. The term "Fred Meyer Benefit Plan" shall mean (i)
each plan, program, policy, contract or agreement providing for compensation,
severance, termination pay, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits of any kind, including, without
limitation, any "employee benefit plan," within the meaning of Section 3(3) of
ERISA but excluding any "multiemployer plan" within the meaning of Sections
3(37) or 4001(a)(3) of ERISA, and (ii) each employment, severance, consulting,
non-compete, confidentiality, or similar agreement or contract, in each case,
with respect to which Fred Meyer or any Subsidiary of Fred Meyer has or may have
any liability (accrued, contingent or otherwise). The term "Fred Meyer
Multiemployer Plan" shall mean any "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA in respect to which Fred Meyer or any Subsidiary of
Fred Meyer has or may have any liability (accrued, contingent or otherwise).
(b) Fred Meyer has used all commercially reasonable efforts to provide or
make available to Kroger (i) current, accurate and complete copies of all
documents embodying each Fred Meyer Benefit Plan, including all amendments,
written interpretations (which could be regarded as increasing the liabilities
of Fred Meyer) and all trust or funding arrangements with respect thereto; (ii)
the most recent annual actuarial valuation, if any, prepared for each Fred Meyer
Benefit Plan; (iii) the most recent annual report (Series 5500 and all
schedules), if any, required under ERISA in connection with each Fred Meyer
Benefit Plan or related trust; (iv) the most recent determination letter
received from the Internal Revenue Service, if any, for each Fred Meyer Benefit
Plan and
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related trust which is intended to satisfy the requirements of Section 401(a) of
the Code; (v) if any Fred Meyer Benefit Plan is funded, the most recent annual
and periodic accounting of such Fred Meyer Benefit Plan's assets; (vi) the most
recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each Fred
Meyer Benefit Plan; and (vii) all material communications to any one or more
current, former or retired employee, officer, consultant, independent
contractor, agent or director of Fred Meyer or any Subsidiary of Fred Meyer
(each, a "Fred Meyer Employee" and collectively, the "Fred Meyer Employees")
relating to each Fred Meyer Benefit Plan (which communication could be regarded
as increasing the liabilities of Fred Meyer and its Subsidiaries taken as a
whole under the relevant Fred Meyer Benefit Plan). The liabilities arising under
those documents that Fred Meyer has been unable to produce, to the extent not
reflected in Fred Meyer's financial statements, would not reasonably be expected
to have a Fred Meyer Material Adverse Effect.
(c) All Fred Meyer Benefit Plans have been administered in all respects in
accordance with the terms thereof and all applicable laws except for violations
which, individually or in the aggregate, would not reasonably be expected to
have a Fred Meyer Material Adverse Effect. Each Fred Meyer Benefit Plan which is
an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") and which is intended to be qualified under Section 401(a) of
the Code (each, an "Fred Meyer Pension Plan"), has received a favorable
determination letter from the Internal Revenue Service, and Fred Meyer is not
aware of any circumstances that would reasonably be expected to result in the
revocation or denial of this qualified status. Except as otherwise set forth in
the Fred Meyer Disclosure Letter or in the Fred Meyer SEC Reports filed prior to
this date, there is no pending or, to Fred Meyer's knowledge, threatened, claim,
litigation, proceeding, audit, examination or investigation relating to any Fred
Meyer Benefit Plans or any Fred Meyer Employees that, individually or in the
aggregate, would reasonably be expected to have a Fred Meyer Material Adverse
Effect. With respect to the Voluntary Compliance Resolution filing with the
Internal Revenue Service for the Ralph's Food 4 Less Employee Stock Ownership
Plan, the Ralph's UFCW Employee Stock Ownership Plan and the Ralph's Teamsters
Employee Stock Ownership Plan, Fred Meyer expects that the matter will be
resolved without having a Fred Meyer Material Adverse Effect.
(d) No material liability under Title IV of ERISA has been or is reasonably
expected to be incurred by Fred Meyer or any Subsidiaries of Fred Meyer or any
entity which is considered a single employer with Fred Meyer or any Subsidiary
of Fred Meyer under Section 4001(a)(15) of ERISA or Section 414 of the Code (an
"Fred Meyer ERISA Affiliate"). No notice of a "reportable event," within the
meaning of Section 4043 of ERISA for which the 30-day reporting requirement has
not been waived, has been required to be filed for any Fred Meyer Pension Plan
within the past twelve (12) months.
(e) All contributions, premiums and payments (other than contributions,
premiums or payments that are not material, in the aggregate) required to be
made under the terms of any Fred Meyer Benefit Plan have been made. No Fred
Meyer Pension Plan has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither Fred Meyer nor any Subsidiaries of Fred Meyer nor any Fred Meyer ERISA
Affiliate has provided, or is required to provide, security to any Fred Meyer
Pension Plan pursuant to Section 401(a)(29) of the Code.
(f) As of the Closing Date, neither Fred Meyer, any Subsidiary of Fred
Meyer nor any Fred Meyer ERISA Affiliate will have incurred any withdrawal
liability as described in Section 4201 of ERISA for withdrawals that have
occurred on or prior to the Closing Date that has not previously been satisfied.
Neither Fred Meyer, any Subsidiary of Fred Meyer nor any Fred Meyer ERISA
Affiliate has knowledge that any Fred Meyer Multiemployer Plan fails to qualify
under Section 401(a) of the Code, is insolvent or is in reorganization within
the meaning of Part 3 of Subtitle E of Title IV of ERISA nor of any condition
that would reasonably be expected to result in a Fred Meyer Multiemployer Plan
becoming insolvent or going into reorganization.
(g) Except as set forth in the Fred Meyer Disclosure Letter, the execution
of, and performance of the transactions contemplated in, this Agreement will not
(either alone or upon the occurrence of any additional or subsequent events) (i)
constitute an event under any Fred Meyer Benefit Plan, trust or loan that will
or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Fred Meyer Employee,
or
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(ii) result in the triggering or imposition of any restrictions or limitations
on the right of Fred Meyer, any Subsidiary of Fred Meyer or Kroger to amend or
terminate any Fred Meyer Benefit Plan. Except as set forth in the Fred Meyer
Disclosure Letter, no payment or benefit which will or may be made by Fred
Meyer, any Subsidiary of Fred Meyer, Kroger or any of their respective
affiliates with respect to any Fred Meyer Employee will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
Section 3.11 Labor Matters. (a) Except as set forth in the Fred Meyer SEC
Reports filed prior to this date, and except for those matters that would not,
individually or in the aggregate, reasonably be expected to have a Fred Meyer
Material Adverse Effect, no work stoppage, slowdown, lockout or labor strike
against Fred Meyer or any Subsidiary of Fred Meyer by Fred Meyer Employees (or
any union that represents them) is pending or, to the knowledge of Fred Meyer,
threatened.
(b) Except as set forth in the Fred Meyer SEC Reports filed prior to this
date and as, individually or in the aggregate, would not reasonably be expected
to have a Fred Meyer Material Adverse Effect, as of the date of this Agreement,
neither Fred Meyer nor any Subsidiary of Fred Meyer is involved in or, to the
knowledge of Fred Meyer, threatened with, any labor dispute, grievance,
arbitration or union organizing activity (by it or any of its employees)
involving any Fred Meyer Employees.
Section 3.12 Environmental Matters. Except as set forth in the Fred Meyer
SEC Reports filed prior to this date and except for those matters that would
not, individually or in the aggregate, reasonably be expected to have a Fred
Meyer Material Adverse Effect:
(i) Fred Meyer and each of its Subsidiaries is in compliance with all
applicable Environmental Laws, and neither Fred Meyer nor any of its
Subsidiaries has received any written communication from any Person or
Governmental Entity that alleges that Fred Meyer or any of its Subsidiaries
is not in compliance with applicable Environmental Laws.
(ii) Fred Meyer and each of its Subsidiaries has obtained or has
applied for all applicable environmental, health and safety permits,
licenses, variances, approvals and authorizations required under
Environmental Laws (collectively, the "Environmental Permits") necessary
for the construction of its facilities or the conduct of its operations,
and all those Environmental Permits are in effect or, where applicable, a
renewal application has been timely filed and is pending agency approval,
and Fred Meyer and its Subsidiaries are in compliance with all terms and
conditions of such Environmental Permits.
(iii) There is no Environmental Claim (as defined) pending or, to the
knowledge of Fred Meyer, threatened (i) against Fred Meyer or any of its
Subsidiaries, (ii) against any Person whose liability for any Environmental
Claim has been retained or assumed contractually by Fred Meyer or any of
its Subsidiaries, or (iii) against any real or personal property or
operations which Fred Meyer or any of its Subsidiaries owns, leases or
operates, in whole or in part.
(iv) There have been no Releases (as defined) of any Hazardous
Material (as defined) that would be reasonably likely to form the basis of
any Environmental Claim against Fred Meyer or any of its Subsidiaries, or
against any Person whose liability for any Environmental Claim has been
retained or assumed contractually by Fred Meyer or any of its Subsidiaries.
(v) None of the properties owned, leased or operated by Fred Meyer,
its Subsidiaries or any predecessor thereof are now, or were in the past,
listed on the National Priorities List of Superfund Sites or any analogous
state list (excluding easements that transgress those Superfund sites).
For purposes of this Agreement:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any person (including any federal, state,
local or foreign governmental authority) alleging potential liability
(including, without limitation, potential responsibility for or liability
for enforcement, investigatory costs, cleanup costs, governmental response
costs, removal costs, remedial costs, natural resources damages, property
damages, personal injuries or penalties) arising out of, based on or
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resulting from (A) the presence, or Release or threatened Release into the
environment, of any Hazardous Materials at any location, whether or not
owned, operated, leased or managed by the representing Party or any of its
Subsidiaries; or (B) circumstances forming the basis of any violation or
alleged violation of any Environmental Law; or (C) any and all claims by
any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials.
(ii) "Environmental Laws" means all applicable foreign, federal,
state and local laws, rules, requirements and regulations relating to
pollution, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or
protection of human health as it relates to the environment including,
without limitation, laws and regulations relating to Releases of Hazardous
Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials or relating to management of asbestos in buildings.
(iii) "Hazardous Materials" means (A) any petroleum or any by-products
or fractions thereof, asbestos or asbestos-containing materials, urea
formaldehyde foam insulation, any form of natural gas, explosives,
polychlorinated biphenyls ("PCBs"), radioactive materials, ionizing
radiation, electromagnetic field radiation or microwave transmissions; (B)
any chemicals, materials or substances, whether waste materials, raw
materials or finished products, which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous substances," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "pollutants,"
"contaminants," or words of similar import under any Environmental Law; and
(C) any other chemical, material or substance, whether waste materials, raw
materials or finished products, regulated or forming the basis of liability
under any Environmental Law.
(iv) "Release" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or migration
into the environment (including without limitation ambient air, atmosphere,
soil, surface water, groundwater or property).
Section 3.13 Board Action; Vote Required. (a) Fred Meyer's Board of
Directors has approved this Agreement, the Stock Option Agreements and the
transactions contemplated hereby and thereby, including the Merger, has
determined that the Merger is in the best interests of Fred Meyer and its
stockholders and has resolved to recommend to stockholders that they vote in
favor of approving and adopting this Agreement and approving the Merger. Neither
Section 203 of the DGCL nor any other state takeover or similar statute or
regulation applies to the Merger, this Agreement, the Fred Meyer Stock Option
Agreement (including the purchase of shares of Fred Meyer Common Stock
thereunder) or any of the transactions contemplated hereby or thereby. In
connection with each Fred Meyer Benefit Plan under which a holder of an option
granted pursuant thereto would be entitled, in respect of such option, to
receive cash upon a change of control, the Board of Directors (or the
appropriate Committee thereof) has taken all necessary action so that in
connection with the Merger such holder would be entitled to exercise this option
solely for shares of Fred Meyer Common Stock or, following the Merger, Kroger
Common Stock.
(b) The affirmative vote of the holders of a majority of all of the
outstanding shares of Fred Meyer Common Stock is necessary to approve and adopt
this Agreement and the Merger. Such vote is the only vote of the holders of any
class or series of Fred Meyer's capital stock required to approve this Agreement
and the transactions contemplated hereby.
Section 3.14 Opinion of Financial Advisor. Fred Meyer or its Board of
Directors has received the opinion of Salomon Smith Barney Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation, dated as of this date, to the effect
that, as of this date, the Exchange Ratio is fair to the holders of shares of
Fred Meyer Common Stock from a financial point of view.
Section 3.15 Brokers. Set forth in the Fred Meyer Disclosure Letter is a
list of each broker, finder or investment banker and other Person entitled to
any brokerage, finder's, investment banking or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made
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by or on behalf of Fred Meyer or any of its Subsidiaries and the expected
amounts of such fees and commissions. Fred Meyer has previously provided to
Kroger copies of any agreements giving rise to any such fee or commission.
Section 3.16 Tax Matters. (a) All Tax Returns required to be filed by Fred
Meyer or its Subsidiaries on or prior to the Effective Time have been or will be
prepared in good faith and timely filed with the appropriate Governmental Entity
on or prior to the Effective Time or by the due date thereof including
extensions and all such Tax Returns are (or, as to Tax Returns not filed on the
date hereof, will be) complete and accurate in all material respects, except
where the failure to so file or to be complete and accurate would not,
individually or in the aggregate, reasonably be expected to be material and
except with respect to matters contested in good faith as set forth in the Fred
Meyer Disclosure Letter.
(b) All material Taxes (as herein defined) that are required to be paid,
either (i) have been fully paid (except with respect to matters contested in
good faith as set forth in the Fred Meyer Disclosure Letter) or (ii) are
adequately reflected as a liability on Fred Meyer's or its Subsidiaries' books
and records. All Taxes required to be collected or withheld from third parties
have been collected or withheld in all material respects.
(c) With respect to any period for which Tax Returns have not yet been
filed, or for which Taxes are not yet due or owing, Fred Meyer and its
Subsidiaries have made due and sufficient accruals for such Taxes in their
respective books and records and financial statements, except where the failure
to so accrue would not, individually or in the aggregate, reasonably be expected
to be material.
(d) Fred Meyer and each of its Subsidiaries have not waived any statute of
limitations, or agreed to any extension of time, with respect to federal income
or material state Taxes or a material Tax assessment or deficiency.
(e) As of this date, (i) there are not pending or, to the knowledge of Fred
Meyer, threatened, any audits, examinations, investigations or other proceedings
in respect of Taxes or Tax matters and (ii) there are not any unresolved
questions or claims concerning Fred Meyer's or any of its Subsidiaries' Tax
liability that (x) were raised by any Taxing authority in a communication to
Fred Meyer or any Subsidiary and (y) would be, individually or in the aggregate,
material to Fred Meyer and its Subsidiaries taken as a whole, after taking into
account any reserves for Taxes set forth on the most recent balance sheet
contained in the Fred Meyer SEC Reports filed prior to this date.
(f) Fred Meyer has made available to Kroger correct and complete copies of
the United States federal income and all material state income or franchise Tax
Returns filed by Fred Meyer and its Subsidiaries for each of its fiscal years
ended on or about January 31, 1996, 1997 and 1998.
(g) Fred Meyer has not distributed the stock of a "controlled corporation"
(within the meaning of that term as used in section 355(a) of the Code) in a
transaction subject to section 355 of the Code within the past two years.
As used in this Agreement, (i) the term "Tax" (including, with correlative
meaning, the terms "Taxes" and "Taxable") includes all federal, state, local and
foreign income, profits, franchise, gross receipts, license, premium,
environmental (including taxes under Section 59A of the Code), capital stock,
severance, stamp, payroll, sales, employment, unemployment, disability, use,
transfer, property, withholding, excise, production, occupation, windfall
profits, customs duties, social security (or similar), registration, value
added, alternative or add-on minimum, estimated, occupancy and other taxes,
duties or governmental assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts and any
interest in respect of such penalties and additions, and (ii) the term "Tax
Return" includes all returns and reports (including elections, declarations,
disclosures, schedules, estimates and information returns and any amendment
thereto) required to be supplied to a Tax authority relating to Taxes.
Section 3.17 Intellectual Property. Neither Fred Meyer nor any of its
Subsidiaries currently utilizes, or to the knowledge of the general counsel and
members of the legal department of Fred Meyer involved in intellectual property,
has in the past utilized, any existing or pending patent, trademark, trade name,
service mark, copyright, software, trade secret or know-how, except for those
which are owned, possessed or lawfully used by Fred Meyer
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or its Subsidiaries in their business operations, and neither Fred Meyer nor any
of its Subsidiaries infringes upon or unlawfully uses any patent, trademark,
trade name, service mark, copyright or trade secret owned or validly claimed by
another Person except, in each case, as would not, individually or in the
aggregate, reasonably be expected to have a Fred Meyer Material Adverse Effect.
Fred Meyer and its Subsidiaries own, have a valid license to use or have the
right validly to use all existing and pending patents, trademarks, tradenames,
service marks, copyrights and software necessary to carry on their respective
businesses substantially as currently conducted except the failure of which to
own, validly license or have the right validly to use, individually or in the
aggregate, would not reasonably be expected to have a Fred Meyer Material
Adverse Effect.
Section 3.18 Insurance. Except to the extent adequately accrued on the most
recent balance sheet contained in the Fred Meyer SEC Reports filed as of this
date, neither Fred Meyer nor its Subsidiaries has any obligation (contingent or
otherwise) to pay in connection with any insurance policies any retroactive
premiums or "retro-premiums" that, individually or in the aggregate, would
reasonably be expected to have a Fred Meyer Material Adverse Effect.
Section 3.19 Contracts and Commitments. Set forth in the Fred Meyer
Disclosure Letter is a complete and accurate list of all of the following
contracts (written or oral), plans, undertakings, commitments or agreements
("Fred Meyer Contracts") to which Fred Meyer or any of its Subsidiaries is a
party or by which any of them is bound as of the date of this Agreement:
(a) each distribution, supply, inventory purchase, franchise, license,
sales, agency or advertising contract involving annual expenditures or
liabilities in excess of $30,000,000 which is not cancelable (without
material penalty, cost or other liability) within one year;
(b) each promissory note, loan, agreement, indenture, evidence of
indebtedness or other instrument providing for the lending of money,
whether as borrower, lender or guarantor, in excess of $20,000,000;
(c) each contract, lease, agreement, instrument or other arrangement
(excluding jewelry store leases) containing any "radius clause" applicable
to markets in which Kroger has operations;
(d) each joint venture or partnership agreement pursuant to which any
third party is entitled to develop any property and/or facility on behalf
of Fred Meyer or any of its Subsidiaries material to Fred Meyer and its
Subsidiaries taken as a whole; and
(e) any contract that would constitute a "material contract" (as such
term is defined in Item 601(b)(10) of Regulation S-K of the SEC).
Correct and complete copies of the written Fred Meyer Contracts, as amended
to date, that would be required to be filed as exhibits to Fred Meyer's Form
10-K if such Form 10-K were being filed on this date, that have not been filed
prior to the date hereof as Exhibits to the Fred Meyer SEC Reports have been
delivered or made available to Kroger.
Each Fred Meyer Contract is valid and binding on Fred Meyer, and any
Subsidiary of Fred Meyer which is a party thereto and, to the knowledge of Fred
Meyer, each other party thereto and is in full force and effect, and Fred Meyer
and its Subsidiaries have performed and complied with all obligations required
to be performed or compiled with by them under each Fred Meyer Contract, except
in each case as would not, individually or in the aggregate, reasonably be
expected to have a Fred Meyer Material Adverse Effect.
Section 3.20 Accounting and Tax Matters. Neither Fred Meyer nor any of its
affiliates has taken or agreed to take any action, nor does Fred Meyer have any
knowledge of any fact or circumstance with respect to Fred Meyer, that would
prevent the business combination to be effected pursuant to the Merger from
being accounted for as a "pooling-of-interests" under GAAP or the rules and
regulations of the SEC or prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368 of the Code.
Section 3.21 Ownership of Shares of Kroger. Fred Meyer and its Subsidiaries
do not beneficially own (as defined in Rule 13d-3 under the Exchange Act) any
capital stock or other equity securities of Kroger or any Kroger Equity Rights
(as herein defined) other than pursuant to the Kroger Stock Option Agreement.
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Section 3.22 Year 2000 Compliance. The software and hardware operated by
Fred Meyer and its Subsidiaries are capable of providing or are being adapted to
provide uninterrupted millennium functionality to record, store, process and
present calendar dates falling on or after January 1, 2000 and date-dependent
data in substantially the same manner and with the same functionality as such
software records, stores, processes and presents such calendar dates and
date-dependent data as of the date hereof, except as would not have a Fred Meyer
Material Adverse Effect. To the knowledge of the executive officers of Fred
Meyer, the ability of Fred Meyer's significant suppliers, customers and others
with which it conducts business to identify and resolve their own Year 2000
issues will not have a Fred Meyer Material Adverse Effect. Prior to the date
hereof, Fred Meyer has discussed with Kroger and its advisors the material steps
that it and its Subsidiaries have taken to become Year 2000 compliant and the
costs Fred Meyer expects to incur in connection therewith.
ARTICLE IV
Except as set forth in the corresponding sections or subsections of the
disclosure letter, dated this date, delivered by Kroger to Fred Meyer (the
"Kroger Disclosure Letter"), Kroger and Jobsite Holdings hereby represent and
warrant to Fred Meyer as follows:
Section 4.1 Organization and Qualification; Subsidiaries. (a) Kroger is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Ohio. Each of the Subsidiaries of Kroger (including Jobsite
Holdings) is a corporation or other business entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, and each of Kroger and its Subsidiaries has the
requisite corporate or other organizational power and authority to own, operate
or lease its properties and to carry on its business as it is now being
conducted, and is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned, operated or leased or the nature of its activities makes such
qualification necessary, in each case except as would not, individually or in
the aggregate, reasonably be expected to have a Kroger Material Adverse Effect
(as defined).
(b) All of the outstanding shares of capital stock and other equity
securities of the Subsidiaries of Kroger (including Jobsite Holdings) have been
validly issued and are fully paid and nonassessable, and are owned, directly or
indirectly, by Kroger, free and clear of all pledges and security interests.
There are no subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or otherwise)
entitling any Person to purchase or otherwise acquire from Kroger or any of its
Subsidiaries at any time, or upon the happening of any stated event, any shares
of capital stock or other equity securities of any of the Subsidiaries of Kroger
(including Jobsite Holdings). The Kroger Disclosure Letter lists the name and
jurisdiction of incorporation or organization of each Subsidiary of Kroger.
(c) Except for interests in Subsidiaries, neither Kroger nor any of its
Subsidiaries owns directly or indirectly any equity interest in any Person or,
other than pursuant to this Agreement, has any obligation or made any commitment
to acquire any such interest or make any such investment.
Section 4.2 Articles of Incorporation and Regulations. Kroger has
furnished, or otherwise made available, to Fred Meyer a complete and correct
copy of its articles of incorporation (the "Kroger Articles of Incorporation")
and its regulation, in each case as amended to the date of this Agreement. The
Kroger Certificate of Incorporation and the regulations of Kroger are in full
force and effect. Kroger is not in violation of any of the provisions of the
Kroger Articles of Incorporation or the regulations of Kroger.
Section 4.3 Capitalization. (a) The authorized capital stock of Kroger
consists of 350,000,000 shares of Kroger Common Stock and 5,000,000 shares of
Preferred Stock, par value $100.00 per share (the "Kroger Preferred Stock"). At
the close of business on October 13, 1998 (the "Kroger Capital Stock Disclosure
Date"), (i) 280,937,046 shares of Kroger Common Stock, and no shares of Kroger
Preferred Stock, were issued and outstanding and (ii) 24,836,361 shares of
Kroger Common Stock, and no shares of Kroger Preferred Stock, were held by
Kroger in its treasury. The Kroger Disclosure Letter lists the number of shares
of Kroger Common Stock and Kroger Preferred Stock reserved for issuance as of
the Kroger Capital Stock Disclosure Date under each of the Kroger Benefit Plans
(as defined) or otherwise. Since the Kroger Capital Stock Disclosure Date until
the date
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of this Agreement, no shares of Kroger Common Stock or Kroger Preferred Stock
have been issued or reserved for issuance, except in respect of the exercise,
conversion or exchange of Kroger Equity Rights (as defined) outstanding as of
the Kroger Capital Stock Disclosure Date and in connection with the Kroger Stock
Option Agreement. For purposes of this Agreement, "Kroger Equity Rights" shall
mean subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or otherwise) to
purchase or otherwise acquire from Kroger or any of its Subsidiaries at any
time, or upon the happening of any stated event, any shares of the capital stock
of Kroger, except for Kroger Rights. The Kroger Disclosure Letter sets forth the
number and type of Kroger Equity Rights (including the number and class of
Kroger's capital stock for or into which the Kroger Equity Rights are
exercisable, convertible or exchangeable and any Kroger Benefit Plan pursuant to
which such Kroger Equity Rights were granted or issued) outstanding as of the
Kroger Capital Stock Disclosure Date. Other than the Kroger Equity Rights
disclosed in the Kroger Disclosure Letter and the Kroger Equity Rights granted
pursuant to the Kroger Stock Option Agreement, Kroger does not have any
outstanding Kroger Equity Rights as of the date of this Agreement. Except as
disclosed in the Kroger SEC Reports (as defined), no stockholders of Kroger are
party to any voting agreement, voting trust or similar arrangement with respect
to Kroger Shares to which Kroger or any Subsidiary of Kroger is a Party.
(b) There are no outstanding obligations of Kroger or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Kroger
Common Stock or any Kroger Equity Rights (except in connection with the
exercise, conversion or exchange of outstanding Kroger Equity Rights). All of
the issued and outstanding shares of Kroger Common Stock are validly issued,
fully paid, nonassessable and free of preemptive rights. Except as disclosed in
the Kroger Disclosure Letter, no shares of Kroger Common Stock have been
repurchased by Kroger or any of its Subsidiaries since October 1, 1996.
Section 4.4 Power and Authority; Authorization; Valid & Binding. Each of
Kroger and Jobsite Holdings has the necessary corporate power and authority to
deliver this Agreement and, in the case of Kroger, the Stock Option Agreements,
to perform its obligations hereunder, and, in the case of Kroger, thereunder,
and to consummate the transactions contemplated hereby and, in the case of
Kroger, thereby as applicable, subject to the approval and authorization of this
Agreement and the Merger by Kroger's stockholders as required by the OGCL
(including the issuance of shares of Kroger Common Stock in accordance with the
terms of this Agreement as required by the rules and regulations of the New York
Stock Exchange (the "NYSE")). The execution and delivery by each of Kroger and
Jobsite Holdings of this Agreement and, in the case of Kroger, the Stock Option
Agreements, the performance by it of its obligations hereunder and, in the case
of Kroger, thereunder, and the consummation by it of the transactions
contemplated hereby, and in the case of Kroger, thereby, have been duly
authorized by all necessary corporate action on the part of such corporation,
subject, with respect to Kroger, to the approval of this Agreement and the
Merger by Kroger's stockholders as required by the OGCL (including the issuance
of shares of Kroger Common Stock in accordance with the terms of this Agreement
as required by the rules and regulations of the NYSE). This Agreement, and, in
the case of Kroger, the Stock Option Agreements, have been duly executed and
delivered by Kroger and Jobsite Holdings and, assuming the due authorization,
execution and delivery by Fred Meyer, each agreement constitutes a legal, valid
and binding obligation of Kroger and Jobsite Holdings, as applicable,
enforceable against such parties in accordance with the terms hereof or thereof,
subject to bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Section 4.5 No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by each of Kroger and Jobsite Holdings and the
Stock Option Agreements by Kroger does not, and the performance by each of
Kroger and Jobsite Holdings of its obligations hereunder and, in the case of
Kroger, thereunder and the consummation by each of Kroger and Jobsite Holdings
of the transactions contemplated hereby and, in the case of Kroger, thereby,
will not, (i) violate or conflict with the Kroger Articles of Incorporation or
the regulations of Kroger or the certificate of incorporation or bylaws of Fred
Meyer Holdings, (ii) subject to obtaining or making the notices, reports,
filings, waivers, consents, approvals or authorizations referred to in paragraph
(b) below, conflict with or violate any law, regulation, court order, judgment
or decree applicable to Kroger or any of its Subsidiaries or by which any of
their respective property is bound or affected or (iii) subject to obtaining the
approval and authorization of the stockholders of Kroger for the Merger and the
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issuance of shares of Kroger Common Stock in accordance with the terms hereof,
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, cancellation, vesting, modification, alteration or
acceleration of any obligation under, result in the creation of a lien, claim or
encumbrance on any of the properties or assets of Kroger or any of its
Subsidiaries pursuant to, result in the loss of any material benefit under
(including an increase in the price paid by, or cost to, Kroger or any of its
Subsidiaries), require the consent of any other party to, or result in any
obligation on the part of Kroger or any of its Subsidiaries to repurchase (with
respect to a bond or a note), any agreement, contract, instrument, bond, note,
indenture, permit, license or franchise to which Kroger or any of its
Subsidiaries is a party or by which Kroger, any of its Subsidiaries or any of
their respective property is bound or affected, except, in the case of clauses
(ii) and (iii) above, as would not, individually or in the aggregate, reasonably
be expected to have a Kroger Material Adverse Effect.
(b) Except for applicable requirements, if any, under the premerger
notification requirements of the HSR Act, the filing of a certificate of merger
with respect to the Merger as required by the DGCL, filings with the SEC under
the Securities Act and the Exchange Act, any filings required pursuant to any
state securities or "blue sky" laws, any filings required pursuant to any state
liquor, gaming or pharmacy laws, any applicable requirements of any
Environmental Laws governing the transfer of any interest in real property or of
business operations (including, without limitation, transfer acts, notifications
and deed restrictions), the transfer of application requirements with respect to
the environmental permits of Kroger or its Subsidiaries, filings or other
actions required pursuant to the rules and regulations of any stock exchange on
which the Kroger Shares are listed, and approval of stockholders required under
the OGCL or under the rules and regulations of the NYSE, neither Kroger nor any
of its Subsidiaries (including Jobsite Holdings) is required to submit any
notice, report or other filing with any Governmental Entity in connection with
the execution, delivery, performance or consummation of this Agreement, the
Stock Option Agreements or the Merger, except for such notices, reports or
filings that, if not made, would not, individually or in the aggregate,
reasonably be expected to have a Kroger Material Adverse Effect. Except as set
forth in the immediately preceding sentence, no waiver, consent, approval or
authorization of any Governmental Entity is required to be obtained by Kroger or
any of its Subsidiaries (including Jobsite Holdings) in connection with its
execution, delivery, performance or consummation of this Agreement, the Stock
Option Agreements or the transactions contemplated hereby and thereby except for
such waivers, consents, approvals or authorizations that, if not obtained or
made, would not, individually or in the aggregate, reasonably be expected to
have a Kroger Material Adverse Effect.
Section 4.6 SEC Reports; Financial Statements. (a) Kroger has filed all
forms, reports and documents (including all Exhibits, Schedules and Annexes
thereto) required to be filed by it with the SEC since January 1, 1995,
including any amendments or supplements (collectively, including any such forms,
reports and documents filed after this date, the "Kroger SEC Reports"), and,
with respect to the Kroger SEC Reports filed by Kroger after the date hereof and
prior to the Closing Date, will deliver or make available to Fred Meyer all of
its Kroger SEC Reports in the form filed with the SEC. The Kroger SEC Reports
(i) were (and any Kroger SEC Reports filed after this date will be) in all
material respects in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations promulgated
thereunder, and (ii) as of their respective filing dates, did not (and any
Kroger SEC Reports filed after this date will not) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(b) The financial statements, including all related notes and schedules,
contained in the Kroger SEC Reports (or incorporated therein by reference)
fairly present in all material respects (or, with respect to financial
statements contained in the Kroger SEC Reports filed after this date, will
fairly present in all material respects) the consolidated financial position of
Kroger and its consolidated subsidiaries as at the respective dates and the
consolidated results of operations, retained earnings and cash flows of Kroger
and its consolidated subsidiaries for the respective periods indicated, in each
case in accordance with GAAP applied on a consistent basis throughout the
periods involved (except for changes in accounting principles disclosed in the
notes) and the rules and regulations of the SEC, except with respect to interim
financial statements for normal year-end adjustments were not or are not
expected to be, as the case may be, individually or in the aggregate, material
in amount and
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did not or will not, as the case may be, include certain notes which may be
required by GAAP but which are not required by Form 10-Q of the SEC.
Section 4.7 Absence of Certain Changes. Except as disclosed in the Kroger
SEC Reports filed prior to this date, (a) since the end of Kroger's fiscal year
last ended, Kroger and each of its Subsidiaries has conducted its business in
all material respects in the ordinary and usual course of its business
consistent with past practice and there has not been any change in the financial
condition, business, prospects or results of operations of Kroger and its
Subsidiaries or any development or combination of developments that,
individually or in the aggregate, has had or would reasonably be expected to
have a Kroger Material Adverse Effect and (b) since the end of Kroger's fiscal
year last ended until this date, there has not been (i) any declaration, setting
aside or payment of any dividend or other distribution in respect of the capital
stock of Kroger; (ii) any change by Kroger to its accounting policies, practices
or methods; (iii) other than in the ordinary course of business consistent with
past practice, any material tax election made or changed, any audit settled or
any amended Tax Returns filed; (iv) any amendment or change to the terms of any
of its indebtedness material to Kroger and its Subsidiaries taken as a whole;
(v) any incurrence of any material indebtedness outside of the ordinary course
of business; (vi) outside the ordinary course of business, any transfer, lease,
license, sale, mortgage, pledge, encumbrance or other disposition of assets or
properties material to Kroger and its Subsidiaries taken as a whole; (vii) any
material damage, destruction or other casualty loss with respect to any asset or
property owned, leased or otherwise used by Kroger or its Subsidiaries material
to Kroger and its Subsidiaries taken as a whole, whether or not covered by
insurance; (viii) except in the ordinary course of business consistent with past
practice for employees other than executive officers or directors, or except as
required by applicable law or pursuant to a contractual obligation in effect as
of the date of this Agreement, (A) any execution, adoption or amendment of any
agreement or arrangement relating to severance or any employment or consulting
agreement with any officer, director or other key employee, or any amendment to
any Kroger Benefit Plan or adoption or execution of any new employee benefit
plan for the benefit of any officer, director or other key employee (including,
without limitation, the Kroger Benefit Plans referred to in Section 4.10) or (B)
any grant of any stock options or other equity related award; or (ix) any
agreement or commitment entered into with respect to any of the foregoing.
Section 4.8 Litigation and Liabilities. (a) Except as disclosed in the
Kroger SEC Reports filed prior to this date, there are no civil, criminal or
administrative actions, suits or claims, proceedings (including condemnation
proceedings) or, to the knowledge of Kroger, hearings or investigations, pending
or, to the knowledge of Kroger, threatened against Kroger or any of its
Subsidiaries or any of their respective properties and assets, except for any of
the foregoing which would not, individually or in the aggregate, reasonably be
expected to have a Kroger Material Adverse Effect.
(b) Neither Kroger nor any of its Subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) the existence of which would,
individually or in the aggregate, reasonably be expected to have a Kroger
Material Adverse Effect, except (i) liabilities described in the Kroger SEC
Reports filed with the SEC prior to the date hereof or reflected on the Kroger's
consolidated balance sheet (and related notes thereto) as of the end of its most
recently completed fiscal year filed in the Kroger SEC Reports or (ii)
liabilities permitted to be incurred pursuant to Section 5.2.
Section 4.9 No Violation of Law; Permits. The business of Kroger and each
of its Subsidiaries is being conducted in accordance with all applicable
statutes of law, ordinances, regulations, judgments, orders or decrees of any
Governmental Entity, and not in violation of any permits, franchises, licenses,
authorizations or consents granted by any Governmental Entity, and Kroger and
each of its Subsidiaries has obtained all permits, franchises, licenses,
authorizations or consents necessary for the conduct of its business, except, in
each case, as would not, individually or in the aggregate, reasonably be
expected to have a Kroger Material Adverse Effect. Neither Kroger nor any of its
Subsidiaries is subject to any cease and desist or other order, judgment,
injunction or decree issued by or is a party to any written agreement, consent
agreement or memorandum of understanding with, is a party to any commitment
letter or similar undertaking to, is subject to any order or directive by, or
has adopted any board resolutions at the request of, any Governmental Entity
that materially restricts the conduct of its business (whether the type of
business, the location or otherwise) and which, individually or in the
aggregate, would reasonably be expected to have a Kroger Material Adverse
Effect, nor to the knowledge of Kroger, has
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Kroger been advised in writing that any Governmental Entity has proposed issuing
or requesting any of the foregoing.
Section 4.10 Employee Matters; ERISA. (a) Set forth in the Kroger
Disclosure Letter is a complete list of each Kroger Benefit Plan and each Kroger
Multiemployer Plan. The term "Kroger Benefit Plan" shall mean (i) each plan,
program, policy, contract or agreement providing for compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind including, without limitation,
any "employee benefit plan," within the meaning of Section 3(3) of ERISA but
excluding any "multiemployer plan" within the meaning of Sections 3(37) or
4001(a)(3) of ERISA, and (ii) each employment, severance, consulting,
non-compete, confidentiality, or similar agreement or contract, in each case,
with respect to which Kroger or any Subsidiary of Kroger has or may have any
liability (accrued, contingent or otherwise). The term "Kroger Multiemployer
Plan" shall mean any "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA in respect to which Kroger or any Subsidiary of Kroger has
or may have any liability (accrued, contingent or otherwise).
(b) Kroger has provided or made available, or has caused to be provided or
made available, to Fred Meyer (i) current, accurate and complete copies of all
documents embodying each Kroger Benefit Plan, including all amendments, written
interpretations (which could be regarded as increasing the liabilities of Kroger
and its Subsidiaries taken as a whole under the relevant Kroger Benefit Plan)
and all trust or funding agreements with respect thereto; (ii) the most recent
annual actuarial valuation, if any, prepared for each Kroger Benefit Plan; (iii)
the most recent annual report (Series 5500 and all schedules thereto), if any,
required under ERISA in connection with each Kroger Benefit Plan or related
trust; (iv) the most recent determination letter received from the Internal
Revenue Service, if any, for each Kroger Benefit Plan and related trust which is
intended to satisfy the requirements of Section 401(a) of the Code; (v) if any
Kroger Benefit Plan is funded, the most recent annual and periodic accounting of
such Kroger Benefit Plan's assets; (vi) the most recent summary plan description
together with the most recent summary of material modifications, if any,
required under ERISA with respect to each Kroger Benefit Plan; and (vii) all
material communications to any one or more current, former or retired employee,
officer, consultant, independent contractor, agent or director of Kroger or any
Subsidiary of Kroger (each, an "Kroger Employee" and collectively, the "Kroger
Employees") relating to each Kroger Benefit Plan (which communication could be
interpreted as increasing the liabilities of Kroger and its Subsidiaries taken
as a whole under the relevant Kroger Benefit Plan).
(c) All Kroger Benefit Plans have been administered in all respects in
accordance with the terms thereof and all applicable laws except for violations
which, individually or in the aggregate, would not reasonably be expected to
have a Kroger Material Adverse Effect. Each Kroger Benefit Plan which is a
Pension Plan and which is intended to be qualified under Section 401(a) of the
Code (each, an "Kroger Pension Plan"), has received a favorable determination
letter from the Internal Revenue Service, and Kroger is not aware of any
circumstances that would reasonably be expected to result in the revocation or
denial of this qualified status. Except as otherwise set forth in the Kroger
Disclosure Letter or in the Kroger SEC Reports filed prior to this date, there
is no pending or, to Kroger's knowledge, threatened, claim, litigation,
proceeding, audit, examination or investigation relating to any Kroger Benefit
Plans or Kroger Employees that, individually or in the aggregate, would
reasonably be expected to have a Kroger Material Adverse Effect.
(d) No material liability under Title IV of ERISA has been or is reasonably
expected to be incurred by Kroger or any Subsidiaries of Kroger or any entity
which is considered a single employer with Kroger or any Subsidiary of Kroger
under Section 4001(a)(15) of ERISA or Section 414 of the Code (an "Kroger ERISA
Affiliate"). No notice of a "reportable event," within the meaning of Section
4043 of ERISA for which the 30-day reporting requirement has not been waived,
has been required to be filed for any Kroger Pension Plan within the past twelve
(12) months.
(e) All contributions, premiums and payments (other than contributions,
premiums or payments that are not material, in the aggregate) required to be
made under the terms of any Kroger Benefit Plan have been made. No Kroger
Pension Plan has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither
Kroger nor any Subsidiaries of Kroger nor any Kroger
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ERISA Affiliate has provided, or is required to provide, security to any Kroger
Pension Plan pursuant to Section 401(a)(29) of the Code.
(f) As of the Closing Date, neither Kroger, any Subsidiary of Kroger nor
any Kroger ERISA Affiliate will have incurred any withdrawal liability as
described in Section 4201 of ERISA for withdrawals that have occurred on or
prior to the Closing Date that has not previously been satisfied. Neither
Kroger, any Subsidiary of Kroger nor any Kroger ERISA Affiliate has knowledge
that any Kroger Multiemployer Plan fails to qualify under Section 401(a) of the
Code, is insolvent or is in reorganization within the meaning of Part 3 of
Subtitle E of Title IV of ERISA nor of any condition that would reasonably be
expected to result in a Kroger Multiemployer Plan becoming insolvent or going
into reorganization.
(g) The execution of, and performance of the transactions contemplated in,
this Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) (i) constitute an event under any Kroger Benefit Plan,
trust or loan that will or may result in any payment (whether of severance pay
or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any Kroger
Employee, or (ii) result in the triggering or imposition of any restrictions or
limitations on the right of Kroger or any Subsidiary of Kroger to amend or
terminate any Kroger Benefit Plan. No payment or benefit which will or may be
made by Kroger, any Subsidiary of Kroger or any of their respective affiliates
with respect to any Kroger Employee will be characterized as an "excess
parachute payment," within the meaning of Section 280G(b)(1) of the Code.
Section 4.11 Labor Matters. (a) Except as set forth in the Kroger SEC
Reports filed prior to this date and except for those matters that would not,
individually or in the aggregate, reasonably be expected to have a Kroger
Material Adverse Effect, no work stoppage, slowdown, lockout or labor strike
against Kroger or any Subsidiary of Kroger by Kroger Employees (or any union
that represents them) is pending or, to the knowledge of Kroger, threatened.
(b) Except as set forth in the Kroger SEC Reports filed prior to this date
and as, individually or in the aggregate, would not reasonably be expected to
have a Kroger Material Adverse Effect, as of the date of this Agreement, neither
Kroger nor any Subsidiary of Kroger is involved in or, to the knowledge of
Kroger, threatened with, any labor dispute, grievance, arbitration or union
organizing activity (by it or any of its employees) involving any Kroger
Employees.
Section 4.12 Environmental Matters. Except as set forth in Kroger's SEC
Reports filed prior to this date and except for those matters that would not,
individually or in the aggregate, reasonably be expected to have a Kroger
Material Adverse Effect:
(i) Kroger and each of its Subsidiaries is in compliance with all
applicable Environmental Laws, and neither Kroger nor any of its
Subsidiaries has received any written communication from any Person or
Governmental Entity that alleges that Kroger or any of its Subsidiaries is
not in compliance with applicable Environmental Laws.
(ii) Kroger and each of its Subsidiaries has obtained or has applied
for all Environmental Permits necessary for the construction of its
facilities or the conduct of its operations, and all those Environmental
Permits are in effect or, where applicable, a renewal application has been
timely filed and is pending agency approval, and Kroger and its
Subsidiaries are in compliance with all terms and conditions of such
Environmental Permits.
(iii) There is no Environmental Claim pending or, to the knowledge of
Kroger, threatened (i) against Kroger or any of its Subsidiaries, (ii)
against any Person whose liability for any Environmental Claim has been
retained or assumed contractually by Kroger or any of its Subsidiaries, or
(iii) against any real or personal property or operations which Kroger or
any of its Subsidiaries owns, leases or operates, in whole or in part.
(iv) There have been no Releases of any Hazardous Material that would
be reasonably likely to form the basis of any Environmental Claim against
Kroger or any of its Subsidiaries, or against any Person whose
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liability for any Environmental Claim has been retained or assumed
contractually by Kroger or any of its Subsidiaries.
(v) None of the properties owned, leased or operated by Kroger, its
Subsidiaries or any predecessor thereof are now, or were in the past,
listed on the National Priorities List of Superfund Sites or any analogous
state list (excluding easements that transgress those Superfund sites).
Section 4.13 Board Action; Vote Required. (a) Kroger's Board of Directors
has approved this Agreement, the Stock Option Agreements and the transactions
contemplated hereby and thereby, including the Merger, has determined that the
Merger is in the best interests of Kroger and its stockholders and has resolved
to recommend to its stockholders that they vote in favor of approving and
authorizing this Agreement and the Merger (including the issuance of shares of
Kroger Common Stock pursuant to the terms hereof). Neither Section 1704.02 of
the OGCL nor any other state takeover or similar statute or regulation applies
to the Merger, this Agreement, the Kroger Stock Option Agreement (including the
purchase of shares of Kroger Common Stock thereunder) or any of the transactions
contemplated hereby or thereby. The Board of Directors of Kroger has duly
adopted (and not withdrawn) a resolution rescinding any authorization previously
granted permitting Kroger to repurchase shares of Kroger Common Stock.
(b) The affirmative vote of the holders of a majority of the shares of
Kroger Common Stock present in person or by proxy at a duly convened and held
meeting of the stockholders of Kroger is necessary to approve the issuance by
Kroger of the shares of Kroger Common Stock pursuant to the terms hereof. The
affirmative vote of holders of Kroger Common Stock representing a majority of
the shares of Kroger Common Stock outstanding and entitled to vote thereon is
necessary to approve and authorize the Merger. Such votes are the only votes of
the holders of any class or series of Kroger's capital stock required in
connection with this Agreement and the transactions contemplated hereby.
Section 4.14 Opinion of Financial Advisor. Kroger or its Board of Directors
has received the opinion of Goldman, Sachs & Co. dated as of this date, to the
effect that, as of this date, the Exchange Ratio is fair from a financial point
of view to Kroger.
Section 4.15 Brokers. Set forth in the Kroger Disclosure Letter is a list
of each broker, finder or investment banker and other Person entitled to any
brokerage, finder's, investment banking or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Kroger or any of its Subsidiaries and the
expected amounts of such fees and commissions. Kroger has previously provided to
Fred Meyer copies of any agreements giving rise to any such fee or commission.
Section 4.16 Tax Matters. (a) All Tax Returns required to be filed by
Kroger or its Subsidiaries on or prior to the Effective Time have been or will
be prepared in good faith and timely filed with the appropriate Governmental
Entity on or prior to the Effective Time or by the due date thereof including
extensions and all such Tax Returns are (or as to Tax Returns not filed on the
date hereof, will be) complete and accurate in all material respects, except
where the failure to so file or to be complete and accurate would not,
individually or in the aggregate, reasonably be expected to be material and
except with respect to matters contested in good faith as set forth in the
Kroger Disclosure Letter.
(b) All material Taxes that are required to be paid either (i) have been
fully paid (except with respect to matters contested in good faith as set forth
in the Kroger Disclosure Letter) or (ii) are adequately reflected as a liability
on Kroger's or its Subsidiaries' books and records. All Taxes required to be
collected or withheld from third parties have been collected or withheld in all
material respects.
(c) With respect to any period for which Tax Returns have not yet been
filed, or for which Taxes are not yet due or owing, Kroger and its Subsidiaries
have made due and sufficient accruals for such Taxes in their respective books
and records and financial statements, except where the failure to so accrue
would not, individually or in the aggregate, reasonably be expected to be
material.
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(d) Kroger and each of its Subsidiaries have not waived any statute of
limitations, or agreed to any extension of time, with respect to federal income
or material state Taxes or a material Tax assessment or deficiency.
(e) As of this date, (i) there are not pending or, to the knowledge of
Kroger, threatened, any audits, examinations, investigations or other
proceedings in respect of Taxes or Tax matters and (ii) there are not any
unresolved questions or claims concerning Kroger's or any of its Subsidiaries'
Tax liability that (x) were raised by any Taxing authority in a communication to
Kroger or any Subsidiary and (y) would be, individually or in the aggregate,
material to Kroger and its Subsidiaries taken as a whole, after taking into
account any reserves for Taxes set forth on the most recent balance sheet
contained in the Kroger SEC Report filed prior to this date.
(f) Kroger has made available to Fred Meyer correct and complete copies of
the United States federal income and all material state income or franchise Tax
Returns filed by Kroger and its Subsidiaries for each of its fiscal years ended
on or about December 31, 1996 and 1997.
(g) Kroger has not distributed the stock of a "controlled corporation"
(within the meaning of that term as used in section 355(a) of the Code) in a
transaction subject to section 355 of the Code within the past two years.
Section 4.17 Intellectual Property. Neither Kroger nor any of its
Subsidiaries currently utilizes, or to the knowledge of the general counsel and
the members of the legal department of Kroger involved in intellectual property,
has in the past, utilized any existing or pending patent, trademark, trade name,
service mark, copyright, software, trade secret or know-how, except for those
which are owned, possessed or lawfully used by Kroger or its Subsidiaries in
their business operations, and neither Kroger nor any of its Subsidiaries
infringes upon or unlawfully uses any patent, trademark, trade name, service
mark, copyright or trade secret owned or validly claimed by another Person
except, in each case, as would not, individually or in the aggregate, reasonably
be expected to have a Kroger Material Adverse Effect. Kroger and its
Subsidiaries own or have a valid license to use or have the right validly to use
all existing and pending patents, trademarks, tradenames, service marks,
copyrights and software necessary to carry on their respective businesses
substantially as currently conducted except the failure of which to own, or
validly license, or have the right to validly use individually or in the
aggregate, would not reasonably be expected to have a Kroger Material Adverse
Effect.
Section 4.18 Insurance. Except to the extent adequately accrued on the most
recent balance sheet contained in the Kroger SEC Reports filed as of this date,
neither Kroger nor its Subsidiaries has any obligation (contingent or otherwise)
to pay in connection with any insurance policies any retroactive premiums or
"retro premiums" that, individually in the aggregate, would reasonably be
expected to have, a Kroger Material Adverse Effect.
Section 4.19 Contracts and Commitments. Set forth in the Kroger Disclosure
Letter is a complete and accurate list of all of the following contracts
(written or oral), plans, undertakings, commitments or agreements ("Kroger
Contracts") to which Kroger or any of its Subsidiaries is a party or by which
any of them is bound as of the date of this Agreement.
(a) each distribution, supply, inventory purchase, franchise, license,
sales, agency or advertising contract involving annual expenditures or
liabilities in excess of $30,000,000 which is not cancelable (without material
penalty, cost or other liability) within one year;
(b) each promissory note, loan, agreement, indenture, evidence of
indebtedness or other instrument providing for the lending of money, whether as
borrower, lender or guarantor, in excess of $20,000,000;
(c) each contract, lease, agreement, instrument or other arrangement
containing any "radius clause" applicable to markets in which Fred Meyer has
operations;
(d) each joint venture or partnership agreement pursuant to which any third
party is entitled to develop any property and/or facility on behalf of Kroger or
any of its Subsidiaries material to Kroger and its Subsidiaries taken as a
whole;
(e) any contract that would constitute a "material contract" (as such term
is defined in Item 601(b)(10) of Regulation S-K of the SEC); and
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(f) except as would not reasonably be expected to have, individually or in
the aggregate, a Kroger Material Adverse Effect, each contract, lease,
agreement, plan (including Kroger Benefit Plans), instrument, note, indenture or
other arrangement to which Kroger or any of its Subsidiaries is a party or
otherwise bound under the terms of which any of the rights or obligations of a
party thereto (or any other Person who has rights or obligations thereunder) may
be terminated, accelerated, vested, modified or altered as a result of the
execution and delivery of this Agreement and the Stock Option Agreement, the
performance by the parties of their obligations hereunder or thereunder or
consummation of the transactions contemplated hereby and thereby;
Correct and complete copies of the written Kroger Contracts, as amended to
date, that would be required to be filed as exhibits to Kroger's Form 10-K if
such Form 10-K were being filed on the date hereof, that have not been filed
prior to this date as Exhibits to the Kroger SEC Reports have been delivered or
made available to Fred Meyer.
Each Kroger Contract is valid and binding on Kroger and any Subsidiary of
Kroger which is a party thereto and, to the knowledge of Kroger, each other
party thereto and is in full force and effect, and Kroger and its Subsidiaries
have performed and complied with all obligations required to be performed or
compiled with by them under each Kroger Contract, except in each case as would
not, individually or in the aggregate, reasonably be expected to have a Kroger
Material Adverse Effect.
Section 4.20 Accounting and Tax Matters. Neither Kroger nor any of its
affiliates has taken or agreed to take any action, nor does Kroger have any
knowledge of any fact or circumstance with respect to Kroger or Merger Sub, that
would prevent the business combination to be effected pursuant to the Merger
from being accounted for as a "pooling-of-interests" under GAAP or the rules and
regulations of the SEC or prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368 of the Code.
Section 4.21 Ownership of Shares of Fred Meyer. Kroger and its Subsidiaries
do not beneficially own (as defined in Rule 13d-3 under the Exchange Act) any
capital stock or other equity securities of Fred Meyer or any Fred Meyer Equity
Rights other than the Fred Meyer Stock Option Agreement.
Section 4.22 Rights Agreement. No "Distribution Date" or "Stock Acquisition
Date" (as such terms are defined in the Rights Agreement, dated as of April 4,
1997, between Kroger and The Bank of New York, as Rights Agent (the "Kroger
Rights Agreement")) has occurred as of this date. The execution and delivery of
this Agreement and the Kroger Stock Option Agreement and the consummation of the
transactions contemplated hereby and thereby will not result in the ability of
any Person to exercise any rights ("Kroger Rights") issued under the Kroger
Rights Agreement or cause the Kroger Rights to separate from the shares of
Kroger Common Stock to which they are attached or to be triggered or become
exercisable.
Section 4.23 Year 2000 Compliance. The software and hardware operated by
Kroger and its Subsidiaries are capable of providing or are being adapted to
provide uninterrupted millennium functionality to record, store, process and
present calendar dates falling on or after January 1, 2000 and date-dependent
data in substantially the same manner and with the same functionality as such
software records, stores, processes and presents such calendar dates and
date-dependent data as of the date hereof, except as would not have a Kroger
Material Adverse Effect. To the knowledge of the executive officers of Kroger,
the ability of Kroger's significant suppliers, customers and others with which
it conducts business to identify and resolve their own Year 2000 issues will not
have a Kroger Material Adverse Effect. Prior to the date hereof, Kroger has
discussed with Fred Meyer and its advisors the material steps that it and its
Subsidiaries have taken to become Year 2000 compliant and the costs Kroger
expects to incur in connection therewith.
ARTICLE V
Section 5.1 Interim Operations of Fred Meyer. Fred Meyer covenants and
agrees as to itself and its Subsidiaries that, after this date and prior to the
Effective Time (unless Kroger shall otherwise approve in writing,
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or unless as otherwise expressly contemplated by this Agreement or disclosed in
the Fred Meyer Disclosure Letter):
(i) the business of Fred Meyer and its Subsidiaries shall be conducted
in all material respects in the ordinary and usual course and, to the
extent consistent therewith, each of Fred Meyer and its Subsidiaries shall
use its reasonable best efforts to preserve its business organization
intact in all material respects, keep available the services of its
officers and employees as a group (subject to changes in the ordinary
course) and maintain its existing relations and goodwill in all material
respects with customers, suppliers, regulators, distributors, creditors,
lessors, and others having business dealings with it;
(ii) Fred Meyer shall not issue, deliver, grant or sell any additional
shares of Fred Meyer Common Stock or any Fred Meyer Equity Rights (other
than (x) the issuance, delivery, grant or sale of shares of Fred Meyer
Common Stock or Fred Meyer Equity Rights pursuant to the exercise or
conversion of Fred Meyer Equity Rights outstanding as of this date or
pursuant to the exercise of New Fred Meyer Options (as defined), and (y) if
the Merger is not consummated by April 30, 1999, the issuance or delivery
of Fred Meyer options (the "New Fred Meyer Options") to Fred Meyer
Employees at the vice president level or below, exercisable, in the
aggregate, for no more than 1,500,000 shares of Fred Meyer Common Stock (it
being understood that (A) these options shall have a vesting schedule
substantially similar to the vesting schedule that was applicable to the
options granted by Fred Meyer to this same group of employees in 1998 and
(B) the vesting of these options shall not accelerate by reason of the
consummation of the Merger including upon termination of employment
following the consummation of the Merger);
(iii) Fred Meyer shall not (A) amend the Fred Meyer Certificate of
Incorporation or Bylaws, or adopt any stockholders rights plan or enter
into any agreement with any of its stockholders in their capacity as such;
(B) split, combine, subdivide or reclassify its outstanding shares of
capital stock; (C) declare, set aside or pay any dividend or distribution
payable in cash, stock or property in respect of any of its capital stock;
or (D) repurchase, redeem or otherwise acquire or permit any of its
Subsidiaries to purchase, redeem or otherwise acquire, any shares of its
capital stock or any Fred Meyer Equity Rights (it being understood that
this provision shall not prohibit the exercise (cashless or otherwise) of
options);
(iv) neither Fred Meyer nor any of its Subsidiaries shall take any
action that to the knowledge of Fred Meyer would prevent the business
combination to be effected pursuant to the Merger from qualifying for
"pooling of interests" accounting treatment under GAAP and the rules and
regulations of the SEC, or would prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368 of the Code or take any
action that it knows would cause any of its representations and warranties
in this Agreement to become inaccurate in any material respect;
(v) except as otherwise expressly permitted by this Agreement, and
except as required by applicable law or pursuant to contractual obligations
in effect on this date; Fred Meyer shall not, and shall not permit its
Subsidiaries to, (A) enter into, adopt or amend (except for renewals on
substantially identical terms) any agreement or arrangement relating to
severance, (B) enter into, adopt or amend (except for renewals on
substantially identical terms) any employee benefit plan or employment or
consulting agreement (including, without limitation, the Fred Meyer Benefit
Plans referred to in Section 3.10); or (C) grant any stock options or other
equity related awards;
(vi) except for (A) borrowings under lines of credit as existing as of
the date hereof, (B) any amendments, renewals, replacements or extensions
of such lines of credit that will not increase the aggregate amount of
borrowing permitted thereunder, so long as the amendment, renewal,
replacement or extension could not reasonably be expected to interfere with
or delay (in any material respect) the consummation of the Merger
(including, without limitation, by delaying in any material respect the
receipt of any necessary Consent, requiring receipt of any additional
Consent not theretofore required in connection with the Merger or creating
any potential material impediment under any antitrust, competition or trade
regulation law), (C) the issuance and roll-over of commercial paper and (D)
the issuance of medium term notes with a maturity date not later than 364
days from the date of issuance to renew, replace or refinance existing
indebtedness, in each case in the ordinary course of business, neither Fred
Meyer nor any of its Subsidiaries shall issue, incur or amend the terms of
any indebtedness for borrowed money or guarantee any such
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indebtedness (other than indebtedness of Fred Meyer or any wholly-owned
Subsidiary thereof); provided, however, that from and after January 2,
1999, the aggregate outstanding indebtedness for borrowed money of Fred
Meyer and its Subsidiaries shall not exceed the sum of (i) $100,000,000 and
(ii) the aggregate outstanding indebtedness for borrowed money of Fred
Meyer and its Subsidiaries as of the date hereof;
(vii) in each of fiscal 1998 and fiscal 1999, neither Fred Meyer nor
any of its Subsidiaries shall make any capital expenditures in excess of
the aggregate amount reflected in the capital expenditure budget for that
fiscal year, a copy of which budget is attached to the Fred Meyer
Disclosure Letter;
(viii) other than in the ordinary course of business consistent with
past practice, neither Fred Meyer nor any of its Subsidiaries shall
transfer, lease, license, sell, mortgage, pledge, encumber or otherwise
dispose of any of its or its Subsidiaries' property or assets (including
capital stock of any of its Subsidiaries) material to Fred Meyer and its
Subsidiaries taken as a whole, except pursuant to contracts existing as of
this date (the terms of which have been previously disclosed to Kroger);
(ix) none of Fred Meyer's Subsidiaries shall issue, deliver, sell or
encumber shares of any class of its capital stock or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, except any such shares issued pursuant to options and other awards
outstanding on this date under Fred Meyer Benefit Plans;
(x) neither Fred Meyer nor any of its Subsidiaries shall acquire any
business, including any stores or other facilities, whether by merger,
consolidation, purchase of property or assets or otherwise, except to the
extent provided for in the capital expenditure budget attached to the Fred
Meyer Disclosure Letter in respect of any twelve month period after this
date;
(xi) Fred Meyer shall not change its accounting policies, practices or
methods except as required by GAAP or by the rules and regulations of the
SEC;
(xii) other than pursuant to this Agreement, Fred Meyer shall not, and
shall not permit any of its Subsidiaries to, take any action to cause Fred
Meyer Shares to cease to be listed on the NYSE;
(xiii) Fred Meyer shall not, and shall not permit any of its
Subsidiaries to, enter into any Fred Meyer Contract described in clauses
(a), (c) and (d) of Section 3.19, or amend any distribution, supply,
inventory, purchase, franchise, license, sales agency or advertising
contract such that annual expenditures or annual commitments thereunder
increase by more than $30,000,000 and Fred Meyer's inability to cancel or
terminate such contract is extended by more than six months, but in no
event to a date later than June 30, 1999;
(xiv) Fred Meyer shall not change or, other than in the ordinary
course of business, make any material Tax election, settle any audit or Tax
controversy in an amount in excess of $2,000,000 or file any amended Tax
Returns that provide for additional tax liabilities in an amount in excess
of $2,000,000, without the consent of Kroger, which consent shall not be
unreasonably withheld (and, with respect to the matters referenced on
Schedule 3.16(b)(i), (x) Kroger shall have the right to participate in any
proceedings, relating thereto, (y) Fred Meyer shall promptly inform Kroger
of all material developments and proceedings and provide Kroger with copies
of all relevant documents related to such developments or proceedings, and
(z) Fred Meyer shall provide Kroger the opportunity to review and comment
on any submission to a Taxing authority by providing a draft copy of such
submission to Kroger as soon as practicable so as to allow Kroger a
reasonable opportunity to review and comment under the circumstances); or
(xv) Fred Meyer shall not enter into, or permit any of its
Subsidiaries to enter into, any commitments or agreements to do any of the
foregoing.
Section 5.2 Interim Operations of Kroger. Kroger covenants and agrees as to
itself and its Subsidiaries that, after this date and prior to the Effective
Time (unless Fred Meyer shall otherwise approve in writing and except as
otherwise expressly contemplated by this Agreement or disclosed in the Kroger
Disclosure Letter):
(i) the business of Kroger and its Subsidiaries shall be conducted in
all material respects in the ordinary and usual course and to the extent
consistent therewith, each of Kroger and its Subsidiaries shall use its
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reasonable best efforts to preserve its business organization intact in all
material respects, keep available the services of its executive officers
and employees as a group (subject to changes in the ordinary course) and
maintain its existing relationships and goodwill in all material respects
with customers, suppliers, regulators, distributors, creditors, lessors and
others having business dealings with it; provided, however, that nothing
contained in this clause (i) shall prohibit Kroger from acquiring, or
exploring the acquisition of, any retail business, including any stores or
facilities, whether by merger, consolidation, purchase of property or
assets or otherwise, if the acquisition could not reasonably be expected to
interfere with or delay (in any material respect) the consummation of the
Merger (including, without limitation, by delaying in any material respect
the receipt of any necessary Consent, requiring receipt of any additional
material Consent not theretofore required in connection with the Merger or
creating any potential material impediment under any antitrust, competition
or trade regulation law);
(ii) Kroger shall not issue, deliver, grant or sell any additional
shares of Kroger Common Stock or any Kroger Equity Rights, (other than the
issuance, delivery, grant or sale of shares of Kroger Common Stock or
Kroger Equity Rights (w) pursuant to a stock split or stock dividend, (x)
in the ordinary course of business consistent with past practice pursuant
to Kroger Benefit Plans, (y) pursuant to the exercise or conversion of
Kroger Equity Rights outstanding as of the date hereof or issued by Kroger
after the date hereof in accordance with subclauses (x) and (z) of this
clause (ii) and (z) representing, in the aggregate (but not including
shares of Kroger Common Stock or Kroger Equity Rights issued, delivered,
granted or sold pursuant to subclauses (w), (x) and (y) hereof), not more
than such number of shares of Kroger Common Stock as would represent 15% of
the Kroger Common Stock outstanding on the date hereof;
(iii) Kroger shall not (A) amend the Kroger Articles of Incorporation
or its regulations or amend the Kroger Rights Agreement or redeem the
Kroger Rights; (B) reclassify its outstanding shares of capital stock; (C)
declare, set aside or pay any dividend or distribution payable in cash,
stock or property in respect of any of its capital stock; or (D)
repurchase, redeem or otherwise acquire or permit any of its Subsidiaries
to purchase, redeem or otherwise acquire, any shares of its capital stock
or any Kroger Equity Rights (it being understood that this provision shall
not prohibit the exercise (cashless or otherwise) of options);
(iv) neither Kroger nor any of its Subsidiaries shall take any action
that to the knowledge of Kroger would prevent the business combination to
be effected pursuant to Merger from qualifying for "pooling of interests"
accounting treatment under GAAP and the rules and regulations of the SEC,
or would prevent the Merger from qualifying as a "reorganization" within
the meaning of Section 368 of the Code or take any action that it knows
would cause any of its representations and warranties herein to become
inaccurate in any material respect;
(v) Kroger shall not change its accounting policies, practices or
methods except as required by GAAP or by the rules and regulations of the
SEC;
(vi) other than in the ordinary course of business consistent with
past practice, neither Kroger nor any of its Subsidiaries shall transfer,
lease, license, sell or otherwise dispose of any of its or its
Subsidiaries' property or assets (including capital stock of any of its
Subsidiaries) material to Kroger and its Subsidiaries taken as a whole,
except pursuant to contracts existing as of the date hereof (the terms of
which have been previously disclosed to Fred Meyer) and except for any sale
or disposition of assets in a single transaction or series of integrally
related sales or dispositions the proceeds of which have a fair market
value of not more than $1,000,000,000;
(vii) Kroger shall not, and shall not permit any of its Subsidiaries
to, take any action to cause the shares of its common stock to cease to be
listed on the NYSE; or
(viii) Kroger shall not enter into, or permit any of its Subsidiaries
to enter into, any commitments or agreements to do any of the foregoing.
Section 5.3 No Solicitation by Fred Meyer. (a) Fred Meyer shall immediately
cease and terminate any existing solicitation, initiation, encouragement,
activity, discussion or negotiation with any Persons conducted heretofore by
Fred Meyer, its Subsidiaries or any of their respective Representatives (as
defined) with respect to any proposed, potential or contemplated Fred Meyer
Acquisition Transaction (as defined).
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(b) From and after this date, without the prior written consent of Kroger,
Fred Meyer will not, will not authorize or permit any of its Subsidiaries to,
and shall use its reasonable best efforts to cause any of its or their
respective officers, directors, employees, financial advisors, agents or
representatives (each a "Representative") not to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) or
take any other action to facilitate any inquiries or the making of any proposal
which constitutes or may reasonably be expected to lead to a Fred Meyer
Acquisition Proposal (as defined) from any Person, or engage in any discussion
or negotiations relating thereto or accept any Fred Meyer Acquisition Proposal.
Nothing contained in this Agreement shall prohibit Fred Meyer from complying
with Rule 14e-2 promulgated under the Exchange Act with regard to a tender or
exchange offer or from making any other disclosures to its stockholders to the
extent required by law.
(c) Fred Meyer shall notify Kroger orally and in writing of any such
inquiries, offers or proposals (including, without limitation, the terms and
conditions of any such offers or proposals, any amendments or revisions, and the
identity of the Person making it), as promptly as practicable following the
receipt, and shall keep Kroger reasonably informed of the status and material
terms of any such inquiry, offer or proposal. For purposes of this Agreement,
"Fred Meyer Acquisition Proposal" shall mean, with respect to Fred Meyer, any
inquiry, proposal or offer from any Person (other than Kroger or any of its
Subsidiaries) relating to any (i) direct or indirect acquisition or purchase of
a business of Fred Meyer or any of its Subsidiaries, that constitutes 15% or
more of the consolidated net revenues, net income or assets of Fred Meyer and
its Subsidiaries, (ii) direct or indirect acquisition or purchase of 15% or more
of any class of equity securities of Fred Meyer or any of its Subsidiaries whose
business constitutes 15% or more of the consolidated net revenues, net income or
assets of Fred Meyer and its Subsidiaries, (iii) tender offer or exchange offer
that if consummated would result in any person beneficially owning 15% or more
of the capital stock of Fred Meyer, or (iv) merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Fred Meyer or any of its Subsidiaries whose business constitutes 15%
or more of the consolidated net revenues, net income or assets of Fred Meyer and
its Subsidiaries. Each of the transactions referred to in clauses (i)-(iv) of
the definition of Fred Meyer Acquisition Proposal, other than any such
transaction to which Kroger or any of its Subsidiaries is a party, is referred
to as an "Fred Meyer Acquisition Transaction".
(d) Neither the Board of Directors of Fred Meyer nor any committee thereof
shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Kroger, the approval or recommendation by such Board of
Directors of this Agreement or the Merger (subject to the Board of Directors of
Fred Meyer concluding in good faith, after considering applicable provisions of
state law, and after consultation with outside counsel, that withdrawal or
modification of its approval or recommendation of the Agreement and the Merger
is required for it to act in a manner consistent with its fiduciary duties under
applicable law), (ii) approve or recommend, or propose publicly to approve or
recommend, any Fred Meyer Acquisition Proposal or Fred Meyer Acquisition
Transaction or (iii) cause Fred Meyer to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement related
to any Fred Meyer Acquisition Proposal or Fred Meyer Acquisition Transaction.
Section 5.4 No Solicitation by Kroger. (a) Kroger shall immediately cease
and terminate any existing solicitation, initiation, encouragement, activity,
discussion or negotiation with any Persons conducted heretofore by Kroger, its
Subsidiaries or any of their respective Representatives with respect to any
proposed, potential or contemplated Kroger Acquisition Transaction (as defined).
(b) From and after this date, without the prior written consent of Fred
Meyer, Kroger will not, will not authorize or permit any of its Subsidiaries to,
and will not authorize any of its or their respective Representatives to, and
shall use reasonable best efforts to cause its Representatives not to, directly
or indirectly, solicit, initiate or encourage (including by way of furnishing
information) or take any other action to facilitate any inquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to a
Kroger Acquisition Proposal (as defined) from any Person, or engage in any
discussion or negotiations relating thereto or accept any Kroger Acquisition
Proposal. Nothing contained in this Agreement shall prohibit Kroger from
complying with Section 1701.831 of the OGCL or Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer or from making any other
disclosure to its stockholders to the extent required by law.
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(c) Kroger shall notify Fred Meyer orally and in writing of any such
inquiries, offers or proposals (including, without limitation, the terms and
conditions of any such offers or proposals, any amendments or revisions, and the
identity of the Person making it), as promptly as practicable following the
receipt, and shall keep Fred Meyer reasonably informed of the status and
material terms of any such inquiry, offer or proposal. For purposes of this
Agreement, "Kroger Acquisition Proposal" shall mean, with respect to Kroger, any
inquiry, proposal or offer from any Person (other than Fred Meyer or any of its
Subsidiaries) relating to any (i) direct or indirect acquisition or purchase of
a business of Kroger or any of its Subsidiaries, that constitutes 15% or more of
the consolidated net revenues, net income or assets of Kroger and its
Subsidiaries, (ii) direct or indirect acquisition or purchase of 15% or more of
any class of equity securities of Kroger or any of its Subsidiaries whose
business constitutes 15% or more of the consolidated net revenues, net income or
assets of Kroger and its Subsidiaries, (iii) tender offer or exchange offer that
if consummated would result in any person beneficially owning 15% or more of the
capital stock of Kroger, or (iv) merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Kroger or any of its Subsidiaries whose business constitutes 15% or more of the
consolidated net revenues, net income or assets of Kroger and its Subsidiaries.
Each of the transactions referred to in clauses (i)-(iv) of the definition of
Kroger Acquisition Proposal, other than any such transaction to which Fred Meyer
or any of its Subsidiaries is a party, is referred to as a "Kroger Acquisition
Transaction;" provided, however, that a Kroger Acquisition Transaction does not
include a transaction permitted pursuant to the proviso to Section 5.2 (i) as
long as such transaction is not reasonably expected to interfere with or delay
(in any material respect) the consummation of the Merger.
(d) Neither the Board of Directors of Kroger nor any committee shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Fred Meyer, the approval or recommendation by such Board of Directors
of this Agreement or the Merger (subject to the Board of Directors of Kroger
concluding in good faith, after considering applicable provisions of state law,
and after consultation with outside counsel, that withdrawal or modification of
its approval or recommendation of the Agreement and the Merger is required for
it to act in a manner consistent with its fiduciary duties under applicable
law), (ii) approve or recommend, or propose publicly to approve or recommend,
any Kroger Acquisition Proposal or Kroger Acquisition Transaction or (iii) cause
Kroger to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any Kroger Acquisition Proposal
or Kroger Acquisition Transaction.
Section 5.5 Charitable Contribution. Prior to the Effective Time, with the
consent of Kroger, Fred Meyer may make a charitable donation of up to a total of
$20,000,000 to The Fred Meyer Foundation and the Ralphs/ Food 4 Less Foundation
(the "Charitable Contribution"). To the extent the Charitable Contribution is
not made in full prior to the Effective Time, the balance of the Charitable
Contribution will be made by Kroger within seven years of the Effective Time.
Other than the Charitable Contribution, prior to the Effective Time, neither
Fred Meyer nor its Subsidiaries shall make any charitable contribution other
than in the ordinary course of business consistent with past practice.
ARTICLE VI
Section 6.1 Meetings of Stockholders. Each of the Parties will take all
action necessary in accordance with applicable law and its certificate of
incorporation and bylaws, or articles of incorporation and regulations, as the
case may be, to convene a meeting of its stockholders as promptly as practicable
to consider and vote upon the approval and authorization of this Agreement and
the Merger, and, in the case of Kroger, the issuance of shares of Kroger Common
Stock in accordance with the terms of this Agreement. The Board of Directors of
each Party shall recommend this approval and authorization, subject to Section
5.3(d)(i) or Section 5.4(d)(i), as the case may be. Each of the Parties shall
take all lawful action to solicit such approval and authorization including,
without limitation, timely mailing the Proxy Statement/Prospectus (as defined).
The Parties shall coordinate and cooperate with respect to the timing of such
meetings and shall use their reasonable best efforts to hold such meetings on
the same day.
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Section 6.2 Filings Best Efforts
(a) Subject to the terms and conditions in this Agreement Fred Meyer and
Kroger shall:
(i) within 20 business days from this date, make their respective
filings under the HSR Act with respect to the Merger and thereafter shall
promptly make any other required submissions under the HSR Act;
(ii) use their reasonable best efforts to cooperate with one another
in (i) determining which filings are required to be made prior to the
Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from
Governmental Entities of the United States and the several states in
connection with the execution and delivery of this Agreement and the
consummation of the Merger and the transactions contemplated hereby; (ii)
timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations; and (iii) as promptly as practicable
responding to any request for information from such Governmental Entities;
(iii) subject to any restrictions under the antitrust laws, to the
extent practicable, promptly notify each other of any communication to that
party from any Governmental Entity with respect to this Agreement and the
transactions contemplated hereby, and permit the other party to review in
advance any proposed written communication to any Governmental Entity;
(iv) not agree to participate in any meeting with any Governmental
Entity in respect of any filings, investigation or other inquiry with
respect to this Agreement and the transactions contemplated hereby, unless
it consults with the other party in advance and, to the extent permitted by
such Governmental Entity, gives the other party the opportunity to attend
and participate thereat, in each case to the extent practicable;
(v) subject to any restrictions under the antitrust laws, furnish the
other party with copies of all correspondence, filings, and communications
(and memoranda setting forth the substance thereof) between them and their
affiliates and their respective representatives on the one hand, and any
Governmental Entity or members or its staffs on the other hand, with
respect to this Agreement and the transactions contemplated hereby
(excluding documents and communications which are subject to preexisting
confidentiality agreements and to attorney client privilege); and
(vi) furnish the other party with such necessary information and
reasonable assistance as such other Party and its affiliates may reasonably
request in connection with their preparation of necessary filings,
registrations, or submissions of information to any Governmental Entities
in connection with this Agreement and the transactions contemplated hereby,
including without limitation, any filings necessary or appropriate under
the provisions of the HSR Act.
(b) Without limiting Section 6.2(a), Kroger and Fred Meyer shall:
(i) each use its reasonable best efforts to avoid the entry of, or to
have vacated or terminated, any decree, order, or judgment that would
restrain, prevent or delay the Closing, on or before September 30, 1999,
including without limitation defending through litigation on the merits any
claim asserted in any court by any party; and
(ii) each take any and all steps necessary to avoid or eliminate each
and every impediment under any antitrust, competition or trade regulation
law that may be asserted by any Governmental Entity with respect to the
Merger so as to enable the Closing to occur as soon as reasonably possible
(and in any event no later than September 30, 1999), including, without
limitation, proposing, negotiating, committing to and effecting, by consent
decree, hold separate order, or otherwise, the sale, divestiture or
disposition of such assets or businesses of Kroger or Fred Meyer (or any of
their respective subsidiaries) or otherwise take or commit to take any
actions that limits its freedom of action with respect to, or its ability
to retain, any of the businesses, product lines or assets of Kroger, Fred
Meyer or their respective Subsidiaries, as may be required in order to
avoid the entry of, or to effect the dissolution of, any injunction,
temporary restraining order, or other order in any suit or proceeding,
which would otherwise have the effect of preventing or delaying the
Closing. At the request of Kroger, Fred Meyer shall agree to divest, hold
separate, or otherwise take or commit to take any action that limits its
freedom of action with respect to, or its ability to retain, any of the
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businesses, product lines or assets of Fred Meyer or any of its
Subsidiaries, provided that any such action is conditioned upon the
consummation of the Merger. Fred Meyer agrees and acknowledges that, in
connection with any filing or submission required, action to be taken or
commitment to be made by Kroger, Fred Meyer or any of its respective
Subsidiaries to consummate the Merger or other transactions contemplated in
this Agreement, neither Fred Meyer nor any of its Subsidiaries shall,
without Kroger's prior written consent, divest any assets, commit to any
divestiture or assets or businesses of Fred Meyer and its subsidiaries or
take any other action or commit to take any action that would limit Fred
Meyer's, Kroger's or any of their subsidiaries freedom of action with
respect to, or their ability to retain any of their businesses, product
lines or assets.
Notwithstanding the foregoing, (x) nothing in this Agreement shall require
Kroger to agree to the sale, transfer, divestiture or other disposition of
stores of Kroger, Fred Meyer or any of their subsidiaries having aggregate gross
annual sales for the 1997 fiscal year in excess of 7% of the combined gross
annual sales of Fred Meyer and its subsidiaries taken as a whole for such
period, and (y) other than the sale, transfer, divestiture or other disposition
of stores having revenues up to the gross annual sales referenced in clause (x)
of this paragraph (b), neither party shall be required to take any actions or
make any commitments or agreements pursuant to paragraph (b)(ii) above, if the
taking of such action or the making of any commitments or the consequences
thereof, individually or in the aggregate, would be reasonably likely to have a
Kroger Material Adverse Effect. Any actions taken by Kroger or Fred Meyer to
comply with their respective obligations under Section 6.2(b)(ii), including a
decision by Kroger to waive any of the provisions of this paragraph, shall not
be considered to constitute or result in a Kroger Material Adverse Effect or a
Fred Meyer Material Adverse Effect, as applicable.
(c) If any "fair price," "moratorium," "control share acquisition" or
similar anti-takeover statute or regulation is or may become applicable to the
Merger, each Party and its Boards of Directors shall grant such approvals and
take such actions as are necessary so that the Merger may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise act to eliminate or minimize the effects of such statute or regulation
on such transactions.
Section 6.3 Publicity. The Parties agree that the initial press release
with respect to the Merger shall be a joint press release. Thereafter, subject
to their respective legal obligations (including requirements of stock exchanges
and other similar regulatory bodies), the Parties shall consult with each other
before issuing any such press release or otherwise making public statements with
respect to the Merger.
Section 6.4 Registration Statement. The Parties shall cooperate and
promptly prepare, and Kroger shall file with the SEC as soon as practicable, a
Registration Statement on Form S-4 (the "Form S-4") under the Securities Act
with respect to the Kroger Common Stock issuable in the Merger, a portion of
which Registration Statement shall also serve as the joint proxy
statement/prospectus with respect to the meetings of the stockholders of each of
the Parties in connection with the Merger (the "Proxy Statement/Prospectus").
The Parties will cause the Proxy Statement/Prospectus and the Form S-4 to comply
as to form in all material respects with the applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations thereunder.
Kroger shall use its reasonable best efforts to, and Fred Meyer will cooperate
with Kroger to, have the Form S-4 declared effective by the SEC as promptly as
practicable. Kroger shall use its reasonable best efforts to obtain, prior to
the effective date of the Form S-4, all necessary state securities law or "blue
sky" permits or approvals required to carry out the Merger (provided that Kroger
shall not be required to qualify to do business in any jurisdiction in which it
is not now so qualified). Each of the Parties agree that the information
provided by it for inclusion in the Proxy Statement/Prospectus and each
amendment or supplement thereto, at the time of mailing thereof, at the time of
the respective meetings of stockholders of the Parties, and at the time it is
filed or becomes effective, will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
Section 6.5 Authorized Shares; Listing Application. As soon as practicable
after the execution of the Agreement, Kroger shall file an amendment to the
Kroger Articles of Incorporation to reflect stockholder approval of an amendment
to the Kroger Articles of Incorporation increasing the number of authorized
shares of
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Kroger Common Stock from 350,000,000 to 1,000,000,000. Kroger shall as soon as
reasonably practicable prepare and submit to the NYSE and all other securities
exchanges on which the shares of Kroger Common Stock are listed a listing
application with respect to the shares of Kroger Common Stock issuable in the
Merger, and shall use its reasonable best efforts to obtain, prior to the
Effective Time, approval for the listing of such Kroger Common Stock on such
exchanges, subject to official notice of issuance.
Section 6.6 Further Action. Each of the Parties shall, subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth in this Agreement or the waiver thereof, use its
reasonable best efforts to perform those further acts and execute those
documents as may be reasonably required to effect the transactions contemplated
hereby. Each of the Parties will comply in all material respects with all
applicable laws and with all applicable rules and regulations of any
Governmental Entity in connection with its execution, delivery and performance
of this Agreement and the Stock Option Agreements and the transactions
contemplated hereby and thereby. Each of the Parties agrees to use its
reasonable best efforts to obtain in a timely manner all necessary waivers,
consents, approvals and opinions and to effect all necessary registrations and
filings, and to use its reasonable best efforts to take, or cause to be taken,
all other actions and to do, or cause to be done, all other things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the Merger. Fred Meyer agrees to use its reasonable best efforts to obtain, or
in cooperation with Kroger to obtain, in a timely manner all Consents that may
be necessary or desirable in connection with the consummation of the Merger
under the terms of the agreements listed on Schedule 3.5 of the Fred Meyer
Disclosure Letter.
Section 6.7 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated thereby (including the Merger) shall be paid by the party incurring
those expenses except as expressly provided in this Agreement and except that
(a) the filing fees in connection with the filing of the Form S-4 and the Proxy
Statement/Prospectus with the SEC, (b) all filing fees in connection with any
filings, permits or approvals required under applicable state securities or
"blue sky" laws, and (c) the expenses incurred in connection with printing and
mailing of the Form S-4 and the Proxy Statement/Prospectus, and (d) any
commitment fee payable in connection with any planned refinancing or replacement
by Kroger of, or any commitment to obtain the consent of the requisite lenders
to consummate the Merger under, the financing facilities listed as items 1 and 2
on Schedule 3.5(a)(iii) of the Fred Meyer Disclosure Letter and the financing
facilities listed on Schedule 4.5(a) of the Kroger Disclosure Letter shall be
shared by Kroger and Fred Meyer equally.
Section 6.8 Notification of Certain Matters. Each Party shall give prompt
notice to the other Party of the following:
(a) the occurrence or nonoccurrence of any event whose occurrence or
nonoccurrence is reasonably expected to cause any of the conditions
precedent set forth in Article VII not to be satisfied;
(b) the status of matters relating to completion of the Merger,
including promptly furnishing the other with copies of notice or other
communications received by any Party or any of its respective Subsidiaries
from any Governmental Entity or other third party with respect to this
Agreement or the transactions contemplated thereby, including the Merger;
and
(c) any facts relating to that Party which would make it necessary or
advisable to amend the Proxy Statement/Prospectus or the Form S-4 in order
to make the statements therein not untrue or misleading or to comply with
applicable law; provided, however, that the delivery of any notice pursuant
to this Section 6.8 shall not limit or otherwise affect the remedies
available hereunder to the Party receiving such notice.
Section 6.9 Access to Information. (a) From this date to the Effective
Time, each of the Parties shall, and shall cause its respective Subsidiaries,
and its and their officers, directors, employees, auditors, counsel and agents
to afford the officers, employees, auditors, counsel and agents of the other
Party reasonable access at reasonable times upon reasonable notice to each of
the Party's and its Subsidiaries' officers, employees, auditors, counsel,
agents, properties, offices and other facilities and to all of their respective
books and records, and shall furnish the other Party with all financial,
operating and other data and information as such other Party may
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reasonably request, in each case only to the extent, in the judgment of counsel
to such Party, permitted by law, including antitrust law, and provided no Party
shall be obligated to make any disclosure which would cause forfeiture of
attorney-client privilege or would violate confidentiality agreements (so long
as such Party shall have used commercially reasonable efforts to obtain a
release or waiver from the applicable confidentiality agreement in respect of
such disclosure).
(b) Each of the Parties agrees that all information so received from the
other Parties shall be deemed received pursuant to the confidentiality
agreements, dated as of September 16, 1998, between Kroger and Fred Meyer (the
"Confidentiality Agreement"), and that each Party shall, and shall cause its
affiliates and each of its and their Representatives to, comply with the
provisions of the Confidentiality Agreement with respect to such information and
the provisions of the Confidentiality Agreement are hereby incorporated herein
by reference with the same effect as if fully set forth in this Agreement.
Section 6.10 Review of Information. Subject to applicable laws relating to
the exchange of information, including the anti-trust laws, each Party shall
have the right to review in advance, and to the extent practicable each will
consult the other on, all the information relating to it, or any of its
respective Subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party and/or any Governmental Entity in
connection with the Merger. In exercising the foregoing right, each of the
Parties shall act reasonably and as promptly as practicable.
Section 6.11 Indemnification; Directors' and Officers' Insurance. (a) From
and after the Effective Time, Kroger shall, or shall cause the Surviving
Corporation to, indemnify and hold harmless each present and former director and
officer of Fred Meyer or any of its Subsidiaries (when acting in such capacity)
(the "Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, for
acts or omissions existing or occurring at or prior to the Effective Time,
whether asserted or claimed prior to, at or after the Effective Time, to the
fullest extent permitted under the DGCL or other applicable law, as applicable
(and Kroger shall, or shall cause the Surviving Corporation to, also advance
expenses as incurred to the fullest extent permitted under the DGCL or other
applicable law, provided the Person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
Person is not entitled to indemnification).
(b) Kroger shall maintain, or cause the Surviving Corporation to maintain,
a policy of officers' and directors' liability insurance for acts and omissions
occurring prior to the Effective Time ("D&O Insurance") with coverage in amount
and scope at least as favorable as its existing directors' and officers'
liability insurance coverage for a period of six years after the Effective Time;
provided, however, if the existing D&O Insurance expires, is terminated or
canceled, or if the annual premium therefor is increased to an amount in excess
of 200% of the last annualized premium paid prior to this date (the "Current
Premium"), in each case during such six year period, Kroger shall, or shall
cause the Surviving Corporation to, obtain D&O Insurance in an amount and scope
as great as can be obtained for the remainder of such period for a premium not
in excess (on an annualized basis) of 200% of the Current Premium.
(c) If Kroger or the Surviving Corporation or any of their respective
successors or assigns (i) shall consolidate with or merge into any other
corporation or other entity and shall not be the continuing or surviving
corporation or entity of the consolidation or merger or (ii) shall transfer all
or substantially all of its properties and assets to any individual, corporation
or other entity, then and in each such case, proper provisions shall be made so
that the successors and assigns of Kroger or the Surviving Corporation shall
assume all of the obligations set forth in this Section 6.11.
(d) The provisions of this Section 6.11 are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, their heirs
and their representatives.
Section 6.12 Employee Benefit Plans. (a) From and after the Effective Time,
Kroger will cause the Surviving Corporation and its Subsidiaries to honor, pay
and perform all of their respective covenants and obligations under, and in
accordance with their terms, (i) all employment, protection and severance
agreements
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between Fred Meyer and its Subsidiaries and any officer, director or employee of
Fred Meyer or any of its Subsidiaries to the extent disclosed in Section 3.10 of
the Fred Meyer Disclosure Letter, in accordance with the terms thereof as in
effect immediately prior to the date hereof, and (ii) the Fred Meyer Benefit
Plans. Nothing in this Section 6.12 shall be interpreted to prohibit Kroger or
any of its Subsidiaries from amending or terminating any Fred Meyer Benefit Plan
in accordance with the terms thereof.
(b) (i) Until December 31, 1999, Kroger shall cause to be provided to each
Fred Meyer Employee (other than those represented by collective bargaining
agreements) (w) a base salary or hourly wage, as applicable, at an annual or
hourly rate, respectively, that is not less than the rate in effect for such
individual immediately prior to the Effective Time, (x) pension, welfare, fringe
and other employee benefits, including severance benefits, that, in each case,
are at least as favorable to that Fred Meyer Employee as the benefits provided
to that Fred Meyer Employee immediately prior to the Effective Time, (y) annual
cash bonus opportunities that are at least as favorable to that Fred Meyer
Employee as the bonus opportunities available to that Fred Meyer Employee
immediately prior to the Effective Time and (z) if the Merger is consummated on
or prior to April 30, 1999, equity awards that are at least as favorable to the
Fred Meyer Employees who are at the vice president level or below as the awards
granted to similarly situated employees of Kroger or its Subsidiaries during or
for such period are to the employees of Kroger and its Subsidiaries.
Notwithstanding the foregoing, subject to the terms of permitted employment
agreements, Kroger shall not be obligated to continue to employ any Fred Meyer
Employee for any particular length of time.
(ii) For purposes of determining eligibility and vesting (but not for
benefit accrual) under any Kroger Benefit Plans Fred Meyer employees shall be
credited with their years of service with Fred Meyer or its Subsidiaries, but
only to the extent that those years of service would have been credited under
the relevant Kroger Benefit Plan if such Fred Meyer Employee had been a
similarly situated Kroger Employee during the relevant period of time. To the
extent that any Kroger Benefit Plan in which a Fred Meyer Employee participates
after the Effective Time provides medical, dental, vision or other welfare
benefits, Kroger shall cause all pre-existing condition exclusions and actively
at work requirements of such plan to be waived for such employee and his or her
covered dependents except to the extent such employee and his or her covered
dependents were subject to such requirements under the applicable Fred Meyer
Benefit Plans, and Kroger shall cause any eligible expenses incurred by such
employee on or before the Effective Time to be taken into account under such
plan for purposes of satisfying all deductible, coinsurance and maximum
out-of-pocket requirements applicable to such employee and his or her covered
dependents for the applicable plan year.
(c) On or prior to the Effective Time, Fred Meyer shall take all such
actions as are necessary to terminate its and its Subsidiaries' Employee Stock
Purchase Plans at or prior to the Effective Time. Fred Meyer shall, in
connection with such termination, cause all participants in such plans not to be
permitted to have Fred Meyer increase the percentage or amount of any monies
withheld by Fred Meyer for investment in such plans after the date hereof, and
cause each such participant either to receive previously invested cash or
purchase Fred Meyer Common Stock pursuant to such plans prior to the Effective
Time.
Section 6.13 Kroger Board of Directors and Officers. As of the Effective
Time, the six individuals listed in the Fred Meyer Disclosure Letter shall be
elected to the Board of Directors of Kroger, and each such individual shall
become a member of that class of the Board of Directors of Kroger that is
specified for such individual in the Fred Meyer Disclosure Letter. In the event
that the Board of Directors of Kroger decreases to below thirteen members, 5 of
the individuals (as selected by Fred Meyer) listed in the Fred Meyer Disclosure
Letter shall be elected to the Board of Directors of Kroger, and each such
individual shall become a member of that class of the Board of Directors of
Kroger that is specified for such individual in the Fred Meyer Disclosure
Letter. The Executive Committee of the Board of Directors of Kroger will be
expanded to include Mr. Ronald W. Burkle and one other person as listed in the
Fred Meyer Disclosure Letter, and Mr. Ronald W. Burkle will be chairman of the
Executive Committee so long as he remains a director of Kroger. In the event
that any of such individuals shall be unable or unwilling to serve as a member
of the Board of Directors of Kroger as of the Effective Time, his or her
replacement shall be selected by Fred Meyer from its Board of Directors,
provided that any such replacement shall be reasonably acceptable to Kroger. As
of the Effective Time, Mr. Robert G. Miller shall be duly elected and appointed
Vice Chairman of the Board of Directors and Chief Operating Officer of Kroger.
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Section 6.14 Affiliates. (a) Not less than 45 days prior to the Effective
Time, each Party (i) shall have delivered to the other Party a letter
identifying all Persons who, in the opinion of the Party delivering such letter,
may be, as of the date this Agreement is submitted for adoption by such Party's
stockholders, its "affiliates" for purposes of Rule 145 under the Securities Act
or SEC Accounting Series Releases 130 and 135, and (ii) shall use its reasonable
best efforts to cause each Person who is identified as an "affiliate" of it in
such letter to deliver, as promptly as practicable but in no event later than 30
days prior to the Closing (or after such later date as the Parties may agree), a
signed agreement, in the case of affiliates of Fred Meyer, to Fred Meyer and
Kroger substantially in the form customary for transactions of this type, and in
the case of affiliates of Kroger, to Kroger substantially in the form customary
for transactions of this type. Each Party shall notify each other Party from
time to time after the delivery of the letter described in Section 6.14(a)(i) of
any Person not identified on such letter who then is, or may be, such an
"affiliate" and use its reasonable best efforts to cause each additional Person
who is identified as an "affiliate" to execute a signed agreement as set forth
in this Section 6.14(a). Attached as Exhibit B to this Agreement are copies of
the letters described in Section 6.14(a)(i).
(b) Shares of Kroger Common Stock and shares of Fred Meyer Common Stock
beneficially owned by each such "affiliate" of Kroger or Fred Meyer who has not
provided a signed agreement in accordance with Section 6.14(a) shall not be
transferable during any period prior to and after the Effective Time if, as a
result of this transfer during any such period, taking into account the nature,
extent and timing of this transfer and similar transfers by all other
"affiliates" of Kroger and Fred Meyer, this transfer will, in the reasonable
judgment of accountants of Kroger, interfere with, or prevent the Merger from
being accounted for, as a pooling-of-interests. Neither Kroger or Fred Meyer
shall register, or allow its transfer agent to register, on its books the
transfer of any shares of Kroger Common Stock or Fred Meyer Common Stock of any
affiliate of Fred Meyer or Kroger who has not provided a signed agreement in
accordance with Section 6.14(a) unless the transfer is made in compliance with
the foregoing. The restrictions on the transferability of shares held by Persons
who execute an agreement pursuant to Section 6.14(a) shall be as provided in
those agreements.
Section 6.15 Pooling-of-Interests. Each of the Parties will use its
reasonable best efforts to cause the Merger to be accounted for as a
pooling-of-interests in accordance with GAAP and the rules and regulations of
the SEC.
Section 6.16 Tax-Free Reorganization. Each of the Parties will use its
reasonable best efforts to cause the Merger to qualify as a tax-free
"reorganization" under Section 368 of the Code.
Section 6.17 Accountant's Comfort Letters. Each Party shall use its
reasonable best efforts to cause to be delivered to the other Party two letters
from its independent public accountants, one dated a date within two business
days before the date on which the Form S-4 shall become effective and one dated
the Closing Date, in form and substance reasonably satisfactory to recipient and
customary in scope and substance for comfort letters delivered by independent
accountants in connection with registration statements similar to the Form S-4.
Section 6.18 Accountant's Pooling Letters. Fred Meyer shall use its
reasonable best efforts to cause to be delivered to Kroger from Deloitte &
Touche LLP ("Deloitte") (or any other independent public accounting firm
reasonably satisfactory to Kroger) two letters each addressed to Kroger and
PricewaterhouseCoopers LLP ("PwC") (or any other independent public accounting
firm selected by Kroger), one dated the date upon which the Form S-4 becomes
effective and one dated the Closing Date, stating that as of the respective
dates of its letters, Deloitte is not aware of any conditions that exist that
would preclude Fred Meyer's ability to be a party in a business combination to
be accounted for as a pooling of interests. Kroger shall use its reasonable best
efforts to cause to be delivered to Fred Meyer from PwC (or any other
independent public accounting firm reasonably satisfactory to Fred Meyer) two
letters, each addressed to Fred Meyer and Deloitte (or any other independent
public accounting firm selected by Fred Meyer), one dated the date upon which
the Form S-4 becomes effective and one dated the Closing Date, stating that
accounting for the Merger as a pooling of interests under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations is
appropriate if the Merger is closed and consummated as contemplated by this
Agreement. Attached as Exhibit C to this Agreement are copies of the letters
described in this Section 6.18.
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ARTICLE VII
Section 7.1 Conditions to Obligations of the Parties to Consummate the
Merger. The respective obligation of each party to consummate the Merger shall
be subject to the satisfaction of each of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of Fred
Meyer and Kroger, in each case in accordance with the DGCL, the OGCL or the
rules and regulations of the NYSE, as applicable.
(b) Legality. No order, decree or injunction shall have been entered
or issued by any Governmental Entity which is in effect and has the effect
of making the Merger illegal or otherwise prohibiting consummation of the
Merger. Each Party agrees that, in the event that any such order, decree or
injunction shall be entered or issued, it shall use its reasonable best
efforts to cause any such order, decree or injunction to be lifted or
vacated.
(c) HSR Act. The waiting period (or extension thereof) under the HSR
Act applicable to the Merger shall have expired or been terminated.
(d) Registration Statement Effective. The Form S-4 shall have become
effective prior to the mailing by each of the Parties of the Proxy
Statement/Prospectus to its respective stockholders and no stop order
suspending the effectiveness of the Form S-4 shall then be in effect;
(e) Blue Sky Approvals. All such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses or permits as may
be required under state securities or "blue sky" laws in connection with
the shares of Kroger Common Stock to be issued pursuant to the Merger have
been obtained.
(f) Stock Exchange Listing. The shares of Kroger Common Stock to be
issued pursuant to the Merger shall have been duly approved for listing on
the NYSE, subject to official notice of issuance.
Section 7.2 Additional Conditions to Obligations of Kroger and Jobsite
Holdings. The obligations of Kroger and Jobsite Holdings to consummate the
Merger shall also be subject to the satisfaction or waiver of each of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of Fred Meyer contained in this Agreement shall be true and correct on and
as of the Closing Date (except to the extent such representations and
warranties shall have been expressly made as of an earlier date, in which
case such representations and warranties shall have been true and correct
as of such earlier date) with the same force and effect as if made on and
as of the Closing Date, except to the extent that any failures of such
representations and warranties to be so true and correct (determined
without regard to materiality qualifiers or limitations contained therein),
individually or in the aggregate, would not reasonably be expected to have
resulted in a Fred Meyer Material Adverse Effect.
(b) Agreements and Covenants. Fred Meyer shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
before the Effective Time.
(c) Certificates. Kroger shall have received a certificate of an
executive officer of Fred Meyer that the conditions set forth in paragraphs
(a) and (b) above have been satisfied.
(d) Consents. Except as set forth in the Fred Meyer Disclosure Letter,
Fred Meyer shall have obtained all consents, approvals, releases or
authorizations ("Consents") from, and Fred Meyer shall have made all
filings and registrations ("Filings") to or with, any Person, including
without limitation any Governmental Entity, necessary to be obtained or
made in order for Kroger and Jobsite Holdings to consummate the Merger or
issue shares of Kroger Common Stock pursuant thereto, as applicable, unless
the failure to obtain such Consents or make such Filings would not,
individually or in the aggregate, reasonably be expected to have a Fred
Meyer Material Adverse Effect (it being understood that the obtaining of
Consents in connection with the agreements listed on Schedule 3.5 of the
Fred Meyer Disclosure Letter shall not be a condition to the consummation
of the Merger).
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(e) Tax Opinion. Kroger shall have received an opinion of Fried,
Frank, Harris, Shriver & Jacobson (or other counsel reasonably satisfactory
to it), dated as of the Closing Date, in form and substance reasonably
satisfactory to it, substantially to the effect that, on the basis of the
facts and assumptions described in the opinion, the Merger constitutes a
tax-free reorganization under Section 368 of the Code. In rendering this
opinion, counsel may require and rely upon representations and covenants
including those contained in this Agreement or in certificates of officers
of the Parties and others; and
(f) Accountants Letters. Kroger shall have received each of the
accountants' letters contemplated by Sections 6.17 and 6.18 to be received
by it.
Section 7.3 Additional Conditions to Obligations of Fred Meyer. The
obligations of Fred Meyer to consummate the Merger shall also be subject to the
satisfaction or waiver of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Kroger and Jobsite Holdings contained in this Agreement shall be true
and correct on and as of the Closing Date (except to the extent such
representations and warranties shall have been expressly made as of an
earlier date, in which case such representations and warranties shall have
been true and correct as of such earlier date) with the same force and
effect as if made on and as of the Closing Date, except to the extent that
any failures of such representations and warranties to be so true and
correct (determined without regard to materiality qualifiers or limitations
contained therein), individually or in the aggregate, would not reasonably
be expected to have resulted in a Kroger Material Adverse Effect;
(b) Agreements and Covenants. Each of Kroger and Jobsite Holdings
shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by it on or before the Effective Time.
(c) Certificates. Fred Meyer shall have received a certificate of an
executive officer of Kroger that the conditions set forth in paragraphs (a)
and (b) above have been satisfied;
(d) Consents. Except as set forth in the Kroger Disclosure Letter,
Kroger shall have obtained all Consents from, and Kroger shall have made
all Filings to or with, any Person, including without limitation any
Governmental Entity, necessary to be obtained or made in order for Fred
Meyer to consummate the Merger, unless the failure to obtain such Consents
or make such Filings would not, individually or in the aggregate, be
reasonably expected to have a Kroger Material Adverse Effect.
(e) Tax Opinion. Fred Meyer shall have received an opinion of Cleary,
Gottlieb, Steen & Hamilton (or other counsel reasonably satisfactory to
it), dated as of the Closing Date, in form and substance reasonably
satisfactory to it, substantially to the effect that, on the basis of the
facts and assumptions described in the opinion, the Merger constitutes a
tax-free reorganization under Section 368 of the Code. In rendering such
opinion, counsel may require and rely upon representations and covenants
including those contained in this Agreement or in certificates of officers
of the Parties and others; and
(f) Accountants Letters. Fred Meyer shall have received each of the
accountants' letters contemplated by Sections 6.17 and 6.18 to be received
by it.
ARTICLE VIII
Section 8.1 Termination. This Agreement may be terminated at any time
before the Effective Time (except as otherwise provided) as follows:
(a) by mutual written consent of each of Kroger and Fred Meyer;
(b) by either Fred Meyer or Kroger, if the Effective Time shall not
have occurred on or before September 30, 1999 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this
Section 8.1(b) shall not be available to any Party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before the Termination
Date;
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(c) by either Fred Meyer or Kroger, if a Governmental Entity shall
have issued an order, decree or injunction having the effect of making the
Merger illegal or permanently prohibiting the consummation of the Merger,
and such order, decree or injunction shall have become final and
nonappealable (but only if the terminating Party shall have used its
reasonable best efforts to cause such order, decree or injunction to be
lifted or vacated);
(d) by either Fred Meyer or Kroger, if there shall have been a
material breach by the other of any of its (x) representations or
warranties contained in this Agreement, which breach would result in the
failure to satisfy one or more of the conditions set forth in Section
7.2(a) (in the case of a breach by Fred Meyer) or Section 7.3(a) (in the
case of a breach by Kroger), or (y) covenants or agreements contained in
this Agreement, which breach would result in the failure to satisfy one or
more of the conditions set forth in Section 7.2(b) (in the case of a breach
by Fred Meyer) or Section 7.3(b) (in the case of a breach by Kroger), and
in any such case such breach shall be incapable of being cured or, if
capable of being cured, shall not have been cured within 30 days after
written notice thereof shall have been received by the Party alleged to be
in breach.
(e) by either Fred Meyer or Kroger, if the required approvals of the
stockholders of Fred Meyer or Kroger shall not have been obtained at a duly
held stockholders' meeting, including any adjournments or postponements.
Section 8.2 Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement pursuant to this Article VIII, this Agreement
(other than as set forth in Section 9.1) shall become void and of no effect with
no liability on the part of any party hereto (or of any of its Representatives);
provided, however, no such termination shall relieve any party hereto from (x)
any liability for damages resulting from any willful or intentional breach of
this Agreement (whether or not any fees contemplated by this Section 8.2 are
payable) or (y) any obligation to pay the termination fees provided for below or
Fees and Expenses (as defined) pursuant to this Section 8.2.
(b) (i) In the event that prior to the meeting of Fred Meyer stockholders
duly convened and held to vote in respect of this Agreement and the Merger, a
Fred Meyer Business Combination Proposal (as defined) shall have been made to
Fred Meyer and made known to its stockholders generally or shall have been made
directly to its stockholders generally or any Person shall have publicly
announced an intention (whether or not conditional) to make a Fred Meyer
Business Combination Proposal (whether or not such Proposal shall have been
rejected or shall have been withdrawn), and thereafter (x) this Agreement is
terminated pursuant to Section 8.1(e) by reason of the failure of the
stockholders of Fred Meyer to approve this Agreement or the Merger at such
meeting or (y) this Agreement is terminated by Kroger pursuant to 8.1(d)(y) by
reason of a breach by Fred Meyer of its covenants or agreements hereunder, Fred
Meyer shall, simultaneously with such termination, pay to Kroger a fee equal to
$55,000,000 (the "Initial Fred Meyer Termination Fee"). In addition, in the
event that this Agreement is terminated under circumstances in which the Initial
Fred Meyer Termination Fee becomes payable, and within eighteen months of such
termination Fred Meyer enters into an agreement with any Person with respect to
a Fred Meyer Business Combination Proposal or a Fred Meyer Business Combination
Proposal is consummated, then, upon the signing of such agreement or, if no
agreement is signed, then at the closing (and as a condition to the closing,
which condition may not be waived without the express written consent of Kroger)
of such Fred Meyer Business Combination Proposal, Fred Meyer shall pay to Kroger
an additional termination fee equal to $110,000,000 (the "Additional Fred Meyer
Termination Fee"). "Fred Meyer Business Combination Proposal" shall mean any
Fred Meyer Acquisition Proposal, provided that all references in the definition
of Fred Meyer Acquisition Proposal to "15%" shall be deemed to be references to
"50%."
(ii) In the event that prior to the meeting of Kroger stockholders duly
convened and held to vote in respect to this Agreement and the Merger, a Kroger
Business Combination Proposal (as defined) shall have been made to Kroger and
made known to its stockholders generally or shall have been made directly to its
stockholders generally or any Person shall have publicly announced an intention
(whether or not conditional) to make a Kroger Business Combination Proposal
(whether or not such Proposal shall have been rejected or shall have been
withdrawn) and thereafter (x) this Agreement is terminated pursuant to Section
8.1(e) by reason of the failure of the stockholders of Kroger to approve this
Agreement or the Merger at such meeting or (y) this Agreement is
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terminated by Fred Meyer pursuant to Section 8.1(d)(y) by reason of a breach by
Kroger of its covenants or agreements hereunder, Kroger shall, simultaneously
with such termination, pay to Fred Meyer a fee equal to $90,000,000 (the
"Initial Kroger Termination Fee"). In addition, in the event that this Agreement
is terminated under circumstances in which the Initial Kroger Termination Fee
becomes payable, and within eighteen months of such termination Kroger enters
into an agreement with any Person with respect to a Kroger Business Combination
Proposal or a Kroger Business Combination Proposal is consummated, then, upon
the signing of such agreement or, if no agreement is signed, then at the closing
(and as a condition to the closing, which condition may not be waived without
the express written consent of Fred Meyer) of such Kroger Business Combination
Proposal, Kroger shall pay to Fred Meyer an additional termination fee equal to
$185,000,000 (the "Additional Kroger Termination Fee"). "Kroger Business
Combination Proposal" shall mean any Kroger Acquisition Proposal provided that
all references in the definition of Kroger Acquisition Proposal to "15%" shall
be deemed to be references to "50%."
(c) In the event that this Agreement is terminated pursuant to Section
8.1(e) by reason of the failure of any Party's stockholders to approve this
Agreement or the Merger at a meeting of stockholders duly convened and held to
vote in respect of this Agreement and the Merger or the issuance of shares
pursuant thereto, such Party shall promptly upon such termination (following
receipt of a statement therefor) reimburse the other Party for all fees and
expenses (including, without limitation, fees and expenses of counsel, financial
advisors, accountants, consultants and other advisors and Representatives)
("Fees and Expenses") incurred and paid by the other Party in connection with
this Agreement and the Merger.
(d) Reimbursements of Fees and Expenses hereunder and any Termination Fee
payable hereunder shall be payable by wire transfer of immediately available
funds. The reimbursement of Fees and Expenses shall be credited against any
Termination Fee payable by such Party. No Party which is in material breach of
its covenants, agreements or representations shall be entitled to receive Fees
and Expenses or a Termination Fee.
(e) The Parties acknowledge that the agreements contained in this Section
8.2 are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, Kroger and Fred Meyer would not enter into this
Agreement. If either Party fails to pay promptly any amount due pursuant to this
Section 8.2, and, in order to obtain such payment, the other Party commences a
suit which results in a judgment against such first Party for such amount (or
any portion thereof), such first Party shall pay the costs and expenses
(including attorneys' fees) of the other Party in connection with such suit,
together with interest on such amount in respect of the period from the date
such amount became due until the date such amount is paid at the prime rate of
The Chase Manhattan Bank in effect from time to time during such period.
Section 8.3 Amendment. This Agreement may be amended at any time before the
Effective Time but only pursuant to a writing executed and delivered by Kroger
and Fred Meyer in accordance with the provisions of applicable law.
ARTICLE IX
Section 9.1 Non-Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall terminate at
the Effective Time or upon the termination of this Agreement pursuant to Section
8.1, as the case may be, except that (a) the agreements set forth in Sections
1.3, 6.11, 6.12, 6.13, 6.14 and 9.8 shall survive the Effective Time, and (b)
the agreements set forth in Sections 6.7, 6.9(b), 8.2 and 9.8 shall survive
termination indefinitely.
Section 9.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by overnight
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courier or sent by telecopy, to the applicable party at the following addresses
or telecopy numbers (or at such other address or telecopy number for a party as
shall be specified by like notice):
(a) if to Fred Meyer:
Fred Meyer, Inc.
3800 SE 22nd Avenue
Portland, Oregon 97202
Attention: Roger A. Cooke, Esq.
Telecopy No.: (503) 797-7138
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg, Esq.
Telecopy No.: (212) 225-3999
(b) if to Kroger or Jobsite Holdings:
The Kroger Co.
1014 Vine Street
Cincinnati, Ohio 45202
Attention: Paul W. Heldman, Esq.
Telecopy No.: (513) 762-1400
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Arthur Fleischer, Jr., Esq.
Telecopy No.: (212) 859-4000
Section 9.3 Certain Definitions; Interpretation. (a) For purposes of this
Agreement, the following terms shall have the following meanings:
(i) "Fred Meyer Material Adverse Effect" means any change,
circumstance, event or effect (x) that is or will be materially adverse to
the business, results of operations, financial condition or prospects of
Fred Meyer and its Subsidiaries taken as a whole, or (y) that will prevent
or materially impair Fred Meyer's ability to consummate the Merger,
provided that a Fred Meyer Material Adverse Effect shall not include
changes or effects (1) relating to economic conditions or financial markets
in general or the retail food and drug industry in general, (2) resulting
from the voluntary termination of employment by employees of Fred Meyer and
its Subsidiaries between this date and the Closing Date or (3) resulting
from actions required to be taken by the terms of this Agreement. A decline
in the stock market price of the shares of Fred Meyer Common Stock in and
of itself shall not be deemed a "Fred Meyer Material Adverse Effect."
(ii) "Kroger Material Adverse Effect" means any change, circumstance,
event or effect (x) that is or will be materially adverse to the business,
results of operations, financial condition or prospects of Kroger and its
Subsidiaries taken as a whole, or (y) that is or will prevent or materially
impair Kroger's ability to consummate the Merger or to issue shares of
Kroger Common Stock in accordance with the terms hereof, provided that a
Kroger Material Adverse Effect shall not include changes or effects (1)
relating to economic conditions or financial markets in general or the
retail food and drug industry in general or (2) resulting from actions
required to be taken by the terms of this Agreement. A decline in the stock
market price of the shares of Kroger Common Stock in and of itself shall
not be deemed a "Kroger Material Adverse Effect."
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(iii) "affiliate" of a Person means a Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned Person.
(iv) "control" (including the terms "controlled by" and "under common
control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of stock, as trustee or executor, by contract
or credit arrangement or otherwise.
(v) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended and the rules and regulations promulgated thereunder.
(vi) "knowledge" of any Party shall mean the actual knowledge of any
of the executive officers of that Party.
(vii) "Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, entity
or group (as defined in the Exchange Act).
(viii) "Significant Subsidiary" shall have the meaning set forth in
Rule 1-02 of Regulation S-X of the SEC.
(ix) "Subsidiary" of a Person means any corporation or other legal
entity of which that Person (either alone or through or together with any
other Subsidiary or Subsidiaries) is the general partner or managing entity
or of which at least a majority of the stock (or other equity interests the
holders of which are generally entitled to vote for the election of the
board of directors or others performing similar functions of such
corporation or other legal entity) is directly or indirectly owned or
controlled by that Person (either alone or through or together with any
other Subsidiary or Subsidiaries).
(b) When a reference is made in this Agreement to Articles, Sections,
Disclosure Letters or Exhibits, this reference is to an Article or a Section of,
or an Exhibit to, this Agreement, unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be understood to be followed by the words "without
limitation."
Section 9.4 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.5 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any Party. Upon a determination that any term or other provision is
invalid, illegal or incapable of being enforced, the Parties shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the maximum extent possible.
Section 9.6 Entire Agreement; No Third-Party Beneficiaries. This Agreement,
the Stock Option Agreements, the Fred Meyer Disclosure Letter, the Kroger
Disclosure Letter and the Confidentiality Agreement constitute the entire
agreement and supersede any and all other prior agreements and undertakings,
both written and oral, among the parties hereto, or any of them, with respect to
the subject matter hereof and, except for Section 6.11 (Indemnification;
Directors' and Officers' Insurance), does not, and is not intended to, confer
upon any Person other than the parties hereto any rights or remedies hereunder.
Section 9.7 Assignment. This Agreement shall not be assigned by any party
by operation of law or otherwise without the express written consent of each of
the other parties.
Section 9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with, the laws of the State of New York without regard
to the conflicts of laws provisions thereof, provided that the provisions of
Article II shall be governed by the DGCL or the OGCL, as applicable. Each of the
parties irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the federal courts of the State
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of New York and the courts of the United States of America located in the
Southern District of the State of New York for any litigation arising out of or
relating to this Agreement or the Merger or any of the other transactions
contemplated hereby (and agrees not to commence any litigation relating hereto
except in these courts), and further agrees that service of any process,
summons, notice or document by U.S. registered mail to its respective address
set forth in Section 9.2 shall be effective service of process for any
litigation brought against it in any such court. Each of the Parties hereby
irrevocably and unconditionally waives any objection to the laying of venue of
any litigation arising out of this Agreement or the Merger or any of the other
transactions contemplated hereby in the courts of the State of New York or the
courts of the United States of America located in the State of New York and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such litigation brought in any such court has
been brought in an inconvenient forum. Each of the parties hereto hereby
irrevocably and unconditionally waives any right it may have to trial by jury in
connection with any litigation arising out of or relating to this Agreement, the
Stock Option Agreements, the Merger or any of the other transactions
contemplated hereby or thereby.
Section 9.9 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties in separate counterparts, each of
which when executed shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
THE KROGER CO.
By: /s/ PAUL W. HELDMAN
------------------------------------
Name: Paul W. Heldman
Title: Senior Vice President,
Secretary and
General Counsel
JOBSITE HOLDINGS, INC.
By: /s/ PAUL W. HELDMAN
------------------------------------
Name: Paul W. Heldman
Title: Vice President and Secretary
FRED MEYER, INC.
By: /s/ ROBERT G. MILLER
------------------------------------
Name: Robert G. Miller
Title: President and Chief
Executive Officer
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APPENDIX B
CONFORMED COPY
THE TRANSFER OF THIS AGREEMENT IS SUBJECT
TO CERTAIN PROVISIONS CONTAINED HEREIN AND
TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of October 18, 1998 (this "Agreement"),
between Fred Meyer, Inc., a Delaware corporation ("Issuer"), and The Kroger Co.,
an Ohio corporation ("Grantee").
WHEREAS, Issuer, Grantee, and a wholly owned subsidiary of Grantee (the
"Merger Sub") propose to enter into an Agreement and Plan of Merger, to be dated
as of this date (the "Merger Agreement"), pursuant to which Merger Sub is to
merge with and into Issuer, with Issuer continuing as the surviving corporation
and a wholly owned subsidiary of Grantee after such merger, and in such merger,
each share of common stock, par value $.01 per share, of Issuer ("Common Stock")
will be converted to a right to receive one share of common stock, par value
$1.00 per share, of Grantee as provided in the Merger Agreement;
WHEREAS, as an inducement and condition to Grantee's willingness to enter
into the Merger Agreement and in consideration thereof, Issuer is granting to
Grantee, pursuant to the terms and subject to the conditions contained in this
Agreement, an option to purchase 19.9 % of the outstanding shares of Common
Stock; and
WHEREAS, the Board of Directors of Issuer has approved the grant by Issuer
to Grantee of the Option (defined below) pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth in this Agreement and in the Merger Agreement, the
parties agree as follows:
1. The Option. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, pursuant to the terms and subject
to the conditions hereof, up to 30,799,665 fully paid and nonassessable shares
of Common Stock at a price of $44.125 per share (the "Option Price"); provided,
however, that in no event shall the number of shares for which the Option is
exercisable exceed 19.9% of the shares of Common Stock issued and outstanding at
the time of exercise (without giving effect to the shares of Common Stock issued
or issuable under the Option). The number of shares of Common Stock purchasable
upon exercise of the Option and the Option Price are subject to adjustment as
set forth in this Agreement.
2. Exercise; Closing.
(a) Conditions to Exercise; Termination. Grantee or any other person that
shall become a holder of all or a part of the Option in accordance with the
terms of this Agreement (each such person, including Grantee, being referred to
as "Holder") may exercise the Option, in whole or in part, from time to time, if
but only if a Triggering Event has occurred, and prior to the occurrence of an
Exercise Termination Event (as defined below). The right to exercise the Option
shall terminate upon either (i) the occurrence of the Effective Time (as defined
in the Merger Agreement) or (ii) (x) if a Notice Date (as defined in Section
2(d)) has not previously occurred, the close of business on the earlier of (A)
the day that is 150 days after the date of a Triggering Event, (B) the date upon
which the Merger Agreement is terminated if no Termination Fee (as defined in
the Merger Agreement) could be payable by Issuer pursuant to the terms of the
Merger Agreement upon the occurrence of certain events or the passage of time,
and (C) 700 days following the date upon which the Merger Agreement is
terminated, and (y) if a Notice Date has previously occurred, 150 days after
that Notice Date (the events in (i) or (ii) being referred to as "Exercise
Termination Events").
(b) Triggering Event. A "Triggering Event" shall have occurred at such time
at which Grantee becomes entitled to receive the Additional Fred Meyer
Termination Fee from Issuer pursuant to Section 8.2(b) of the Merger Agreement.
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(c) Notice of Trigger Event by Issuer. Issuer shall notify Grantee promptly
in writing of the occurrence of any Triggering Event (it being understood that
the giving of the notice by Issuer shall not be a condition to the right of
Holder to exercise the option).
(d) Notice of Exercise. If Holder shall be entitled to and desires to
exercise the Option, in whole or in part, it shall send to Issuer a written
notice (any date on which this notice is given, in accordance with Section 15,
is referred to as a "Notice Date") specifying (i) the total number of shares
that Holder will purchase pursuant to the exercise and (ii) a place and date (a
"Closing Date") not earlier than three business days nor later than 60 business
days from the related Notice Date for the closing of the purchase (a "Closing");
provided, that if a filing or any approval is required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), or prior notification to or prior approval from any regulatory authority
is required under any other law, statute, rule or regulation (including
applicable rules and regulations of national securities exchanges) in connection
with this purchase, Holder or Issuer, as required, promptly after the Notice
Date, shall file all necessary notices and applications for approval and shall
expeditiously process the same and the period of time referred to in clause (ii)
shall commence on the date on which all required notification and waiting
periods, if any, shall have expired or been terminated and all required
approvals, if any, shall have been obtained. Any exercise of the Option shall be
deemed to occur on the date of the Notice Date relating thereto. Each of Holder
and Issuer agrees to use its reasonable best efforts to cooperate with and
provide information to the other, for the purpose of any required notice or
application for approval.
(e) Payment of Purchase Price; Delivery of Common Stock. (i) At each
Closing, Holder shall pay to Issuer the aggregate purchase price for the shares
of Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by a wire transfer to a bank account designated by Issuer;
provided, that failure or refusal of Issuer to designate a bank account shall
not preclude Holder from exercising the Option, in whole or in part.
(ii) At each Closing, simultaneously with the payment of the
aggregate purchase price by Holder, Issuer shall deliver to Holder a
certificate or certificates representing the number of shares of Common
Stock purchased by Holder and, if the Option shall be exercised in part
only, a new Agreement providing for an Option evidencing the rights of
Holder to purchase the balance (as adjusted pursuant to the terms hereof)
of the shares then purchasable hereunder and the Holder shall deliver this
Agreement and a letter agreeing that the Holder will not offer to sell or
otherwise dispose of such shares in violation of applicable laws or the
provisions of this Agreement.
(iii) Notwithstanding anything to the contrary contained in paragraphs
(i) and (ii) of this Section 2(e), Holder shall have the right (a "Cashless
Exercise Right") to direct the Issuer, in the written notice of exercise
referred to in Section 2(d), to reduce the number of shares of Common Stock
required to be delivered by Issuer to Holder at any Closing by such number
of shares of Common Stock that have an aggregate Market/Offer Price (as
defined in Section 9(a)) equal to the aggregate purchase price payable at
such Closing (but for this paragraph (iii)), or any portion thereof, in
lieu of Holder paying to the Issuer at such Closing such aggregate purchase
price or portion thereof, as the case may be. Any exercise of the Option in
which, and to the extent to which, Holder exercises its Cashless Exercise
Right pursuant to this paragraph (iii) shall be referred to as a "Cashless
Exercise."
(f) Restrictive Legend. Certificates for Common Stock delivered at a
Closing may be endorsed at the option of Issuer with a restrictive legend that
shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and Issuer, a copy of which agreement is on file at the principal office of
Issuer, and to resale restrictions arising under the Securities Act of
1933, as amended. A copy of the aforementioned agreement will be mailed to
the holder without charge promptly after receipt by Issuer of a written
request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act"), in the above
legend shall be removed by delivery of substitute certificate(s) without this
reference if Holder shall have delivered to Issuer a copy of a letter from the
staff of the Securities and
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Exchange Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that this legend is not
required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) both are satisfied. In addition, the certificates shall
bear any other legend as may be required by applicable law.
(g) Ownership of Record; Tender of Purchase Price; Expenses. Upon the
giving by Holder to Issuer of the written notice of exercise referred to in
Section 2(d) and, except to the extent this notice relates to a Cashless
Exercise, the tender of the applicable purchase price in immediately available
funds, Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon the exercise, notwithstanding that the stock transfer books
of Issuer shall then be closed or that certificates representing the shares of
Common Stock shall not have been actually delivered to Holder. Issuer shall pay
all expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issuance
and delivery of stock certificates under this Section 2 in the name of Holder or
its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and covenants,
Issuer agrees:
(a) Shares Reserved for Issuance. To maintain, free from preemptive
rights, sufficient authorized but unissued or treasury shares of Common
Stock so that the Option may be fully exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to
purchase shares of Common Stock;
(b) No Avoidance. Not to avoid or seek to avoid (whether by charter
amendment or through reorganization, consolidation, merger, issuance of
rights, dissolution or sale of assets, or by any other voluntary act) the
observance or performance of any of the covenants, agreements or conditions
to be observed or performed hereunder by Issuer and not to take any action
which would cause any of its representations or warranties not to be true
in any material respect; and
(c) Further Assurances. Promptly after this date to take all actions
as may from time to time be required (including (i) complying with all
applicable premerger notification, reporting and waiting period
requirements under the HSR Act and (ii) in the event that any other prior
approval of or notice to any regulatory authority is necessary under any
applicable federal, state or local law before the Option may be exercised,
cooperating fully with Holder in preparing and processing the required
applications or notices) in order to permit Holder to exercise the Option
and purchase shares of Common Stock pursuant to such exercise.
4. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Holder that Issuer has all requisite corporate power and authority
and has taken all corporate action necessary to authorize, execute, deliver and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby; and that this Agreement has been duly and validly
authorized, executed and delivered by Issuer. Issuer hereby further represents
and warrants to Holder that it has taken all necessary corporate action to
authorize and reserve for issuance upon exercise of the Option the number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time or from time to time issuable upon exercise of the Option and that all
shares of Common Stock, upon issuance pursuant to the Option, will be delivered
free and clear of all claims, liens, encumbrances, and security interests (other
than those created by this Agreement and the Securities Act) and not subject to
any preemptive rights. Issuer has taken all action necessary to make
inapplicable to Grantee any state takeover, business combination, control share
or other similar statute and any charter provisions which would otherwise be
applicable to Grantee or any transaction involving Issuer and Grantee by reason
of the grant of the Option, the acquisition of beneficial ownership of shares of
Common Stock as a result of the grant of the Option, or the acquisition of
shares of Common Stock upon exercise of the Option.
5. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that Grantee has all requisite corporate power and authority
and has taken all corporate action necessary in order to
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authorize, execute, deliver and perform its obligations under this Agreement and
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly authorized, executed and delivered by Grantee. Grantee represents
and warrants to Issuer that any shares of Common Stock acquired upon exercise of
the Option will be acquired for Grantee's own account, and will not be, and the
Option is not being, acquired by Grantee with a view to the distribution thereof
in violation of any applicable provision of the Securities Act. Grantee has such
knowledge and experience in business and financial matters as to be capable of
utilizing the information which is available to Grantee to evaluate the merits
and risks of an investment by Grantee in the Common Stock and Grantee is able to
bear the economic risks of any investment in the shares of Common Stock which
Grantee may acquire upon exercise of the Option.
6. Exchange; Replacement. This Agreement and the Option are exchangeable,
without expense, at the option of Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase
on the same terms and subject to the same conditions as set forth in this
Agreement in the aggregate the same number of shares of Common Stock purchasable
at such time hereunder, subject to corresponding adjustments in the number of
shares of Common Stock purchasable upon exercise so that the aggregate number of
such shares under all Agreements issued in respect of this Agreement shall not
exceed 19.9% of the outstanding shares of Common Stock of the Issuer (without
giving effect to shares of Common Stock issued or issuable pursuant to the
Option). Unless the context shall require otherwise, the terms "Agreement" and
"Option" as used in this Agreement include any Agreements and related options
for which this Agreement (and the Option granted hereby) may be exchanged. Upon
(i) receipt by Issuer of reasonably satisfactory evidence of the loss, theft,
destruction, or mutilation of this Agreement, (ii) receipt by Issuer of
reasonably satisfactory indemnification in the case of loss, theft or
destruction and (iii) surrender and cancellation of this Agreement in the case
of mutilation, Issuer will execute and deliver a new Agreement of like tenor and
date. Any new Agreement executed and delivered shall constitute an additional
contractual obligation on the part of Issuer, whether or not the Agreement so
lost, stolen, destroyed or mutilated shall at any time be enforceable by any
Person other than the holder of the new Agreement.
7. Adjustments. The total number of shares of Common Stock purchasable upon
the exercise of the Option and the Option Price shall be subject to adjustment
from time to time as follows:
In the event of any change in, or distribution in respect of, the
outstanding shares of Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares or the like, the type (including, in the event of any
Major Transaction described in Section 9(d) hereof in which Issuer is not
the surviving or continuing corporation, to provide that the Option shall
be exercisable for shares of common stock of the surviving or continuing
corporation in such Major Transaction) and number of shares of Common Stock
purchasable upon exercise of the Option and the Option Price shall be
appropriately adjusted in such manner as shall fully preserve the economic
benefits contemplated hereby, and proper provision shall be made in the
agreements governing any such transactions to provide for the proper
adjustment and the full satisfaction of Issuer's obligation hereunder.
8. Registration. At any time after a Triggering Event occurs and prior to
an Exercise Termination Event, Issuer shall, at the request of Grantee delivered
in the written notice of exercise of the Option provided for in Section 2(d),
and, with respect to the first demand registration as to which the Grantee
exercises its demand rights under this Section 8, delivered no later than 90
days following such Triggering Event, as promptly as practicable, prepare, file
and keep current a shelf registration statement under the Securities Act
covering any or all shares issued and issuable pursuant to the Option and shall
use its reasonable best efforts to cause this registration statement to become
effective and remain current in order to permit the sale or other disposition of
any shares of Common Stock issued upon total or partial exercise of the Option
("Option Shares") in accordance with any plan of disposition reasonably
requested by Grantee; provided, however, that Issuer may postpone filing a
registration statement relating to a registration request by Grantee under this
Section 8 or suspend effectiveness of that registration statement, in each case
for a period of time (not in excess of 90 days) if in Grantee's judgment this
filing or continued effectiveness would require the disclosure of material
information that Issuer has a bona fide business purpose for preserving as
confidential. Issuer will use its reasonable best efforts to cause such
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registration statement to remain effective for a period of 365 days or such
shorter time as is reasonably appropriate to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations. In
connection with any such registration, Issuer and Holder shall provide each
other with representations, warranties, indemnities and other agreements
customarily given in connection with such registrations. To the extent
reasonably requested by Holder in connection with this registration, Issuer
shall (x) become a party to any underwriting agreement relating to the sale of
such shares, but only to the extent of obligating Issuer in respect of
representations, warranties, indemnities, contribution and other agreements (in
each case reasonably acceptable to Issuer) customarily made by issuers in these
underwriting agreements, and (y) use its reasonable best efforts to take all
further actions which shall be reasonably necessary to effect such registration
and sale (including participating in road-show presentations and causing to be
delivered customary certificates, opinions of counsel and "comfort letters").
Notwithstanding anything to the contrary contained in the Agreement, in no event
shall Issuer be obligated to effect more than two registrations pursuant to this
Section 8 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement. Upon the effectiveness
of a registration statement demanded pursuant to this Section 8, the Holder of
the Option Shares that are the subject of such registration may not thereafter
require the Issuer to repurchase such Option Shares so long as Issuer complies
with its obligations under this Section 8.
9. Repurchase of Option and/or Shares.
(a) Repurchase; Repurchase Price. Upon the occurrence of a Triggering Event
and prior to an Exercise Termination Event, (i) at the request of Holder,
delivered in writing within 150 days of this occurrence (or such later period as
provided in Section 2(d) with respect to any required notice or application or
in Section 10), Issuer shall repurchase the Option from Holder, in whole or in
part, at a price (the "Option Repurchase Price") equal to the number of shares
of Common Stock then purchasable upon exercise of the Option (or such lesser
number of shares as may be designated in the Repurchase Notice (as defined in
Section 9(b)) multiplied by the amount by which the Market/Offer Price (as
defined below) exceeds the Option Price or (ii) at the request of any owner of
Option Shares (an "Owner") delivered in writing within 150 days of this
occurrence (or such later period as provided in Section 2(d) with respect to any
required notice or application or in Section 10), Issuer shall repurchase such
number of Option Shares from the Owner as the Owner shall designate in the
Repurchase Notice at a price (the "Option Share Repurchase Price") equal to the
number of shares designated multiplied by the Market/Offer Price. The term
"Market/Offer Price" shall mean the highest of (x) the price per share of Common
Stock at which a tender or exchange offer for Common Stock either has been
consummated, or at which a Person has publicly announced its intention to
commence a tender or exchange offer, after the date of this Agreement and prior
to the delivery of the Repurchase Notice, and which offer either has been
consummated and not withdrawn or terminated as of the date payment of the
Repurchase Price is made, or has been publicly announced and the intention to
make a tender or exchange offer has not been withdrawn as of the date payment of
the Repurchase Price is made, (y) the price per share of Common Stock to be paid
by any third party pursuant to a valid agreement with Issuer for a merger, share
exchange, consolidation or reorganization entered into after the date hereof and
on or prior to the delivery of the Repurchase Notice or (z) the average closing
price for shares of Common Stock on the New York Stock Exchange (the "NYSE")
(or, if the Common Stock is not then listed on the NYSE, any other national
securities exchange or automated quotation system on which the Common Stock is
then listed or quoted) for the twenty consecutive trading days immediately
preceding the delivery of the Repurchase Notice. In the event that a tender or
exchange offer is made for the Common Stock or an agreement is entered into for
a merger, share exchange, consolidation or reorganization involving
consideration other than cash, the value of the securities or other property
issuable or deliverable in exchange for the Common Stock shall be determined in
good faith by a nationally recognized investment banking firm mutually selected
by Issuer and Holder or Owner, as the case may be.
(b) Method of Repurchase. Subject to the terms of Section 9(a), Holder or
Owner, as the case may be, may exercise its right to require Issuer to
repurchase the Option, in whole or in part, and/or any Option Shares then owned
by Holder or Owner pursuant to this Section 9 by surrendering for this purpose
to Issuer, at its principal office, this Agreement or certificates for Option
Shares, as applicable, accompanied by a written notice or notices stating that
Holder or Owner elects to require Issuer to repurchase the Option and/or such
Option Shares in accordance with the provisions of this Section 9 (each such
notice, a "Repurchase Notice"). Within four business
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days after the surrender of the Agreement for the Option and/or certificates
representing Option Shares and the receipt of the Repurchase Notice, Issuer
shall deliver or cause to be delivered to Holder or Owner of Option Shares, as
the case may be, the applicable Option Repurchase Price and/or the Option Share
Repurchase Price or, in either case, the portion that Issuer is not then
prohibited under applicable law and regulation from so delivering, in
immediately available funds by a wire transfer to a bank account designated by
Grantee. In the event that the Repurchase Notice shall request the repurchase of
the Option in part, Issuer shall deliver with the Option Repurchase Price a new
Agreement evidencing the right of the Holder to purchase that number of shares
of Common Stock purchasable pursuant to the Option at the time of delivery of
the Repurchase Notice minus the number of shares of Common Stock represented by
that portion of the Option then being repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase. To the
extent that, upon or following the delivery of a Repurchase Notice, Issuer is
prohibited under applicable law or regulation from repurchasing the Option (or a
portion thereof) and/or any Option Shares subject to this Repurchase Notice (and
Issuer hereby undertakes to use its reasonable best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish this repurchase), Issuer shall
promptly so notify Holder or Owner, as the case may be, in writing and
thereafter deliver or cause to be delivered, from time to time, to Holder or
Owner, as the case may be, the portion of the Option Repurchase Price and the
Option Share Repurchase Price that Issuer is no longer prohibited from
delivering, within four business days after the date on which it is no longer so
prohibited; provided, however, that upon notification by Issuer in writing of
this prohibition, Holder or Owner, as the case may be, may, within 5 days of
receipt of this notification from Issuer, revoke in writing its Repurchase
Notice, whether in whole or to the extent of the prohibition, whereupon, in the
latter case, Issuer shall promptly (i) deliver to Holder or Owner, as the case
may be, that portion of the Option Repurchase Price and/or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii) (a)
deliver to Holder with respect to the Option, a new Agreement evidencing the
right of Holder to purchase that number of shares of Common Stock for which the
surrendered Agreement was exercisable at the time of delivery of the Repurchase
Notice less the number of shares as to which the Option Repurchase Price has
theretofore been delivered to Holder, and/or (b) deliver to the owner of Option
Shares, with respect to its Option Shares, a certificate for the Option Shares
as to which the Option Share Repurchase Price has not theretofore been delivered
to such owner. Notwithstanding anything to the contrary in this Agreement,
including, without limitation, the time limitations on the exercise of the
Option, Holder may exercise the Option at least until 150 days after the date
upon which Issuer is no longer prohibited from delivering all of the Option
Repurchase Price.
(d) Major Transactions. Issuer hereby agrees that, prior to the occurrence
of an Exercise Termination Event, Issuer shall not enter into or agree to enter
into any agreement for a Major Transaction (defined below) unless the other
party or parties thereto agree to assume in writing Issuer's obligations under
this Agreement. "Major Transaction" shall mean any merger or consolidation
involving the Issuer and any transaction involving a sale, transfer or other
disposition of a majority of the assets or shares of capital stock of the
Issuer.
10. Extension of Exercise Periods. The 150 and 700 day periods for exercise
of certain rights under Sections 2 and 9 shall be extended in each such case at
the request of Holder or Owner to the extent necessary to avoid liability by a
Holder or Owner under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), by reason of this exercise.
11. Assignment. Neither party may assign any of its rights or obligations
under this Agreement or the Option to any other person without the express
written consent of the other party except that Holder or Owner may assign its
rights in whole or in part to any of its affiliates and, in the event that a
Triggering Event shall have occurred prior to the occurrence of an Exercise
Termination Event, Holder or Owner may within 90 days following this Triggering
Event assign the Option or any of its other rights hereunder, in whole or in
part, to one or more third parties, provided that the affiliate and any such
third party shall execute this Agreement and agree to become subject to its
terms. Any attempted assignment in contravention of the preceding sentence shall
be null and void.
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12. Filings; Other Actions. Each party will use its reasonable best efforts
to make all filings with, and to obtain consents of, all third parties and
govern mental authorities necessary for the consummation of the transactions
contemplated by this Agreement.
13. Specific Performance. The parties acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party and that the
obligations of the parties shall be specifically enforceable through injunctive
or other equitable relief.
14. Severability; Etc. If any term, provision, covenant, or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired, or invalidated. If for any reason a court or regulatory
agency determines that Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 9, any portion of the Option or the
full number of shares of Common Stock provided in Section 1(a) (as adjusted
pursuant Section 1(b) and 7), it is the express intention of the parties to
allow Holder to acquire or to require Issuer to repurchase such lesser portion
of the Option or number of shares as may be permissible, without any amendment
or modification of this Agreement.
15. Notices. All notices, requests, instructions, or other documents to be
given hereunder shall be furnished in accordance with Section 9.2 of the Merger
Agreement.
16. Expenses. Except as otherwise expressly provided in this Agreement or
in the Merger Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring the expense, including fees and expenses of its own
financial consultants, investment bankers, accountants, and counsel.
17. Entire Agreement, Etc. This Agreement and Merger Agreement constitute
the entire agreement, and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, between the parties, with
respect to the subject matter of this Agreement. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties, and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
18. Limitation on Profit. (a) Notwithstanding any other provision of this
Agreement, in no event shall the Total Profit (as defined) plus any Liquidation
Amounts (as defined) exceed in the aggregate $275,000,000 and, if it otherwise
would exceed this amount, the Grantee, at its sole election, shall either (i)
reduce the number of shares of Common Stock subject to this Option, (ii) deliver
to the Issuer for cancellation Option Shares previously purchased by Grantee or
any other Holder or Owner, (iii) pay to the Issuer cash or refund in cash
Liquidation Amounts previously paid or reduce or waive the amount of any
Liquidation Amount payable pursuant to Section 8.2 of the Merger Agreement, or
(iv) any combination thereof, so that Grantee's realized Total Profit, when
aggregated with any Liquidation Amounts so paid or payable to Grantee, shall not
exceed $275,000,000 after taking into account the foregoing actions.
The term "Liquidation Amounts" means the aggregate amount of any Initial
Fred Meyer Termination Fee and Additional Fred Meyer Termination Fee (each as
defined in the Merger Agreement) payable or paid to Grantee and its assigns
pursuant to Section 8.2 of the Merger Agreement (and not repaid or refunded to
the Issuer pursuant to this Section 18 or otherwise).
(b) Notwithstanding any other provision of this Agreement, the Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined) which, together with any
Liquidation Amount theretofore paid or then payable to Grantee (and not repaid
or refunded to the Issuer pursuant to Section 18 or otherwise), would exceed
$275,000,000 provided, that nothing in this sentence shall restrict any exercise
of the Option permitted hereby on any subsequent date.
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(c) As used in this Agreement, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount received by
Grantee, any other Holder and any Owner pursuant to Issuer's repurchase of the
Option (or any portion) or any Option Shares pursuant to Section 9, less, in the
case of any repurchase of Option Shares, (y) the Grantee's, any other Holder's
and any Owner's purchase price for such Option Shares, as the case may be, (ii)
(x) the net cash amounts (and the fair market value of any other consideration)
received by Grantee, any other Holder and any Owner pursuant to the sale of
Option Shares (or any other securities into which such Option Shares are
converted or exchanged) to any unaffiliated party, less (y) the Grantee's (or
any other Holder's or Owner's) purchase price of such Option Shares, and (iii)
the net cash amounts (and the fair market value of any other consideration)
received by Grantee (or any other Holder) on the transfer of the Option (or any
portion thereof) to any unaffiliated party. In the case of clauses (ii)(x) and
(iii) above, the Grantee and each Holder and Owner agrees to furnish as promptly
as reasonably practicable after any disposition of all or a portion of the
Option or Option Shares a complete and correct statement, certified by a
responsible executive officer or partner of Grantee, Holder or Owner, as
applicable, of the net cash amounts (and the fair market value of any other
consideration) received in connection with any sale or transfer of the Option or
Option Shares.
(d) As used in this Agreement, the term "Notional Total Profit" with
respect to any number of shares as to which Grantee and any other Holder may
propose to exercise the Option shall be the Total Profit determined as of the
date of such proposal (taking into account the provision of Section 18(a))
assuming that the Option were exercised on such date for such number of shares
and assuming that such shares, together with all other Option Shares held by
Grantee and any other Holders and Owners and their respective affiliates as of
such date were sold for cash at the closing market price for the Common Stock on
the NYSE Composite Transaction Tape as of the close of business on the preceding
trading day (less customary brokerage commissions).
19. Captions. The section, paragraph and other captions in this Agreement
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions of
this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, and by both parties in separate counterparts, each of which when
exercised shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
21. Restrictions on Certain Actions; Covenants of Grantee. From and after
the date of exercise of the Option in whole or part, and for as long as Grantee
owns shares of Common Stock acquired pursuant to the exercise of the Option that
represent at least 2% of the then outstanding Voting Securities:
(a) Without the prior consent of the Board of Directors of Issuer
specifically expressed in a resolution, Grantee will not, and will not
permit any of its Affiliates (as defined) to:
(i) acquire or agree, offer, seek or propose to acquire, ownership
(including, but not limited to, beneficial ownership as defined in Rule
13d-3 under the Exchange Act) of more than 20% of any class of Voting
Securities (as herein defined), or any rights or options to acquire such
ownership (including from a third party);
(ii) propose a merger, consolidation or similar transaction
involving the Issuer;
(iii) offer, seek or propose to purchase, lease or otherwise
acquire all or a substantial portion of the assets of the Issuer;
(iv) seek or propose to influence or control the management or
policies of the Issuer or to obtain representation on the Issuer's Board
of Directors, or solicit or participate in the solicitation of any
proxies or consents with respect to the securities of the Issuer;
(v) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the
foregoing; or
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(vi) seek or request permission to do any of the foregoing or seek
any permission to make any public announcement with respect to any of
the foregoing.
The provisions of this Section 21 shall not apply to actions taken
pursuant to the Merger Agreement; and
(b) Grantee may not sell, transfer any beneficial interest in, pledge,
hypothecate or otherwise dispose of any Voting Securities at any time
except as follows:
(i) pursuant to a tender offer, exchange offer, merger or
consolidation of the Issuer, or in connection with a sale of all or
substantially all of the Issuer's assets; or
(ii) pursuant to a registered public offering under Section 8; or
(iii) in compliance with Rule 144 of the General Rules and
Regulations under the Securities Act (or any similar successor rule);
and
(c) (i) Grantee agrees to be present in person or to be represented by
proxy at all stockholder meetings of Issuer so that all shares of Voting
Securities beneficially owned by it or its Affiliates may be counted for
the purpose of determining the presence of a quorum at such meetings.
(ii) Grantee agrees to vote or cause to be voted all Voting
Securities beneficially owned by it or its Affiliates proportionately
with the votes cast by all other stockholders present and voting.
(iii) The provision of this Section 21 shall terminate at such time
as Grantee beneficially owns more than 50% of the outstanding Common
Stock of Issuer.
22. Governing Law. This Agreement shall be governed by and continued in
accordance with the internal law of the State of New York.
23. Definitions. For the purposes of this Agreement the following terms
shall have the meanings specified below:
"Affiliate" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of management or policies,
whether through ownership or securities or partnership or other ownership
interest, by contract or otherwise).
"Voting Securities" means the shares of Common Stock, preferred stock
and any other securities of Issuer entitled to vote generally for the
election of directors or any other securities (including rights and
options), convertible into, exchangeable into or exercisable for, any of
the foregoing (whether or not presently exercisable, convertible or
exchangeable).
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, entity
or group (as defined in the Exchange Act).
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
THE KROGER CO.
By: /s/ PAUL W. HELDMAN
------------------------------------
Name: Paul W. Heldman
Title: Senior Vice President,
Secretary
and General Counsel
FRED MEYER, INC.
By: /s/ ROBERT G. MILLER
------------------------------------
Name: Robert G. Miller
Title: President and Chief
Executive Officer
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APPENDIX C
CONFORMED COPY
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS
CONTAINED HEREIN AND TO RESALE RESTRICTIONS UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of October 18, 1998 (this "Agreement"),
between The Kroger Co., an Ohio corporation ("Issuer"), and Fred Meyer, Inc., a
Delaware corporation ("Grantee").
WHEREAS, Issuer, Grantee, and a wholly owned subsidiary of Issuer (the
"Merger Sub") propose to enter into an Agreement and Plan of Merger, to be dated
as of this date (the "Merger Agreement"), pursuant to which Merger Sub is to
merge with and into Grantee, with Grantee continuing as the surviving
corporation and a wholly owned subsidiary of Issuer after such merger, and in
such merger, each share of common stock, par value $.01 per share, of Grantee
will be converted to a right to receive one share of common stock, par value
$1.00 per share, of Issuer ("Common Stock") as provided in the Merger Agreement;
WHEREAS, as an inducement and condition to Grantee's willingness to enter
into the Merger Agreement and in consideration thereof, Issuer is granting to
Grantee, pursuant to the terms and subject to the conditions contained in this
Agreement, an option to purchase 19.9% of the outstanding shares of Common
Stock; and
WHEREAS, the Board of Directors of Issuer has approved the grant by Issuer
to Grantee of the Option (defined below) pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth in this Agreement and in the Merger Agreement, the
parties agree as follows:
1. The Option. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, pursuant to the terms and subject
to the conditions hereof, up to 55,906,472 fully paid and nonassessable shares
of Common Stock at a price of $50 per share (the "Option Price"); provided,
however, that in no event shall the number of shares for which the Option is
exercisable exceed 19.9% of the shares of Common Stock issued and outstanding at
the time of exercise (without giving effect to the shares of Common Stock issued
or issuable under the Option). The number of shares of Common Stock purchasable
upon exercise of the Option and the Option Price are subject to adjustment as
set forth in this Agreement.
2. Exercise; Closing.
(a) Conditions to Exercise; Termination. Grantee or any other person that
shall become a holder of all or a part of the Option in accordance with the
terms of this Agreement (each such person, including Grantee, being referred to
as "Holder") may exercise the Option, in whole or in part, from time to time, if
but only if a Triggering Event has occurred, and prior to the occurrence of an
Exercise Termination Event (as defined below). The right to exercise the Option
shall terminate upon either (i) the occurrence of the Effective Time (as defined
in the Merger Agreement) or (ii) (x) if a Notice Date (as defined in Section
2(d)) has not previously occurred, the close of business on the earlier of (A)
the day that is 150 days after the date of a Triggering Event, (B) the date upon
which the Merger Agreement is terminated if no Termination Fee (as defined in
the Merger Agreement) could be payable by Issuer pursuant to the terms of the
Merger Agreement upon the occurrence of certain events or the passage of time,
and (C) 700 days following the date upon which the Merger Agreement is
terminated, and (y) if a Notice Date has previously occurred, 150 days after
that Notice Date (the events in (i) or (ii) being referred to as "Exercise
Termination Events").
(b) Triggering Event. A "Triggering Event" shall have occurred at such time
at which Grantee becomes entitled to receive the Additional Kroger Termination
Fee from Issuer pursuant to Section 8.2(b) of the Merger Agreement.
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(c) Notice of Trigger Event by Issuer. Issuer shall notify Grantee promptly
in writing of the occurrence of any Triggering Event (it being understood that
the giving of the notice by Issuer shall not be a condition to the right of
Holder to exercise the option).
(d) Notice of Exercise. If Holder shall be entitled to and desires to
exercise the Option, in whole or in part, it shall send to Issuer a written
notice (any date on which this notice is given, in accordance with Section 15,
is referred to as a "Notice Date") specifying (i) the total number of shares
that Holder will purchase pursuant to the exercise and (ii) a place and date (a
"Closing Date") not earlier than three business days nor later than 60 business
days from the related Notice Date for the closing of the purchase (a "Closing");
provided, that if a filing or any approval is required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), or prior notification to or prior approval from any regulatory authority
is required under any other law, statute, rule or regulation (including
applicable rules and regulations of national securities exchanges) in connection
with this purchase, Holder or Issuer, as required, promptly after the Notice
Date, shall file all necessary notices and applications for approval and shall
expeditiously process the same and the period of time referred to in clause (ii)
shall commence on the date on which all required notification and waiting
periods, if any, shall have expired or been terminated and all required
approvals, if any, shall have been obtained. Any exercise of the Option shall be
deemed to occur on the date of the Notice Date relating thereto. Each of Holder
and Issuer agrees to use its reasonable best efforts to cooperate with and
provide information to the other, for the purpose of any required notice or
application for approval.
(e) Payment of Purchase Price; Delivery of Common Stock. (i) At each
Closing, Holder shall pay to Issuer the aggregate purchase price for the shares
of Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by a wire transfer to a bank account designated by Issuer;
provided, that failure or refusal of Issuer to designate a bank account shall
not preclude Holder from exercising the Option, in whole or in part.
(ii) At each Closing, simultaneously with the payment of the aggregate
purchase price by Holder, Issuer shall deliver to Holder a certificate or
certificates representing the number of shares of Common Stock purchased by
Holder and, if the Option shall be exercised in part only, a new Agreement
providing for an Option evidencing the rights of Holder to purchase the balance
(as adjusted pursuant to the terms hereof) of the shares then purchasable
hereunder and the Holder shall deliver this Agreement and a letter agreeing that
the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable laws or the provisions of this Agreement.
(iii) Notwithstanding anything to the contrary contained in paragraphs (i)
and (ii) of this Section 2(e), Holder shall have the right (a "Cashless Exercise
Right") to direct the Issuer, in the written notice of exercise referred to in
Section 2(d), to reduce the number of shares of Common Stock required to be
delivered by Issuer to Holder at any Closing by such number of shares of Common
Stock that have an aggregate Market/Offer Price (as defined in Section 9(a))
equal to the aggregate purchase price payable at such Closing (but for this
paragraph (iii)), or any portion thereof, in lieu of Holder paying to the Issuer
at such Closing such aggregate purchase price or portion thereof, as the case
may be. Any exercise of the Option in which, and to the extent to which, Holder
exercises its Cashless Exercise Right pursuant to this paragraph (iii) shall be
referred to as a "Cashless Exercise."
(f) Restrictive Legend. Certificates for Common Stock delivered at a
Closing may be endorsed at the option of Issuer with a restrictive legend that
shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and Issuer, a copy of which agreement is on file at the principal office of
Issuer, and to resale restrictions arising under the Securities Act of
1933, as amended. A copy of the aforementioned agreement will be mailed to
the holder without charge promptly after receipt by Issuer of a written
request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "Securities Act"),
in the above legend shall be removed by delivery of substitute certificate(s)
without this reference if Holder shall have delivered to Issuer a copy of a
letter from the staff of the Securities and
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Exchange Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that this legend is not
required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) both are satisfied. In addition, the certificates shall
bear any other legend as may be required by applicable law.
(g) Ownership of Record; Tender of Purchase Price; Expenses. Upon the
giving by Holder to Issuer of the written notice of exercise referred to in
Section 2(d) and, except to the extent this notice relates to a Cashless
Exercise, the tender of the applicable purchase price in immediately available
funds, Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon the exercise, notwithstanding that the stock transfer books
of Issuer shall then be closed or that certificates representing the shares of
Common Stock shall not have been actually delivered to Holder. Issuer shall pay
all expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issuance
and delivery of stock certificates under this Section 2 in the name of Holder or
its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and covenants,
Issuer agrees:
(a) Shares Reserved for Issuance. To maintain, free from preemptive
rights, sufficient authorized but unissued or treasury shares of Common
Stock so that the Option may be fully exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to
purchase shares of Common Stock;
(b) No Avoidance. Not to avoid or seek to avoid (whether by charter
amendment or through reorganization, consolidation, merger, issuance of
rights, dissolution or sale of assets, or by any other voluntary act) the
observance or performance of any of the covenants, agreements or conditions
to be observed or performed hereunder by Issuer and not to take any action
which would cause any of its representations or warranties not to be true
in any material respect; and
(c) Further Assurances. Promptly after this date to take all actions
as may from time to time be required (including (i) complying with all
applicable premerger notification, reporting and waiting period
requirements under the HSR Act and (ii) in the event that any other prior
approval of or notice to any regulatory authority is necessary under any
applicable federal, state or local law before the Option may be exercised,
cooperating fully with Holder in preparing and processing the required
applications or notices) in order to permit Holder to exercise the Option
and purchase shares of Common Stock pursuant to such exercise.
4. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Holder that Issuer has all requisite corporate power and authority
and has taken all corporate action necessary to authorize, execute, deliver and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby; and that this Agreement has been duly and validly
authorized, executed and delivered by Issuer. Issuer hereby further represents
and warrants to Holder that it has taken all necessary corporate action to
authorize and reserve for issuance upon exercise of the Option the number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time or from time to time issuable upon exercise of the Option and that all
shares of Common Stock, upon issuance pursuant to the Option, will be delivered
free and clear of all claims, liens, encumbrances, and security interests (other
than those created by this Agreement and the Securities Act) and not subject to
any preemptive rights. The execution and delivery of this Agreement, the grant
of the Option hereunder and the exercise in whole or in part of the Option in
accordance with this Agreement, will not (i) result in the occurrence of any
"Distribution Date" or "Stock Acquisition Date" under the Kroger Rights
Agreement (as defined in the Merger Agreement) (ii) permit any Person to
exercise any rights issued under any rights agreements of Issuer, or (iii) cause
the separation of any such rights from the shares of Common Stock to which they
are attached or such rights becoming exercisable. Issuer has taken all action
necessary to make inapplicable to Grantee any state takeover, business
combination, control share or other similar statute and any charter provisions
which would otherwise be applicable to Grantee or any transaction involving
Issuer and
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Grantee by reason of the grant of the Option, the acquisition of beneficial
ownership of shares of Common Stock as a result of the grant of the Option, or
the acquisition of shares of Common Stock upon exercise of the Option.
5. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that Grantee has all requisite corporate power and authority
and has taken all corporate action necessary in order to authorize, execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered by Grantee. Grantee represents and warrants
to Issuer that any shares of Common Stock acquired upon exercise of the Option
will be acquired for Grantee's own account, and will not be, and the Option is
not being, acquired by Grantee with a view to the distribution thereof in
violation of any applicable provision of the Securities Act. Grantee has such
knowledge and experience in business and financial matters as to be capable of
utilizing the information which is available to Grantee to evaluate the merits
and risks of an investment by Grantee in the Common Stock and Grantee is able to
bear the economic risks of any investment in the shares of Common Stock which
Grantee may acquire upon exercise of the Option.
6. Exchange; Replacement. This Agreement and the Option are exchangeable,
without expense, at the option of Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase
on the same terms and subject to the same conditions as set forth in this
Agreement in the aggregate the same number of shares of Common Stock purchasable
at such time hereunder, subject to corresponding adjustments in the number of
shares of Common Stock purchasable upon exercise so that the aggregate number of
such shares under all Agreements issued in respect of this Agreement shall not
exceed 19.9% of the outstanding shares of Common Stock of the Issuer (without
giving effect to shares of Common Stock issued or issuable pursuant to the
Option). Unless the context shall require otherwise, the terms "Agreement" and
"Option" as used in this Agreement include any Agreements and related options
for which this Agreement (and the Option granted hereby) may be exchanged. Upon
(i) receipt by Issuer of reasonably satisfactory evidence of the loss, theft,
destruction, or mutilation of this Agreement, (ii) receipt by Issuer of
reasonably satisfactory indemnification in the case of loss, theft or
destruction and (iii) surrender and cancellation of this Agreement in the case
of mutilation, Issuer will execute and deliver a new Agreement of like tenor and
date. Any new Agreement executed and delivered shall constitute an additional
contractual obligation on the part of Issuer, whether or not the Agreement so
lost, stolen, destroyed or mutilated shall at any time be enforceable by any
Person other than the holder of the new Agreement.
7. Adjustments. The total number of shares of Common Stock purchasable upon
the exercise of the Option and the Option Price shall be subject to adjustment
from time to time as follows:
In the event of any change in, or distribution in respect of, the
outstanding shares of Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares or the like, the type (including, in the event of any
Major Transaction described in Section 9(d) hereof in which Issuer is not
the surviving or continuing corporation, to provide that the Option shall
be exercisable for shares of common stock of the surviving or continuing
corporation in such Major Transaction) and number of shares of Common Stock
purchasable upon exercise of the Option and the Option Price shall be
appropriately adjusted in such manner as shall fully preserve the economic
benefits contemplated hereby, and proper provision shall be made in the
agreements governing any such transactions to provide for the proper
adjustment and the full satisfaction of Issuer's obligation hereunder.
8. Registration. At any time after a Triggering Event occurs and prior to
an Exercise Termination Event, Issuer shall, at the request of Grantee delivered
in the written notice of exercise of the Option provided for in Section 2(d),
and, with respect to the first demand registration as to which the Grantee
exercises its demand rights under this Section 8, delivered no later than 90
days following such Triggering Event, as promptly as practicable, prepare, file
and keep current a shelf registration statement under the Securities Act
covering any or all shares issued and issuable pursuant to the Option and shall
use its reasonable best efforts to cause this registration statement to become
effective and remain current in order to permit the sale or other disposition of
any shares of Common Stock issued upon total or partial exercise of the Option
("Option Shares") in accordance with any plan
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of disposition reasonably requested by Grantee; provided, however, that Issuer
may postpone filing a registration statement relating to a registration request
by Grantee under this Section 8 or suspend effectiveness of that registration
statement, in each case for a period of time (not in excess of 90 days) if in
Grantee's judgment this filing or continued effectiveness would require the
disclosure of material information that Issuer has a bona fide business purpose
for preserving as confidential. Issuer will use its reasonable best efforts to
cause such registration statement to remain effective for a period of 365 days
or such shorter time as is reasonably appropriate to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations. In
connection with any such registration, Issuer and Holder shall provide each
other with representations, warranties, indemnities and other agreements
customarily given in connection with such registrations. To the extent
reasonably requested by Holder in connection with this registration, Issuer
shall (x) become a party to any underwriting agreement relating to the sale of
such shares, but only to the extent of obligating Issuer in respect of
representations, warranties, indemnities, contribution and other agreements (in
each case reasonably acceptable to Issuer) customarily made by issuers in these
underwriting agreements, and (y) use its reasonable best efforts to take all
further actions which shall be reasonably necessary to effect such registration
and sale (including participating in road-show presentations and causing to be
delivered customary certificates, opinions of counsel and "comfort letters").
Notwithstanding anything to the contrary contained in the Agreement, in no event
shall Issuer be obligated to effect more than two registrations pursuant to this
Section 8 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement. Upon the effectiveness
of a registration statement demanded pursuant to this Section 8, the Holder of
the Option Shares that are the subject of such registration may not thereafter
require the Issuer to repurchase such Option Shares so long as Issuer complies
with its obligations under this Section 8.
9. Repurchase of Option and/or Shares.
(a) Repurchase; Repurchase Price. Upon the occurrence of a Triggering Event
and prior to an Exercise Termination Event, (i) at the request of Holder,
delivered in writing within 150 days of this occurrence (or such later period as
provided in Section 2(d) with respect to any required notice or application or
in Section 10), Issuer shall repurchase the Option from Holder, in whole or in
part, at a price (the "Option Repurchase Price") equal to the number of shares
of Common Stock then purchasable upon exercise of the Option (or such lesser
number of shares as may be designated in the Repurchase Notice (as defined in
Section 9(b)) multiplied by the amount by which the Market/Offer Price (as
defined below) exceeds the Option Price or (ii) at the request of any owner of
Option Shares (an "Owner") delivered in writing within 150 days of this
occurrence (or such later period as provided in Section 2(d) with respect to any
required notice or application or in Section 10), Issuer shall repurchase such
number of Option Shares from the Owner as the Owner shall designate in the
Repurchase Notice at a price (the "Option Share Repurchase Price") equal to the
number of shares designated multiplied by the Market/Offer Price. The term
"Market/Offer Price" shall mean the highest of (x) the price per share of Common
Stock at which a tender or exchange offer for Common Stock either has been
consummated, or at which a Person has publicly announced its intention to
commence a tender or exchange offer, after the date of this Agreement and prior
to the delivery of the Repurchase Notice, and which offer either has been
consummated and not withdrawn or terminated as of the date payment of the
Repurchase Price is made, or has been publicly announced and the intention to
make a tender or exchange offer has not been withdrawn as of the date payment of
the Repurchase Price is made, (y) the price per share of Common Stock to be paid
by any third party pursuant to a valid agreement with Issuer for a merger, share
exchange, consolidation or reorganization entered into after the date hereof and
on or prior to the delivery of the Repurchase Notice or (z) the average closing
price for shares of Common Stock on the New York Stock Exchange (the "NYSE")
(or, if the Common Stock is not then listed on the NYSE, any other national
securities exchange or automated quotation system on which the Common Stock is
then listed or quoted) for the twenty consecutive trading days immediately
preceding the delivery of the Repurchase Notice. In the event that a tender or
exchange offer is made for the Common Stock or an agreement is entered into for
a merger, share exchange, consolidation or reorganization involving
consideration other than cash, the value of the securities or other property
issuable or deliverable in exchange for the Common Stock shall be determined in
good faith by a nationally recognized investment banking firm mutually selected
by Issuer and Holder or Owner, as the case may be.
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(b) Method of Repurchase. Subject to the terms of Section 9(a), Holder or
Owner, as the case may be, may exercise its right to require Issuer to
repurchase the Option, in whole or in part, and/or any Option Shares then owned
by Holder or Owner pursuant to this Section 9 by surrendering for this purpose
to Issuer, at its principal office, this Agreement or certificates for Option
Shares, as applicable, accompanied by a written notice or notices stating that
Holder or Owner elects to require Issuer to repurchase the Option and/or such
Option Shares in accordance with the provisions of this Section 9 (each such
notice, a "Repurchase Notice"). Within four business days after the surrender of
the Agreement for the Option and/or certificates representing Option Shares and
the receipt of the Repurchase Notice, Issuer shall deliver or cause to be
delivered to Holder or Owner of Option Shares, as the case may be, the
applicable Option Repurchase Price and/or the Option Share Repurchase Price or,
in either case, the portion that Issuer is not then prohibited under applicable
law and regulation from so delivering, in immediately available funds by a wire
transfer to a bank account designated by Grantee. In the event that the
Repurchase Notice shall request the repurchase of the Option in part, Issuer
shall deliver with the Option Repurchase Price a new Agreement evidencing the
right of the Holder to purchase that number of shares of Common Stock
purchasable pursuant to the Option at the time of delivery of the Repurchase
Notice minus the number of shares of Common Stock represented by that portion of
the Option then being repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase. To the
extent that, upon or following the delivery of a Repurchase Notice, Issuer is
prohibited under applicable law or regulation from repurchasing the Option (or a
portion thereof) and/or any Option Shares subject to this Repurchase Notice (and
Issuer hereby undertakes to use its reasonable best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish this repurchase), Issuer shall
promptly so notify Holder or Owner, as the case may be, in writing and
thereafter deliver or cause to be delivered, from time to time, to Holder or
Owner, as the case may be, the portion of the Option Repurchase Price and the
Option Share Repurchase Price that Issuer is no longer prohibited from
delivering, within four business days after the date on which it is no longer so
prohibited; provided, however, that upon notification by Issuer in writing of
this prohibition, Holder or Owner, as the case may be, may, within 5 days of
receipt of this notification from Issuer, revoke in writing its Repurchase
Notice, whether in whole or to the extent of the prohibition, whereupon, in the
latter case, Issuer shall promptly (i) deliver to Holder or Owner, as the case
may be, that portion of the Option Repurchase Price and/or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii) (a)
deliver to Holder with respect to the Option, a new Agreement evidencing the
right of Holder to purchase that number of shares of Common Stock for which the
surrendered Agreement was exercisable at the time of delivery of the Repurchase
Notice less the number of shares as to which the Option Repurchase Price has
theretofore been delivered to Holder, and/or (b) deliver to the owner of Option
Shares, with respect to its Option Shares, a certificate for the Option Shares
as to which the Option Share Repurchase Price has not theretofore been delivered
to such owner. Notwithstanding anything to the contrary in this Agreement,
including, without limitation, the time limitations on the exercise of the
Option, Holder may exercise the Option at least until 150 days after the date
upon which Issuer is no longer prohibited from delivering all of the Option
Repurchase Price.
(d) Major Transactions. Issuer hereby agrees that, prior to the occurrence
of an Exercise Termination Event, Issuer shall not enter into or agree to enter
into any agreement for a Major Transaction (defined below) unless the other
party or parties thereto agree to assume in writing Issuer's obligations under
this Agreement. "Major Transaction" shall mean any merger or consolidation
involving the Issuer and any transaction involving a sale, transfer or other
disposition of a majority of the assets or shares of capital stock of the
Issuer.
10. Extension of Exercise Periods. The 150 and 700 day periods for exercise
of certain rights under Sections 2 and 9 shall be extended in each such case at
the request of Holder or Owner to the extent necessary to avoid liability by a
Holder or Owner under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), by reason of this exercise.
11. Assignment. Neither party may assign any of its rights or obligations
under this Agreement or the Option to any other person without the express
written consent of the other party except that Holder or Owner may assign its
rights in whole or in part to any of its affiliates and, in the event that a
Triggering Event shall have occurred prior to the occurrence of an Exercise
Termination Event, Holder or Owner may within 90 days following this Triggering
Event assign the Option or any of its other rights hereunder, in whole or in
part, to one
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or more third parties, provided that the affiliate and any such third party
shall execute this Agreement and agree to become subject to its terms. Any
attempted assignment in contravention of the preceding sentence shall be null
and void.
12. Filings; Other Actions. Each party will use its reasonable best efforts
to make all filings with, and to obtain consents of, all third parties and
govern mental authorities necessary for the consummation of the transactions
contemplated by this Agreement.
13. Specific Performance. The parties acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party and that the
obligations of the parties shall be specifically enforceable through injunctive
or other equitable relief.
14. Severability; Etc. If any term, provision, covenant, or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired, or invalidated. If for any reason a court or regulatory
agency determines that Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 9, any portion of the Option or the
full number of shares of Common Stock provided in Section 1(a) (as adjusted
pursuant Section 1(b) and 7), it is the express intention of the parties to
allow Holder to acquire or to require Issuer to repurchase such lesser portion
of the Option or number of shares as may be permissible, without any amendment
or modification of this Agreement.
15. Notices. All notices, requests, instructions, or other documents to be
given hereunder shall be furnished in accordance with Section 9.2 of the Merger
Agreement.
16. Expenses. Except as otherwise expressly provided in this Agreement or
in the Merger Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring the expense, including fees and expenses of its own
financial consultants, investment bankers, accountants, and counsel.
17. Entire Agreement, Etc. This Agreement and Merger Agreement constitute
the entire agreement, and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, between the parties, with
respect to the subject matter of this Agreement. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties, and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
18. Limitation on Profit. (a) Notwithstanding any other provision of this
Agreement, in no event shall the Total Profit (as defined) plus any Liquidation
Amounts (as defined) exceed in the aggregate $460,000,000 and, if it otherwise
would exceed this amount, the Grantee, at its sole election, shall either (i)
reduce the number of shares of Common Stock subject to this Option, (ii) deliver
to the Issuer for cancellation Option Shares previously purchased by Grantee or
any other Holder or Owner, (iii) pay to the Issuer cash or refund in cash
Liquidation Amounts previously paid or reduce or waive the amount of any
Liquidation Amount payable pursuant to Section 8.2 of the Merger Agreement, or
(iv) any combination thereof, so that Grantee's realized Total Profit, when
aggregated with any Liquidation Amounts so paid or payable to Grantee, shall not
exceed $460,000,000 after taking into account the foregoing actions.
The term "Liquidation Amounts" means the aggregate amount of any Initial
Kroger Termination Fee and Additional Kroger Termination Fee (each as defined in
the Merger Agreement) payable or paid to Grantee and its assigns pursuant to
Section 8.2 of the Merger Agreement (and not repaid or refunded to the Issuer
pursuant to this Section 18 or otherwise).
(b) Notwithstanding any other provision of this Agreement, the Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined) which, together with
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any Liquidation Amount theretofore paid or then payable to Grantee (and not
repaid or refunded to the Issuer pursuant to Section 18 or otherwise), would
exceed $460,000,000 provided, that nothing in this sentence shall restrict any
exercise of the Option permitted hereby on any subsequent date.
(c) As used in this Agreement, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i)(x) the amount received by
Grantee, any other Holder and any Owner pursuant to Issuer's repurchase of the
Option (or any portion) or any Option Shares pursuant to Section 9, less, in the
case of any repurchase of Option Shares, (y) the Grantee's, any other Holder's
and any Owner's purchase price for such Option Shares, as the case may be,
(ii)(x) the net cash amounts (and the fair market value of any other
consideration) received by Grantee, any other Holder and any Owner pursuant to
the sale of Option Shares (or any other securities into which such Option Shares
are converted or exchanged) to any unaffiliated party, less (y) the Grantee's
(or any other Holder's or Owner's) purchase price of such Option Shares, and
(iii) the net cash amounts (and the fair market value of any other
consideration) received by Grantee (or any other Holder) on the transfer of the
Option (or any portion thereof) to any unaffiliated party. In the case of
clauses (ii)(x) and (iii) above, the Grantee and each Holder and Owner agrees to
furnish as promptly as reasonably practicable after any disposition of all or a
portion of the Option or Option Shares a complete and correct statement,
certified by a responsible executive officer or partner of Grantee, Holder or
Owner, as applicable, of the net cash amounts (and the fair market value of any
other consideration) received in connection with any sale or transfer of the
Option or Option Shares.
(d) As used in this Agreement, the term "Notional Total Profit" with
respect to any number of shares as to which Grantee and any other Holder may
propose to exercise the Option shall be the Total Profit determined as of the
date of such proposal (taking into account the provision of Section 18(a))
assuming that the Option were exercised on such date for such number of shares
and assuming that such shares, together with all other Option Shares held by
Grantee and any other Holders and Owners and their respective affiliates as of
such date were sold for cash at the closing market price for the Common Stock on
the NYSE Composite Transaction Tape as of the close of business on the preceding
trading day (less customary brokerage commissions).
19. Captions. The section, paragraph and other captions in this Agreement
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions of
this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, and by both parties in separate counterparts, each of which when
exercised shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
21. Restrictions on Certain Actions; Covenants of Grantee. From and after
the date of exercise of the Option in whole or part, and for as long as Grantee
owns shares of Common Stock acquired pursuant to the exercise of the Option that
represent at least 2% of the then outstanding Voting Securities:
(a) Without the prior consent of the Board of Directors of Issuer
specifically expressed in a resolution, Grantee will not, and will not permit
any of its Affiliates (as defined) to:
(i) acquire or agree, offer, seek or propose to acquire, ownership
(including, but not limited to, beneficial ownership as defined in Rule
13d-3 under the Exchange Act) of more than 20% of any class of Voting
Securities (as herein defined), or any rights or options to acquire such
ownership (including from a third party);
(ii) propose a merger, consolidation or similar transaction involving
the Issuer;
(iii) offer, seek or propose to purchase, lease or otherwise acquire
all or a substantial portion of the assets of the Issuer;
(iv) seek or propose to influence or control the management or
policies of the Issuer or to obtain representation on the Issuer's Board of
Directors, or solicit or participate in the solicitation of any proxies or
consents with respect to the securities of the Issuer;
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(v) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing;
or
(vi) seek or request permission to do any of the foregoing or seek
any permission to make any public announcement with respect to any of the
foregoing.
The provisions of this Section 21 shall not apply to actions taken pursuant
to the Merger Agreement; and
(b) Grantee may not sell, transfer any beneficial interest in, pledge,
hypothecate or otherwise dispose of any Voting Securities at any time except as
follows:
(i) pursuant to a tender offer, exchange offer, merger or
consolidation of the Issuer, or in connection with a sale of all or
substantially all of the Issuer's assets; or
(ii) pursuant to a registered public offering under Section 8; or
(iii) in compliance with Rule 144 of the General Rules and Regulations
under the Securities Act (or any similar successor rule); and
(c)(i) Grantee agrees to be present in person or to be represented by proxy
at all stockholder meetings of Issuer so that all shares of Voting Securities
beneficially owned by it or its Affiliates may be counted for the purpose of
determining the presence of a quorum at such meetings.
(ii) Grantee agrees to vote or cause to be voted all Voting
Securities beneficially owned by it or its Affiliates proportionately with
the votes cast by all other stockholders present and voting.
(iii) The provision of this Section 21 shall terminate at such time as
Grantee beneficially owns more than 50% of the outstanding Common Stock of
Issuer.
22. Governing Law. This Agreement shall be governed by and continued in
accordance with the internal law of the State of New York.
23. Definitions. For the purposes of this Agreement the following terms
shall have the meanings specified below:
"Affiliate" shall mean, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of management or policies, whether through ownership or securities or
partnership or other ownership interest, by contract or otherwise).
"Voting Securities" means the shares of Common Stock, preferred stock and
any other securities of Issuer entitled to vote generally for the election of
directors or any other securities (including rights and options), convertible
into, exchangeable into or exercisable for, any of the foregoing (whether or not
presently exercisable, convertible or exchangeable).
"Person" means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization, entity or group (as
defined in the Exchange Act).
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
FRED MEYER, INC.
By: /s/ ROBERT G. MILLER
------------------------------------
Name: Robert G. Miller
Title: President and Chief
Executive Officer
THE KROGER CO.
By: /s/ PAUL W. HELDMAN
------------------------------------
Name: Paul W. Heldman
Title: Senior Vice President,
Secretary
and General Counsel
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APPENDIX D
[GOLDMAN, SACHS & CO. LETTERHEAD]
October 18, 1998
Board of Directors
The Kroger Co.
1014 Vine Street
Cincinnati, Ohio 45202
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to The Kroger Co. ("Kroger") of the exchange ratio (the "Exchange Ratio")
of one share of Common Stock, par value $1.00 per share (the "Kroger Common
Stock"), of Kroger to be exchanged by Kroger for each share of Common Stock, par
value $0.01 per share (the "Fred Meyer Common Stock"), of Fred Meyer, Inc.
("Fred Meyer") pursuant to the Agreement and Plan of Merger, dated as of October
18, 1998, by and among Kroger, Jobsite Holdings, a wholly-owned subsidiary of
Kroger, and Fred Meyer (the "Agreement").
Goldman, Sachs & Co. ("Goldman Sachs"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. We are familiar with Kroger, having provided investment banking
services to Kroger from time-to-time, including having acted as lead manager of
numerous equity and debt financings, and having acted as its financial advisor
in connection with, and having participated in certain of the negotiations
leading to, the Agreement. We are familiar with Fred Meyer, having provided
certain investment banking services to Fred Meyer from time-to-time, including
having acted as a lead-managing underwriter of a public offering of 3,850,000
shares of Fred Meyer Common Stock in September 1996, as a co-managing
underwriter of a public offering of 8,997,795 shares of Fred Meyer Common Stock
in July 1998, as a co-managing underwriter of a public offering of $250,000,000
principal amount of 7.15% Notes due March 1, 2003, $750,000,000 principal amount
of 7.375% Notes due March 1, 2005, and $750,000,000 principal amount of 7.45%
Notes due March 1, 2008 (each in March 1998), as a managing agent of a
$3,985,000,000 bank loan and synthetic lease financing in March 1998, and as a
financial advisor in connection with its acquisitions of Quality Food Centers,
Inc. and Food 4 Less Holdings, Inc. in March 1998. Goldman Sachs provides a full
range of financial advisory and securities services and, in the course of its
normal trading activities, may from time-to-time effect transactions and hold
securities, including derivative securities, of Kroger or Fred Meyer for its own
account and for the accounts of customers. As of the date hereof, Goldman Sachs
accumulated a long position of 49,085 shares of Kroger Common Stock against
which Goldman Sachs is short 44,732 shares of Kroger Common Stock, and a long
position of $4,800,000 principal amount of 6.375% Senior Notes due March 1, 2008
issued by Kroger. Goldman Sachs has also accumulated a long position of 32,420
shares of Fred Meyer Common Stock against which Goldman Sachs is short 26,400
shares of Fred Meyer Common Stock, and short positions of $325,000 principal
amount of 7.375% Notes due March 1, 2005 and $7,850,000 principal amount of
7.45% Notes due March 1, 2008 issued by Fred Meyer.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Shareholders and Annual Reports on Form 10-K of
Kroger for the five fiscal years ended December 27, 1997 and Annual Reports to
Stockholders and Annual Reports on Form 10-K of Fred Meyer for the five fiscal
years ended January 31, 1998; certain interim reports to shareholders and
quarterly reports on Form 10-Q of Kroger; certain interim reports to
stockholders and quarterly reports on Form 10-Q of Fred Meyer; certain other
communications from Kroger and Fred Meyer to their respective shareholders and
stockholders; certain internal financial analyses
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The Kroger Co.
October 18, 1998
Page Two
and forecasts for Kroger and Fred Meyer prepared by their respective
managements, including analyses of certain cost savings and operating synergies
projected by the management of Kroger to result from the transactions
contemplated by the Agreement (the "Synergies"). We also have reviewed the
Registration Statement on Form S-4, including the Joint Proxy
Statement/Prospectus, dated August 6, 1997, relating to the Special Meetings of
Stockholders of Fred Meyer and Smith's Food & Drug Centers, Inc.; and the
Registration Statement on Form S-4, including the Joint Proxy and Consent
Solicitation Statement/Prospectus, dated January 27, 1998, relating to the
Special Meetings of Stockholders of Fred Meyer and Quality Food Centers, Inc.,
and the consent of the stockholders of Food 4 Less Holdings, Inc. We have held
discussions with members of the senior managements of Kroger and Fred Meyer
regarding the strategic rationale for, and the potential benefits of, the
transaction contemplated by the Agreement and the past and current business
operations, financial condition and future prospects of their respective
companies. We also have reviewed the Commitment Letter, dated October 18, 1998,
relating to amendments to the Kroger and Fred Meyer bank loan agreements (the
"Bank Letter"). In addition, we have reviewed the reported price and trading
activity for the Kroger Common Stock and the Fred Meyer Common Stock, compared
certain financial and stock market information for Kroger and Fred Meyer with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the supermarket industry specifically and in other industries
generally and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed with your consent that the financial forecasts prepared by the
managements of Kroger and Fred Meyer, including, without limitation, the
Synergies, have been reasonably prepared on a basis reflecting the best
currently available judgments and estimates of Kroger and Fred Meyer, and that
such forecasts and Synergies will be realized in the amounts and time periods
contemplated thereby. Also, with your consent, we have assumed that the
transactions described in the Bank Letter will be consummated. In addition, we
have not made an independent evaluation or appraisal of the assets and
liabilities of Kroger or Fred Meyer or any of their subsidiaries and we have not
been furnished with any such evaluation or appraisal. We have also assumed with
your consent that the transaction contemplated by the Agreement will be
accounted for as a pooling-of-interests transaction under generally accepted
accounting principles.
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of Kroger in connection
with its consideration of the transaction contemplated by the Agreement and such
opinion does not constitute a recommendation as to how any holder of Kroger
Common Stock should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to Kroger.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
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APPENDIX E
[LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION]
October 18, 1998
Board of Directors
Fred Meyer, Inc.
3800 S.E. 22nd Avenue
Portland, OR 97202
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the common stockholders of Fred Meyer, Inc. (the "Company") of the
Exchange Ratio (as defined below) pursuant to the terms of the Agreement and
Plan of Merger, dated as of October 18, 1998 (the "Agreement"), by and between
the Company, The Kroger Co. ("Kroger") and Fred Meyer Holdings, a wholly-owned
subsidiary of Kroger ("Merger Sub"), pursuant to which Merger Sub will merge
with and into the Company (the "Merger").
Pursuant to the Agreement, each share of common stock, par value $.01 per
share, of the Company ("Company Common Stock"), excluding those shares held in
the treasury of the Company or held by subsidiaries of the Company, Kroger or
its subsidiaries, will be converted into the right to receive one (1) share (the
"Exchange Ratio") of common stock, par value $1.00 per share, of Kroger ("Kroger
Common Stock").
In arriving at our opinion, we have reviewed the draft dated October 17,
1998 of the Agreement, including exhibits thereto, as well as financial and
other information that was publicly available or furnished to us by the Company
and Kroger including information provided during discussions with their
respective managements. Included in the information provided during discussions
with the respective managements were certain financial projections of the
Company for the period beginning August 16, 1998 and ending January 31, 2004,
prepared by management of the Company and certain financial projections of
Kroger for the period beginning June 14, 1998 and ending December 31, 2003,
prepared by management of Kroger. In addition, we have compared certain
financial and securities data of the Company and Kroger with various other
companies whose securities are traded in public markets, reviewed the historical
stock prices and trading volumes of Company Common Stock and Kroger Common
Stock, reviewed prices and premiums paid in certain other business combinations
and conducted such other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion. We were not requested to, nor
did we, solicit the interest of any other party in any other transaction with
the Company.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and Kroger or
their respective representatives, or that was otherwise reviewed by us. In
particular, we have reviewed and relied upon the estimates of the management of
the Company of operating synergies achievable as a result of the Merger and upon
our discussion of such operating synergies assumptions with the management of
Kroger. With respect to the financial projections supplied to us, we have
assumed that they have been reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the management of the Company and
Kroger as to the future operating and financial performance of the Company and
Kroger. We have not assumed any responsibility for making an independent
evaluation of the Company's or Kroger's assets or liabilities or any independent
verification of any of the information reviewed by us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
price at which Kroger Common Stock will actually trade at any time. Our opinion
does not address the relative merits of the Merger and the other business
strategies being considered by the Company's Board of Directors nor does it
address the Board's decision to proceed with the
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Merger. Our opinion does not constitute a recommendation to any stockholder of
the Company as to how such stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. DLJ has performed
investment banking and other services for the Company in the past and has been
compensated for such services. During the past two years, DLJ lead managed a
$1.75 billion public offering of Senior Notes of the Company in March 1997 and
public offerings of Company Common Stock for certain selling shareholders of 7.1
million shares in March 1998, 9.0 million shares in June 1998 and 4.2 million
shares in July 1998, for which it received usual and customary compensation. DLJ
has also advised Food 4 Less Holdings, Inc. and Smith's Food & Drug Centers,
Inc. in their respective mergers with the Company in May 1997 and November 1997.
Based upon the foregoing and other factors as we deem relevant, we are of
the opinion that the Exchange Ratio is fair to the holders of Company Common
Stock from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
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APPENDIX F
[SALOMON SMITH BARNEY INC. LETTERHEAD]
October 18, 1998
Board of Directors
Fred Meyer, Inc.
3800 S.E. 22nd Avenue
Portland, OR 97202
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of common stock of Fred Meyer, Inc.(the "Company") of
the Exchange Ratio (as defined below) provided for pursuant to the terms and
conditions set forth in the Agreement and Plan of Merger by and among The Kroger
Co. ("Kroger "), Fred Meyer Holdings, Inc. ("Merger Sub") and the Company, dated
October 18, 1998 (the "Merger Agreement"). We understand that, in the Merger (as
defined in the Merger Agreement), Merger Sub will be merged with and into the
Company. We further understand that (i) upon effectiveness of the Merger, each
issued and outstanding share of common stock, par value $.01 per share, of the
Company (the "Fred Meyer Common Stock"), will be converted into one (1) (the
"Exchange Ratio") validly issued, fully paid and non-assessable share of common
stock of Kroger (the "Kroger Common Stock"), par value $1.00 per share and (ii)
holders of shares of Fred Meyer Common Stock will also have the right to receive
together with each share of Kroger Common Stock issued in the Merger , one
associated right in accordance with the Rights Agreement, dated as of April 4,
1998, between Kroger and The Bank of New York, as rights agent.
In connection with rendering our opinion, we have reviewed or discussed:
(i) a draft of the Merger Agreement that you have advised us is substantially in
the form to be executed by the parties; (ii) certain publicly available business
and financial information relating to the Company and Kroger which were
discussed with us by the respective managements of the Company and Kroger ;
(iii) information relating to certain strategic implications and operational
benefits anticipated to result from the Merger which was discussed with us by
the Company; (iv) certain publicly available and other information concerning
the trading of, and the trading market for, the publicly traded securities of
the Company and Kroger ; (v) certain publicly available information with respect
to other companies that we believe to be comparable in certain respects to the
Company and Kroger ; and (vi) certain publicly available information with
respect to other merger and acquisition transactions that we believe to be
comparable in certain respects to the Merger. In addition to the foregoing, we
have conducted such other analyses and examinations and considered such other
financial, economic and market criteria as we deemed appropriate to arrive at
our opinion.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of all information provided to or reviewed by us or publicly
available, and we have not assumed any responsibility for any independent
verification of any of such information. With respect to financial forecasts,
and other information and data provided to or reviewed by, and relied upon by,
us, we have been advised by the managements of the Company and Kroger that such
forecasts and other information were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the Company and Kroger as to
the expected future financial performance of the Company and Kroger and the
strategic implications and operational benefits anticipated from the Merger. We
express no opinion with respect to such forecasts or the assumptions on which
they were based. We further relied on the assurances of managements of the
Company and Kroger that they were unaware of any facts that would make the
forecasts or information and data provided to us incomplete or misleading. We
have not made or been provided with any independent evaluations or appraisals of
any of the Company's or Kroger's assets, properties, liabilities or securities,
nor have we made any physical inspection of the properties or assets of the
Company or Kroger . We have assumed that the Merger will be accounted for as a
pooling-of-interests in accordance with generally accepted accounting principles
("GAAP"), and that the Merger qualifies for such accounting treatment under
GAAP. We have also assumed that the Merger will constitute a "reorganization"
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Board of Directors
Fred Meyer, Inc.
October 18, 1998
Page 2
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, and none of the Company, Kroger , Merger Sub or holders of the Fred
Meyer Common Stock will recognize gain or loss for U.S. federal and state income
tax purposes as a result of the Merger.
As you are aware, Salomon Smith Barney Inc. ("Salomon Smith Barney") is
acting as financial advisor to the Company in connection with the Merger for
which we will receive certain fees, including with regard to the rendering of
this opinion, a significant portion of which is contingent upon the consummation
of the Merger. Additionally, Salomon Smith Barney has previously rendered
financial advisory and investment banking services to the Company for which we
have received customary compensation. In the ordinary course of our securities
business we and our affiliates may hold or actively trade the debt and equity
securities of the Company or Kroger for our own account and for the account of
our customers and, accordingly, we may at any time hold a long or short position
in such securities. In addition, we and our affiliates (including Citigroup Inc.
and its affiliates) may maintain other business and financial relationships with
the Company and Kroger.
Our opinion, as expressed below, relates to the relative values of the
Company and Kroger and does not imply any conclusion as to what the value of the
Kroger Common Stock actually will be when issued pursuant to the Merger or the
price at which such stock will trade following the consummation of the Merger.
Our opinion necessarily is based upon conditions and circumstances as they exist
and can be evaluated as of the date hereof and does not address the underlying
business decision of the Company to enter into the Merger Agreement.
Specifically, we have not been asked to, nor do we, express an opinion as to the
relative merits of the Merger as compared to any alternative business strategies
that might exist for the Company or the effect of any other transaction in which
the Company might engage. In connection with our engagement, we were not
requested to, and we did not, solicit third party indications of interest in
acquiring all or any part of the Company.
This opinion is for the benefit and use by members of the Board of
Directors of the Company in connection with their evaluation of the Merger and
does not constitute a recommendation to any holder of shares of the Fred Meyer
Common Stock as to how such stockholder should vote with respect to the Merger.
This opinion may not be published or otherwise used by the Company without our
prior written consent, other than as provided for in our engagement agreement,
dated October 13, 1998, between the Company and Salomon Smith Barney.
Based upon, and subject to, the foregoing, it is our opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
the holders of Fred Meyer Common Stock.
Very truly yours,
SALOMON SMITH BARNEY INC.
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APPENDIX G
SECTION 1701.85 OF THE OHIO REVISED CODE
SECTION 1701.85 DISSENTING SHAREHOLDER'S DEMAND FOR FAIR CASH VALUE OF
SHARES.
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of the shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares had
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas
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of the county in which the principal office of the corporation that issued the
shares is located or was located when the proposal was adopted by the
shareholders of the corporation, or, if the proposal was not required to be
submitted to the shareholders, was approved by the directors. Other dissenting
shareholders, within that three-month period, may join as plaintiffs or may be
joined as defendants in any such proceeding, and any two or more such
proceedings may be consolidated. The complaint shall contain a brief statement
of the facts, including the vote and the facts entitling the dissenting
shareholder to the relief demanded. No answer to such a complaint is required.
Upon the filing of such a complaint, the court, on motion of the petitioner,
shall enter an order fixing a date for a hearing on the complaint and requiring
that a copy of the complaint and a notice of the filing and of the date for
hearing be given to the respondent or defendant in the manner in which summons
is required to be served or substituted service is required to be made in other
cases. On the day fixed for the hearing on the complaint or any adjournment of
it, the court shall determine from the complaint and from such evidence as is
submitted by either party whether the dissenting shareholder is entitled to be
paid the fair cash value of any shares and, if so, the number and class of such
shares. If the court finds that the dissenting shareholder is so entitled, the
court may appoint one or more persons as appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value. The appraisers have
such power and authority as is specified in the order of their appointment. The
court thereupon shall make a finding as to the fair cash value of a share and
shall render judgment against the corporation for the payment of it, with
interest at such rate and from such date as the court considers equitable. The
costs of the proceeding, including reasonable compensation to the appraisers to
be fixed by the court, shall be assessed or apportioned as the court considers
equitable. The proceeding is a special proceeding and final orders in it may be
vacated, modified, or reversed on appeal pursuant to the Rules of Appellate
Procedure and, to the extent not in conflict with those rules, Chapter 2505 of
the Revised Code. If, during the pendency of any proceeding instituted under
this section, a suit or proceeding is or has been instituted to enjoin or
otherwise to prevent the carrying out of the action as to which the shareholder
has dissented, the proceeding instituted under this section shall be stayed
until the final determination of the other suit or proceeding. Unless any
provision in division (D) of this section is applicable, the fair cash value of
the shares that is agreed upon by the parties or fixed under this section shall
be paid within thirty days after the date of final determination of such value
under this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting form
the proposal submitted to the directors or to the shareholders shall be
excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
G-2
<PAGE> 179
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
G-3
<PAGE> 180
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Kroger's Regulations (Bylaws) each present or former director,
officer or employee of Kroger and each person who is serving or shall have
served at the request of Kroger as a director, officer or employee of another
corporation (and their heirs, executors and administrators) will be indemnified
by Kroger against expenses actually and necessarily incurred by that person, and
also against expenses, judgments, decrees, fines, penalties or amounts paid in
settlement, in connection with the defense of any pending or threatened action,
suit, or proceeding, criminal or civil, to which he or she is or may be made a
party by reason of being or having been such director, officer or employee,
provided (1) the person is adjudicated or determined not to have been negligent
or guilty of misconduct in the performance of his or her duty to Kroger or such
other corporation, (2) the person is determined to have acted in good faith in
what he or she reasonably believed to be the best interest of Kroger or of such
other corporation, and (3) in any matter the subject of a criminal action, suit,
or proceeding, the person is determined to have had no reasonable cause to
believe that his or her conduct was unlawful. See also Ohio Revised Code,
Section 1701.13.
Kroger also maintains directors' and officers' reimbursement and liability
insurance pursuant to policies with aggregate limits of $125 million.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of October 18, 1998,
among The Kroger Co., Jobsite Holdings, Inc. and Fred Meyer,
Inc. (included in the Joint Proxy Statement/Prospectus as
Appendix A).
4.1 Amended and Restated Rights Agreement (incorporated herein
by reference to Exhibit 1 of Form 8-A/A Registration
Statement, dated April 4, 1997, as amended by Form 8 A/A
dated October 18, 1998).
**5.1 Opinion of Paul W. Heldman, Senior Vice President, Secretary
and General Counsel of Registrant regarding the legality of
the shares being issued in the Merger.
**8.1 Opinion of Cleary, Gottlieb, Steen & Hamilton as to certain
federal income tax consequences described in the Joint Proxy
Statement/Prospectus.
**8.2 Opinion of Fried, Frank, Harris, Shriver & Jacobson as to
certain federal income tax consequences described in the
Joint Proxy Statement/Prospectus.
10.1 Stock Option Agreement, dated as of October 18, 1998,
between Fred Meyer, Inc. and The Kroger Co. (Fred Meyer,
Inc. as Issuer) (included in the Proxy Statement/Prospectus
as Appendix B).
10.2 Stock Option Agreement, dated as of October 18, 1998,
between The Kroger Co. and Fred Meyer, Inc. (The Kroger Co.
as Issuer) (included in the Proxy Statement/Prospectus as
Appendix C).
*10.3 Voting Agreement, dated as of October 18, 1998 between
Robert G. Miller and The Kroger Co.
*10.4 Voting Agreement, dated as of October 18, 1998 among the
Stockholders identified on Annex A thereto and The Kroger
Co.
**10.5 Amended Employment Agreement of Robert G. Miller, dated
October 18, 1998, between Robert G. Miller and Fred Meyer,
Inc.
**10.6 Form of Employment Protection Agreement for seven executive
officers of Fred Meyer, Inc.
**10.7 Form of Employment Protection Agreement for five executive
officers of Fred Meyer, Inc.
**23.1 Consent of Paul W. Heldman, Senior Vice President, Secretary
and General Counsel of Registrant (included in Exhibit 5.1).
**23.2 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
Exhibit 8.1).
</TABLE>
II-1
<PAGE> 181
<TABLE>
<C> <S>
**23.3 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 8.2).
*23.4 Consent of PricewaterhouseCoopers LLP
*23.5 Consent of Deloitte & Touche LLP
*23.6 Consent of Arthur Andersen LLP
*23.7 Consent of Goldman, Sachs & Co.
*23.8 Consent of Donaldson, Lufkin & Jenrette Securities
Corporation
*23.9 Consent of Salomon Smith Barney Inc.
*24 Power of Attorney of directors of Registrant
**99.1 Consent of Robert D. Beyer
**99.2 Consent of Ronald W. Burkle
**99.3 Consent of Carlton J. Jenkins
**99.4 Consent of Bruce Karatz
**99.5 Consent of Robert G. Miller
**99.6 Consent of Steven R. Rogel
**99.7 Form of Proxy of The Kroger Co.
**99.8 Form of Proxy of Fred Meyer, Inc.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by Amendment
All supporting schedules have been omitted because they are not required or the
information required to be set forth therein is included in the consolidated
financial statements or in the notes thereto.
ITEM 22. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under
the Securities Act of 1933, if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in this Registration
Statement; provided, however, that the undertakings set forth in
paragraphs (1)(i) and (ii) above do not apply if the information
required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933 each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 182
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(B) The undersigned Registrant hereby undertakes, that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(C) The undersigned Registrant hereby undertakes:
(1) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes
that such reoffering prospectus will contain the information called for
by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering
of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(D) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(E) The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 and 13 of
this Form S-4, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the Registration
Statement when it became effective.
II-3
<PAGE> 183
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Cincinnati, Ohio, on the 6th day of
November, 1998.
By: /s/ JOSEPH A. PICHLER
----------------------------------
Name: Joseph A. Pichler
Title: Chairman of the Board of
Directors and Chief
Executive Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- ------------------------------- -----------------
<C> <S> <C>
/s/ JOSEPH A. PICHLER Chairman of the Board of November 6, 1998
- --------------------------------------------------- Directors, Chief Executive
Joseph A. Pichler Officer and Director
(Principal Executive Officer)
/s/ W. RODNEY MCMULLEN Senior Vice President and Chief November 6, 1998
- --------------------------------------------------- Financial Officer
W. Rodney McMullen (Principal Financial Officer)
/s/ J. MICHAEL SCHLOTMAN Vice President and November 6, 1998
- --------------------------------------------------- Corporate-Controller
J. Michael Schlotman (Principal Accounting Officer)
* Director November 6, 1998
- ---------------------------------------------------
Reuben V. Anderson
* Director November 6, 1998
- ---------------------------------------------------
John L. Clendenin
* President, Chief Operating November 6, 1998
- --------------------------------------------------- Officer and Director
David B. Dillon
* Director November 6, 1998
- ---------------------------------------------------
John T. LaMacchia
* Director November 6, 1998
- ---------------------------------------------------
Edward M. Liddy
* Director November 6, 1998
- ---------------------------------------------------
Clyde R. Moore
* Director November 6, 1998
- ---------------------------------------------------
T. Ballard Morton, Jr.
* Director November 6, 1998
- ---------------------------------------------------
Thomas H. O'Leary
* Director November 6, 1998
- ---------------------------------------------------
John D. Ong
* Director November 6, 1998
- ---------------------------------------------------
Katherine D. Ortega
* Director November 6, 1998
- ---------------------------------------------------
Martha Romayne Seger
* Director November 6, 1998
- ---------------------------------------------------
James D. Woods
</TABLE>
*By: /s/ BRUCE M. GACK
-------------------------------
Bruce M. Gack, as
Attorney-in-Fact
II-4
<PAGE> 184
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of October 18, 1998,
among The Kroger Co., Jobsite Holdings, Inc. and Fred Meyer,
Inc. (included in the Joint Proxy Statement/Prospectus as
Appendix A).
4.1 Amended and Restated Rights Agreement (incorporated herein
by reference to Exhibit 1 of Form 8-A/A Registration
Statement, dated April 4, 1997, as amended by Form 8 A/A
dated October 18, 1998).
**5.1 Opinion of Paul W. Heldman, Senior Vice President, Secretary
and General Counsel of Registrant regarding the legality of
the shares being issued in the Merger.
**8.1 Opinion of Cleary, Gottlieb, Steen & Hamilton as to certain
federal income tax consequences described in the Joint Proxy
Statement/Prospectus.
**8.2 Opinion of Fried, Frank, Harris, Shriver & Jacobson as to
certain federal income tax consequences described in the
Joint Proxy Statement/Prospectus.
10.1 Stock Option Agreement, dated as of October 18, 1998,
between Fred Meyer, Inc. and The Kroger Co. (Fred Meyer,
Inc. as Issuer) (included in the Proxy Statement/Prospectus
as Appendix B).
10.2 Stock Option Agreement, dated as of October 18, 1998,
between The Kroger Co. and Fred Meyer, Inc. (The Kroger Co.
as Issuer) (included in the Proxy Statement/Prospectus as
Appendix C).
*10.3 Voting Agreement, dated as of October 18, 1998 between
Robert G. Miller and The Kroger Co.
*10.4 Voting Agreement, dated as of October 18, 1998 among the
Stockholders identified on Annex A thereto and The Kroger
Co.
**10.5 Amended Employment Agreement of Robert G. Miller, dated
October 18, 1998, between Robert G. Miller and Fred Meyer,
Inc.
**10.6 Form of Employment Protection Agreement for seven executive
officers of Fred Meyer, Inc.
**10.7 Form of Employment Protection Agreement for five executive
officers of Fred Meyer, Inc.
**23.1 Consent of Paul W. Heldman, Senior Vice President, Secretary
and General Counsel of Registrant (included in Exhibit 5.1).
**23.2 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
Exhibit 8.1).
**23.3 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 8.2).
*23.4 Consent of PricewaterhouseCoopers LLP
*23.5 Consent of Deloitte & Touche LLP
*23.6 Consent of Arthur Andersen LLP
*23.7 Consent of Goldman, Sachs & Co.
*23.8 Consent of Donaldson, Lufkin & Jenrette Securities
Corporation
*23.9 Consent of Salomon Smith Barney Inc.
*24 Power of Attorney of directors of Registrant
**99.1 Consent of Robert D. Beyer
**99.2 Consent of Ronald W. Burkle
**99.3 Consent of Carlton J. Jenkins
**99.4 Consent of Bruce Karatz
**99.5 Consent of Robert G. Miller
**99.6 Consent of Steven R. Rogel
**99.7 Form of Proxy of The Kroger Co.
**99.8 Form of Proxy of Fred Meyer, Inc.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by Amendment
<PAGE> 1
EXHIBIT 10.3
VOTING AGREEMENT
VOTING AGREEMENT, dated as of October 18, 1998 (this "Agreement"), between
Robert G. Miller (the "Stockholder") and The Kroger Co., an Ohio corporation
("Kroger").
WHEREAS, Fred Meyer, Inc., a Delaware corporation ("Fred Meyer"), Kroger
and Jobsite Holdings, Inc., a Delaware corporation and a wholly owned subsidiary
of Kroger ("Merger Sub"), are contemporaneously entering into an Agreement and
Plan of Merger, dated as of this date (the "Merger Agreement"), which provides,
among other things, for the merger of Merger Sub with and into Fred Meyer (the
"Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Kroger and Merger Sub have requested that the Stockholder make
certain agreements with respect to certain shares of Common Stock, par value
$.01 per share ("Shares"), of Fred Meyer beneficially owned by him, upon the
terms and subject to the conditions of this Agreement; and
WHEREAS, in order to induce Kroger and Merger Sub to enter into the Merger
Agreement, the Stockholder is willing to make certain agreements with respect to
the Subject Shares (as defined);
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth in this Agreement, the parties agree as follows:
1. Voting Agreements; Proxy.
------------------------
(a) For so long as this Agreement is in effect, in any meeting of
stockholders of Fred Meyer, and in any action by consent of the stockholders of
Fred Meyer, the Stockholder shall vote, or, if applicable, give consents with
respect to, all of the Subject Shares that are held by the Stockholder on the
record date applicable to the meeting or consent in favor of the Merger
Agreement and the Merger contemplated by the Merger Agreement, as the Merger
Agreement may be modified or amended from time to time in a manner not adverse
to the Stockholder. The Stockholder shall use his best efforts to cast that
Stockholder's vote or give that Stockholder's consent in accordance with the
procedures communicated to that Stockholder by Fred Meyer relating thereto so
that the vote or consent shall be duly counted for purposes of determining that
a quorum is present and for purposes of recording the results of that vote or
consent.
(b) Upon the reasonable written request of Kroger, in furtherance of the
transactions contemplated in this Agreement and by the Merger Agreement and in
order to secure the performance of the Stockholder's duties under Section 1(a)
of this Agreement, the Stockholder shall promptly execute, in accordance with
the provisions of Section 212 of the Delaware General Corporation Law, and
deliver to Kroger an irrevocable proxy, substantially in the form attached as
Exhibit A, and irrevocably appoint Kroger or its designees, with full power of
substitution, its attorney and proxy to vote or, if applicable, to give consent
with respect to, all Shares constituting Subject Shares at the time of the
relevant record date with regard to any of the matters referred to in paragraph
(a) above at any meeting of the stockholders of Fred Meyer, or in connection
with any action by written consent by the stockholders of Fred Meyer. The
Stockholder acknowledges and agrees that this proxy, if and when given, shall be
coupled with an interest, shall constitute, among other things, an inducement
for Kroger to enter into the Merger Agreement, shall be irrevocable and shall
not be terminated by operation of law or otherwise upon the occurrence of any
event and that no subsequent proxies with respect to such Subject Shares shall
be given (and if given shall not be effective); provided, however, that any such
proxy shall terminate automatically and without further action on behalf of the
Stockholder upon the termination of this Agreement.
2. Covenants. For so long as this Agreement is in effect, the Stockholder
agrees not to (i) sell, transfer, pledge, assign, hypothecate, encumber, tender
or otherwise dispose of, or enter into any contract with respect to the sale,
transfer, pledge, assignment, hypothecation, encumbrance, tender or other
disposition of (each such disposition or contract, a "Transfer"), a number of
Subject Shares in excess of 10% of the total number of (A) Subject Shares plus
(B) any Shares the Stockholder then has the right to acquire, or will have the
right to acquire within 60 days, pursuant to options to purchase Shares granted
to the Stockholder by Fred Meyer; (ii) grant any proxies with respect to any
shares that then constitute Subject Shares, deposit any of the Subject Shares
into a voting trust or enter into a voting or option agreement with respect to
any of the Subject Shares; (iii) subject to Section 6, directly or indirectly,
solicit, initiate, encourage or otherwise facilitate any inquiries or the making
of any proposal or offer with respect to an Acquisition Proposal (as defined in
the Merger Agreement) or engage in any negotiation concerning, or provide any
confidential information or data to, or have any discussions with any person
relating to, an Acquisition Proposal; or (iv) take any action which would make
any representation or warranty of the Stockholder in this Agreement untrue or
incorrect or prevent, burden or materially delay the consummation of the
transactions contemplated by this Agreement;
<PAGE> 2
provided, however, that nothing in the foregoing provisions of this Section 2
shall prohibit the Stockholder from effecting any Transfer of Subject Shares (A)
pursuant to any bona fide charitable gift or by will or applicable laws of
descent and distribution, (B) for estate planning purposes, if the transferee
pursuant to this clause (B) agrees in writing to be bound by the provisions of
this agreement, or (C) pursuant to a pledge for purposes of securing customary
margin or similar loans or pursuant to the writing of options or in connection
with any hedging, derivative or similar transaction (and taking other necessary
or customary steps related thereto, including, without limitation, Transferring
any certificate evidencing the shares to a lender or trustee or a nominee
thereof), if notwithstanding such Transfer made pursuant to this clause (C), the
Stockholder retains the power to vote such Shares in accordance with the terms
of this Agreement and for as long as this Agreement is in effect. No Transfer
made pursuant to the proviso of the immediately preceding sentence shall be
counted in determining whether the Stockholder is in compliance with the 10%
limitation set forth in clause (i) of the immediately preceding sentence.
Notwithstanding anything to the contrary contained in this Agreement, the
Stockholder shall not effect any Transfer of Subject Shares that would prevent
the business combination to be effected pursuant to the Merger from being
accounted for as a "pooling-of-interests" under GAAP (as defined in the Merger
Agreement) or the rules and regulations of the SEC (as defined in the Merger
Agreement). As used in this Agreement, "person" shall have the meaning specified
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
3. Representations and Warranties of the Stockholder. The Stockholder
represents and warrants to Kroger that:
(a) Capacity; No Violations. The Stockholder has the legal capacity to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. This Agreement has been duly executed and delivered by the
Stockholder and constitutes a valid and binding agreement of the Stockholder
enforceable against the Stockholder in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and general principles of equity
(whether considered in a proceeding in equity or at law). The execution,
delivery and performance by the Stockholder of this Agreement will not (i)
conflict with, require a consent, waiver or approval under, or result in a
breach or default under, any of the terms of any contract, commitment or other
obligation to which the Stockholder is a party or by which the Stockholder is
bound; (ii) violate any order, writ, injunction, decree or statute, or any law,
rule or regulation applicable to the Stockholder or the Subject Shares; or (iii)
result in the creation of, or impose any obligation on the Stockholder to
create, any Lien upon the Subject Shares that would prevent the Stockholder from
voting the Subject Shares. In this Agreement, "Lien" shall mean any lien,
pledge, security interest, claim, third party right or other encumbrance.
(b) Subject Shares. As of the date of this Agreement, the Stockholder is
the beneficial owner of and has the power to vote or direct the voting of the
Subject Shares free and clear of any Liens that would prevent the Stockholder
from voting such Subject Shares. As of the date of this Agreement, the Subject
Shares are the only shares of any class of capital stock of Fred Meyer which the
Stockholder has the right, power or authority (sole or shared) to sell or vote,
and, other than options or warrants to purchase Shares held by the Stockholder
as of this date, the Stockholder does not have any right to acquire, nor is it
the beneficial owner of, any other shares of any class of capital stock of Fred
Meyer or any securities convertible into or exchangeable or exercisable for any
shares of any class of capital stock of Fred Meyer. The Stockholder is not a
party to any contracts (including proxies, voting trusts or voting agreements)
that would prevent the Stockholder from voting the Subject Shares.
4. Expenses. Each party to this Agreement shall pay its own expenses
incurred in connection with this Agreement.
5. Specific Performance. The Stockholder acknowledges and agrees that if he
fails to perform any of its obligations under this Agreement, immediate and
irreparable harm or injury would be caused to Kroger for which money damages
would not be an adequate remedy. In that event, the Stockholder agrees that
Kroger shall have the right, in addition to any other rights it may have, to
specific performance of this Agreement. Accordingly, if Kroger should institute
an action or proceeding seeking specific enforcement of the provisions of this
Agreement, the Stockholder hereby waives the claim or defense that Kroger has an
adequate remedy at law and hereby agrees not to assert in that action or
proceeding the claim or defense that a remedy at law exists. The Stockholder
further agrees to waive any requirements for the securing or posting of any bond
in connection with obtaining any equitable relief.
6. Stockholder Capacity. No person bound by this Agreement who is or
becomes during the term hereof a director or officer of the Company makes any
agreement or understanding herein in his capacity as such director or officer.
The Stockholder signs solely in his capacity as the beneficial owner of, or the
general partner of a partnership which is the beneficial owner of, the
Stockholder's Subject Shares and nothing herein shall limit
<PAGE> 3
or affect any actions taken by the Stockholder in his capacity as an officer or
director of Fred Meyer to the extent specifically permitted by the Merger
Agreement. Nothing in this Agreement shall be deemed to constitute a transfer of
the beneficial ownership of the Subject Shares by the Stockholder.
7. Notices. All notices and other communications given or made pursuant to
this Agreement shall be in writing and shall be deemed to have been duly given
or made as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by overnight courier or sent by telecopy, to the applicable party at the
following addresses or telecopy numbers (or at any other address or telecopy
number for a party as shall be specified by like notice):
If to Kroger:
The Kroger Corp.
1014 Vine Street
Cincinnati, Ohio 45202
Attention: Paul W. Heldman, Esq.
Telecopy: (513) 762-1400
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
Attention: Arthur Fleischer, Jr., Esq.
Telecopy: (212) 859-4000
If to the Stockholder:
Robert G. Miller
c/o Fred Meyer, Inc.
3800 SE 2nd Avenue
Portland, Oregon 97202
Telecopy: (503) 797-7385
With a copy to:
Fred Meyer, Inc.
3800 SE 2nd Avenue
Portland, Oregon 97202
Attention: Roger A. Cooke, Esq.
Telecopy: (503) 797-7385
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg, Esq.
Telecopy: (212) 225-3999
8. Parties in Interest. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective successors and assigns; provided,
however, that any successor in interest or assignee shall agree to be bound by
the provisions of this Agreement. Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than Kroger, the Stockholder or
their successors or assigns, any rights or remedies under, or by reason, of this
Agreement.
9. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the Stockholder and Kroger with respect to the subject matter
of this Agreement and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to these transactions. This
Agreement may not be changed, amended or modified orally, but may be changed
only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge may be sought.
10. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party to this Agreement, except that (a) Kroger may assign its rights and
obligations under this Agreement to any of its direct or indirect wholly owned
subsidiaries (including Merger Sub), but no transfer shall relieve Kroger of its
obligations under this Agreement if the transferee does not perform its
obligations, and (b) the Stockholder may transfer Subject Shares to the extent
permitted by Section 2 of this Agreement.
11. Headings. The section headings in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
<PAGE> 4
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its
principles of conflicts of laws.
14. Termination. This Agreement shall terminate automatically and without
further action on behalf of any party at the earlier of (i) the Effective Time
(as defined in the Merger Agreement) and (ii) the date the Merger Agreement is
terminated pursuant to its terms.
15. Subject Shares. The term "Subject Shares" shall mean the Shares set
forth opposite the Stockholder's name on Schedule A hereto, together with any
Shares of capital stock of Fred Meyer acquired by the Stockholder after the date
hereof over which the Stockholder has the power to vote or power to direct the
voting.
IN WITNESS WHEREOF, Kroger and the Stockholder have caused this Agreement
to be duly executed and delivered on the day and year first above written.
THE KROGER CO.
By: /s/ Paul W. Heldman
-----------------------------
Name: Paul W. Heldman
Title: Senior Vice President,
Secretary and General Counsel
ROBERT G. MILLER
/s/ Robert G. Miller
----------------------------------
Robert G. Miller
<PAGE> 5
SCHEDULE A
----------
STOCKHOLDER SHARES OWNED
- ----------- ------------
Robert G. Miller.......................................... 132,973
<PAGE> 6
EXHIBIT A
IRREVOCABLE PROXY
In order to secure the performance of the duties of the undersigned
pursuant to the Director Voting Agreement, dated as of October __, 1998 (the
"Voting Agreement") between the undersigned and The Kroger Co., an Ohio
corporation ("Kroger"), a copy of such agreement being attached hereto and
incorporated by reference herein, the undersigned hereby irrevocably appoints
Joseph A. Pichler, John T. La Macchia and T. Ballard Morton, Jr., and each of
them, the attorneys, agents and proxies, with full power of substitution in each
of them, for the undersigned and in the name, place and stead of the
undersigned, to vote or, if applicable, to give written consent, in such manner
as each such attorney, agent and proxy or his substitute shall in his sole
discretion deem proper to record such vote (or consent) in the manner set forth
in Section 1 of the Voting Agreement with respect to all shares of Common Stock,
par value $.01 per share (the "Shares"), of Fred Meyer, Inc., a Delaware
corporation (the "Company"), which the undersigned is or may be entitled to vote
at any meeting of the Company held after the date hereof, whether annual or
special and whether or to an adjourned meeting, or, if applicable, to give
written consent with respect thereto. This Proxy is coupled with an interest,
shall be irrevocable and binding on any successor in interest of the undersigned
and shall not be terminated by operation of law or otherwise upon the occurrence
of any event (other than as provided in Section 15 of the Voting Agreement),
including, without limitation, the death or incapacity of the undersigned. This
Proxy shall operate to revoke any prior proxy as to the Shares heretofore
granted by the undersigned. This Proxy shall terminate upon the termination of
the Voting Agreement. This Proxy has been executed in accordance with Section
212 of the Delaware General Corporation Law.
Dated: October ___, 1998
------------------------
[Name]
<PAGE> 1
EXHIBIT 10.4
VOTING AGREEMENT
VOTING AGREEMENT, dated as of October 18, 1998 (this "Agreement"),
among the stockholders identified on Annex A (each, a "Stockholder";
collectively, the "Stockholders") and The Kroger Co., an Ohio corporation
("Kroger").
WHEREAS, Fred Meyer, Inc., a Delaware corporation ("Fred Meyer"),
Kroger and Jobsite Holdings, Inc., a Delaware corporation and a wholly
owned subsidiary of Kroger ("Merger Sub"), are contemporaneously entering
into an Agreement and Plan of Merger, dated as of this date (the "Merger
Agreement"), which provides, among other things, for the merger of Merger
Sub with and into Fred Meyer (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Kroger and Merger Sub have requested that the Stockholders make
certain agreements with respect to certain shares of Common Stock, par
value $.01 per share ("Shares"), of Fred Meyer beneficially owned by the
Stockholders, upon the terms and subject to the conditions of this
Agreement; and
WHEREAS, in order to induce Kroger and Merger Sub to enter into the
Merger Agreement, the Stockholders are willing to make certain agreements
with respect to the Subject Shares (as defined);
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth in this Agreement, the parties agree as
follows:
1. Voting Agreements; Proxy.
------------------------
(a) For so long as this Agreement is in effect, in any meeting of
stockholders of Fred Meyer, and in any action by consent of the
stockholders of Fred Meyer, each Stockholder shall vote, or, if applicable,
give consents with respect to, all of the Subject Shares that are held by
that Stockholder on the record date applicable to the meeting or consent in
favor of the Merger Agreement and the Merger contemplated by the Merger
Agreement, as the Merger Agreement may be modified or amended from time to
time in a manner not adverse to the Stockholders. Each Stockholder shall
use his best efforts to cast that Stockholder's vote or give that
Stockholder's consent in accordance with the procedures communicated to
that Stockholder by Fred Meyer relating thereto so that the vote or consent
shall be duly counted for purposes of determining that a quorum is present
and for purposes of recording the results of that vote or consent.
(b) Upon the reasonable written request of Kroger, in furtherance of
the transactions contemplated in this Agreement and by the Merger Agreement
and in order to secure the performance of each Stockholder's duties under
Section 1(a) of this Agreement, each Stockholder shall promptly execute, in
accordance with the provisions of Section 212 of the Delaware General
Corporation Law, and deliver to Kroger an irrevocable proxy, substantially
in the form attached as Exhibit A, and irrevocably appoint Kroger or its
designees, with full power of substitution, its attorney and proxy to vote
or, if applicable, to give consent with respect to, all Shares constituting
Subject Shares at the time of the relevant record date with regard to any
of the matters referred to in paragraph (a) above at any meeting of the
stockholders of Fred Meyer, or in connection with any action by written
consent by the stockholders of Fred Meyer. Each Stockholder acknowledges
and agrees that this proxy, if and when given, shall be coupled with an
interest, shall constitute, among other things, an inducement for Kroger to
enter into the Merger Agreement, shall be irrevocable and shall not be
terminated by operation of law or otherwise upon the occurrence of any
event and that no subsequent proxies with respect to such Subject Shares
shall be given (and if given shall not be effective); provided, however,
that any such proxy shall terminate automatically and without further
action on behalf of the Stockholders upon the termination of this
Agreement.
2. Covenants. For so long as this Agreement is in effect, each
Stockholder agrees not to (i) sell, transfer, pledge, assign, hypothecate,
encumber, tender or otherwise dispose of, or enter into any contract with
respect to the sale, transfer, pledge, assignment, hypothecation,
encumbrance, tender or other disposition of (each such disposition or
contract, a "Transfer"), a number of Subject Shares which, when aggregated
with all Transfers made after the date hereof by other Stockholders who are
party to this Agreement, would exceed 10% of the total number of (A)
Subject Shares set forth on Schedule A hereto plus (B) any Shares the
Stockholders then have the right to acquire, or will have the right to
acquire within 60 days, pursuant to options to purchase Shares granted to
the Stockholders by Fred Meyer; (ii) grant any proxies with respect to any
shares that then constitute Subject Shares, deposit any of the Subject
Shares into a voting trust or enter into a voting or option agreement with
respect to any of the Subject Shares; (iii) subject to Section 6, directly
or indirectly, solicit, initiate, encourage or otherwise facilitate any
inquiries or the making of any proposal or offer with respect to an
Acquisition Proposal (as defined in the Merger Agreement) or engage in any
<PAGE> 2
negotiation concerning, or provide any confidential information or data to,
or have any discussions with any person relating to, an Acquisition
Proposal; or (iv) take any action which would make any representation or
warranty of any Stockholder in this Agreement untrue or incorrect or
prevent, burden or materially delay the consummation of the transactions
contemplated by this Agreement; provided, however, that nothing in the
foregoing provisions of this Section 2 shall prohibit any Stockholder from
effecting any Transfer of Subject Shares (A) pursuant to any bona fide
charitable gift or by will or applicable laws of descent and distribution,
(B) for estate planning purposes, if the transferee pursuant to this clause
(B) agrees in writing to be bound by the provisions of this agreement, or
(C) pursuant to a pledge for purposes of securing customary margin or
similar loans or pursuant to the writing of options or in connection with
any hedging, derivative or similar transaction (and taking other necessary
or customary steps related thereto, including, without limitation,
Transferring any certificate evidencing the shares to a lender or trustee
or a nominee thereof), if notwithstanding such Transfer made pursuant to
this clause (C), the Stockholder retains the power to vote such Shares in
accordance with the terms of this Agreement and for as long as this
Agreement is in effect. No Transfer made pursuant to the proviso of the
immediately preceding sentence shall be counted in determining whether the
Stockholders are in compliance with the 10% limitation set forth in clause
(i) of the immediately preceding sentence. Notwithstanding anything to the
contrary contained in this Agreement, no Stockholder shall effect any
Transfer of Subject Shares that would prevent the business combination to
be effected pursuant to the Merger from being accounted for as a
"pooling-of-interests" under GAAP (as defined in the Merger Agreement) or
the rules and regulations of the SEC (as defined in the Merger Agreement).
As used in this Agreement, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
3. Representations and Warranties of Stockholders. Each Stockholder
severally and not jointly represents and warrants to Kroger that:
(a) Capacity; No Violations. The Stockholder has the legal capacity to
enter into this Agreement and to consummate the transactions contemplated
by this Agreement. This Agreement has been duly executed and delivered by
the Stockholder and constitutes a valid and binding agreement of the
Stockholder enforceable against the Stockholder in accordance with its
terms except as such enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and general principles of equity (whether considered in a
proceeding in equity or at law). The execution, delivery and performance by
the Stockholder of this Agreement will not (i) conflict with, require a
consent, waiver or approval under, or result in a breach or default under,
any of the terms of any contract, commitment or other obligation to which
the Stockholder is a party or by which the Stockholder is bound; (ii)
violate any order, writ, injunction, decree or statute, or any law, rule or
regulation applicable to the Stockholder or the Subject Shares; or (iii)
result in the creation of, or impose any obligation on the Stockholder to
create, any Lien upon the Subject Shares that would prevent the Stockholder
from voting the Subject Shares. In this Agreement, "Lien" shall mean any
lien, pledge, security interest, claim, third party right or other
encumbrance.
(b) Subject Shares. As of the date of this Agreement, the Stockholder
is the beneficial owner of and has the power to vote or direct the voting
of the Subject Shares free and clear of any Liens that would prevent the
Stockholder from voting such Subject Shares. As of the date of this
Agreement, the Subject Shares are the only shares of any class of capital
stock of Fred Meyer which the Stockholder has the right, power or authority
(sole or shared) to sell or vote, and, other than options or warrants to
purchase Shares held by the Stockholder as of this date, the Stockholder
does not have any right to acquire, nor is it the beneficial owner of, any
other shares of any class of capital stock of Fred Meyer or any securities
convertible into or exchangeable or exercisable for any shares of any class
of capital stock of Fred Meyer. The Stockholder is not a party to any
contracts (including proxies, voting trusts or voting agreements) that
would prevent the Stockholder from voting the Subject Shares.
4. Expenses. Each party to this Agreement shall pay its own expenses
incurred in connection with this Agreement.
5. Specific Performance. The Stockholder acknowledges and agrees that
if he fails to perform any of its obligations under this Agreement,
immediate and irreparable harm or injury would be caused to Kroger for
which money damages would not be an adequate remedy. In that event, the
Stockholder agrees that Kroger shall have the right, in addition to any
other rights it may have, to specific performance of this Agreement.
Accordingly, if Kroger should institute an action or proceeding seeking
specific enforcement of the provisions of this Agreement, the Stockholder
hereby waives the claim or defense that Kroger has an adequate remedy at
law and hereby agrees not to assert in that action or proceeding the claim
or defense that a remedy at law exists. The Stockholder further agrees to
waive any requirements for the securing or posting of any bond in
connection with obtaining any equitable relief.
6. Stockholder Capacity. No person bound by this Agreement who is or
<PAGE> 3
becomes during the term hereof a director or officer of the Company makes
any agreement or understanding herein in his capacity as such director or
officer. Each Stockholder signs solely in his capacity as the beneficial
owner of, or the general partner of a partnership which is the beneficial
owner of, that Stockholder's Subject Shares and nothing herein shall limit
or affect any actions taken by a Stockholder in his or its capacity as an
officer or director of Fred Meyer to the extent specifically permitted by
the Merger Agreement. Nothing in this Agreement shall be deemed to
constitute a transfer of the beneficial ownership of the Subject Shares by
any Stockholder.
7. Registration Rights Agreement. Kroger acknowledges that Fred Meyer
and the Stockholders are party to a Registration Rights Agreement dated as
of September 9, 1997, as amended by the Amendment to Registration Rights
Agreement dated March 10, 1998 (as amended, the "Stockholder Registration
Rights Agreement") pursuant to which Fred Meyer agreed to provide certain
registration rights to the Stockholders. Kroger hereby agrees that,
effective as of the Effective Time of the Merger, it shall assume the
obligations of Fred Meyer under the Stockholder Registration Rights
Agreement.
8. Notices. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have
been duly given or made as of the date of receipt and shall be delivered
personally or mailed by registered or certified mail (postage prepaid,
return receipt requested), sent by overnight courier or sent by telecopy,
to the applicable party at the following addresses or telecopy numbers (or
at any other address or telecopy number for a party as shall be specified
by like notice):
If to Kroger:
The Kroger Corp.
1014 Vine Street
Cincinnati, Ohio 45202
Attention: Paul W. Heldman, Esq.
Telecopy: (513) 762-1400
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
Attention: Arthur Fleischer, Jr., Esq.
Telecopy: (212) 859-4000
If to any Stockholder:
The Yucaipa Companies, LLC
1000 Santa Monica Boulevard, Fifth Floor
Los Angeles, California 90067
Attention: Ronald W. Burkle
Telecopy: (310) 789-7201
With a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Thomas C. Sadler, Esq.
Telecopy: (213) 891-8763
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg, Esq.
Telecopy: (212) 225-3999
9. Parties in Interest. This Agreement shall inure to the benefit of
and be binding upon the parties and their respective successors and
assigns; provided, however, that any successor in interest or assignee
shall agree to be bound by the provisions of this Agreement. Nothing in
this Agreement, express or implied, is intended to confer upon any Person
other than Kroger, the Stockholders or their successors or assigns, any
rights or remedies under, or by reason, of this Agreement.
10. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the Stockholders and Kroger with respect to the subject
matter of this Agreement and supersedes all prior and contemporaneous
agreements and understandings, oral or written, with respect to these
transactions. This Agreement may not be changed, amended or modified
orally, but may be changed only by an agreement in writing signed by the
party against whom any waiver, change, amendment, modification or discharge
may be sought.
11. Assignment. No party to this Agreement may assign any of its
rights or obligations under this Agreement without the prior written
<PAGE> 4
consent of the other party to this Agreement, except that (a) Kroger may
assign its rights and obligations under this Agreement to any of its direct
or indirect wholly owned subsidiaries (including Merger Sub), but no
transfer shall relieve Kroger of its obligations under this Agreement if
the transferee does not perform its obligations, and (b) any Stockholder
may transfer Subject Shares to the extent permitted by Section 2 of this
Agreement.
12. Headings. The section headings in this Agreement are for
convenience only and shall not affect the construction of this Agreement.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an
original and all of which together shall constitute one and the same
document.
14. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to its
principles of conflicts of laws.
15. Termination. This Agreement shall terminate automatically and
without further action on behalf of any party at the earlier of (i) the
Effective Time (as defined in the Merger Agreement) and (ii) the date the
Merger Agreement is terminated pursuant to its terms.
16. Subject Shares. The term "Subject Shares" shall mean the Shares
set forth opposite each Stockholder's name on Schedule A hereto, together
with any Shares of capital stock of Fred Meyer acquired by the Stockholder
after the date hereof over which the Stockholder has the power to vote or
power to direct the voting.
IN WITNESS WHEREOF, Kroger and the Stockholders have caused this
Agreement to be duly executed and delivered on the day and year first above
written.
THE KROGER CO.
By: /s/ Paul W. Heldman
----------------------------------
Name: Paul W. Heldman
Title: Senior Vice President,
Secretary and General Counsel
THE YUCAIPA COMPANIES
By: /s/ Ronald W. Burkle
----------------------------------
Name: Ronald W. Burkle
Title: General Partner
YUCAIPA SSV PARTNERS, L.P.
By: The Yucaipa Companies
Its: General Partner
By: /s/ Ronald W. Burkle
----------------------------------
Name: Ronald W. Burkle
Title: General Partner
YUCAIPA SMITTY'S PARTNERS, L.P.
By: The Yucaipa Companies
Its: General Partner
By: /s/ Ronald W. Burkle
----------------------------------
Name: Ronald W. Burkle
Title: General Partner
YUCAIPA SMITTY'S PARTNERS II, L.P.
By: The Yucaipa Companies
Its: General Partner
By: /s/ Ronald W. Burkle
----------------------------------
Name: Ronald W. Burkle
Title: General Partner
YUCAIPA ARIZONA PARTNERS, L.P.
By: The Yucaipa Companies
Its: General Partner
<PAGE> 5
By: /s/ Ronald W. Burkle
----------------------------------
Name: Ronald W. Burkle
Title: General Partner
F4L EQUITY PARTNERS, L.P.
By: Yucaipa Capital Advisors, Inc.
as general partner
By: /s/ Ronald W. Burkle
-----------------------------
Name:
Title:
RONALD W. BURKLE
/s/ Ronald W. Burkle
-------------------------------------
Ronald W. Burkle, as an individual
FFL PARTNERS
By: /s/ Ronald W. Burkle
----------------------------------
Name: Ronald W. Burkle
Title:
YUCAIPA CAPITAL FUND, L.P.
By: Yucaipa Capital Advisors, Inc.
as general partner
By: /s/ Ronald W. Burkle
-----------------------------
Name: Ronald W. Burkle
Title:
YUCAIPA/F4L PARTNERS
By: The Yucaipa Companies
as general partner
By: /s/ Ronald W. Burkle
-----------------------------
Name: Ronald W. Burkle
Title:
By: Yucaipa Capital Fund, L.P.,
as general partner
By: Yucaipa Capital Advisors, Inc.
as general partner
By: /s/ Ronald W. Burkle
------------------------
Name: Ronald W. Burkle
Title:
<PAGE> 6
SCHEDULE A
STOCKHOLDER NAME SHARES OWNED
- ---------------- ------------
The Yucaipa Companies.................................. 4,856,211*
Yucaipa SSV Partners, L.P.............................. 2,744,595
Yucaipa Smitty's Partners, L.P......................... 631,400
Yucaipa Smitty's Partners II, L.P...................... 287,264
Yucaipa Arizona Partners, L.P.......................... 574,522
F4L Equity Partners, L.P............................... 3,798,526
Ronald W. Burkle....................................... 827,321
FFL Partners........................................... 365,429
Yucaipa Capital Fund, L.P.............................. 335,712
Yucaipa/F4L Partners................................... 79,719
------------
14,500,699
- ---------------------
* Includes 3,869,366 shares issuable upon exercise of a
currently-exercisable warrant.
<PAGE> 7
EXHIBIT A
IRREVOCABLE PROXY
In order to secure the performance of the duties of the undersigned
pursuant to the Director Voting Agreement, dated as of October __, 1998
(the "Voting Agreement") between the undersigned and The Kroger Co., an
Ohio corporation ("Kroger"), a copy of such agreement being attached hereto
and incorporated by reference herein, the undersigned hereby irrevocably
appoints Joseph A. Pichler, John T. La Macchia and T. Ballard Morton, Jr.,
and each of them, the attorneys, agents and proxies, with full power of
substitution in each of them, for the undersigned and in the name, place
and stead of the undersigned, to vote or, if applicable, to give written
consent, in such manner as each such attorney, agent and proxy or his
substitute shall in his sole discretion deem proper to record such vote (or
consent) in the manner set forth in Section 1 of the Voting Agreement with
respect to all shares of Common Stock, par value $.01 per share (the
"Shares"), of Fred Meyer, Inc., a Delaware corporation (the "Company"),
which the undersigned is or may be entitled to vote at any meeting of the
Company held after the date hereof, whether annual or special and whether
or to an adjourned meeting, or, if applicable, to give written consent with
respect thereto. This Proxy is coupled with an interest, shall be
irrevocable and binding on any successor in interest of the undersigned and
shall not be terminated by operation of law or otherwise upon the
occurrence of any event (other than as provided in Section 15 of the Voting
Agreement), including, without limitation, the death or incapacity of the
undersigned. This Proxy shall operate to revoke any prior proxy as to the
Shares heretofore granted by the undersigned. This Proxy shall terminate
upon the termination of the Voting Agreement. This Proxy has been executed
in accordance with Section 212 of the Delaware General Corporation Law.
Dated: October , 1998
--- -----------------------------
[Name]
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus our report dated January 22, 1998, on our audits of the
consolidated balance sheet of The Kroger Co. as of December 27, 1997 and
December 28, 1996, and the related consolidated statements of operations and
accumulated deficit, and cash flows for the years ended December 27, 1997,
December 28, 1996 and December 30, 1995. We also consent to the references to
our firm under the captions "Experts," " Selected Financial Data and Unaudited
Comparative Per Share Data," and "Kroger Selected Historical Consolidated
Financial Information."
/s/ PricewaterhouseCoopers LLP
Cincinnati, Ohio
November 6, 1998
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
the Kroger Co. on Form S-4 of our report dated March 11, 1998 on the
consolidated financial statements of Fred Meyer, Inc., included in the Annual
Report on Form 10-K for the year ended January 31, 1998 of Fred Meyer, Inc., and
of our report dated March 23, 1998 on the supplemental consolidated financial
statements of Fred Meyer, Inc., included in the Current Report on Form 8-K/A
dated March 9, 1998 of Fred Meyer, Inc., and to the reference to us under the
headings "Selected Financial Data and Unaudited Comparative Per share Data,"
"Fred Meyer Selected Historical Consolidated Financial Information," and
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Portland, Oregon
November 6, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report for Food 4 Less Holdings,
Inc. dated March 9, 1998, included in the Food 4 Less Holdings, Inc. Form 10-K
for the 52 weeks ended February 1, 1998 and to all references to our Firm
included in or made a part of this registration statement.
/s/ Arthur Andersen LLP
Los Angeles, California
November 4, 1998
<PAGE> 1
EXHIBIT 23.7
[LETTERHEAD OF GOLDMAN, SACHS & CO.]
PERSONAL AND CONFIDENTIAL
November 6, 1998
Board of Directors
The Kroger Co.
1014 Vine Street
Cincinnati, Ohio 45202
Re: Initially Filed Registration Statement of The Kroger Co.
Ladies and Gentlemen:
Reference is made to our opinion letter dated October 18, 1998 with respect to
the fairness from a financial point of view to The Kroger Co. ("Kroger") of the
exchange ratio of one share of Common Stock, par value $1.00 per share, of
Kroger to be exchanged by Kroger for each share of Common Stock, par value $0.01
per share, of Fred Meyer, Inc. pursuant to the Agreement and Plan of Merger
dated as of October 18, 1998 by and among Kroger, Jobsite Holdings, Inc., a
wholly-owned subsidiary of Kroger, and Fred Meyer, Inc.
The foregoing opinion letter is provided for the information and assistance of
the Board of Directors of Kroger in connection with its consideration of the
transaction contemplated therein and is not to be used, circulated, quoted or
otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent. We understand that the Company has determined to include our
opinion in the above-referenced Registration Statement.
In that regard, we hereby consent to the reference to the opinion of our Firm
under the captions "Summary: Reasons for the Merger", "Summary: Opinions of
Financial Advisors", "The Merger: Background of the Merger", "The Merger:
Reasons for the Merger; Recommendations of the Boards of Directors", and "The
Merger: Opinions of Financial Advisors", and to the inclusion of the foregoing
opinion in the Joint Proxy Statement/Prospectus included in the above-mentioned
Registration Statement. Notwithstanding the foregoing, it is understood that our
consent is being delivered solely in connection with the filing of the above-
mentioned version of the Registration Statement and that our opinion is not to
be used, circulated quoted or otherwise referred to for any other purpose, nor
is it to be filed with, included in or referred to in whole or in part in any
registration statement (including any subsequent amendments to the
above-mentioned Registration Statement), proxy statement or any other document,
except in accordance with our prior written consent. In giving such consent, we
do not thereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
<PAGE> 1
EXHIBIT 23.8
CONSENT OF DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated October 18,
1998, to the Board of Directors of Fred Meyer, Inc. (the "Company") as Appendix
E to the Joint Proxy Statement/Prospectus of the Company and The Kroger Co.
("Kroger") which forms a part of this Registration Statement on Form S-4 and
(ii) all references to us in the sections captioned "Summary -- Options of
Financial Advisors," "Reasons for the Merger," "The Merger -- Background of the
Merger." "The Merger -- Recommendations of the Board of Directors" and "The
Merger -- Opinions of Financial Advisors" of the Joint Proxy Statement/
Prospectus. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under, and we do not admit that we
are "experts" for purposes of, the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
Los Angeles, California
November 6, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ MICHAEL J. CONNOLLY
------------------------------------
Michael J. Connolly
Vice President
<PAGE> 1
EXHIBIT 23.9
[LETTERHEAD OF SALOMON SMITH BARNEY]
CONSENT OF SALOMON SMITH BARNEY
We hereby consent to the use of our name and to the description of our opinion
letter, dated October 18, 1998, under the caption "MERGER--Opinions of Financial
Advisors" and to the inclusion of such opinion letter as Annex F to the Joint
Proxy Statement/Prospectus of The Kroger Co. ("Kroger"), which Joint Proxy
Statement/Prospectus is part of the Registration Statement on Form S-4 of
Kroger. By giving such consent we do not thereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "expert" as used in, or that we come within the category of persons whose
consent is required under, the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder.
Dated: November 6, 1998
SALOMON SMITH BARNEY INC.
By: /s/ WESLEY C. WALRAVEN
------------------------------------
Wesley C. Walraven
Managing Director
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned officer and director of
The Kroger Co. (the "Company") hereby constitutes and appoints Paul W. Heldman
and Bruce M. Gack and each of them (with full power to each of them to act
alone) his true and lawful attorney-in-fact and agent for him and on his behalf
and in his name, place and stead, to sign, execute and affix his seal thereto
and file with the Securities and Exchange Commission (or any other governmental
or regulatory authority) any of the documents referred to below relating to the
registration under the Securities Act of 1933, as amended, on Form S-4 or other
appropriate form, of shares of the Common Stock of the Company and related
Preferred Share Purchase Rights with respect to the Agreement and Plan of
Merger, dated as of October 18, 1998, among the Company, Jobsite Holdings, Inc.,
and Fred Meyer, Inc.: (a) a registration statement under the Securities Act of
1933, as amended, with all exhibits and any and all documents required to be
filed with respect thereto; and (b) any and all amendments thereto that may be
filed from time to time by the Company with all exhibits and any and all
documents required to be filed with respect thereto; granting unto said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully to all intents and purposes as he might
or could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them may lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ David B. Dillon October 30, 1998
- ---------------------------------------------------------
Name: David B. Dillon
Title: President, Chief Operating Officer
and Director
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned director of The Kroger
Co. (the "Company") hereby constitutes and appoints Paul W. Heldman and Bruce M.
Gack and each of them (with full power to each of them to act alone) his true
and lawful attorney-in-fact and agent for him and on his behalf and in his name,
place and stead, to sign, execute and affix his seal thereto and file with the
Securities and Exchange Commission (or any other governmental or regulatory
authority) any of the documents referred to below relating to the registration
under the Securities Act of 1933, as amended, on Form S-4 or other appropriate
form, of shares of the Common Stock of the Company and related Preferred Share
Purchase Rights with respect to the Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Jobsite Holdings, Inc., and Fred Meyer,
Inc.: (a) a registration statement under the Securities Act of 1933, as amended,
with all exhibits and any and all documents required to be filed with respect
thereto; and (b) any and all amendments thereto that may be filed from time to
time by the Company with all exhibits and any and all documents required to be
filed with respect thereto; granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he might or could do if personally
present, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ Reuben V. Anderson October 29, 1998
- ---------------------------------------------------------
Name: Reuben V. Anderson
Title: Director
<PAGE> 3
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned director of The Kroger
Co. (the "Company") hereby constitutes and appoints Paul W. Heldman and Bruce M.
Gack and each of them (with full power to each of them to act alone) his true
and lawful attorney-in-fact and agent for him and on his behalf and in his name,
place and stead, to sign, execute and affix his seal thereto and file with the
Securities and Exchange Commission (or any other governmental or regulatory
authority) any of the documents referred to below relating to the registration
under the Securities Act of 1933, as amended, on Form S-4 or other appropriate
form, of shares of the Common Stock of the Company and related Preferred Share
Purchase Rights with respect to the Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Jobsite Holdings, Inc., and Fred Meyer,
Inc.: (a) a registration statement under the Securities Act of 1933, as amended,
with all exhibits and any and all documents required to be filed with respect
thereto; and (b) any and all amendments thereto that may be filed from time to
time by the Company with all exhibits and any and all documents required to be
filed with respect thereto; granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he might or could do if personally
present, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ John L. Clendenin October 29, 1998
- ---------------------------------------------------------
Name: John L. Clendenin
Title: Director
<PAGE> 4
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned director of The Kroger
Co. (the "Company") hereby constitutes and appoints Paul W. Heldman and Bruce M.
Gack and each of them (with full power to each of them to act alone) his true
and lawful attorney-in-fact and agent for him and on his behalf and in his name,
place and stead, to sign, execute and affix his seal thereto and file with the
Securities and Exchange Commission (or any other governmental or regulatory
authority) any of the documents referred to below relating to the registration
under the Securities Act of 1933, as amended, on Form S-4 or other appropriate
form, of shares of the Common Stock of the Company and related Preferred Share
Purchase Rights with respect to the Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Jobsite Holdings, Inc., and Fred Meyer,
Inc.: (a) a registration statement under the Securities Act of 1933, as amended,
with all exhibits and any and all documents required to be filed with respect
thereto; and (b) any and all amendments thereto that may be filed from time to
time by the Company with all exhibits and any and all documents required to be
filed with respect thereto; granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he might or could do if personally
present, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ John T. LaMacchia October 29, 1998
- ---------------------------------------------------------
Name: John T. LaMacchia
Title: Director
<PAGE> 5
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned director of The Kroger
Co. (the "Company") hereby constitutes and appoints Paul W. Heldman and Bruce M.
Gack and each of them (with full power to each of them to act alone) his true
and lawful attorney-in-fact and agent for him and on his behalf and in his name,
place and stead, to sign, execute and affix his seal thereto and file with the
Securities and Exchange Commission (or any other governmental or regulatory
authority) any of the documents referred to below relating to the registration
under the Securities Act of 1933, as amended, on Form S-4 or other appropriate
form, of shares of the Common Stock of the Company and related Preferred Share
Purchase Rights with respect to the Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Jobsite Holdings, Inc., and Fred Meyer,
Inc.: (a) a registration statement under the Securities Act of 1933, as amended,
with all exhibits and any and all documents required to be filed with respect
thereto; and (b) any and all amendments thereto that may be filed from time to
time by the Company with all exhibits and any and all documents required to be
filed with respect thereto; granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he might or could do if personally
present, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ Edward M. Liddy October 29, 1998
- ---------------------------------------------------------
Name: Edward M. Liddy
Title: Director
<PAGE> 6
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned director of The Kroger
Co. (the "Company") hereby constitutes and appoints Paul W. Heldman and Bruce M.
Gack and each of them (with full power to each of them to act alone) his true
and lawful attorney-in-fact and agent for him and on his behalf and in his name,
place and stead, to sign, execute and affix his seal thereto and file with the
Securities and Exchange Commission (or any other governmental or regulatory
authority) any of the documents referred to below relating to the registration
under the Securities Act of 1933, as amended, on Form S-4 or other appropriate
form, of shares of the Common Stock of the Company and related Preferred Share
Purchase Rights with respect to the Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Jobsite Holdings, Inc., and Fred Meyer,
Inc.: (a) a registration statement under the Securities Act of 1933, as amended,
with all exhibits and any and all documents required to be filed with respect
thereto; and (b) any and all amendments thereto that may be filed from time to
time by the Company with all exhibits and any and all documents required to be
filed with respect thereto; granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he might or could do if personally
present, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ John D. Ong October 29, 1998
- ---------------------------------------------------------
Name: John D. Ong
Title: Director
<PAGE> 7
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned director of The Kroger
Co. (the "Company") hereby constitutes and appoints Paul W. Heldman and Bruce M.
Gack and each of them (with full power to each of them to act alone) her true
and lawful attorney-in-fact and agent for her and on her behalf and in her name,
place and stead, to sign, execute and affix her seal thereto and file with the
Securities and Exchange Commission (or any other governmental or regulatory
authority) any of the documents referred to below relating to the registration
under the Securities Act of 1933, as amended, on Form S-4 or other appropriate
form, of shares of the Common Stock of the Company and related Preferred Share
Purchase Rights with respect to the Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Jobsite Holdings, Inc., and Fred Meyer,
Inc.: (a) a registration statement under the Securities Act of 1933, as amended,
with all exhibits and any and all documents required to be filed with respect
thereto; and (b) any and all amendments thereto that may be filed from time to
time by the Company with all exhibits and any and all documents required to be
filed with respect thereto; granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as she might or could do if personally
present, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ Katherine D. Ortega October 30, 1998
- ---------------------------------------------------------
Name: Katherine D. Ortega
Title: Director
<PAGE> 8
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned director of The Kroger
Co. (the "Company") hereby constitutes and appoints Paul W. Heldman and Bruce M.
Gack and each of them (with full power to each of them to act alone) his true
and lawful attorney-in-fact and agent for him and on his behalf and in his name,
place and stead, to sign, execute and affix his seal thereto and file with the
Securities and Exchange Commission (or any other governmental or regulatory
authority) any of the documents referred to below relating to the registration
under the Securities Act of 1933, as amended, on Form S-4 or other appropriate
form, of shares of the Common Stock of the Company and related Preferred Share
Purchase Rights with respect to the Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Jobsite Holdings, Inc., and Fred Meyer,
Inc.: (a) a registration statement under the Securities Act of 1933, as amended,
with all exhibits and any and all documents required to be filed with respect
thereto; and (b) any and all amendments thereto that may be filed from time to
time by the Company with all exhibits and any and all documents required to be
filed with respect thereto; granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he might or could do if personally
present, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ Clyde R. Moore October 29, 1998
- ---------------------------------------------------------
Name: Clyde R. Moore
Title: Director
<PAGE> 9
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned director of The Kroger
Co. (the "Company") hereby constitutes and appoints Paul W. Heldman and Bruce M.
Gack and each of them (with full power to each of them to act alone) his true
and lawful attorney-in-fact and agent for him and on his behalf and in his name,
place and stead, to sign, execute and affix his seal thereto and file with the
Securities and Exchange Commission (or any other governmental or regulatory
authority) any of the documents referred to below relating to the registration
under the Securities Act of 1933, as amended, on Form S-4 or other appropriate
form, of shares of the Common Stock of the Company and related Preferred Share
Purchase Rights with respect to the Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Jobsite Holdings, Inc., and Fred Meyer,
Inc.: (a) a registration statement under the Securities Act of 1933, as amended,
with all exhibits and any and all documents required to be filed with respect
thereto; and (b) any and all amendments thereto that may be filed from time to
time by the Company with all exhibits and any and all documents required to be
filed with respect thereto; granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he might or could do if personally
present, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ T. Ballard Morton, Jr. October 29, 1998
- ---------------------------------------------------------
Name: T. Ballard Morton, Jr.
Title: Director
<PAGE> 10
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned director of The Kroger
Co. (the "Company") hereby constitutes and appoints Paul W. Heldman and Bruce M.
Gack and each of them (with full power to each of them to act alone) his true
and lawful attorney-in-fact and agent for him and on his behalf and in his name,
place and stead, to sign, execute and affix his seal thereto and file with the
Securities and Exchange Commission (or any other governmental or regulatory
authority) any of the documents referred to below relating to the registration
under the Securities Act of 1933, as amended, on Form S-4 or other appropriate
form, of shares of the Common Stock of the Company and related Preferred Share
Purchase Rights with respect to the Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Jobsite Holdings, Inc., and Fred Meyer,
Inc.: (a) a registration statement under the Securities Act of 1933, as amended,
with all exhibits and any and all documents required to be filed with respect
thereto; and (b) any and all amendments thereto that may be filed from time to
time by the Company with all exhibits and any and all documents required to be
filed with respect thereto; granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he might or could do if personally
present, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ Thomas H. O'Leary November 5, 1998
- ---------------------------------------------------------
Name: Thomas H. O'Leary
Title: Director
<PAGE> 11
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned director of The Kroger
Co. (the "Company") hereby constitutes and appoints Paul W. Heldman and Bruce M.
Gack and each of them (with full power to each of them to act alone) her true
and lawful attorney-in-fact and agent for her and on her behalf and in her name,
place and stead, to sign, execute and affix her seal thereto and file with the
Securities and Exchange Commission (or any other governmental or regulatory
authority) any of the documents referred to below relating to the registration
under the Securities Act of 1933, as amended, on Form S-4 or other appropriate
form, of shares of the Common Stock of the Company and related Preferred Share
Purchase Rights with respect to the Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Jobsite Holdings, Inc., and Fred Meyer,
Inc.: (a) a registration statement under the Securities Act of 1933, as amended,
with all exhibits and any and all documents required to be filed with respect
thereto; and (b) any and all amendments thereto that may be filed from time to
time by the Company with all exhibits and any and all documents required to be
filed with respect thereto; granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as she might or could do if personally
present, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ Martha Romayne Seger October 29, 1998
- ---------------------------------------------------------
Name: Martha Romayne Seger
Title: Director
<PAGE> 12
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned director of The Kroger
Co. (the "Company") hereby constitutes and appoints Paul W. Heldman and Bruce M.
Gack and each of them (with full power to each of them to act alone) his true
and lawful attorney-in-fact and agent for him and on his behalf and in his name,
place and stead, to sign, execute and affix his seal thereto and file with the
Securities and Exchange Commission (or any other governmental or regulatory
authority) any of the documents referred to below relating to the registration
under the Securities Act of 1933, as amended, on Form S-4 or other appropriate
form, of shares of the Common Stock of the Company and related Preferred Share
Purchase Rights with respect to the Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Jobsite Holdings, Inc., and Fred Meyer,
Inc.: (a) a registration statement under the Securities Act of 1933, as amended,
with all exhibits and any and all documents required to be filed with respect
thereto; and (b) any and all amendments thereto that may be filed from time to
time by the Company with all exhibits and any and all documents required to be
filed with respect thereto; granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he might or could do if personally
present, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ James D. Woods October 29, 1998
- ---------------------------------------------------------
Name: James D. Woods
Title: Director
