<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1999
REGISTRATION NO. 333-66961
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------
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>
---------------------------
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)
---------------------------
COPIES TO:
<TABLE>
<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>
---------------------------
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. [ ]
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.
[KROGER LOGO]
[FRED MEYER 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. If the merger is completed, Fred Meyer
stockholders will receive one Kroger common share for each share of Fred Meyer
common stock they own. In the merger, each option or warrant to buy shares of
Fred Meyer common stock will become an option or warrant to buy the same number
of Kroger common shares on the same terms. Subject to their right to dissent
from the merger, Kroger shareholders will continue to own Kroger common shares
following the merger. As a result of the merger Fred Meyer will become a
wholly-owned subsidiary of Kroger.
Immediately after the merger current Fred Meyer stockholders will own
approximately % of the outstanding Kroger common shares. We based this
percentage on numbers of shares for each company outstanding on [date], 1999,
the last practicable trading day prior to the date of this document. On [date],
1999, the Kroger common shares, which are listed on the New York Stock Exchange
under the trading symbol "KR," closed at $[ ] per share and the Fred Meyer
common stock, which is listed on the New York Stock Exchange under the trading
symbol "FMY," closed at $[ ] per share.
We cannot complete the merger 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.
This document is a joint proxy statement for both our companies to use in
the solicitation of proxies for use at our special shareholder meetings. This
document is also a prospectus of Kroger relating to the issuance of up to 170
million Kroger common shares in connection with the merger. This document gives
you detailed information about the merger, and includes the merger agreement.
FOR RISKS IN CONNECTION WITH THE MERGER, SEE "RISK FACTORS" BEGINNING ON
PAGE 14.
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.
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<S> <C>
Robert G. Miller
Joseph A. Pichler Vice Chairman and Chief Executive
Chairman and Chief Executive Officer 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 [ ], 1999, WAS FIRST MAILED
TO SHAREHOLDERS ON OR ABOUT [ ], 1999.
<PAGE> 3
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about our companies from documents filed with the SEC 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 document, excluding exhibits, 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) 762-1220 (503) 232-8844
</TABLE>
If you would like to request documents, please do so by [date]. 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.
See "WHERE YOU CAN FIND MORE INFORMATION" on page 89 for more information
about the documents incorporated by reference in this document.
<PAGE> 4
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DATE], 1999
------------------------
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], 1999, at
10:00 a.m., 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.
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],
1999, as the record date for the determination of shareholders entitled to
notice of and to vote at the Kroger Special Meeting. 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], 1999
<PAGE> 5
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ DATE ], 1999
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], 1999, at 10:00 a.m., 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.
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], 1999, as the record date for the determination of stockholders entitled
to notice of and to vote at the Fred Meyer Special Meeting. 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], 1999
<PAGE> 6
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
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
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
INDEX OF DEFINED TERMS
LEGAL MATTERS
EXPERTS
SHAREHOLDER PROPOSALS FOR 1999
ANNUAL MEETINGS
WHERE YOU CAN FIND MORE INFORMATION
APPENDICES
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
RISK FACTORS................................................ 14
Uncertainty of Value of Kroger Common Shares to Be Issued
in the Merger.......................................... 14
Significant Indebtedness Could Adversely Affect the
Combined Company....................................... 14
Uncertainty that the Two Companies Along with Fred Meyer's
Recent Acquisitions Will Be Successfully Integrated
into a Combined Entity................................. 14
Potential that Intended Benefits of the Merger Will Not Be
Achieved; Incurrence of Significant Merger Related
Costs.................................................. 15
Termination Fees and Stock Option Agreements May Deter
Alternative Transactions with Third Parties............ 15
Conflicts of Interests of Members of Fred Meyer's Board of
Directors and Management in the Merger................. 16
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION............................................... 17
THE MEETINGS................................................ 18
Matters to Be Considered at the Special Meetings.......... 18
Votes Required............................................ 18
How Shares Will Be Voted.................................. 19
How to Revoke a Proxy..................................... 19
Record Date for Voting; Which Shares Are Entitled to Vote;
Quorum Required at Special Meetings.................... 19
Solicitation of Proxies................................... 20
THE COMPANIES............................................... 21
Kroger.................................................... 21
Fred Meyer................................................ 21
THE MERGER.................................................. 23
General Information About the Merger...................... 23
Background of the Merger.................................. 23
Reasons for the Merger; Recommendations of the Boards of
Directors.............................................. 25
Opinions of Financial Advisors............................ 30
Interests of Members of Fred Meyer's Board of Directors
and Management in the Merger........................... 39
Accounting Treatment...................................... 42
U.S. Federal Income Tax Consequences...................... 42
Regulatory Matters........................................ 44
Resale Restrictions....................................... 44
Amendment of Existing Credit Facilities................... 45
THE MERGER AGREEMENT........................................ 46
The Merger................................................ 46
Effective Time of the Merger.............................. 46
Exchange Procedures....................................... 46
Representations and Warranties............................ 47
Certain Covenants......................................... 48
No Solicitation of Transactions........................... 50
Boards' Covenant to Recommend............................. 51
Best Efforts; Antitrust Matters........................... 51
Benefit Plans............................................. 52
Governance................................................ 53
Indemnification and Insurance............................. 53
Conditions................................................ 54
</TABLE>
i
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Termination............................................... 55
Termination Fees.......................................... 55
Other Expenses............................................ 57
Assignment, Amendment and Waiver.......................... 57
RIGHTS OF DISSENTING SHAREHOLDERS........................... 58
Kroger Shareholders....................................... 58
Fred Meyer Stockholders................................... 60
THE STOCK OPTION AND VOTING AGREEMENTS...................... 61
The Stock Option Agreements............................... 61
Voting Agreements......................................... 63
MANAGEMENT AND OPERATIONS AFTER THE MERGER.................. 64
Stock Ownership of Designated New Directors............... 65
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA................. 67
DESCRIPTION OF KROGER CAPITAL STOCK......................... 78
Authorized Capital Stock.................................. 78
Kroger Common Shares...................................... 78
Kroger Preferred Shares................................... 78
Preferred Share Purchase Rights........................... 78
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................... 80
General................................................... 80
Classified Board of Directors............................. 80
Shareholder Rights Plan................................... 80
Number of Directors; Removal of Directors; Vacancies...... 80
Special Meetings; Shareholder Action by Written Consent... 81
Cumulative Voting......................................... 82
Advance Notice Provisions for Shareholder Nominations and
Shareholder Proposals.................................. 82
Amendments to Charter Documents and Bylaws................ 83
Mergers, Acquisitions and Certain Other Transactions...... 84
Business Combinations; Transactions with Interested
Shareholders........................................... 84
Appraisal Rights.......................................... 86
Consideration of Other Constituencies..................... 87
Liability and Indemnification of Directors................ 87
LEGAL MATTERS............................................... 88
EXPERTS..................................................... 88
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETINGS.............. 89
WHERE YOU CAN FIND MORE INFORMATION......................... 89
INDEX OF DEFINED TERMS...................................... 92
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> 9
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE KROGER AND FRED MEYER PROPOSING TO MERGE?
A: By combining Kroger and Fred Meyer we will create the nation's largest
supermarket company with the broadest geographic coverage and the widest
spectrum of retail formats. The combined company will operate stores ranging
from multidepartment stores to combination food and drug stores all the way
to convenience stores. Together, we will have $43 billion in annual sales,
2,200 supermarkets and 800 convenience stores across 37 states. We also will
have approximately 280 fine jewelry stores. Together, we will have the #1 or
#2 market share position in 33 of the nation's 100 largest and fastest
growing markets. Fred Meyer's strength in fast-growing Western markets fits
hand-in-glove with Kroger's leading market position in the Midwest and
Southeast. We expect to achieve greater economies of scale by further
leveraging purchasing, information technology, manufacturing and
distribution across a much larger store base resulting in lower costs and
wider selections of consumables for our customers.
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. Because the exchange
ratio is fixed and the market price of Kroger common shares that Fred Meyer
stockholders will receive in the merger will fluctuate, Fred Meyer
stockholders cannot be sure of the market value of the Kroger common shares
they will receive in the merger.
Q: WHAT WILL HOLDERS OF KROGER COMMON SHARES RECEIVE IN THE MERGER?
A: Subject to the right to dissent from the merger, holders of Kroger common
shares will retain the Kroger common shares they currently own.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this document, 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]
10:00 a.m., local time
[Address]
Fred Meyer Special Meeting
[Date]
10:00 a.m., local time
[Address]
In order for the merger to occur, holders of a majority of the outstanding
common shares of each of our companies must approve the merger agreement. 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 shares will not be voted unless you follow the directions provided by
your broker regarding how to instruct your broker to vote your shares.
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. Just
send in a later dated, signed proxy card to your company's Secretary before
your meeting or attend your meeting in person and 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: 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
1
<PAGE> 10
approvals of our shareholders 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.
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.
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.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANIES?
A: Both companies file periodic reports and other information with the SEC. You
may read and copy this information at the SEC's public reference facilities.
Please call the SEC at 1-800-SEC-0330 for information about these
facilities. This information is also available at the Internet site
maintained by the SEC at http://www.sec.gov and at the offices of the New
York Stock Exchange. You can also request copies of these documents from us.
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: Investor Relations
Telephone Number: (513) 762-1431
or
Banks and Brokers may contact:
The Altman Group, Inc.
(212) 681-9600
If you are a Fred Meyer stockholder and you have more questions about the
merger, you should contact:
D.F. King & Co., Inc.
Banks and Brokers Call Collect: [Number]
All Others Call Toll-Free: [Number]
2
<PAGE> 11
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 document and the
other documents it refers to in order to fully understand the merger. See "WHERE
YOU CAN FIND MORE INFORMATION" on page 89 for a guide as to where you can obtain
more information on Kroger and Fred Meyer generally.
GENERAL
We propose a merger between Kroger and Fred Meyer. As a result of the proposed
merger, Fred Meyer would become a wholly-owned subsidiary of Kroger. 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 $16.7 billion and shareholders' equity of
approximately $1.5 billion.
THE COMPANIES
THE KROGER CO. (SEE PAGE 21)
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, 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 and 811 convenience stores.
FRED MEYER, INC. (SEE PAGE 21)
3800 SE 22nd Avenue
Portland, Oregon 97202
(503) 232-8844
Fred Meyer, Inc. is one of the largest domestic food retailers, operating
approximately 830 supermarkets and multidepartment stores and 281 jewelry stores
as of November 7, 1998. 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.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
(SEE PAGE 12)
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 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], 1999, 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 Kroger common
shares 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], 1999. 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.
As of October 31, 1998, 256,220,362 Kroger common shares were outstanding. As of
January 2, 1999, 155,493,211 shares of Fred Meyer common stock were outstanding,
options to purchase 14,257,990 shares of Fred Meyer common stock were
outstanding and warrants to purchase 3,869,366 shares of Fred Meyer common stock
were outstanding.
OPINIONS OF FINANCIAL ADVISORS
(SEE PAGE 30)
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.
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
3
<PAGE> 12
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.
VOTES REQUIRED; RECORD DATE FOR VOTING
(SEE PAGE 18)
Kroger Shareholders. You can vote at the special meeting of Kroger shareholders
if you owned Kroger common shares at the close of business on [date], 1999. To
approve the merger agreement, the holders of a majority of outstanding Kroger
common shares must vote in favor of doing so. 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
[date], 1999. 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. If
you do not vote your shares, the effect will be a vote against the merger
agreement.
RECOMMENDATIONS TO SHAREHOLDERS
(SEE PAGE 25)
Kroger Shareholders. The board of directors of Kroger unanimously recommends
that you vote "FOR" the proposal to approve the merger agreement. For a
discussion of the board's reasons see "THE MERGER -- Reasons for the Merger;
Recommendations of the Boards of Directors."
Fred Meyer Stockholders. The board of directors of Fred Meyer unanimously
recommends that you vote "FOR" the proposal to approve the merger agreement. For
a discussion of the board's reasons see "THE MERGER -- Reasons for the Merger;
Recommendations of the Boards of Directors."
FRED MEYER STOCK OPTIONS AND WARRANTS
(SEE PAGE 46)
In the merger, each outstanding 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.
ACCOUNTING TREATMENT (SEE PAGE 42)
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.
CONDITIONS TO COMPLETION OF THE MERGER
AND THE EFFECTIVE TIME OF THE MERGER (SEE PAGE 54)
The completion of the merger depends on a number of conditions being satisfied,
or to the extent permissible, waived, including, among others, the following:
(1) approval of the merger agreement by holders of a majority of the outstanding
shares of common stock of each company;
(2) expiration of waiting periods under applicable federal antitrust laws;
(3) the absence of any injunction or legal restraint blocking the merger; and
(4) material compliance by Kroger and Fred Meyer with all agreements and
covenants required by the merger agreement.
The merger will occur shortly after all of the conditions to the completion of
the merger have been satisfied or waived. 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.
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;
4
<PAGE> 13
(3) the other company breaches its representations 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; or
(4) any legal restriction permanently prohibiting completion of the merger has
become final and non-appealable.
TERMINATION FEES AND STOCK OPTION AGREEMENTS (SEE PAGE 55 AND 61)
We have agreed to reciprocal termination fees and stock option agreements that
could discourage other companies from trying or proposing to combine with either
Fred Meyer or Kroger before the merger is completed. A party must pay an initial
termination fee if:
(1) prior to that party's special meeting, a third party has inquired, offered
or proposed to the shareholders of the party a merger or acquisition
involving at least 50% of the party's revenues, assets or stock, and
(2) thereafter, the merger agreement is terminated because of a breach of the
merger agreement by that party or failure of that party's shareholders to
approve the merger agreement.
A party must pay an additional termination fee if the initial termination fee
becomes payable and within 18 months of termination of the merger agreement that
party completes certain alternative transactions.
If Kroger is required to pay any termination fees, the initial termination fee
would be $90 million and the additional termination fee would be $185 million.
If Fred Meyer is required to pay any termination fees, the initial termination
fee would be $55 million and the additional termination fee would be $110
million.
We have granted each other an option to purchase up to 19.9% of the granting
company's common stock. The 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 of us may receive as a result of the termination
fees and the exercise of the stock option is limited. Kroger's profit is limited
to $275 million and Fred Meyer's profit is limited to $460 million.
VOTING AGREEMENTS (SEE PAGE 63)
As part of the inducement for Kroger to enter into the merger agreement, Robert
G. Miller, Ronald W. Burkle and entities controlled by Mr. Burkle entered into
agreements to vote all of their shares of Fred Meyer common stock, approximately
7% of the outstanding voting power as of December 31, 1998, in favor of the
merger agreement.
ASSIGNMENT, AMENDMENT AND WAIVER
(SEE PAGE 57)
The merger agreement may be amended prior to the completion of the merger,
including to change the structure of the merger. 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 MEMBERS OF FRED MEYER'S BOARD OF DIRECTORS AND MANAGEMENT IN THE
MERGER
(SEE PAGE 39)
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. You should be aware of these interests because they may conflict
with your interests.
The executive officers of Fred Meyer, including Robert G. Miller and George
Golleher, who are directors of Fred Meyer, have rights 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. If the employment of Mr. Miller and
Mr. Golleher terminates in connection with the merger, severance benefits to
these officers would include in the aggregate approximately $9.5 million in cash
payments, additional amounts to make them whole for any excise taxes payable by
them with respect to excess parachute amounts and, in the case of Mr. Golleher,
the accelerated vesting of options to purchase 230,000 shares of Fred Meyer
common stock at below current market prices.
Ronald W. Burkle, Chairman of the Board of Fred Meyer, and his affiliates will
receive in the merger approximately 10.6 million Kroger common shares,
5
<PAGE> 14
which had a market value of approximately $643 million as of December 31, 1998,
a warrant to purchase up to 3,869,366 Kroger common shares for a price of
approximately $23.81 per share and a termination fee of approximately $3.4
million under a management services agreement with Fred Meyer.
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
R. Rogel. Mr. Miller, Vice Chairman and Chief Executive Officer of Fred Meyer,
will become Vice Chairman and Chief Operating Officer of the combined company.
Mr. Burkle will become Chairman of the Executive Committee of the combined
company's board of directors.
Based on the number of Fred Meyer shares, options and warrants held on December
31, 1998, executive officers and members of the board of directors of Fred Meyer
and their affiliates will receive in the merger:
- - Kroger common shares having an aggregate market value of approximately $908
million,
- - options to purchase up to 2,813,098 Kroger common shares at below the current
market price, and
- - a warrant to purchase up to 3,869,366 Kroger common shares at below the
current market price.
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 80)
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 will have different rights as holders of
Kroger common shares than they now have as holders of Fred Meyer common stock.
FEDERAL INCOME TAX CONSEQUENCES
(SEE PAGE 42)
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 44)
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. We filed the
required information and
6
<PAGE> 15
materials with the United States antitrust authorities on November 2, 1998. On
December 2, 1998, we received a request from the Federal Trade Commission for
additional information and documentary material. The waiting period is now
extended until 20 days after we have complied with the request. We are in the
process of assembling the requested materials. 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 58)
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 58 and APPENDIX G
to this document. 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 stockholders, 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.
7
<PAGE> 16
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 merger is one
Kroger common share 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. They 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. These anticipated cost savings and benefits
are not reflected in the pro forma information. 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. 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 commenced.
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 SEC. 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 89 for instructions on how to obtain
documents each of our companies has filed with the SEC. 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.
8
<PAGE> 17
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 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 89.
<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:
Earnings before
extraordinary
loss............. $ 1.02 $ 1.13 $ 1.69 $ 1.36 $ 1.28 $ 1.10 $ .76
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 on Form 10-K for
the year ended January 1, 1994.
9
<PAGE> 18
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 Fred Meyer's 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 three quarters ended November 7, 1998 and
November 8, 1997, which were 40 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 89.
<TABLE>
<CAPTION>
THREE QUARTERS ENDED FISCAL YEAR ENDED
------------------------- -------------------------------------------------------------------
NOVEMBER 7, NOVEMBER 8, 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..................... $11,022,471 $4,996,582 $7,359,202 $4,530,120 $4,152,574 $3,698,514 $3,492,085
Gross margin (1).............. 3,282,070 1,480,970 2,184,074 1,346,716 1,187,251 1,031,201 1,039,500
Operating and administrative
expenses.................... 2,734,472 1,280,496 1,842,224 1,163,859 1,056,047 938,593 862,497
Merger related costs.......... 290,701
Writedown of California
assets...................... 15,978
----------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations (1).... 256,897 200,474 341,850 182,857 131,204 76,630 177,003
Interest expense.............. 284,720 66,189 102,094 48,855 48,716 24,924 16,724
Recapitalization fees......... 1,400
Provision (benefit) for income
taxes (2)................... 29,619 53,655 96,445 50,039 30,586 18,161 63,381
----------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary
charge/accounting change (1,
2).......................... (57,442) 80,630 143,311 83,963 50,502 33,545 96,898
Extraordinary
charge/accounting change (3,
4).......................... (217,934) (91,210) (91,210) (2,588)
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) (1, 2)...... $ (275,376) $ (10,580) $ 52,101 $ 83,963 $ 50,502 $ 33,545 $ 94,310
=========== ========== ========== ========== ========== ========== ==========
Diluted earnings per common
share:
Income (loss) before
extraordinary
charge/accounting change
(1, 2).................... $ (0.38) $ 0.79 $ 1.31 $ 1.00 $ 0.58 $ 0.35 $ 1.03
Extraordinary
charge/accounting change
(3, 4).................... (1.45) $ (0.89) (0.83) (0.03)
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)(1, 2)..... $ (1.83) $ (0.10) $ 0.48 $ 1.00 $ 0.58 $ 0.35 $ 1.00
=========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA
Working capital............... $ 132,203 $ 452,190 $ 434,518 $ 236,659 $ 288,385 $ 273,290 $ 207,065
Total assets.................. $10,311,977 $5,589,770 $5,422,936 $1,996,037 $1,953,753 $1,771,283 $1,507,988
Long-term debt................ $ 4,999,856 $2,285,700 $2,184,794 $ 666,512 $ 820,760 $ 540,166 $ 321,398
Stockholders' equity.......... $ 2,149,247 $1,623,706 $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.
10
<PAGE> 19
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. You should read this information in conjunction with the
"UNAUDITED PRO FORMA COMBINED FINANCIAL DATA" on page 67.
To present the fiscal year periods, we have combined Fred Meyer's results
for each fiscal year with the corresponding fiscal year of Kroger. For Fred
Meyer, the fiscal years were determined on the basis of the calendar year in
which the fiscal year commenced. For Kroger, the fiscal years 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 Fred Meyer's results for the 40 week period ended
November 7, 1998 with Kroger's results for the 40 week period ended October 3,
1998. To present the interim period for 1997, we have combined Fred Meyer's
results for the 40 week period ended November 8, 1997 with 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 or 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, nor are they necessarily indicative of the combined company's future
financial performance. See "WHERE YOU CAN FIND MORE INFORMATION" on page 89.
<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............................... $31,876,752 $30,693,004 $41,274,124 $29,701,029 $28,090,369
Costs and expenses
Merchandise costs, including
warehousing and
transportation.................. 23,699,054 23,203,825 30,953,042 22,471,190 21,292,918
Operating, general and
administrative.................. 5,859,788 5,277,253 7,237,995 5,306,658 5,023,950
Rent.............................. 477,895 435,072 592,012 392,927 385,247
Depreciation and amortization..... 652,108 651,475 855,256 480,100 434,827
Net interest expense.............. 488,836 509,847 678,006 348,839 362,801
Merger related costs.............. 290,701
----------- ----------- ----------- ----------- -----------
Total............................... 31,468,382 30,077,472 40,316,311 28,999,714 27,499,743
----------- ----------- ----------- ----------- -----------
Earnings before tax expense and
extraordinary loss................ 408,370 615,532 957,813 701,315 590,626
Tax expense......................... 195,376 258,327 398,118 264,617 221,258
----------- ----------- ----------- ----------- -----------
Earnings before extraordinary
loss.............................. $ 212,994 $ 357,205 $ 559,695 $ 436,698 $ 369,368
=========== =========== =========== =========== ===========
Basic earnings per common share
before extraordinary loss......... $ 0.52 $ 0.90 $ 1.40 $ 1.32 $ 1.17
=========== =========== =========== =========== ===========
Diluted earnings per common share
before extraordinary loss......... $ 0.50 $ 0.87 $ 1.35 $ 1.27 $ 1.09
=========== =========== =========== =========== ===========
Average number of common shares used
in basic calculation.............. 406,302 399,020 400,509 330,773 314,674
Average number of common shares used
in diluted calculation............ 424,238 412,112 414,229 342,905 338,449
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 3, 1998
PRO FORMA
COMBINED
---------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...................... $16,705,174
Total liabilities................. $15,234,148
Long-term obligations, including
obligations under capital
leases.......................... $ 8,487,369
Shareowners' equity............... $ 1,471,026
</TABLE>
11
<PAGE> 20
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 11 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:
Basic....................... $(0.38) $0.83 $1.37 $1.05 $0.61
Diluted..................... $(0.38) $0.79 $1.31 $1.00 $0.58
Book value per share.......... $13.87
KROGER UNAUDITED PRO FORMA
Earnings per share:
Basic....................... $ 0.52 $0.90 $1.40 $1.32 $1.17
Diluted..................... $ 0.50 $0.87 $1.35 $1.27 $1.09
Book value per share.......... $ 3.58
FRED MEYER EQUIVALENT PRO
FORMA
Earnings per share:
Basic....................... $ 0.52 $0.90 $1.40 $1.32 $1.17
Diluted..................... $ 0.50 $0.87 $1.35 $1.27 $1.09
Book value per basic share.... $ 3.58
</TABLE>
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<PAGE> 21
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, 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 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.................................... $60.813 $44.000 $60.250 $37.938
Calendar Year 1999
First Quarter (through January [ ], 1999)........
</TABLE>
Set forth below are the following prices for each of Kroger common shares
and Fred Meyer common stock: (1) the average of the closing price for the five
trading days immediately prior to the public announcement of the execution of
the merger agreement, (2) the closing price on October 16, 1998, the last
trading day prior to the public announcement of the execution of the merger
agreement, and (3) the closing price on [date2], 1999, 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, which was 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], 1999................................
</TABLE>
Following the completion of the merger, holders of Kroger common shares
will be entitled to receive dividends, if any, from funds legally available for
dividends, 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.
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<PAGE> 22
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. THE
MATTERS BELOW SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION
INCLUDED AND INCORPORATED BY REFERENCE IN THIS DOCUMENT.
UNCERTAINTY OF VALUE OF KROGER COMMON SHARES TO BE ISSUED IN THE MERGER
Because the exchange ratio is fixed, and the market price of Kroger common
shares will fluctuate prior to the merger, Fred Meyer stockholders cannot be
sure of the market value of the Kroger common shares they will receive in the
merger. 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 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 Kroger common shares 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 our
businesses, operations or prospects, market assessments of the likelihood that
the merger will be completed, the expected date of completion of the merger,
regulatory considerations, industry developments, general market and economic
conditions and other factors.
SIGNIFICANT INDEBTEDNESS COULD ADVERSELY AFFECT THE COMBINED COMPANY
Upon completion of the merger, we will have greater indebtedness than each
of us currently has separately. The increased indebtedness may have the effect,
among other things, of reducing flexibility to respond to changing business and
economic conditions and increasing our borrowing costs.
As of November 4, 1998, the total outstanding indebtedness of Kroger and
Fred Meyer was approximately $8.7 billion, including approximately $3.6 billion
under several bank credit facilities and an operating lease facility. We expect
that following the merger, the combined company will have credit facilities
totaling $5.5 billion. We will reserve approximately $1 billion of that amount
to support outstanding commercial paper and competitive bid borrowings. That
will leave approximately $0.9 billion available for additional borrowings.
The degree to which we will be leveraged could adversely affect our ability
to obtain additional financing for working capital, acquisitions or other
purposes and could make us more vulnerable to economic downturns and competitive
pressures. 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 that cash flow from operations, together with
borrowings under existing credit facilities and other sources of liquidity, will
be adequate to meet our anticipated requirements for working capital, capital
expenditures, interest payments and scheduled principal payments over the next
several years. We cannot assure you, however, that our business will generate
cash flow at or above current levels or that anticipated cost savings can be
fully achieved. If we are unable to generate sufficient cash flow from
operations in the future to service our debt and make necessary capital
expenditures, we will be required to refinance all or a portion of our existing
debt, obtain additional financing, forego strategic decisions or delay, scale
back or eliminate certain aspects of our operations. Any of these actions could
have a material adverse effect on our business, financial condition or results
of operations.
UNCERTAINTY THAT THE TWO COMPANIES ALONG WITH FRED MEYER'S RECENT ACQUISITIONS
WILL BE SUCCESSFULLY INTEGRATED INTO A COMBINED ENTITY
It is uncertain whether our businesses and operations will be successfully
integrated into a combined entity. The merger involves the integration of two
companies that have previously operated independently. The integration of
companies such as Kroger and Fred Meyer involves a number of risks, including:
- the diversion of management's attention to the integration of operations,
- difficulties in the integration of operations and systems, including
integration of plans to update systems for "Year 2000" compliance,
14
<PAGE> 23
- difficulties in 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 we will be able to maintain the
levels of operating efficiency which we had achieved or might achieve
separately. In addition, because of difficulties in integration, we may not be
able to achieve the synergies that we hope to achieve after the merger. Also, an
element of Kroger's growth strategy has been the pursuit of strategic
acquisitions that either expand or complement its business, and Kroger routinely
reviews potential acquisition opportunities. Future acquisitions may further
complicate the integration process.
If we do not successfully integrate our operations, including the entities
which Fred Meyer is continuing to integrate and any other businesses we may
acquire in the future, or if we experience a loss of key management personnel,
customers or sales during the integration process, there may be a material
adverse effect on our business, financial condition or results of operations.
POTENTIAL THAT INTENDED BENEFITS OF THE MERGER WILL NOT BE ACHIEVED; INCURRENCE
OF SIGNIFICANT MERGER RELATED COSTS
We may not be able to achieve the cost savings and synergies we expect will
result from 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 our control. Our estimates are also based on a
management consensus as to what levels of purchasing and similar efficiencies
that we should be able to achieve. Our estimates of potential cost savings are
forward-looking and are inherently uncertain. Our actual cost savings, if any,
could differ from those projected and these differences could be material. We
cannot assure you that unforeseen costs and expenses or other factors will not
offset the estimated cost savings or other components of our plan. They also may
result in delays in the realization of certain projected cost savings.
We will incur substantial costs in connection with the merger. The merger
will result in a charge to operations of approximately $75 million for
transaction fees and costs incidental to the merger. This charge represents
direct costs and not integration costs. 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 "UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA."
TERMINATION FEES AND STOCK OPTION AGREEMENTS MAY DETER ALTERNATIVE TRANSACTIONS
WITH THIRD PARTIES
The merger agreement provides for termination fees that could discourage
other companies from trying to or proposing to combine with either of us in an
alternative transaction that may be superior to the merger for that company's
stockholders. In the merger agreement, we have agreed to reciprocal termination
fees and stock option agreements that could discourage other companies from
trying or proposing to combine with either of us before the merger is completed.
A party must pay an initial termination fee if: (1) prior to that party's
special meeting, a third party has inquired, offered or proposed to the
shareholders of that party a merger or acquisition involving at least 50% of the
party's revenues, assets or stock, and (2) thereafter, the merger agreement is
terminated as a result of a breach of the merger agreement by that party or
failure of that party's shareholders to approve the merger agreement. A party
must pay an additional termination fee if
15
<PAGE> 24
the initial termination fee becomes payable and within 18 months of termination
of the merger agreement that party completes certain alternative transactions.
If Kroger is required to pay any termination fees, the initial termination fee
would be $90 million, and the additional termination fee would be $185 million.
If Fred Meyer is required to pay any termination fees, the initial termination
fee would be $55 million and the additional termination fee would be $110
million.
We have also granted each other an option to purchase up to 19.9% of the
granting company's common stock. The 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 of us may receive as a result of
the termination fees and exercise of the stock option is limited. Kroger's
profit is limited to $275 million and Fred Meyer's profit is limited to $460
million.
If any of these termination fees were to be paid, the company responsible
for paying that termination fee would have a charge to operations in the amount
of the termination fee paid. This charge to operations could have an adverse
effect on the financial condition or results of operations of the company. A
potential charge to operations because of the payment of termination fees may
discourage other companies from trying to or proposing to combine with either of
us. Additionally, because the stock options have the same economic effect as the
termination fees, the options could discourage other companies from trying to or
proposing to combine with either of us. If one of the options 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. If a stock option becomes exercisable and is exercised, then it could
discourage other companies from trying to combine with either of us.
CONFLICTS OF INTERESTS OF MEMBERS OF FRED MEYER'S BOARD OF DIRECTORS AND
MANAGEMENT IN THE MERGER
When considering the recommendations of the board of directors of each
company, you should be aware that some executive officers of Fred Meyer and some
members of the Fred Meyer board of directors may have interests in the merger
that are different from yours. These interests exist because of rights they have
under severance and other agreements with Fred Meyer. These interests may create
potential conflicts of interest, and these persons may be deemed to have
conflicts of interest with respect to the merger. Our boards of directors were
aware of these possible conflicts of interest of Fred Meyer's directors and
officers when they approved the merger. If the employment of Robert G. Miller
and George Golleher terminates in connection with the merger, severance benefits
to these officers would include in the aggregate approximately $9.5 million in
cash payments, additional amounts to make them whole for any excise taxes
payable by them with respect to excess parachute amounts and, for Mr. Golleher,
the accelerated vesting of options to purchase 230,000 shares of Fred Meyer
common stock at below current market prices. Ronald W. Burkle, Chairman of the
Board of Fred Meyer, and his affiliates will receive in the merger approximately
10.6 million Kroger common shares, which had a market value of approximately
$643 million as of December 31, 1998, a warrant to purchase up to 3,869,366
Kroger common shares for a price of approximately $23.81 per share and a
termination fee of approximately $3.4 million under a management services
agreement with Fred Meyer.
16
<PAGE> 25
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document contains certain forward-looking statements about the
financial condition, results of operations, plans, objectives, future
performance and business of each of us, as well as information relating to the
merger, including (1) statements relating to the cost savings and accretion to
reported earnings estimated to result from the merger, (2) statements relating
to revenues estimated to result from the merger, (3) statements relating to
integration costs estimated to be incurred in connection with the merger and (4)
statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates," "estimates" or similar words or expressions.
These forward-looking statements involve risks and uncertainties. Actual
results may differ materially from those contemplated by these forward-looking
statements due to the following factors and potential events:
- expected significant indebtedness which may limit our financial and
operational flexibility;
- fluctuations in interest rates affecting our 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 we
operate;
- costs or difficulties related to the integration of our businesses 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
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. Our shareholders are cautioned not
to place undue reliance on these statements, which speak only as of the date of
this document 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 our behalf are expressly qualified
in their entirety by the cautionary statements contained or referred to in this
section. We will have no obligation to release publicly any revisions to these
forward-looking statements.
17
<PAGE> 26
THE MEETINGS
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
Subject to the terms and conditions of the merger agreement, Jobsite
Holdings, Inc. will merge with and into Fred Meyer at the time of the completion
of the merger. As a result of the merger, Fred Meyer will become a wholly-owned
subsidiary of Kroger. In the merger, each share of Fred Meyer common stock, par
value $.01 per share, issued and outstanding immediately prior to the merger
will be converted into the right to receive one Kroger common share, par value
$1.00 per share. The Kroger common shares issued in the merger will also include
the associated preferred share purchase rights. You are urged to read the copy
of the merger agreement attached to this document as APPENDIX A.
Kroger. At the Kroger special meeting, shareholders of Kroger will vote on
a proposal to approve and adopt the merger agreement and approve the related
merger.
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 Fred Meyer special meeting, stockholders of Fred Meyer
will vote on a proposal to approve and adopt the merger agreement and approve
the merger.
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
Kroger common shares is required to approve and adopt the merger agreement and
approve the merger. Each Kroger common share is entitled to one vote.
Only holders of record of Kroger common shares at the close of business on
[date], 1999 will be entitled to receive notice of and vote at the Kroger
special meeting. On , 1999, Kroger directors and executive officers
and their affiliates may be deemed to beneficially own [ ] Kroger common
shares, excluding shares which may be acquired upon exercise of options, or
approximately [ . ]% of the then outstanding Kroger common shares. 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], 1999 will be entitled to receive notice of and vote at the Fred Meyer
special meeting. On , 1999, Fred Meyer 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 approval and adoption
of the merger agreement and approval of the merger. Additionally, Mr. Miller,
Mr. Burkle and 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 December 31, 1998, for the
merger.
18
<PAGE> 27
HOW SHARES WILL BE VOTED
Shares represented by a proxy will be voted at the special meeting as
specified in the proxy. 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" will be counted for purposes of
determining whether there is a quorum, but the shares represented by that proxy
will not be voted at the special meeting. Because the affirmative vote of the
holders of a majority of the outstanding common shares of each company 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 the
merger agreement and the merger.
In accordance with New York Stock Exchange rules, without specific
instructions from you, your broker cannot vote Kroger common shares or shares of
Fred Meyer common stock. Because the affirmative vote of the holders of a
majority of the outstanding common shares of each company 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.
HOW TO REVOKE A PROXY
Your grant of a proxy on the enclosed proxy card does not prevent you from
voting in person or otherwise revoking your 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 you vote your shares in
person at the appropriate special meeting.
RECORD DATE FOR VOTING; WHICH SHARES ARE ENTITLED TO VOTE; QUORUM REQUIRED AT
SPECIAL MEETINGS
Kroger. Only holders of record of Kroger common shares at the close of
business on [date], 1999 will be entitled to receive notice of and to vote at
the Kroger special meeting. As of [date], 1999, there were [ ] Kroger common
shares outstanding. A majority of the outstanding Kroger common shares 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.
Fred Meyer. Only holders of record of Fred Meyer common stock at the close
of business on , 1999, will be entitled to receive notice of and to
vote at the Fred Meyer special meeting. As of , 1999, 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.
19
<PAGE> 28
SOLICITATION OF PROXIES
We will bear the cost of the solicitation of proxies from our own holders
of common stock. We will share equally the cost of printing and mailing this
document. In addition to solicitation by mail, our directors, officers and
employees may solicit proxies from holders of common stock 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 this solicitation. Arrangements will also be made
with brokerage firms, fiduciaries and other custodians for the forwarding of
solicitation materials to the beneficial owners of shares held of record by
those persons. We will reimburse these brokerage firms, fiduciaries and other
custodians for their reasonable out-of-pocket expenses in connection with this
solicitation. The Altman Group, Inc. will assist in the solicitation of proxies
by Kroger for a fee not to exceed $15,000, plus reimbursement of reasonable
out-of-pocket expenses. D.F. King & Co., Inc. will assist in the solicitation of
proxies by Fred Meyer for a fee of $8,500, plus reimbursement of reasonable
out-of-pocket expenses. We each will indemnify our proxy solicitor against
certain liabilities and expenses, including liabilities and expenses under the
federal securities laws.
20
<PAGE> 29
THE COMPANIES
KROGER
Kroger was founded in 1883 and 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., a wholly-owned
subsidiary of Kroger, operated 260 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 Dillon, 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
approximately 830 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 November 7, 1998, Fred Meyer operated 120 multidepartment stores in the
Pacific Northwest and Intermountain regions. The average Fred Meyer
multidepartment store is 142,300 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 November 7, 1998, Fred Meyer operated a total of 172 stores through
Smith's Food & Drug Centers, Inc., averaging 64,300 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.
At November 7, 1998, Fred Meyer operated, through Quality Food Centers,
Inc. ("QFC"), 86 QFC stores, primarily in the Seattle/Puget Sound Region. The
QFC stores range in size from 14,600 to 67,200 square feet, averaging 33,700
square feet per store, and offer a wide variety of high-quality meat, seafood,
produce, deli and bakery items.
At November 7, 1998, Fred Meyer operated a total of 281 mall jewelry stores
in 25 states under the names "Fred Meyer Jewelers," "Littman Jewelers," "Barclay
Jewelers," "Merksamer Jewelers" and "Fox's Jewelers."
At November 7, 1998, Fred Meyer operated in Southern California, through
Food 4 Less Holdings, Inc. and its subsidiary, Ralphs Grocery Company, 308
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
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format, while providing the product selection and variety 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.
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THE MERGER
GENERAL INFORMATION ABOUT THE MERGER
The merger agreement provides for a business combination between Kroger and
Fred Meyer. Based upon the average closing price of Kroger common shares for the
five days immediately prior to the public announcement of the merger agreement
and the exchange ratio, each Fred Meyer share would have been converted into a
Kroger common share with a value of $50.00. This represented a 13.3% premium
over the average closing price of Fred Meyer common stock for the five trading
days immediately prior to the public announcement of the merger agreement. On
[date2], 1999, based upon that day's closing price of Kroger common shares on
the New York Stock Exchange of $[ . ] and the exchange ratio, each Fred Meyer
share would have been converted into a Kroger common share with a value of
$[ . ]. At the completion of the merger, the Kroger common shares may have a
market value that is greater or less than these amounts depending on the market
price of Kroger common shares at that time.
As a result of the merger, former stockholders of Fred Meyer will hold
approximately [ ]% of the outstanding Kroger common shares, based upon the
number of Kroger common shares and shares of Fred Meyer common stock outstanding
on , 1999 and , 1999, respectively. The outstanding
Kroger common shares held by Kroger common shareholders before the merger will
represent approximately [ ]% of the outstanding Kroger common shares after the
merger.
The discussion in this document 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 the merger agreement is attached to this document as APPENDIX A and 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. These include 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 Fred Meyer board
of directors, also indicated to Goldman, Sachs & Co., Kroger's financial
advisor, that Fred Meyer might be interested in exploring a business combination
transaction with Kroger.
On September 10, 1998, Goldman Sachs, acting on behalf of Kroger, contacted
Mr. Burkle 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 George
E. Golleher, President and Chief Operating Officer, 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, we executed reciprocal
confidentiality agreements in order to facilitate an exchange of information.
Members of our senior management, 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.
The members of Kroger senior management participating in this meeting were:
Warren F. Bryant, President and Chief Executive Officer -- Dillon Companies,
Inc.; David B. Dillon, President and Chief Operating Officer; Paul W. Heldman,
Senior Vice President, Secretary and General Counsel; Don W. McGeorge, Senior
Vice President; Mr. McMullen; Mr. Pichler; and James R. Thorne,
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Senior Vice President. The members of Fred Meyer senior management participating
in this meeting were: Mr. Burkle; Roger A. Cooke, Senior Vice President, General
Counsel and Secretary; George E. Golleher; Kenneth Martindale, Executive Vice
President -- Purchasing and Procurement; Mr. Miller; Mary F. Sammons,
President -- Fred Meyer Stores; Tony Schnug, Executive Vice
President -- Distribution and Manufacturing; and Kenneth Thrasher, Executive
Vice President and Chief Administrative Officer.
On September 20, 1998, at a meeting of the Kroger board of directors,
senior management of Kroger, Kroger's financial advisors and Fried, Frank,
Harris, Shriver & Jacobson, Kroger's legal advisor, 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 to be accounted for as a pooling of interests. The
principal terms of the proposed term sheet were: (1) a fixed exchange ratio; (2)
reciprocal termination fees, the amount of which were unspecified and were to be
negotiated by the parties; (3) reciprocal options in favor of each of us for the
purchase of up to 19.9% of the outstanding shares of the other party's common
stock that would be exercisable under certain circumstances if a merger
agreement were executed and subsequently terminated; and (4) the expansion of
the Kroger board of directors to add up to five directors selected by Fred Meyer
and approved by Kroger. 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 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, our financial advisors 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 Kroger common share 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 Fried, Frank, Harris, Shriver &
Jacobson 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 providing for the reciprocal options based on the
revised term sheet.
On October 13, 1998, the Fred Meyer board of directors met with senior
management, DLJ, Salomon and Cleary, Gottlieb, Steen & Hamilton and Stoel Rives
LLP, Fred Meyer's legal advisors, 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, we, together with our respective legal
and financial advisors, conducted due diligence in Portland and Cincinnati. At
the same time, our representatives continued to discuss the terms of the
proposed merger.
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.
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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 the merger agreement
and the reciprocal stock option agreements with Kroger, the Fred Meyer board of
directors unanimously approved the merger agreement, the reciprocal stock option
agreements and the transactions contemplated thereby. It 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
our senior management, together with our financial and legal advisors, continued
to negotiate and finalize the merger agreement. After further discussion and
consideration, subject to final negotiation of the terms of the merger agreement
and the reciprocal stock option agreements with Fred Meyer, the Kroger board of
directors unanimously approved the merger agreement, the reciprocal stock option
agreements and the transactions contemplated thereby. It 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, we finalized the terms of, and
executed, the merger agreement and the reciprocal stock option agreements.
Additionally, Kroger executed a voting agreement with Robert G. Miller and a
voting agreement with Ronald W. Burkle, The Yucaipa Companies and other entities
controlled by Mr. Burkle.
On the morning of October 19, 1998, prior to the commencement of trading on
the New York Stock Exchange, we 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, each of which
supported the board's recommendation:
(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;
(2) information concerning 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;
(3) 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;"
(4) 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
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convenience stores in 37 states, which should give the combined
company first or second shares of market in 33 of the nation's largest
100 markets;
(5) the merger combines companies with strong positions in attractive
markets, providing for complementary strategic and geographic
diversification;
(6) 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;
(7) 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;
(8) 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;
(9) 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;
(10) the effects of the stock option agreement granted by Fred Meyer and
the proposed termination fee to be payable by Fred Meyer under limited
circumstances, including the potential 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;
(11) the merger enables Kroger, through the addition of Fred Meyer, to gain
expertise in the operation of multidepartment stores and price impact
supermarkets in a warehouse format;
(12) the recent and historical trading prices of Fred Meyer common stock
and Kroger common shares relative to those of other industry
participants, and the potential for appreciation in the value of
Kroger common shares following the merger resulting from opportunities
for enhanced revenue growth and accelerated earnings growth of the
combined company;
(13) the fact that current Kroger shareholders will continue to own
approximately 64.5% of the combined company immediately following the
merger; and
(14) 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 board of directors of Kroger also considered a variety of inherent
risks and other potentially negative factors in deliberations concerning the
merger. In particular, the board of directors of Kroger considered:
(1) the risks associated with a fixed exchange ratio, including the
possibility that the value of the Kroger common shares that the Fred
Meyer stockholders receive in the merger could vary depending on
fluctuations in market price of the Kroger common shares;
(2) the risks associated with the potential reduced flexibility and
increased borrowing costs because of Fred Meyer's existing
indebtedness, which would result in greater indebtedness and a lower
earnings to fixed charges ratio;
(3) the risks associated with integrating the operations of Fred Meyer with
Kroger's existing operations, including the loss of key personnel of
Fred Meyer, difficulty in integrating corporate, accounting, financial
reporting and management information systems and strain on existing
levels of personnel to operate Fred Meyer's business;
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(4) the risk that payment of termination fees or the exercise of the stock
options granted by Kroger may have the effect of limiting Kroger's
ability to enter into mergers or other similar transactions with
parties other than Fred Meyer; and
(5) the conflicts of interest of members of the Fred Meyer board of
directors and officers.
The board of directors of Kroger did not receive a quantitative analysis of
all the factors listed above. However, based on the foregoing, and the
recommendation of management of Kroger, the board of directors of Kroger
concluded that the anticipated benefits of the merger outweighed the possible
detriments.
The foregoing discussion is not intended to be exhaustive but includes 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 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.
THE KROGER BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT KROGER
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL
OF THE MERGER.
Fred Meyer. At a meeting 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 board of directors decided 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 board of directors
considered the following material factors, each of which supported the board's
determination and recommendation:
(1) The board of directors considered that 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 board of directors approved the merger. The
exchange ratio represented:
- a 25.2% premium based on the closing prices of Fred Meyer common stock
and Kroger common shares on October 12, 1998,
- a 19.9% premium based on the average closing prices of Fred Meyer
common stock and Kroger common shares for the three trading days
preceding October 13, 1998,
- a 20.5% premium based on the average closing prices of Fred Meyer
common stock and Kroger common shares for the twenty trading days
preceding October 13, 1998, and
- a 21.4% premium based on the average closing prices of Fred Meyer
common stock and Kroger common shares for the thirty trading days
preceding October 13, 1998. The exchange ratio also represented a
premium over the average ratio of the value of a Kroger common share
to the value of a share of Fred Meyer common stock for the one-year
period (.952), the ninety-day period (.906), and the thirty-day period
(.825), ended October 12, 1998.
(2) The board of directors considered the opinion of its financial
advisors, DLJ and Salomon, 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. The opinions are attached as APPENDIX E and
APPENDIX F to this document. These opinions were considered together
with the valuation and other analyses presented to the 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."
(3) The board of directors considered the current and historical trading
prices of Fred Meyer common stock and Kroger common shares relative to
each other and to other retailers.
(4) The board of directors considered the historical performance of Fred
Meyer and Kroger.
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(5) The board of directors considered the potential for growth in the
value of Kroger common shares following the merger and the opportunity
for Fred Meyer stockholders to participate in any such increase
through the ownership of approximately 35.5% of the outstanding Kroger
common shares, based upon the number of Kroger common shares
outstanding as of October 13, 1998 and the number of shares of Fred
Meyer common stock outstanding as of October 15, 1998. In this regard,
the 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
expectation that the merger will result in the growth of earnings per
share in 2000, excluding costs related to the merger;
- the potential for cost savings that would be created by combining the
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
- Kroger's expected capital structure after the merger, including the
expectation that Kroger would have a higher credit rating following
the merger than Fred Meyer would have on its own and the effect of
Kroger's capital structure on its ability to finance future growth
opportunities.
(6) The board of directors considered various alternatives to the merger
available to Fred Meyer, including the alternative of remaining
independent, as well as the risks associated with such alternatives.
(7) The board of directors considered the geographic fit of the operations
of the companies, including the general lack of overlap in the markets
served by the companies. The board of directors noted in particular
that Kroger has a leading position in certain major markets in which
Fred Meyer does not operate, including markets in the Southeastern and
Midwestern United States.
(8) The board of directors considered 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 substantially larger than either
Kroger or Fred Meyer alone. The Fred Meyer board of directors
considered this in light of the continued consolidation of and
developing competitive environment in the food and multidepartment
retail industry generally, including the recent acquisition of
American Stores Company by Albertson's, Inc., acquisitions by Safeway
Inc., and the entrance into food retailing by Wal-Mart Stores, Inc.
Also considered was the conclusion of management that economies of
scale, including increased purchasing power and operating
efficiencies, likely will be required to achieve success in food and
multidepartment retailing in the near future.
(9) The board of directors considered the historical performance and
reputation of the Kroger management team, and the belief of Fred Meyer
management that Kroger and Fred Meyer have complementary approaches to
business.
(10) The board of directors considered the fact that certain members of the
existing Fred Meyer management team will join Kroger management
following the merger. In particular, the board of directors noted
that: (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.
(11) The board of directors considered the measures taken by the parties to
provide reasonable assurance to each other that the merger will occur.
These include the reciprocal expense reimbursement and termination fee
provisions of the merger agreement requiring Fred Meyer or Kroger to
compensate
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the other in certain circumstances in the event the merger agreement is
terminated, the "no-shop" provisions of the merger agreement that restrict Fred
Meyer and Kroger from having discussions with third parties about alternative
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.
(12) The board of directors considered the terms of the merger agreement
not discussed above, including the following:
- the reciprocal representations, warranties and covenants contained
in the merger agreement; and
- the conditions to each party's obligation to consummate the merger.
(13) The board of directors considered the ability of Fred Meyer and Kroger
to complete the merger, including the likelihood of obtaining
necessary regulatory approvals and the obligations of both companies
to attempt to obtain those approvals.
(14) The board of directors considered 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 board of directors placed
substantial weight on Kroger's agreement to continue Fred Meyer's
financial support of certain charitable foundations.
(15) The board of directors considered that pooling of interests accounting
treatment should be available for the merger and that the merger will
be a tax-free reorganization for federal income tax purposes.
The board of directors also considered a variety of risks and other
potentially negative factors concerning the merger:
(1) The board of directors considered the fact that the merger agreement
does not provide for any adjustment to the exchange ratio based on
fluctuations in market prices and that as a result the value of the
Kroger common shares that Fred Meyer stockholders receive in the merger
could vary depending on fluctuations in the market price of the Kroger
common shares.
(2) The board of directors considered that after the merger Kroger would
have greater indebtedness and a lower ratio of earnings to fixed
charges than it had at the time the board of directors considered the
merger, which could reduce Kroger's flexibility in responding to
changing business conditions and increase Kroger's cost of borrowing.
(3) The board of directors considered that the merger involves the
combination of two companies that previously have operated
independently. Such a combination involves a number or risks, including
the risk that the potential difficulties in integrating the operations
of the two companies will prevent the achievement of expected cost
savings. Such risks are described above in "RISK FACTORS -- Uncertainty
that the Two Companies Along with Fred Meyer's Recent Acquisitions Will
Be Successfully Integrated into a Combined Entity."
(4) The board of directors considered the fact that the merger will result
in a charge to Kroger's earnings. The charge in the first quarter
following the merger is expected to be $75 million including
transaction fees and costs incidental to the merger. Also considered
was the fact that the integration process will result in additional
charges in subsequent quarters.
(5) The board of directors considered that the interests of certain Fred
Meyer officers and directors with respect to the merger may differ from
or conflict with the interests of the stockholders of Fred Meyer. The
interests of certain officers and directors are described below in
"-- Interests of Members of Fred Meyer's Board of Directors and
Management in the Merger."
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(6) The board of directors considered that the termination fees and stock
options granted to Kroger by Fred Meyer may deter third parties from
proposing an alternative transaction that may be more advantageous to
Fred Meyer stockholders.
The foregoing discussion describes the material factors considered by the
board of directors in its consideration of the merger. Following such
consideration, and taking into account the recommendation of management, the
board of directors concluded that the positive factors described above
outweighed the negative factors described above. In view of the variety of
factors considered, the 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 of directors an oral opinion which was confirmed by delivery of its
written opinion, dated October 18, 1998, 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 SHARES 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: (1)
the merger agreement; (2) the Annual Reports to Shareholders and Annual Reports
on Form 10-K of Kroger for the five fiscal years ended December 27, 1997; (3)
the Annual Reports to Stockholders and Annual Reports on Form 10-K of Fred Meyer
for the five fiscal years ended January 31, 1998; (4) certain interim reports to
shareholders and Quarterly Reports on Form 10-Q of Kroger; (5) certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of Fred Meyer; (6)
certain other communications from Kroger and Fred Meyer to their respective
shareholders and stockholders; and (7) 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. Furthermore, Goldman Sachs
reviewed (8) 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 (9) 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 and Chase Securities
Inc., relating to amendments to the Kroger and Fred Meyer bank loan agreements,
and the reported price and trading activity for the Kroger common shares 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
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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 shares 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, and $750,000,000 principal amount of
Fred Meyer's 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 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 Kroger common shares against which it was short 44,732 Kroger
common shares, 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 due March 1, 2005 and
$7,850,000 principal amount of the 7.45% Notes due March 1, 2008 issued by Fred
Meyer.
Pursuant to a letter agreement, dated October 10, 1998, 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 engagement letter,
an 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
completion 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
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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 the
material financial analyses used by Goldman Sachs in connection with providing
its written opinion to the Kroger board of directors on October 18, 1998.
1. 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 Kroger common share for the two year, one year,
six months, three months and one month periods ended October 16, 1998. Such
analyses indicated that for such periods such 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.
2. 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
multiples of the selected companies were calculated by Goldman Sachs using
closing stock prices as of October 16, 1998. The multiples for Kroger and
Fred Meyer were calculated by Goldman Sachs using closing stock prices as
of September 16, 1998 and October 16, 1998. Goldman Sachs based the
multiples and ratios for Kroger and Fred Meyer and each of the selected
companies on the most recent publicly available information. Goldman Sachs
also assumed a 1998 net debt of $4.8 billion for the calculation of Fred
Meyer's multiples. None of the selected companies is directly comparable to
Kroger or Fred Meyer. Estimates for earnings before interest, taxes,
depreciation and amortization ("EBITDA") are based on fiscal year, while
earnings per share estimates are based on a calendar year. 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 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 on September 16, 1998
closing stock prices). This analysis also showed, among other things, that
the price/earnings ratio for the 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
earnings estimates. Institutional Brokers Estimates System 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.
3. Selected Transactions Analysis. Goldman Sachs reviewed and analyzed
levered value as a multiple of (a) the latest twelve months EBITDA and (b)
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. No company or transaction
used in the analysis of the selected transactions is directly comparable to
Kroger and Fred Meyer or the contemplated transaction. 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
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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. Goldman Sachs also assumed for purposes of this
analysis that the exchange ratio for the contemplated transaction would be
1.0, the latest twelve months data to be consistent with 1998 estimates,
and total synergies to be $225.0 million. This analysis indicated that, for
the selected transactions, levered value as a multiple of latest twelve
months 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
selected transaction, and levered value as a multiple of latest twelve
months 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 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 Kroger common share. The
analysis indicated that the levered value/EBITDA ratio (x) without any of
the cost savings expected to be realized as a result of the merger, (1)
using 1998 estimated EBITDA, was 9.7x; (2) using 1999 estimated EBITDA, was
8.7x; and (3) using 2000 estimated EBITDA, was 8.0x; and (y) 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) (1) using 1998
estimated EBITDA, was 8.3x; (2) using 1999 estimated EBITDA, was 7.6x; and
(3) using 2000 estimated EBITDA, was 7.0x.
4. 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 Fred Meyer common
stock ranged from a low of $35.64 to a high of $84.80.
5. 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
earnings per share of the common stock for the combined companies on a pro
forma basis. This analysis assumed an effective tax rate of 38% and an
exchange ratio of 1.0. The analysis indicated that the merger would be
neutral to slightly accretive to the shareholders on an earnings per share
basis for the fiscal year 1999 and accretive for the fiscal year 2000
relative to the then current Institutional Brokers Estimates System
estimates for Kroger, assuming the transaction closed on January 1, 1999.
6. 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 (1) 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; (2) 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
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synergies), and 42.6% to EBIT (before synergies); (3) 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); (4) 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 each of these analyses in their
totality. No company or transaction used in the above analyses as a comparison
is directly comparable to Kroger, 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 to the effect that, as of the date of
the opinion, and based upon 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. 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 merger agreement, as well as
financial and other information that was publicly available or furnished to it
by Kroger and Fred Meyer. Included in the information provided during
discussions with the respective managements were certain financial projections
of Fred Meyer and 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
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and trading volumes of the Fred Meyer common stock and Kroger common shares,
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.
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 opinion, dated October 18, 1998,
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 IT 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. THIS 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 shares 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
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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 shares 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 assumed that the merger would
be accounted for as a pooling of interests in accordance with generally accepted
accounting principles, and that the merger would qualify for such accounting
treatment under these same principles. Salomon also assumed that the merger
would constitute a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and that none of Fred Meyer, Kroger,
Fred Meyer Holdings, Inc. or holders of the Fred Meyer common stock would
recognize gain or loss for U.S. federal and state income tax purposes as a
result of the merger. Salomon expressed no opinion with respect to such
forecasts or the assumptions on which they are based. 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 shares 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 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 has consented
to the disclosure of its opinion in this document.
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.
ENGAGEMENT LETTERS. Pursuant to separate engagement letters, dated October
13, 1998, Fred Meyer engaged DLJ and 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 engagement letters, Fred Meyer has
paid each of DLJ and Salomon $1.75 million and has agreed to pay each of DLJ and
Salomon an additional fee of $18.25 million contingent upon the consummation of
the merger. Fred Meyer also agreed to pay to each of DLJ and 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
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any option on shares of Kroger common shares received by Fred Meyer in
connection with the termination of the merger agreement. In addition, Fred Meyer
agreed to reimburse each of DLJ and Salomon for reasonable travel and
out-of-pocket expenses incurred by it in connection with its engagement,
including reasonable travel expenses and fees and expenses of its counsel. Fred
Meyer further agreed to indemnify each of DLJ and 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 the material financial analyses performed by DLJ and Salomon in connection
with providing their respective written opinions and in presentations to the
Fred Meyer board of directors on October 13, 1998. The analyses were performed
solely for purposes of DLJ and Salomon providing their opinions to the Fred
Meyer board of directors. 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 and mathematical analysis (such as determining the mean or median)
is not in itself a meaningful method of using selected company or transaction
data. 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. 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 shares
closing price on that date of $49.94.
1. Historical Exchange Ratio Analysis. DLJ and Salomon analyzed the
historical implied exchange ratio between Fred Meyer common stock and
Kroger common shares 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 shares for the twelve month period ended October
12, 1998. During this period, the exchange ratio averaged 0.952.
2. 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
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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.
3. 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. DLJ and Salomon calculated and compared various financial
multiples and ratios. The multiples of the 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
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 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 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 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.
4. Selected Transactions Analysis. DLJ and Salomon reviewed and
analyzed firm value as a multiple of the latest twelve months 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. 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 selected transactions and other factors that would affect
the acquisition value of the companies involved in the selected
transactions. Such analysis indicated that, for the selected transactions,
firm value as a multiple of latest twelve months 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 latest twelve months 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 shares 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 EBITDA for the latest twelve months for Fred
Meyer to be 11.1x, and the firm value as a percentage of latest twelve
months sales for Fred Meyer to be 85.6%.
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5. 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.
6. 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. 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 earnings per share estimates beginning in 2000 while having a
neutral impact on such estimates in 1999.
INTERESTS OF MEMBERS OF FRED MEYER'S BOARD OF DIRECTORS AND MANAGEMENT IN THE
MERGER
When considering the recommendations of our boards of directors, you should
be aware that some executive officers of Fred Meyer and members of the Fred
Meyer board of directors may have interests in the merger that are different
from, or in addition to, your interests. These interests may create potential
conflicts of interest. Our boards of directors were aware of these interests
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 will be entitled to
severance payments under his employment agreement with Fred Meyer if his
employment is terminated by Kroger or Mr. Miller in connection with the merger.
Mr. Miller's employment agreement, dated August 27, 1991, as amended October 13,
1998, provides for an annual base salary of $1 million and a target annual bonus
equal to 60% of his base salary. The agreement also provides for the payment of
severance compensation and benefits upon a "qualifying termination" in
connection with a change in control. This is compensation that Mr. Miller 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 agreement. A qualifying termination includes any
- resignation by Mr. Miller for any reason within 18 months after the
completion of the merger;
- resignation initiated by Mr. Miller due to constructive discharge outside
the 18-month period referred to above if the resignation is in
anticipation of or within three years after the merger; and
- termination of Mr. Miller's employment by Fred Meyer for any reason,
other than for cause, in anticipation of or within three years after the
merger.
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 under the
agreement upon a qualifying termination after the merger consists of
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- accrued and unpaid compensation through the date of termination;
- a pro rata bonus for the year of termination;
- a payment equivalent to three times his highest base salary and
applicable bonus rate, discounted to present value over a three year
period;
- 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;
- continuation of health and welfare benefit coverage for 36 months; and
- 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.
If the merger is consummated and Mr. Miller were to terminate employment as
of April 1, 1999, assuming a prime rate at that time of 8%, his estimated cash
payment as of his termination date as severance compensation under the agreement
would be approximately $4.6 million. Additionally, Mr. Miller will be paid an
amount to make him whole for any excise taxes payable by Mr. Miller with respect
to excess parachute payments.
Payment of severance compensation under Mr. Miller's 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 completion of the merger, 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. As of the date of this document there have been no
negotiations between Mr. Miller and Kroger with respect to a new employment
agreement for Mr. Miller following the merger.
Employment Protection Agreements with Other Executive Officers. The other
12 executive officers of Fred Meyer, Roger Cooke, Sam Duncan, George E.
Golleher, Michael Huse, David Jessick, Ken Martindale, Harold McIntire, Abel
Porter, Mary Sammons, Tony Schnug, John Standley and Kenneth Thrasher, will be
entitled to severance benefits if their employment is terminated by Kroger or
Fred Meyer in connection with the merger. These officers 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:
- accrued and unpaid compensation through the date of termination;
- a pro rata bonus for the year of termination;
- continued payment for two or three years following the date of
termination of the executive's 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;
- continued health and welfare benefits for two or three years; and
- 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 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
two or three years following the date of
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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. If the merger is completed and
Mr. Golleher were to terminate his employment as of April 1, 1999, he would
receive (1) a lump sum payment of approximately $100,000, plus an additional
amount to make him whole for any excise taxes payable by him with respect to
excess parachute payments, (2) his annual salary and projected bonus, currently
$1,600,000 in the aggregate, for each of the next three years and (3) the
accelerated vesting of his options to purchase 230,000 shares of Fred Meyer
common stock, at an average exercise price of $40.58 per share. We anticipate
that some of the named executives, including Mr. Golleher, will terminate
employment under circumstances that will result in payment of the severance
compensation described above. That termination and the payment of severance
compensation will not materially adversely impact Kroger.
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 December 31, 1998, Ronald
W. Burkle, The Yucaipa Companies and certain of their affiliates owned
10,631,332 outstanding shares of Fred Meyer common stock, constituting
approximately 6.8% of the outstanding shares of Fred Meyer common stock. As a
result of the merger, Mr. Burkle and his affiliates will receive Kroger common
shares worth approximately $643 million based on shares held as of December 31,
1998 and the closing stock price of Kroger common shares on December 31, 1998.
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. At the completion of the merger,
Kroger will execute a supplemental warrant agreement giving Yucaipa the right to
purchase the same number of Kroger common shares at the same price per share.
Fred Meyer and Yucaipa are parties to a management services agreement dated
as of September 9, 1997. 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. We expect that the management services
agreement will be terminated as of the completion of the merger. Assuming the
completion of the merger occurs on April 1, 1999, Fred Meyer will pay Yucaipa a
termination fee of approximately $3.4 million.
Pursuant to the merger agreement, at the completion of the merger 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.
Kroger Common Shares to Be Received by Fred Meyer Directors and Executive
Officers. If the merger had occurred on December 31, 1998, executive officers
and members of the board of directors of Fred Meyer and their affiliates would
have received:
- Kroger common shares having an aggregate market value of approximately
$908 million;
- options to purchase up to 2,813,098 Kroger common shares at below the
current market price; and
- a warrant to purchase up to 3,869,366 Kroger common shares at below the
current market price.
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New Directors of Kroger. Kroger has agreed to elect the following current
Fred Meyer directors to the Kroger board of directors as of the completion of
the merger: Robert D. Beyer, Ronald W. Burkle, Carlton J. Jenkins, Bruce Karatz,
Robert G. Miller and Steven R. Rogel. The non-employee directors will receive
the same directors' compensation paid by Kroger to its other non-employee
directors. See "MANAGEMENT AND OPERATIONS AFTER THE MERGER."
ACCOUNTING TREATMENT
We believe that the merger will qualify as a pooling of interests for
accounting and financial reporting purposes. Under this method of accounting,
our assets and liabilities will be combined based on the respective carrying
values of the accounts in the historical financial statements of each entity.
Results of operations of the combined company will include both our incomes 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 our results of operations.
At the time the registration statement of which this Joint Proxy
Statement/Prospectus forms a part was 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. 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 the letters. Completion
of the merger is conditioned upon the receipt by each of us of a second letter
from the other party's independent public accountants, dated as of the date of
completion of the merger, 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 shares by our affiliates,
respectively, may prevent the merger from qualifying as a pooling of interests.
See "-- Resale Restrictions."
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material U.S. federal income
tax consequences, as well as certain other tax consequences, of the merger. This
summary does not purport to be a comprehensive description of all of the tax
consequences that may be relevant to a holder of Kroger common shares or shares
of Fred Meyer common stock, including tax consequences that arise from rules of
general application to all taxpayers or to certain classes of taxpayers or that
are generally assumed to be known by investors. This summary is based upon the
Internal Revenue 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
(1) certain representations of Kroger and Fred Meyer contained in certificates
attached to the opinions included as Exhibits 8.1 and 8.2 to the registration
statement of which this Joint Proxy Statement/Prospectus forms a part signed by
officers of Kroger and Fred Meyer and (2) 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. Special holders include dealers in securities, traders
in securities electing to mark to market, 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.
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Based on the assumptions discussed above and upon representations and
assumptions contained in the above referenced certificates, 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:
(1) the merger qualifies as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
(2) no gain or loss will be recognized by Kroger, Fred Meyer or
Jobsite Holding, Inc. as a result of the merger; and
(3) no gain or loss will be recognized by the stockholders of Fred
Meyer who exchange their Fred Meyer common stock solely for Kroger
common shares pursuant to the merger.
In addition, the merger will have the following U.S. federal income tax
consequences:
(1) the tax basis of the Kroger common shares received by Fred Meyer
stockholders who exchange all of their Fred Meyer common stock for
Kroger common shares in the merger will be the same as the tax
basis of the Fred Meyer common stock surrendered in exchange
therefor;
(2) the holding period of the Kroger common shares received will
include the holding period of shares of Fred Meyer common stock
surrendered in exchange therefor; and
(3) any Kroger shareholder who dissents from the merger and who
receives cash in exchange for the holder's Kroger common shares
generally will be treated as if the shareholder sold the shares in
a taxable transaction. The shareholder will recognize gain or loss
equal to the difference between the cash received and the
shareholder's tax basis in the Kroger common shares 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, Kroger common shares, including shares received in the
merger in exchange for shares of Fred Meyer common stock, after
the merger, other than Kroger 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 Kroger common shares
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 waivable 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 Internal Revenue
Code. These opinions will be based upon updated representations of Kroger and
Fred Meyer contained in certificates signed by officers of Kroger and Fred Meyer
to be delivered at the completion of the merger. The tax opinions cannot be
relied upon if any of these factual assumptions or representations is, or later
becomes, inaccurate. Kroger and Fred Meyer will resolicit the votes of their
shareholders before proceeding with the merger if the tax opinions cannot be
issued and the material federal income tax consequences are materially different
from those described in this Joint Proxy Statement/Prospectus. 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.
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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.
EACH FRED MEYER STOCKHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER 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,
and the rules promulgated thereunder by the Federal Trade Commission, the merger
cannot be consummated until notifications have been given and certain
information has been furnished to the Federal Trade Commission and the Antitrust
Division of the Department of Justice and the specified waiting period
requirements have been satisfied. We filed the required notification and report
forms with the Federal Trade Commission and the Antitrust Division on November
2, 1998. On December 2, 1998, we received a request from the Federal Trade
Commission for additional information and documentary material. This request
extends the waiting period until 20 days after we have substantially complied
with each request unless the Federal Trade Commission terminates the waiting
period earlier. We are taking steps to provide information to the Federal Trade
Commission and to resolve the Federal Trade Commission's investigation of the
merger in a timely manner. However, there can be no assurance that the
completion of the merger will not be delayed by reason of the antitrust laws. At
any time before or after completion of the merger, the Federal Trade Commission,
the Antitrust Division, 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. Our obligations 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 completion of the merger. See "THE MERGER
AGREEMENT -- Best Efforts; Antitrust Matters" for a description of our
obligations to seek regulatory approvals.
RESALE RESTRICTIONS
All Kroger common shares received by Fred Meyer stockholders in the merger
will be freely transferable, except those received by persons who are deemed to
be "affiliates," as that term is defined under the Securities Act of 1933, as
amended, of Fred Meyer at the time of the Fred Meyer special meeting. Kroger
common shares received by affiliates may be resold by them only in transactions
permitted by the resale provisions of Rule 144 or Rule 145 under the Securities
Act, or as otherwise permitted under the Securities Act. Persons who may be
deemed to be our affiliates 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, our affiliates may not
sell, transfer or dispose, subject to minor exceptions, or in any other way
reduce their risk relative to, Kroger common shares or shares of Fred Meyer
common stock during the period beginning 30 days prior to the completion of the
merger and ending when Kroger publishes results covering at least 30 days of our
combined operations. The merger agreement requires us to use our reasonable best
efforts to cause each of our 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 affiliates of Fred Meyer. See "-- Accounting
Treatment."
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AMENDMENT OF EXISTING CREDIT FACILITIES
We expect that, following the completion of the merger, the combined
company will require bank credit facilities providing for an aggregate of $5.5
billion in borrowings. These bank facilities will be comprised of (1) $2.0
billion of Kroger's existing bank credit facilities, consisting of a $500
million 364-day credit facility and a $1.5 billion multi-year credit facility,
and (2) $3.5 billion of Fred Meyer's existing bank credit facilities, consisting
of a $1.625 billion five-year term note and a $1.875 billion five-year revolving
credit facility. We also expect that Fred Meyer's existing $500 million
five-year operating lease facility will be repaid or $500 million of other
commitments will be reduced at the completion of the merger from additional
borrowings under the existing bank credit facilities. The Fred Meyer 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 November 4, 1998, there was an aggregate of $3.3 billion outstanding under
both companies' existing credit facilities, and $332 million outstanding under
the Fred Meyer operating lease facility.
We have agreed with our lenders to certain amendments to each of the
existing bank credit facilities and the operating lease facility that will go
into effect if the merger is completed. If effected, these amendments will
permit the completion of the merger without a violation of the terms of the
existing bank credit facilities and the Fred Meyer operating lease facility and
will provide that the obligations of Fred Meyer under Fred Meyer's existing bank
credit facilities and its operating lease facility will remain the obligations
of Fred Meyer. The amended bank facilities will also provide for:
- the Fred Meyer existing bank credit facilities to remain secured by the
capital stock of all of the subsidiaries of Fred Meyer;
- a guarantee by Fred Meyer and its material subsidiaries of the Kroger
existing bank credit facilities;
- a guarantee by Kroger and its material subsidiaries of the Fred Meyer
existing bank credit facilities;
- an increase to market rate in the interest rates and facility fees
applicable to the Kroger existing bank credit facilities; and
- the modification of the covenants contained in the Fred Meyer existing
bank credit facilities to make these covenants substantially the same as
the covenants contained in the Kroger existing bank credit facilities.
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THE MERGER AGREEMENT
This is a summary of the material 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.
THE MERGER
At the completion of the merger, Jobsite Holdings, Inc., a wholly-owned
subsidiary of Kroger, 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.
Each share of Fred Meyer common stock outstanding immediately prior to the
completion of the merger will be converted into the right to receive one Kroger
common share and one associated preferred share purchase right. The preferred
share purchase rights will be issued under Kroger's shareholders' rights plan
and will not trade separately unless certain takeover related events occur with
respect to Kroger. See "DESCRIPTION OF KROGER CAPITAL STOCK." All shares of Fred
Meyer common stock will cease to be outstanding and will be canceled and
retired. Each holder of a certificate representing any shares of Fred Meyer
common stock will thereafter cease to have any rights with respect to the shares
of Fred Meyer common stock, except for the right to receive Kroger common
shares. 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 completion of
the merger will cease to be outstanding and will be canceled and retired without
any payment.
Fred Meyer will take all action necessary with respect to outstanding
options to purchase Fred Meyer common stock immediately prior to the completion
of the merger to entitle the holder to acquire upon exercise of the options the
same number of Kroger common shares at the same exercise price. 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 Kroger common shares
on the same terms as currently in effect.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon (1) the filing of a certificate of
merger with the Secretary of State of the State of Delaware, or (2) such later
time as agreed to by the parties and specified in the certificate of merger. The
parties will file the certificate of merger on the second business day after the
satisfaction or waiver of all conditions in the merger agreement. It is expected
that the merger will be completed in early 1999. We cannot assure you when, or
if, all the conditions to consummation of the merger will be satisfied or
waived. See "-- Conditions."
EXCHANGE PROCEDURES
After the merger, The Bank of New York, as the exchange agent, will mail to
each person who held shares of Fred Meyer common stock at the time of the
completion of the merger a letter of transmittal to be used by the holder in
forwarding Fred Meyer stock certificates. This will include instructions for the
exchange of the Fred Meyer stock certificates for Kroger share certificates.
Upon surrender to the exchange agent of a Fred Meyer stock certificate together
with a letter of transmittal, the holder of a Fred Meyer stock certificate will
be entitled to receive a Kroger share certificate and unpaid dividends and
distributions, if any. The surrendered Fred Meyer stock certificate will be
canceled. FRED MEYER STOCKHOLDERS SHOULD NOT SEND IN THEIR FRED MEYER STOCK
CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
No dividends on Kroger common shares will be paid with respect to Kroger
common shares represented by a Fred Meyer common stock certificate until that
Fred Meyer common stock certificate is surrendered for exchange. In addition to
a certificate representing Kroger common shares, the holder of a surrendered
Fred Meyer common stock certificate will receive (1) the amount of any dividends
or other distributions with a record date after the completion of the merger
payable with respect to the shares represented by the Kroger common share
certificate and not paid, and (2) at the appropriate payment date, the amount of
dividends or
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other distributions with a record date after the completion of the merger but
prior to the surrender and a payment date after the surrender. In each case
taxes will be withheld as required.
After the completion of the merger, 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 completion of the merger.
Any Kroger common share certificates issued in the merger and any dividends
or distributions deposited by Kroger with the exchange agent that remain
unclaimed by the former Fred Meyer stockholders one year after the completion of
the merger will be delivered to Kroger. Any former Fred Meyer stockholders who
have not complied with the exchange procedures prior to one year after
completion of the merger may look only to Kroger for payment of Kroger common
shares, and any unpaid dividends and distributions on Kroger common shares. Fred
Meyer, Kroger, the exchange agent or any other person will not 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 common stock
certificates.
If your Fred Meyer stock certificate has been lost, stolen or destroyed,
you will only be entitled to obtain the Kroger common shares by making an
affadavit and, if required by Kroger, posting a bond in an amount sufficient to
protect Kroger against claims related to the Fred Meyer stock certificate.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal representations and
warranties made by both of us to each other, including representations and
warranties relating to:
(1) due organization, power and standing of Fred Meyer and Kroger
and other corporate matters;
(2) authorization, execution, delivery and enforceability of the
merger agreement;
(3) capital structure and securities;
(4) subsidiaries;
(5) conflicts under charter documents, violations of any instruments
or law, and required consents and approvals;
(6) documents filed with the SEC and the accuracy of the information
in those documents;
(7) litigation and liabilities;
(8) conduct of business in the ordinary course and the absence of
certain changes and material adverse effects;
(9) tax matters;
(10) retirement and other employee benefit plans;
(11) labor matters;
(12) qualification for pooling of interests accounting treatment;
(13) brokers' and finders' fees with respect to the merger;
(14) receipt of fairness opinions;
(15) ownership of the capital stock of the other company;
(16) compliance with applicable laws;
(17) environmental matters;
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(18) intellectual property;
(19) insurance;
(20) contracts and commitments;
(21) year 2000 compliance; and
(22) with respect to Kroger, subscriptions, options, warrants,
conversion rights or other rights of any character to purchase
Kroger common shares, except for the preferred share purchase
rights.
CERTAIN COVENANTS
Summary: In the merger agreement, we have agreed to certain restrictions
that limit our ability, among other things, to:
- conduct our businesses outside the ordinary course,
- issue, sell, repurchase or redeem stock,
- with certain exceptions, sell or lease any material property or assets,
- declare any dividend,
- knowingly take any action that would prevent the merger from qualifying
for pooling of interests accounting, and
- amend our charter or bylaws.
Fred Meyer. Fred Meyer has agreed prior to the completion 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. Fred Meyer has agreed 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 and
maintain its existing business relations and goodwill.
In addition, Fred Meyer has agreed that prior to the completion of the
merger, unless Kroger agrees in writing or as otherwise permitted by the merger
agreement, Fred Meyer will not:
(1) issue, deliver, grant or sell any additional shares of Fred
Meyer common stock or Fred Meyer equity rights other than (a)
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 October 18, 1998 or pursuant to the exercise of New Fred
Meyer Options, defined below, and (b) if the Merger is not
consummated by April 30, 1999, the issuance or delivery of New
Fred Meyer Options;
"NEW FRED MEYER OPTIONS" are Fred Meyer options that are issued
or delivered 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. These options may
be granted only if (x) the 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 (y) the vesting of these options
does not accelerate by reason of the completion of the merger,
including upon termination of employment following the
consummation of the merger,
(2) amend its charter documents or adopt any stockholders' rights
plan or enter into any agreement with any of its stockholders;
(3) split, combine, subdivide or reclassify its outstanding shares
of capital stock,
(4) declare any dividend,
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(5) repurchase, redeem or otherwise acquire any shares of its
capital stock or any Fred Meyer equity rights,
(6) 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,
(7) incur or amend the terms of any indebtedness for borrowed money
or guarantee any such indebtedness,
(8) make any capital expenditures in excess of Fred Meyer's capital
expenditure budget for fiscal 1998 and fiscal 1999,
(9) 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 if required by existing contracts,
(10) 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
tax-free reorganization under Section 368 of the Internal
Revenue Code,
(11) 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,
(12) acquire any business, including stores or other facilities,
(13) change its accounting policies, practices or methods except as
required by generally accepted accounting principles or the
rules and regulations of the SEC,
(14) take any action to cause the shares of Fred Meyer common stock
to cease to be listed on the New York Stock Exchange,
(15) enter into certain contracts, and
(16) 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.
Prior to the completion of the merger, 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. To the extent this
charitable donation is not made in full prior to the completion of the merger,
the balance of this charitable donation will be made by Kroger within seven
years of the completion of the merger. Other than this charitable donation,
prior to the completion of the merger, neither Fred Meyer nor its subsidiaries
will make any charitable contribution other than in the ordinary course of
business consistent with past practice.
Kroger. Kroger has agreed prior to the completion 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. Kroger has agreed 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 and maintain its
existing business relations.
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 materially
interfere with or delay the completion of the merger. Kroger may not, however,
acquire any retail business if the acquisition delays 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.
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In addition, Kroger has agreed that, among other things, prior to the
completion of the merger, unless Fred Meyer agrees in writing or as otherwise
permitted by the merger agreement, Kroger shall not:
(1) issue, deliver, grant or sell any additional Kroger common
shares or securities convertible into, or any rights, warrants
or options to acquire, Kroger common shares,
(2) amend its charter documents or the shareholders' rights plan or
redeem the rights issued under the shareholders' rights plan,
(3) reclassify the Kroger common shares,
(4) declare any dividend,
(5) repurchase, redeem or otherwise acquire any shares of its
capital stock or any Kroger equity rights,
(6) change its accounting policies, practices or methods except as
required by generally accepted accounting principles or the
rules and regulations of the SEC,
(7) 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 if required by existing contracts and for any sale or
disposition of assets which have a fair market value of not more
than $1 billion,
(8) 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 tax-free
reorganization under Section 368 of the Internal Revenue Code,
and
(9) take any action to cause the Kroger common shares to cease to be
listed on the New York Stock Exchange.
We have agreed: (1) to cooperate in the prompt preparation and filing of
certain documents under federal and state securities laws and with applicable
government entities and (2) to use our 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; Antitrust Matters" and "THE
MERGER -- Resale Restrictions."
NO SOLICITATION OF TRANSACTIONS
Summary: We have agreed that we will not solicit any offers, inquiries or
proposals regarding, or engage in, a merger, acquisition or similar transaction
that involves more than 15% of our respective revenues, assets or stock.
We have agreed that we will not, and will use our best efforts to cause our
officers and directors, employees, financial advisors, agents and
representatives not to:
- initiate, solicit or encourage or take any other action to facilitate any
inquiries or the making of any proposal with respect to:
- a direct or indirect acquisition of a business of either of us or any
of our subsidiaries, that constitutes 15% or more of either of our
consolidated net revenues, net income or assets,
- a direct or indirect acquisition or purchase of 15% or more of any
class of our equity securities or that of any of our subsidiaries whose
business constitutes 15% or more of our consolidated net revenues, net
income or assets, or
- a tender offer or exchange offer that if consummated would result in
any person beneficially owning 15% or more of our capital stock, or
- a merger, consolidation or similar transaction involving us, or any of
our subsidiaries whose business constitutes 15% or more of its
consolidated net revenues, net income or assets, or
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- accept, or engage in, any discussions or negotiations relating to the
inquiries, proposals and offers described above.
We have agreed to immediately terminate any existing discussions or negotiations
with any parties conducted prior to the date of the merger agreement with
respect to any transaction listed above. These restrictions do not prohibit
Kroger from acquiring any retail business, including any stores, as long as the
acquisition does not materially interfere with or delay the completion of the
merger.
BOARDS' COVENANT TO RECOMMEND
Summary: Our boards of directors have each agreed to recommend the approval
and adoption of the merger agreement to our respective shareholders.
We have agreed that our respective boards of directors will not:
- 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 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,
- approve or recommend, or propose publicly to approve or recommend any
inquiry, offer or proposal that the company has agreed not to initiate,
solicit or encourage as described above under "-- No Solicitation of
Transactions," or
- enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any acquisition inquiry,
offer or proposal that the company has agreed not to initiate, solicit or
encourage an acquisition as described above under "-- No Solicitation of
Transactions."
BEST EFFORTS; ANTITRUST MATTERS
Summary: Subject to the exceptions described below, we have agreed that we
will use our best efforts to do all things necessary under applicable antitrust
laws and regulations to complete the merger as soon as possible.
We have agreed, subject to the exceptions described in the paragraph below,
to take any and all steps necessary to eliminate 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 us to complete
the merger on or before September 30, 1999. This includes the sale, divestiture
or disposition of assets, businesses or product lines in order to avoid the
entry of, or to effect the dissolution of, any order that would have the effect
of preventing or delaying the completion of the merger. Each of us 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 completion of the merger, on or before September 30, 1999,
including defending through litigation on the merits any claim asserted in any
court by any party.
As exceptions to the obligations described above, (1) Kroger is not
required to agree to the 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 (2) other than the disposition
of stores having revenues up to the gross annual amount referenced in clause (1)
of this paragraph, neither of us 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:
- 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
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- that will prevent or materially impair Kroger's ability to consummate the
merger; provided that a Kroger Material Adverse Effect shall not include
changes or effects:
- relating to economic conditions or financial markets in general or the
retail food and drug industry in general, or
- resulting from actions required to be taken by the terms of the merger
agreement.
A decline in the stock market price of the Kroger common shares in and of itself
will not be deemed a Kroger Material Adverse Effect.
BENEFIT PLANS
Summary: Kroger has agreed to:
1. honor all existing Fred Meyer employment agreements and benefit plans;
and
2. provide, until December 31, 1999, to those Fred Meyer employees that it
chooses to retain, benefits that are at least as favorable to those
provided prior to the completion of the merger, with respect to:
- base salary,
- pension, welfare and other fringe benefits,
- annual cash bonus opportunities, and
- certain annual equity awards.
After the completion of the merger, Fred Meyer and its subsidiaries will
honor, in accordance with their terms, all their employment, protection and
severance agreements and all obligations under their benefit plans. Until
December 31, 1999, each employee of Fred Meyer and its subsidiaries, other than
those represented by collective bargaining agreements, will be provided:
- 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 completion of the merger,
- 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
completion of the merger,
- 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 completion of the merger, and
- 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 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
- any Fred Meyer employee whose status changes as a result of Fred Meyer's
customary business practices.
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:
- 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,
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- a waiver of any pre-existing condition exclusions and actively at work
requirements under any Kroger medical, dental, vision or other welfare
benefit plan in which they may participate, and
- credit under any Kroger medical, dental, vision or other welfare benefit
plan in which they may participate for eligible expenses incurred on or
before the completion of the merger for the purpose of satisfying all
deductible and similar requirements for the applicable plan year.
On or prior to the completion of the merger, Fred Meyer shall take all
actions as are necessary to terminate its and its subsidiaries' employee stock
purchase plans at or prior to the completion of the merger. 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 October 18, 1998 and
cause each participant either to receive previously invested cash or purchase
Fred Meyer common stock pursuant to these plans prior to the completion of the
merger.
GOVERNANCE
Robert D. Beyer, Ronald W. Burkle, Carlton J. Jenkins, Bruce Karatz, Robert
G. Miller and Steven R. Rogel, who are presently directors of Fred Meyer, will
be appointed as directors of Kroger promptly after the completion of the merger.
If, prior to the completion of the merger, any of those persons decline or is
unable to serve as a director, Fred Meyer is permitted to designate an alternate
reasonably acceptable to Kroger. See "MANAGEMENT AND OPERATIONS AFTER THE
MERGER."
INDEMNIFICATION AND INSURANCE
Summary: From and after the completion of the merger, Kroger has agreed
that it will provide each director and officer of Fred Meyer with the following
with respect to acts or omissions prior to the completion of the merger:
- indemnity against damages and other costs incurred in connection with any
asserted claim or investigation, and
- directors' and officers' liability insurance coverage in effect for six
years.
From and after the completion of the merger, 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, when acting in said capacity, of
Fred Meyer or any of its subsidiaries, against all costs or expenses, judgments,
fines, losses, claims, damages, or liabilities in connection with any claim,
action, suit, proceeding or investigation for acts or omissions, existing or
occurring at or prior to the completion of the merger, whether asserted or
claimed prior to, at or after the completion of the merger, to the fullest
extent permitted under the Delaware General Corporation Law or other applicable
law.
For a period of six years after the completion of the merger, Kroger has
agreed to maintain, or cause the surviving corporation to maintain, a policy of
directors' and officers' liability insurance for acts and omissions occurring
prior to the completion of the merger with coverage in amount and scope at least
as favorable as Fred Meyer's existing directors' and officers' liability
insurance coverage. However, if the existing directors' and officers' liability
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 October 18, 1998, Kroger or the surviving corporation in the merger is
only required to obtain directors' and officers' liability 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 last
annualized premium paid prior to October 18, 1998.
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CONDITIONS
Summary: Our obligations to complete the merger are subject to the
satisfaction or waiver of certain conditions.
Our respective obligations to complete the merger are subject to the
fulfillment of each of the following conditions:
(1) 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, and by holders of
a majority of the outstanding Kroger common shares;
(2) the expiration or termination of the waiting period applicable
to the consummation of the merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976;
(3) 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;
(4) the registration statement on Form S-4 of which this document is
a part will be effective under the Securities Act;
(5) state securities or "blue sky" laws have been satisfied; and
(6) the Kroger common shares to be issued pursuant to the merger
will have been duly approved for listing on the New York Stock
Exchange.
The obligations of each of us to effect the merger are also subject to the
satisfaction by the other party prior to the completion of the merger of the
following conditions:
(1) the representations and warranties of the other party set forth
in the merger agreement will 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;
(2) the other party will 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 completion
of the merger;
(3) 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
Internal Revenue Code;
(4) we will have each received from the other party's independent
public accountants two 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 SEC rules and regulations is appropriate if the
merger is closed and completed as contemplated by the merger
agreement; and
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(5) the other party will have obtained all consents from, and shall
have made all filings necessary with any person 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
- 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
- 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:
- relating to economic conditions or financial markets in general or the
retail food and drug industry in general,
- 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 of the merger, or
- 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 Fred Meyer common stock in
and of itself shall not be deemed a Fred Meyer Material Adverse Effect.
TERMINATION
Summary: The merger agreement provides that either of us may terminate the
agreement under certain circumstances.
Right to Terminate. The merger agreement may be terminated and the merger
may be abandoned at any time prior to the completion of the merger by our mutual
written consent. The merger agreement may also be terminated by either of us if:
(1) the merger is not consummated by September, 30, 1999, but the
right to terminate the merger agreement at September 30, 1999
will not be available if the party has failed to fulfill any
obligation that has been the cause of the failure of the
completion of the merger to occur on or before September, 30,
1999,
(2) the shareholders of the other party fail to approve the merger
agreement and the merger,
(3) any governmental entity issues a final and nonappealable order
making the merger illegal or permanently prohibiting the
completion of the merger, as long as the party seeking to
terminate the merger agreement has used its reasonable best
efforts to have this order lifted or vacated, or
(4) any of the representations, warranties, covenants or agreements
of the other party contained in the merger agreement is
materially breached, which breach:
(a) results in the failure to satisfy one or more of the
conditions to the terminating party's obligations under the
merger agreement, and
(b) is 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
Summary: We have agreed to reciprocal termination fees. A party must pay an
initial termination fee if:
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1. prior to that party's special meeting, a third party has inquired,
offered or proposed to the shareholders of that party a merger or acquisition
involving at least 50% of that party's revenues, assets or stock; and
2. thereafter, the merger agreement is terminated because of a breach of
the merger agreement by that party or failure of that party's shareholders to
approve the merger.
A party must pay an additional termination fee if the initial termination
fee becomes payable and within 18 months of termination of the merger agreement
that party completes certain alternative transactions.
Termination Fees Payable by Fred Meyer. The merger agreement obligates Fred
Meyer to pay Kroger a termination fee of $55 million if:
(1) (a) Kroger terminates the merger agreement because of Fred
Meyer's failure to comply 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
(2) 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 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 $55 million
termination fee becomes payable, Fred Meyer consummates, or
enters into an agreement to consummate, a Fred Meyer Business
Combination Proposal, Fred Meyer must pay Kroger an additional
$110 million termination fee. "FRED MEYER BUSINESS COMBINATION
PROPOSAL" means any acquisition inquiry, proposal or offer
described under "-- No Solicitation of Transactions" above
involving Fred Meyer, except that all references to "15%" shall
be deemed to be references to "50%."
If Kroger becomes entitled to the $55 million termination fee and the
additional $110 million 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 if:
(1) (a) Fred Meyer terminates the merger agreement because of
Kroger's failure to comply 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
(2) 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 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 $90 million termination fee becomes payable, Kroger consummates, or enters
into an agreement to consummate, a Kroger Business Combination Proposal, Kroger
must pay Fred Meyer an additional $185 million termination fee. "KROGER BUSINESS
COMBINATION PROPOSAL" means any acquisition inquiry, proposal or offer described
under "-- No Solicitation of Transactions" above involving Kroger, except that
all references to "15%" shall be deemed to be references to "50%."
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If Fred Meyer becomes entitled to the $90 million termination fee and the
additional $185 million termination fee, the stock option granted by Kroger
becomes exercisable. See "THE STOCK OPTION AND VOTING AGREEMENTS."
OTHER EXPENSES
If the merger agreement is terminated because 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 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.
Unless a party is entitled to reimbursement, 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 us:
- the filing fee in connection with the filing of the registration
statement and this document with the SEC,
- all filing fees in connection with any filings, permits or approvals
required under applicable state securities or "blue sky" laws,
- the expenses incurred in connection with printing and mailing the
registration statement and this document, and
- 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 of our existing
financing facilities.
ASSIGNMENT, AMENDMENT AND WAIVER
Kroger may, in its sole discretion, restructure the merger to substitute
Kroger for its subsidiary, Jobsite Holdings, Inc., as one of the constituent
corporations in the merger. If so, Fred Meyer shall merge with and into Kroger
with Kroger continuing as the surviving corporation in the merger. This
restructuring cannot reasonably be expected to materially interfere with or
delay the completion 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 prior to the completion of the
merger, if the amendment is in writing signed by both parties. 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 description of the steps which you must take if you are
a Kroger shareholder and you wish to perfect dissenters' rights with respect to
the merger. The description does not purport to be complete and is qualified in
its entirety by reference to Section 1701.85 of the Ohio General Corporation
Law. It is attached as APPENDIX G and incorporated in this document by
reference. FAILURE TO TAKE ANY ONE OF THE REQUIRED STEPS MAY RESULT IN
TERMINATION OF THE SHAREHOLDER'S DISSENTERS' RIGHTS UNDER THE OHIO GENERAL
CORPORATION LAW. If you are a Kroger shareholder considering dissenting, you
should consult your own legal advisor. If you have a beneficial interest in
Kroger common shares that are held of record in the name of another person, for
which you desire to perfect whatever dissenters' rights you may have, you must
act promptly to cause the shareholder of record timely and properly to follow
the steps described below.
To perfect dissenters' rights, you must satisfy each of the following five
conditions:
- you must be a shareholder of record on , 1999,
- you must not vote dissenting shares in favor of the merger,
- you must deliver a written demand for "fair cash value" of the dissenting
shares within 10 days of the vote on the merger,
- if Kroger requests, you must send certificates representing the
dissenting shares to Kroger within 15 days of such request for
endorsement of a legend stating that a demand for "fair cash value" has
been made, and
- within three months of service of the written demand noted above, you
must file a complaint in court for a determination of the "fair cash
value" unless you and Kroger have agreed on the "fair cash value" per
share.
The following is a more detailed description of the conditions you must
satisfy to perfect dissenters' rights:
1. Must be a Shareholder of Record. To be entitled to dissenters' rights,
you must be the record holder of the dissenting shares as of , 1999.
2. No Vote in Favor of the Merger. Kroger common shares as to which you
seek 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 (1) 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, (2) 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 (3)
if you revoke a proxy and thereafter "abstain" from or vote "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.
3. Filing Written Demand. You must serve a written demand for the "fair
cash value" of dissenting 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 Ohio General Corporation Law. Kroger will not inform shareholders
of the expiration of the ten-day period and, therefore, you are advised to
retain this document. The required written demand must specify your name and
address, the number and class of dissenting shares held of record on ,
1999 and the amount claimed as the "fair cash value" of the dissenting shares.
Voting against the approval and adoption of the merger agreement and the merger
will not constitute a written demand as required by Section 1701.85 of the Ohio
General Corporation Law.
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4. Delivery of Certificates for Legending. If requested by Kroger, you must
submit your certificates for dissenting shares to Kroger within 15 days after
Kroger sends its request for endorsement on the certificates by Kroger of a
legend that demand for fair cash value has been made. Such certificates will be
returned promptly to you by Kroger. Kroger intends to make this request to
dissenting shareholders.
5. Petitions to Be Filed in Court. If you and Kroger cannot agree on the
"fair cash value" of the dissenting shares, either you or Kroger 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) for a determination of the "fair cash value" of the dissenting
shares. The court, if it determines that you are entitled to be paid the "fair
cash value" of the dissenting shares, may appoint one or more appraisers to
determine the value of those 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 be willing to pay, but in no event in excess of the amount specified in
the dissenting shareholder's demand. Fair cash value is determined as of the day
before the Kroger special meeting of shareholders and excludes any appreciation
or depreciation in market value of dissenting shares resulting from the merger.
Exercise of dissenters' rights under the Ohio General Corporation Law may result
in a judicial determination that the fair cash value of your shares is higher,
the same, or lower than the market value of the Kroger common shares on the date
of the completion of the merger. Kroger does not intend to file such a
complaint. Therefore, you must timely file such a complaint to protect your
rights to a judicial determination under the Ohio General Corporation Law.
Your right to be paid the "fair cash value" of the dissenting shares will
terminate if:
- for any reason the merger does not become effective,
- you fail to serve an appropriate timely written demand upon Kroger,
- you do 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 shares has been made,
- you withdraw your demand, with the consent of the Kroger board of
directors,
- Kroger and you have not come to an agreement as to the fair cash value of
the dissenting shares and neither has filed a complaint in the court as
described above, or
- you have not otherwise complied with the requirements of Section 1701.85
of the Ohio General Corporation Law.
From the time your demand is made until either the termination of the right
arising from that demand, or the purchase of the dissenting shares by Kroger,
all rights accruing from the dissenting shares, including voting, dividend or
distribution rights, shall be suspended. If, during the suspension, any cash
dividend is paid with respect to Kroger common shares, an amount equal to the
dividend is to be paid to the holder of record of the dissenting 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 shares by Kroger,
all rights with respect to dissenting shares will be restored to you and any
distribution that would have been made to you, but for the suspension, will be
made at the time of the termination.
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 stockholders, 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 our obligation to effect the merger. See "THE MERGER -- Accounting
Treatment."
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FRED MEYER STOCKHOLDERS
Under the Delaware General Corporation Law, appraisal rights are available
only in connection with statutory mergers or consolidations. Even in these
cases, unless the certificate of incorporation otherwise provides, the Delaware
General Corporation Law 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 stockholders 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 (1) stock of the corporation surviving or
resulting from the merger or consolidation, (2) 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 stockholders, (3) cash in lieu of
fractional shares of stock described in the foregoing clauses (1) and (2), or
(4) any combination of stock and cash in lieu of fractional shares described in
the foregoing clauses (1), (2) or (3).
If you are a Fred Meyer stockholder, you 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 STOCK OPTION AGREEMENTS
General. We have entered into reciprocal stock option agreements (the "FRED
MEYER STOCK OPTION AGREEMENT" and the "KROGER STOCK OPTION AGREEMENT";
collectively, the "STOCK OPTION AGREEMENTS"). These Stock Option Agreements may
prevent a third party from completing a pooling of interests transaction with
Kroger and Fred Meyer and would make certain alternative transactions to the
merger significantly more expensive than would otherwise be the case.
Accordingly, the Stock Option Agreements may deter third parties from proposing
alternative transactions that may be more advantageous than the merger for
Kroger or Fred Meyer shareholders.
The Fred Meyer Stock Option Agreement gives Kroger an option to purchase
shares of Fred Meyer common stock at an exercise price of $44.125 per share. The
maximum number of shares that Kroger may purchase under the Fred Meyer Stock
Option Agreement is equal to the lower of 30,799,665 and 19.9% of the shares of
Fred Meyer common stock outstanding at the time of exercise.
The Kroger Stock Option Agreement gives Fred Meyer an option to purchase
shares of Kroger common shares at an exercise price of $50.00 per share. The
maximum number of shares that Fred Meyer may purchase under the Kroger Stock
Option Agreement is equal to the lower of 55,906,472 and 19.9% of the Kroger
common shares outstanding at the time of exercise.
The Stock Option Agreements are summarized below. The Fred Meyer Stock
Option Agreement is attached to this document as Appendix B and the Kroger Stock
Option Agreement is attached to this document as Appendix C; each is
incorporated by reference in its entirety. The summary below is qualified by
reference to the full text of the Stock Option Agreements, which you are urged
to read.
When the Option May Be Exercised. An option will become exercisable if the
following three events occur:
(1) the merger agreement is terminated because of a breach by the option
grantor or the failure of the shareholders of one of the grantors to
approve the merger agreement, and
(2) prior to our special meetings a third party has inquired, offered, or
proposed to the shareholders of the grantor a merger or acquisition
involving at least 50% of each of our revenues, assets, or stock, and
(3) within 18 months of termination of the merger agreement, the grantor
completes an alternative transaction to the merger.
These are the same circumstances under which termination fees are payable
under the merger agreement. See "THE MERGER AGREEMENT -- Termination Fees."
However, the option may only be exercised prior to the terminating events
described below.
Events Terminating Right to Exercise. The option terminates if the merger
is completed. The option also terminates in two other situations:
(1) if notice of exercise of the option was not given, then the option
terminates on the earliest of three dates:
- the date that is 150 days after exercise is first permitted,
- the date the merger agreement is terminated if the issuer could not be
required to pay a termination fee under the merger agreement, and
- 700 days after the date that the merger agreement is terminated, or
(2) if notice of exercise of the option was given, then the option
terminates 150 days after the date that notice was given.
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Repurchase. Each of us has agreed to repurchase the option and any shares
issued under the option. A party becomes obligated to do so if the option
becomes exercisable and the other party requests repurchase in writing within
150 days of the date the option first becomes exercisable.
The price per share at which a party may be obligated to make the
repurchase will be equal to the highest of:
(1) the price per share at which a tender or exchange offer either has been
completed or at which a person has publicly announced its intention to
make a tender or exchange offer for the shares, after October 18, 1998,
and prior to the delivery of the repurchase notice, and which offer
either has been completed 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 of payment of the repurchase price,
(2) the price per share to be paid by any third party under an agreement
with the issuer for a merger, share exchange, consolidation or
reorganization, and
(3) the average closing price for the applicable shares on the New York
Stock Exchange for the twenty consecutive trading days preceding the
delivery of the repurchase notice.
In each case the total exercise price for the shares covered by the
repurchase will be deducted from the total repurchase price paid.
If a tender or exchange offer is made for Kroger common shares or Fred
Meyer common stock or an agreement is entered into for a merger, share exchange,
consolidation or reorganization involving consideration other than cash, then
the value of the securities or other property to be exchanged for Kroger common
shares or Fred Meyer common stock will be determined by a nationally recognized
investment banking firm.
Limitation on Total Profit. The Fred Meyer Stock Option Agreement limits
Kroger's total profit from the option and any termination fees payable under the
merger agreement to $275 million. The Kroger Stock Option Agreement limits Fred
Meyer's total profit from the option and any termination fees payable under the
merger agreement to $460 million.
The total profit under the option is equal to the sum, before taxes, of the
following:
(1) the amount received from the repurchase of the option or any shares
issued under the option less, in the case of any repurchase of shares
issued under the option, the purchase price of those shares,
(2) the net cash amounts or fair market value of other consideration
received for the sale of shares purchased under the option to any
unaffiliated party, less the purchase price of those shares, and
(3) the net cash amounts or the fair market value of other consideration
received on the transfer of the option, or any portion thereof, to any
unaffiliated party.
If Kroger's total profit would exceed $275 million then Kroger is required to
take certain steps to reduce that total to $275 million. If Fred Meyer's total
profit would exceed $460 million then Fred Meyer is required to take certain
steps to reduce that total to $460 million.
Standstill Provision. For as long as one of us holds shares acquired from
an exercise of the option that constitute 2% or more of the other's outstanding
voting securities, that party and its affiliates are not permitted to do any of
the following:
(1) make any attempt to acquire ownership of more than 20% of any class of
voting securities of the other party, or any rights or options to
acquire such ownership;
(2) propose a merger or similar transaction involving the other party;
(3) seek in any way to acquire all or substantially all the assets of the
other party;
(4) seek or propose to influence or control the other party's management or
policies;
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(5) seek in any way to obtain representation on the other party's board of
directors;
(6) solicit or participate in the solicitation of any proxies or consents
involving the other party's securities;
(7) discuss or negotiate in any manner with a third party involving any of
the matters described above; or
(8) seek or request permission to do any of the matters described above, or
seek permission to make any public announcement involving any of the
matters described above.
We have also agreed that while the Stock Option Agreements are in effect we
will not sell or dispose of any voting securities of each other at any time
except:
- in connection with a tender offer, exchange offer, merger or
consolidation of the other party;
- in connection with a sale of all or substantially all of the assets of
the other party;
- in a registered public offering; or
- in compliance with Rule 144 under the Securities Act or a similar rule.
We have promised to be represented at all stockholder meetings of the other
party so that all the option holder's voting securities are counted in
determining the presence of a quorum. We have also agreed to vote all our voting
securities proportionately with the votes cast by all other stockholders present
and voting. If either of us beneficially owns more than 50% of the other party's
outstanding common stock, the restrictions described in this section terminate.
Registration Rights. Each of us may demand that the other file and keep
current for at least 365 days a shelf registration statement under the
Securities Act covering the resale of any shares issued under the option.
Certain Adjustments. The type and number of issuer securities subject to
the option will be adjusted appropriately if any change in either of our common
stock occurs involving stock dividends, split-ups, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges or similar events. Similarly,
if certain events stated in the Stock Option Agreements occur, then the exercise
price of the option will be adjusted appropriately.
Certain Covenants. We have each agreed that we will file and expeditiously
process all necessary notices and applications for regulatory approval necessary
in connection with the exercise of the option.
Transfer. We are not permitted to transfer the exercise rights or the
option to any other person other than our affiliates unless the other party
agrees in writing. However, we may transfer the option or any of our rights
under the Stock Option Agreements to a third party within 90 days of the date
the option first becomes exercisable.
VOTING AGREEMENTS
As an inducement to Kroger entering into the merger agreement, Robert G.
Miller has entered into a voting agreement with Kroger. Kroger has also entered
into a voting agreement with Ronald W. Burkle, Yucaipa and certain other
entities, referred to as the "YUCAIPA STOCKHOLDERS," controlled by Mr. Burkle.
Pursuant to these voting agreements, each of Mr. Miller and the Yucaipa
Stockholders have agreed to vote all shares of Fred Meyer common stock owned by
each of them in favor of the merger agreement or, if applicable, give consents
with respect to those shares. Mr. Miller holds 132,973 shares of Fred Meyer
common stock, representing approximately .086% of the outstanding common stock
of Fred Meyer as of October 15, 1998. The Yucaipa Stockholders hold 10,631,332
shares of Fred Meyer common stock, representing approximately 6.8% of the
outstanding common stock of Fred Meyer as of October 15, 1998. If requested by
Kroger, Mr. Miller and the Yucaipa Stockholders will grant to Kroger an
irrevocable proxy with respect to the shares of Fred Meyer common stock held by
them to vote those shares in favor of the merger. In addition, subject to
limited exceptions, Mr. Miller and the Yucaipa Stockholders have agreed not to
dispose of the shares of Fred Meyer common stock held by them until the
completion of the Merger or the termination of the merger agreement.
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MANAGEMENT AND OPERATIONS AFTER THE MERGER
After completion 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 completion of the merger, 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 directors of Fred Meyer to be appointed as directors of Kroger as follows:
Robert D. Beyer and Carlton J. Jenkins will serve until the annual meeting of
shareholders in 1999; Ronald W. Burkle and Steven R. Rogel will serve until the
annual meeting of shareholders in 2000; and Bruce Karatz and Robert G. Miller
will serve until the annual meeting of shareholders in 2001. Each non-employee
director of Kroger is currently paid an annual retainer of $28,000 plus fees of
$1,500 for each board meeting and $1,000 for each committee meeting attended.
Committee chairs receive an additional annual retainer of $4,000. Directors who
are employees of Kroger receive no compensation for service as directors. Kroger
provides accidental death and disability insurance for directors at a cost to
Kroger in 1997 of $167 per director. Kroger also provides a major medical plan
for directors. Under the 1997 Long-Term Incentive Plan, in 1997 Kroger granted
to each of its non-employee directors owning a minimum of 1,000 Kroger common
shares as of the date of the annual meeting of shareholders, options to purchase
2,000 Kroger common shares at an option price equal to the fair market value of
the stock at the date of the grant, and each non-employee director received a
grant on that date. The options vest in equal share amounts on the five annual
anniversaries of the date of grant.
If, prior to the completion of the merger, 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 39, 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 46, has been Chairman of the Board of Fred Meyer since
September 1997. He is the Managing General Partner of The Yucaipa Companies, 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 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.
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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 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 held by the designated new directors of Kroger. All
information is as of December 31, 1998.
<TABLE>
<CAPTION>
FRED MEYER
COMMON
NAME OF BENEFICIAL OWNER STOCK (1)
------------------------ -------------
<S> <C>
Robert D. Beyer 57,582(2)
Ronald W. Burkle 14,500,699(3)
Carlton J. Jenkins 161(4)
Bruce Karatz 2,651(4)
Robert G. Miller 959,996(5)
Steven R. Rogel 6,812(6)
</TABLE>
- ---------------
(1) These totals include, pursuant to the rules of the SEC, shares as to which
sole or shared voting power or dispositive power is possessed.
(2) 56,878 shares are held by Yucaipa Arizona Partners, L.P. 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.
(3) Includes 13,673,378 shares owned by affiliates of Mr. Burkle as follows: (a)
The Yucaipa Companies -- 4,856,211 (including a currently exercisable
warrant 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.
65
<PAGE> 74
(4) Shares are held in the Fred Meyer, Inc. Non-Employee Directors' Deferred
Compensation Plan.
(5) Includes 792,156 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 Fred Meyer, Inc. Non-Employee Directors'
Deferred Compensation Plan.
66
<PAGE> 75
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 (1) 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 (2) the historical results of operations of
Fred Meyer for the 40 weeks ended November 7, 1998 and 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 November 7, 1998. The unaudited
pro forma combined statements of earnings assume that the merger had been
consummated on January 29, 1995. 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 document. See "WHERE YOU CAN FIND
MORE INFORMATION" on page 89.
67
<PAGE> 76
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 NOVEMBER 7, 1998 PRO FORMA PRO FORMA
HISTORICAL (A) HISTORICAL (B) ADJUSTMENTS COMBINED
--------------- ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales................................ $20,854,281 $11,022,471 $31,876,752
Costs and expenses
Merchandise costs, including
warehousing and transportation... 15,958,653 7,740,401 23,699,054
Operating, general and
administrative................... 3,669,521 2,398,267 $(208,000)(c) 5,859,788
Rent............................... 269,895 208,000(c) 477,895
Depreciation and amortization...... 315,903 336,205 652,108
Net interest expense............... 204,116 284,720 488,836
Merger related costs............... 290,701 290,701
----------- ----------- -----------
Total................................ 20,418,088 11,050,294 31,468,382
----------- ----------- -----------
Earnings (loss) before tax expense
and extraordinary loss............. 436,193 (27,823) 408,370
Tax expense.......................... 165,757 29,619 195,376
----------- ----------- -----------
Earnings (loss) before extraordinary
loss............................... $ 270,436 $ (57,442) $ 212,994
=========== =========== ===========
Basic earnings (loss) per common
share before extraordinary loss.... $ 1.06 $ (0.38) $ 0.52
=========== =========== ===========
Diluted earnings (loss) per common
share before extraordinary loss.... $ 1.02 $ (0.38) $ 0.50
=========== =========== ===========
Average number of common shares used
in basic calculation............... 255,701 150,601 406,302
Average number of common shares used
in diluted calculation............. 265,237 150,601 8,400(d) 424,238
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
68
<PAGE> 77
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 $10,635,157 $30,693,004
Costs and expenses
Merchandise costs, including
warehousing and transportation... 15,292,020 7,911,805 23,203,825
Operating, general and
administrative................... 3,520,788 1,939,465 $(183,000)(c) 5,277,253
Rent............................... 252,072 183,000(c) 435,072
Depreciation and amortization...... 285,584 365,891 651,475
Net interest expense............... 223,313 286,534 509,847
----------- ----------- -----------
Total................................ 19,573,777 10,503,695 30,077,472
----------- ----------- -----------
Earnings before tax expense and
extraordinary loss................. 484,070 131,462 615,532
Tax expense.......................... 187,143 71,184 258,327
----------- ----------- -----------
Earnings before extraordinary loss... $ 296,927 $ 60,278 $ 357,205
=========== =========== ===========
Basic earnings per common share
before extraordinary loss.......... $ 1.17 $ 0.42 $ 0.90
=========== =========== ===========
Diluted earnings per common share
before extraordinary loss.......... $ 1.13 $ 0.40 $ 0.87
=========== =========== ===========
Average number of common shares used
in basic calculation............... 254,184 144,836 399,020
Average number of common shares used
in diluted calculation............. 262,575 149,537 412,112
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
69
<PAGE> 78
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
ENDED 1997 THROUGH SMITH'S PRO 36 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...................... $4,996,582 $1,860,105 $3,778,470 $10,635,157
Costs and expenses
Merchandise costs,
including warehousing
and transportation..... 3,515,612 1,433,984 2,962,209 7,911,805
Operating, general and
administrative......... 1,130,420 254,728 $ (287) 557,604 $(3,000)(h) 1,939,465
Depreciation and
amortization........... 150,076 57,472 10,189 121,047 27,107(i) 365,891
Net interest expense..... 66,189 74,891 (36,449) 191,528 (9,625)(j) 286,534
---------- ---------- -------- ---------- ------- -----------
Total...................... 4,862,297 1,821,075 (26,547) 3,832,388 14,482 10,503,695
---------- ---------- -------- ---------- ------- -----------
Earnings (loss) before tax
expense and extraordinary
loss..................... 134,285 39,030 26,547 (53,918) (14,482) 131,462
Tax expense................ 53,655 16,490 10,182 (9,143)(k) 71,184
---------- ---------- -------- ---------- ------- -----------
Earnings (loss) before
extraordinary loss....... $ 80,630 $ 22,540 $ 16,365 $ (53,918) $(5,339) $ 60,278
========== ========== ======== ========== ======= ===========
Basic earnings per common
share before
extraordinary
loss..................... $ 0.83 $ 0.42
========== ===========
Diluted earnings per common
share before
extraordinary
loss..................... $ 0.79 $ 0.40
========== ===========
Average number of common
shares used in basic
calculation.............. 97,355 25,811 21,670(1) 144,836
Average number of common
shares used in diluted
calculation.............. 101,562 26,305 21,670(1) 149,537
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
70
<PAGE> 79
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............................. 331,012 261,000(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> 80
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
---------- ---------- -------- ----------
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> 81
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
DECEMBER 28, FISCAL 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> 82
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
DECEMBER 30, FISCAL 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> 83
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
KROGER FRED MEYER
AS OF AS OF
OCTOBER 3, NOVEMBER 7, PRO FORMA PRO FORMA
1998 1998 ADJUSTMENTS COMBINED
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash................................. $ 74,845 $ 186,045 $ (75,000)(o) $ 185,890
Receivables.......................... 381,756 140,291 522,047
Inventories:
FIFO cost......................... 2,186,980 2,074,764 4,261,744
Less LIFO reserve................. (480,931) (66,889) (547,820)
---------- ----------- -----------
1,706,049 2,007,875 3,713,924
Property held for sale............... 12,919 12,919
Prepaid and other current assets..... 173,748 278,858 452,606
---------- ----------- ----------- -----------
Total current assets......... 2,349,317 2,613,069 (75,000) 4,887,386
Property, plant and equipment, net..... 3,644,044 3,570,974 7,215,018
Goodwill, net.......................... 28,971 3,684,442 3,713,413
Investments and other assets........... 445,865 443,492 889,357
---------- ----------- ----------- -----------
Total Assets................. $6,468,197 $10,311,977 $ (75,000) $16,705,174
========== =========== =========== ===========
LIABILITIES
Current liabilities
Current portion of long-term debt and
obligations under capital
leases............................ $ 164,959 $ 134,650 $ 299,609
Accounts payable..................... 1,684,968 1,294,311 2,979,279
Other current liabilities............ 1,287,972 1,051,905 2,339,877
---------- ----------- -----------
Total current liabilities.... 3,137,899 2,480,866 5,618,765
Long-term debt......................... 3,121,234 4,999,856 8,121,090
Obligations under capital leases....... 192,938 173,341 366,279
Other long-term liabilities............ 619,347 508,667 1,128,014
---------- ----------- -----------
Total Liabilities............ 7,071,418 8,162,730 15,234,148
---------- ----------- -----------
SHAREOWNERS' EQUITY/(DEFICIT)
Common capital stock................... 772,322 1,550 $ 1,895,533(n) 2,594,405
(75,000)(o)
Additional paid-in capital............. 1,895,533 (1,895,533)(n)
Notes receivable from officers......... (335) (335)
Unearned compensation.................. (3,236) (3,236)
Retained earnings/(accumulated
deficit)............................. (924,741) 255,735 (669,006)
Common stock in treasury, at cost...... (450,802) (450,802)
---------- ----------- ----------- -----------
Total Shareowners'
Equity/(Deficit)........... (603,221) 2,149,247 (75,000) 1,471,026
---------- ----------- ----------- -----------
Total Liabilities and
Shareowners'
Equity/(Deficit)........... $6,468,197 $10,311,977 $ (75,000) $16,705,174
========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma combined financial data on page 76.
75
<PAGE> 84
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 per
diluted share) related to a change in the method of
accounting for inventory.
(b) Represents the results for the 40 week period ended November
7, 1998. Amounts have not been adjusted on a pro forma basis
to reflect the acquisition of Food 4 Less in March of 1998
as if it had been acquired at the beginning of the period
presented, as such amounts are not material on a pro forma
combined basis.
(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: (a) 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; (b)
the adjustment to interest expense associated with the
transaction financing and the corresponding adjustments to
the amortization of related financing fees; and (c) 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.
(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.
</TABLE>
76
<PAGE> 85
<TABLE>
<S> <C>
(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 shares.
(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> 86
DESCRIPTION OF KROGER CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Kroger's authorized capital stock presently consists of 1,000,000,000
Kroger common shares, par value $1.00 per share, and 5,000,000 shares of
preferred stock, par value $100.00 per share.
KROGER COMMON SHARES
The holders of Kroger common 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 the election of directors. The holders of Kroger common shares 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 shares are entitled to dividends as may be declared from time to
time by the Kroger board of directors from funds available. Upon liquidation,
holders 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:
- the designation and number of shares,
- the dividend rate,
- the dates of payment of dividends on shares and the dates from which they
are cumulative,
- the redemption rights of Kroger and the price or prices at which shares
may be redeemed,
- 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,
- the amount of the sinking fund, if any, to be applied to the purchase or
redemption of shares and the manner of its application,
- 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,
- 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
- any other designations, powers, preferences, rights, qualifications,
limitations and restrictions as are permitted by the Ohio General
Corporation Law.
In connection with a shareholders' rights plan, the Kroger board of directors
authorized the issuance of up to 50,000 Kroger preferred shares designated as
the Series A preferred shares.
PREFERRED SHARE PURCHASE RIGHTS
On February 28, 1986, Kroger adopted a shareholders' rights plan providing
for stock purchase rights to owners of Kroger common shares. The shareholders'
rights plan was amended and restated as of April 4, 1997, and further amended
October 18, 1998 in connection with the merger. Each right, when exercisable,
entitles the holder to purchase from Kroger one ten-thousandth of a share of
Series A preferred shares, par value $100 per share, at
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$87.50 per one ten-thousandth of a share. The rights will become exercisable,
and separately tradeable, ten days after a person or group acquires 10% or more
of Kroger's common shares or ten business days following a tender offer or
exchange offer resulting in a person or group having beneficial ownership of 10%
or more of Kroger's common shares. In the event the rights become exercisable
and thereafter Kroger is acquired in a merger or other business combination,
each right will entitle the holder to purchase common stock of the surviving
corporation, for the exercise price, having a market value of twice the exercise
price of the right. Under certain other circumstances, including certain
acquisitions of Kroger in a merger or other business combination transaction, or
if 50% or more of Kroger's assets or earning power are sold under certain
circumstances, each right will entitle the holder to receive upon payment of the
exercise price, shares of common stock of the acquiring company with a market
value of twice the exercise price. At Kroger's option, the rights, prior to
becoming exercisable, are redeemable in their entirety at a price of $.01 per
right. The rights are subject to adjustment and expire March 19, 2006.
This summary is qualified in its entirety by reference to the shareholders'
rights plan, a copy of which is filed as an exhibit to the registration
statement and is incorporated in this document by reference.
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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 former Fred Meyer stockholders will
be thereafter governed by the Kroger articles of incorporation, the Kroger
regulations and the Ohio General Corporation Law. The rights of holders of Fred
Meyer common stock are presently governed by the Fred Meyer certificate of
incorporation, the Fred Meyer bylaws, and the Delaware General Corporation Law.
The following summary, which does not purport to be a complete statement of all
differences between rights of the holders of Kroger common shares and Fred Meyer
common stock, sets forth certain differences between the laws of Delaware and
those of Ohio. It also discusses differences between the Fred Meyer certificate
of incorporation and the Fred Meyer bylaws and the Kroger articles of
incorporation and the Kroger regulations. This summary is qualified in its
entirety by reference to the full text of each document and the Delaware General
Corporation Law and the Ohio General Corporation Law. For information as to how
those documents may be obtained, see "WHERE YOU CAN FIND MORE INFORMATION" on
page 89.
CLASSIFIED BOARD OF DIRECTORS
The Ohio General Corporation Law 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 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 Delaware General Corporation Law 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 of incorporation and the 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 that
transaction could be beneficial to Kroger or Fred Meyer, as the case may be, or
their respective shareholders.
SHAREHOLDER RIGHTS PLAN
Kroger has adopted a shareholders' rights plan and issued the rights to
protect Kroger's shareholders from coercive or unfair takeover tactics. For
further discussion of the rights and the shareholders' rights plan, 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 provide that the number of directors shall not be
less than nine nor more than 21. The Kroger board of directors currently
consists of 12 directors. When the merger is completed, Kroger will cause the
number of directors to be increased by six directors. The Kroger regulations
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 Kroger common shares.
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The Fred Meyer certificate of incorporation 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 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 of incorporation provides that the
number of directors shall not be reduced by shortening the term of any director
at the time in office.
The Ohio General Corporation Law 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 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 of the voting power of the holders of Kroger common shares
entitled to elect directors. At the same meeting a new director nominated in
accordance with the Kroger regulations may be elected for the unexpired term.
The Kroger regulations do not define the term "for cause."
Under the Delaware General Corporation Law, 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 of incorporation 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 of the voting power of the holders of Fred
Meyer common stock entitled to elect directors. The Fred Meyer certificate of
incorporation does not define the term "for cause."
Under the Ohio General Corporation Law, 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 and the Ohio General Corporation Law 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 of incorporation and the 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 Ohio General Corporation Law 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
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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 of incorporation
and the Kroger regulations do not alter this Ohio General Corporation Law
provision.
The Delaware General Corporation Law 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 Ohio General Corporation Law, 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 of incorporation and the Kroger regulations do not
prohibit the taking of action by the shareholders by consent in writing without
a meeting and permit amending the regulations by the written consent of holders
of two-thirds of the voting power of Kroger.
The Delaware General Corporation Law 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 of incorporation prohibits the taking of action by
stockholders by consent in writing without a meeting.
CUMULATIVE VOTING
Under the Ohio General Corporation Law, 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 of
incorporation do not prohibit cumulative voting.
The Delaware General Corporation Law 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 of incorporation does not provide for cumulative voting.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
The Kroger articles of incorporation and regulations 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. 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
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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: (1) as to any 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 (2) as
to 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.
The Fred Meyer bylaws permit stockholders to nominate persons for election
to the Fred Meyer board of directors at any annual meeting of the stockholders,
or at any special meeting if the Fred Meyer board of directors has determined
that directors will be elected at such meeting. They must be stockholders of
record as of both the date of giving notice and the date of determining
stockholders entitled to vote at the annual or special meeting. A stockholder
must give timely notice 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 stockholders meeting. If the number of
directors to be elected to the Fred Meyer board of directors 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 of directors
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 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 the public announcement is first made by
Fred Meyer.
To be in proper written form, a stockholder's notice to the secretary must
set forth (1) 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; and (2) 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 Ohio General Corporation Law, 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 of incorporation 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 of incorporation, which
is described below. See "-- Business Combinations; Transactions with Interested
Shareholders."
Under the Ohio General Corporation Law, the power to adopt, alter and
repeal the regulations of a corporation is vested in the shareholders. That
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 of the voting power of the corporation unless the articles of
incorporation or regulations provide for a greater percentage.
The Kroger regulations 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
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repeal provisions of the Kroger regulations relating to the number and removal
of directors, indemnification of officers, directors, and employees, or
amendment of the Kroger regulations.
The Delaware General Corporation Law 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 Delaware General Corporation Law. Except as set forth below, the
Fred Meyer certificate of incorporation 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 Delaware General Corporation Law, 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 of incorporation provides that the Fred
Meyer board of directors may alter, amend or repeal the Fred Meyer bylaws.
The affirmative vote of the holders of three-fourths 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 of incorporation 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 Ohio General Corporation Law 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. Approval requires two-thirds of
the voting power of the corporation unless the articles of incorporation specify
a different proportion, but not less than a majority. The Kroger articles of
incorporation reduce this requirement to a majority.
The Delaware General Corporation Law 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 of incorporation
does not provide for a different percentage. The Delaware General Corporation
Law 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
Delaware General Corporation Law.
BUSINESS COMBINATIONS; TRANSACTIONS WITH INTERESTED SHAREHOLDERS
Chapter 1704 of the Ohio Revised Code 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, defined as 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 Ohio General Corporation Law 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. 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
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least two-thirds 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) of the Ohio Revised Code 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 of incorporation nor the Kroger
regulations contain such an election to be excluded from Chapter 1704.
Although Chapter 1704 is similar to Section 203 of the Delaware General
Corporation Law 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 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
Delaware General Corporation Law Section 203. Chapter 1704's definition of
"beneficial owner" of shares is essentially similar to that of Delaware General
Corporation Law 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 (1) 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 (2) 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 Ohio General Corporation Law is the "CONTROL SHARE
ACQUISITION ACT." It 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: (1) one-fifth or more but less than one-third of such
voting power; (2) one-third or more but less than a majority of such voting
power; or (3) 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 Delaware General Corporation Law 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.
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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 of incorporation provide that the affirmative vote of
three-fourths 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 (1) board approval of the transaction or the
10% acquisition or (2) the vote of two-thirds of the continuing directors unless
the consideration to be paid in the transaction meets certain financial
conditions. This is referred to as the "FAIR PRICE PROVISION."
Section 203 of the Delaware General Corporation Law 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 (1)
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, (2) 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 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 (3) 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 Delaware General Corporation Law, 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 Delaware General
Corporation Law 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 Delaware General Corporation Law Section 203. Neither the Fred
Meyer certificate of incorporation nor the Fred Meyer bylaws contains an
election to be excluded from Delaware General Corporation Law Section 203.
APPRAISAL RIGHTS
Under the Ohio General Corporation Law, 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 Ohio General Corporation Law 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 Delaware General Corporation Law, appraisal rights are available only
in connection with statutory mergers or consolidations. Even in such cases,
unless the certificate of incorporation otherwise provides, the Delaware General
Corporation Law 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
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<PAGE> 95
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 (1) stock of the corporation surviving or resulting from the
merger or consolidation, (2) 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, (3) cash in lieu of fractional shares of
stock described in the foregoing clauses (1) and (2), or (4) any combination of
stock and cash in lieu of fractional shares described in the foregoing clauses
(1), (2) or (3).
CONSIDERATION OF OTHER CONSTITUENCIES
The Ohio General Corporation Law provides that in determining what a
director reasonably believes to be in the best interests of the corporation a
director must consider the interests of the corporation's shareholders. The
director also 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 Delaware General Corporation Law 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 Ohio General Corporation Law 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 or omission with deliberate intent to cause injury to the
corporation or with reckless disregard for its best interests.
Under the Ohio General Corporation Law, 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. If a criminal action is involved, the director
must have 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 (1) 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 (2) if liability
asserted against such person concerns certain unlawful distributions. The
indemnification provisions of the Ohio General Corporation Law 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 Ohio General Corporation Law 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 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. This indemnity covers 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 (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 the 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 the other corporation, and (3) 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 insurance to be maintained by Kroger
covering present and former officers, directors, employees, trustees and agents
of Fred
87
<PAGE> 96
Meyer for a period of at least six years following the completion of the merger,
subject to certain limitations. See "THE MERGER AGREEMENT -- Indemnification and
Insurance."
The Delaware General Corporation Law 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 of
incorporation 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 Delaware General
Corporation Law. 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. 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 Delaware General Corporation Law 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 Delaware General
Corporation Law 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 Delaware General
Corporation Law 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 of incorporation 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 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 Delaware General Corporation Law. The indemnification rights conferred by
the Fred Meyer certificate of incorporation 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 Kroger common shares 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 -- 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.
88
<PAGE> 97
The consolidated financial statements of Fred Meyer appearing in Fred
Meyer's Form 8-K/A, dated March 9, 1998 and filed on November 5, 1998,
incorporated by reference in this Joint Proxy Statement/ Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
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.
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 have been 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 the 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."
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 completed
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,
which is no less than 60 days before the anniversary date of the immediately
preceding annual meeting of stockholders, but not prior to March 24, 1999 which
is 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."
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.
WHERE YOU CAN FIND MORE INFORMATION
Kroger has filed with the SEC a registration statement under the Securities
Act that registers the distribution to Fred Meyer stockholders of Kroger common
shares to be issued in 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 SEC allow us to omit
certain information included in the registration statement from this document.
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<PAGE> 98
In addition, we file reports, proxy statements and other information with
the SEC under the Exchange Act. Please call the SEC 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 SEC:
<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 SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet world wide
web site that contains reports, proxy statements and other information about
issuers, including Kroger and Fred Meyer, who file electronically with the SEC.
The address of that site is http://www.sec.gov. You can also inspect reports,
proxy statements and other information about each of us at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" information into this
document. This means that the companies can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this
document, except for any information that is superseded by information that is
included directly in this document.
This document incorporates by reference the documents listed below that we
have previously filed with the SEC. 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 SEC 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; June 13,
1998; and October 3, 1998
Current Reports on Form 8-K January 22, 1998; February 25, 1998; April
15, 1998; May 6, 1998; May 11, 1998; June
26, 1998; July 15, 1998; October 20, 1998;
October 22, 1998; December 8, 1998; December
11, 1998; and January 8, 1999
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 SEC FILINGS (FILE NO. 1-13339)
-----------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended January 31, 1998
Quarterly Reports on Form 10-Q Quarters ended May 23, 1998 (as amended on
July 28, 1998); August 15, 1998 and November
7, 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>
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<PAGE> 99
<TABLE>
<CAPTION>
FOOD 4 LESS SEC FILINGS (FILE NO. 33-59212)
-------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended February 1, 1998
</TABLE>
We incorporate by reference additional documents that either company may
file with the SEC between the date of this document 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 SEC
through the SEC's web site at the address provided 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 document. You can obtain documents
incorporated by reference in this Joint Proxy document 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) 762-1220 (503) 232-8844
</TABLE>
If you would like to request documents, please do so by [date], 1999 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 document or in our documents that are publicly filed
with the SEC. 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 document 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 document about Kroger has been supplied by
Kroger, and information about Fred Meyer has been supplied by Fred Meyer.
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<PAGE> 100
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Control Share Acquisition................ 85
Control Share Acquisition Act............ 85
DLJ...................................... 23
EBIT..................................... 33
EBITDA................................... 32
Fair Price Provision..................... 86
Fred Meyer Business Combination
Proposal............................... 56
Fred Meyer Material Adverse Effect....... 55
Fred Meyer Stock Option Agreement........ 61
Kroger Business Combination Proposal..... 56
Kroger Material Adverse Effect........... 51
Kroger Stock Option Agreement............ 61
New Fred Meyer Options................... 48
QFC...................................... 21
Salomon.................................. 23
Stock Option Agreements.................. 61
Yucaipa Stockholders..................... 63
</TABLE>
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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> 102
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> 103
<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> 104
<TABLE>
<CAPTION>
PAGE
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<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> 105
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> 106
<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> 176
(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> 177
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 Draft Opinion of Cleary, Gottlieb, Steen & Hamilton as to
certain federal income tax consequences described in the
Joint Proxy Statement/Prospectus.
**8.2 Draft 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. (Incorporated by reference to Exhibit 10.G of Quarterly
Report on Form 10-Q for the quarter ended November 7, 1998
of Fred Meyer, Inc., Commission file number 1-13339.)
10.6 Form of Employment Protection Agreement for seven executive
officers of Fred Meyer, Inc. (Incorporated by reference to
Exhibit 10.R of Quarterly Report on Form 10-Q for the
quarter ended November 7, 1998 of Fred Meyer, Inc.,
Commission file number 1-13339.)
</TABLE>
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<PAGE> 178
<TABLE>
<C> <S>
10.7 Form of Employment Protection Agreement for five executive officers of Fred Meyer, Inc.
(Incorporated by reference to Exhibit 10.5 of Quarterly Report on Form 10-Q for the quarter ended
November 7, 1998 of Fred Meyer, Inc., Commission file number 1-13339.)
10.8 Amendment and Restatement, dated as of December 18, 1998, of Five-Year Credit Agreement among Kroger
and the other parties thereto. (Incorporated by reference to Exhibit 10.1 of Kroger's Form 8-K,
dated January 8, 1999, Commission file number 1-303.)
10.9 Amendment and Restatement, dated as of December 18, 1998, of 364-Day Credit Agreement among Kroger
and the other parties thereto. (Incorporated by reference to Exhibit 10.2 of Kroger's Form 8-K,
dated January 8, 1999, Commission file number 1-303.)
***10.10 Amendment and Restatement, dated as of December 18, 1998, of Loan Agreement among Fred Meyer and the
other parties thereto.
***10.11 Amendment and Restatement, dated as of December 18, 1998, of Participation Agreement among Fred
Meyer and the other parties thereto.
***10.12 Amendment and Restatement, dated as of December 18, 1998, of Credit Agreement among FMS Trust 1997-1
and the other parties thereto.
**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>
- ---------------
* Previously filed.
** 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
II-2
<PAGE> 179
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.
(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
II-3
<PAGE> 180
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-4
<PAGE> 181
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Cincinnati, Ohio, on
the 12th day of January, 1999.
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 January 12, 1999
- --------------------------------------------------- Directors, Chief Executive
Joseph A. Pichler Officer and Director
(Principal Executive Officer)
/s/ W. RODNEY MCMULLEN Senior Vice President and Chief January 12, 1999
- --------------------------------------------------- Financial Officer
W. Rodney McMullen (Principal Financial Officer)
/s/ J. MICHAEL SCHLOTMAN Vice President and January 12, 1999
- --------------------------------------------------- Corporate Controller
J. Michael Schlotman (Principal Accounting Officer)
* Director January 12, 1999
- ---------------------------------------------------
Reuben V. Anderson
* Director January 12, 1999
- ---------------------------------------------------
John L. Clendenin
* President, Chief Operating January 12, 1999
- --------------------------------------------------- Officer and Director
David B. Dillon
* Director January 12, 1999
- ---------------------------------------------------
John T. LaMacchia
* Director January 12, 1999
- ---------------------------------------------------
Edward M. Liddy
* Director January 12, 1999
- ---------------------------------------------------
Clyde R. Moore
* Director January 12, 1999
- ---------------------------------------------------
T. Ballard Morton, Jr.
* Director January 12, 1999
- ---------------------------------------------------
Thomas H. O'Leary
* Director January 12, 1999
- ---------------------------------------------------
Katherine D. Ortega
* Director January 12, 1999
- ---------------------------------------------------
Martha Romayne Seger
* Director January 12, 1999
- ---------------------------------------------------
James D. Woods
</TABLE>
*By: /s/ BRUCE M. GACK
-------------------------------
Bruce M. Gack, as
Attorney-in-Fact
January 12, 1999
II-5
<PAGE> 182
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 Draft Opinion of Cleary, Gottlieb, Steen & Hamilton as to
certain federal income tax consequences described in the
Joint Proxy Statement/Prospectus.
**8.2 Draft 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. (Incorporated by reference to Exhibit 10.G of Quarterly
Report on Form 10-Q for the quarter ended November 7, 1998
of Fred Meyer, Inc., Commission file number 1-13339.)
10.6 Form of Employment Protection Agreement for seven executive
officers of Fred Meyer, Inc. (Incorporated by reference to
Exhibit 10.R of Quarterly Report on Form 10-Q for the
quarter ended November 7, 1998 of Fred Meyer, Inc.,
Commission file number 1-13339.)
10.7 Form of Employment Protection Agreement for five executive
officers of Fred Meyer, Inc. (Incorporated by reference to
Exhibit 10.S of Quarterly Report on Form 10-Q for the
quarter ended November 7, 1998 of Fred Meyer, Inc.,
Commission file number 1-13339.)
10.8 Amendment and Restatement, dated as of December 18, 1998, of
Five-Year Credit Agreement among Kroger and the other
parties thereto. (Incorporated by reference to Exhibit 10.1
of Kroger's Form 8-K, dated January 8, 1999, Commission file
number 1-303)
10.9 Amendment and Restatement, dated as of December 18, 1998, of
364-Day Credit Agreement among Kroger and the other parties
thereto. (Incorporated by reference to Exhibit 10.2 of
Kroger's Form 8-K, dated January 8, 1999, Commission file
number 1-303)
***10.10 Amendment and Restatement, dated as of December 18, 1998,
among Fred Meyer and the other parties thereto.
***10.11 Amendment and Restatement, dated as of December 18, 1998, of
Participation Agreement among Fred Meyer and the other
parties thereto.
***10.12 Amendment and Restatement, dated as of December 18, 1998, of
Credit Agreement among FMS Trust 1997-1 and the other
parties thereto.
**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.
</TABLE>
<PAGE> 183
<TABLE>
<C> <S>
*23.8 Consent of Donaldson, Lufkin & Jenrette Securities
Corporation
*23.9 Consent of Salomon Smith Barney Inc.
</TABLE>
<PAGE> 184
<TABLE>
<C> <S>
*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>
- ---------------
* Previously filed.
** Filed herewith.
*** To be filed by amendment.
<PAGE> 1
EXHIBIT 5.1
[PAUL HELDMAN'S LETTERHEAD]
January 12, 1999
Board of Directors
The Kroger Co.
1014 Vine Street
Cincinnati, Ohio 45202
RE: The Kroger Co. Registration Statement on Form S-4
Ladies and Gentlemen:
I am Senior Vice President, Secretary and General Counsel of The Kroger
Co., an Ohio corporation (the "Company"). I have assisted in the preparation of
the above-referenced Registration Statement on Form S-4, as amended by Amendment
No. 1 thereto, filed by the Company with the Securities and Exchange Commission
(the "Commission") on November 6, 1998 (the "Registration Statement") in
connection with the Company's registration under the Securities Act of 1933, as
amended (the "1933 Act"), of up to 170,000,000 shares of Common Stock, par value
$1.00 per share, of the Company, and associated Preferred Stock Purchase Rights
pursuant to the Company's Warrant Dividend Plan in connection with the issuance
of Common Stock (the "Securities"). The Securities are being registered in
connection with the merger of Jobsite Holdings, Inc., a Delaware corporation and
a wholly-owned subsidiary of the Company, with and into Fred Meyer, Inc., a
Delaware corporation, pursuant to an Agreement and Plan of Merger, dated as of
October 18, 1998, among the Company, Merger Sub, and Fred Meyer (the
"Agreement"). The Securities are described in the Proxy Statement/Prospectus
(the "Prospectus") included in the Registration Statement, to which this opinion
is an exhibit.
I have examined the originals, or certified, conformed or reproduction
copies of records, agreements, instruments and documents such as I have deemed
relevant or necessary as the basis for the opinions hereinafter expressed. In
all of the examinations, I have assumed the genuineness of all signatures (other
than the signatures of officers and directors of the Company) on original or
certified copies and the conformity to original or certified copies of all
copies submitted to me as conformed or reproduction copies. As to various
questions of fact relevant to the opinions, I have relied upon statements or
certificates of officers or representatives of the Company and others.
To the extent it may be relevant to the opinions expressed herein, I have
assumed that parties to agreements other than the Company have the power and
authority to enter
<PAGE> 2
January 12, 1999
Page 2
into and perform the agreements and that the agreements have been duly
authorized, executed and delivered by the parties and constitute legal, valid
and binding obligations of the parties.
Based upon the foregoing and subject to the limitations and assumptions set
forth herein, I am of the opinion that when the Registration Statement becomes
effective under the 1933 Act, the Securities to which the Registration Statement
relates will have been duly authorized and, when executed, countersigned by the
transfer agent, and delivered in accordance with the terms of the Agreement in
connection with the Merger as contemplated by the Agreement, including the
approval of the issuance of the Securities by the shareholders of the Company's
common stock, will be validly issued, fully paid and non-assessable.
The opinions expressed herein are limited to the laws of the State of Ohio
and federal laws of the United States of America.
I hereby consent to your filing of this opinion as an exhibit in the
Registration Statement and to the reference to me in the Registration Statement
as having passed upon the validity of the Securities offered thereby on behalf
of the Company. In giving such consent, I do not admit that I am in the category
of persons whose consent is required under Section 7 of the 1933 Act.
Very truly yours,
/s/ Paul W. Heldman
Paul W. Heldman
<PAGE> 1
Exhibit 8.1
DRAFT
Writer's Direct Dial: (212) 225-2350
[Date]
Fred Meyer, Inc.
3800 SE 22nd Avenue
Portland, Oregon 97202
Ladies and Gentlemen:
We have acted as counsel to Fred Meyer, Inc. ("Fred Meyer"), a Delaware
corporation in connection with the transactions contemplated by the Agreement
and Plan of Merger dated as of October 18, 1998 (the"Agreement") by and among
The Kroger Co., an Ohio corporation ("Kroger"), Jobsite Holdings, Inc., a
Delaware corporation ("Merger Sub") and Fred Meyer. At your request, in
connection with the filing of the Registration Statement on Form S-4 filed with
the Securities and Exchange Commission, as amended through the date hereof, in
connection with the Merger (the "Registration Statement"), we are rendering our
opinion with regard to certain United States federal income tax consequences of
the Merger. All capitalized items used but not defined herein shall have the
same meanings as in the Agreement.
In arriving at the opinions expressed below, we have examined and relied
upon the accuracy and completeness of the facts, information, covenants and
representations contained in originals, or copies certified or otherwise
identified to our satisfaction, of the Agreement, the Registration Statement and
the Proxy Statement/Prospectus included therein(together, the "Proxy
Statement").
Without limiting the generality of the foregoing, in arriving at the
opinions expressed below, we have also examined and relied, without independent
verification of the statements contained therein, on certificates from each of
Fred Meyer and Kroger regarding certain tax matters, and we have assumed the
accuracy of the representations and statements made in each of the foregoing.
In arriving at the opinions expressed below, we have assumed, without
making any independent investigation, that all such documents as furnished to us
are complete and authentic, that the signatures on all documents are genuine,
and that all such documents have been, or in the case of drafts, will be, duly
authorized, executed and delivered. We have further assumed that
<PAGE> 2
the transactions will be consummated and the parties will act in accordance with
these documents.
Based on and subject to the foregoing, the opinion contained in the Proxy
Statement under the caption "THE MERGER -- U.S. Federal Income Tax Consequences
of the Merger," except as otherwise indicated, represents our opinion as to the
material U.S. federal income tax consequences of the Merger under applicable
law.
We hereby consent to the use of our name and the making of statements with
respect to us under the captions "SUMMARY -- Certain U.S. Federal Income Tax
Consequences of the Merger" and "THE MERGER -- Certain U.S. Federal Income Tax
Consequences of the Merger" in the Proxy Statement. In giving this consent, we
do not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Sincerely,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By:
---------------------------------
Leslie B. Samuels, a Partner
<PAGE> 3
DRAFT
FRED MEYER INC.
OFFICER'S CERTIFICATE
---------------------
The undersigned officer of Fred Meyer, Inc., in connection with the
opinions to be delivered by Cleary, Gottlieb, Steen & Hamilton and Fried,
Frank, Harris, Shriver & Jacobson (i) pursuant to Sections 7.2(e) and
7.3(e) of the Agreement and Plan of Merger dated as of October 18, 1998 by
and among The Kroger Co. ("Kroger"), Jobsite Holdings, Inc. ("Merger Sub")
and Fred Meyer, Inc. ("Fred Meyer") (the "Agreement") and (ii) concerning
the Joint Proxy Statement/Prospectus contained in the Form S-4 being filed
with the SEC with respect to the Kroger Common Stock to be issued to Fred
Meyer stockholders in the Merger, and recognizing (1) that said law firms
will rely on this Certificate in delivering such opinions, (2) that it will
be necessary to provide a written confirmation of each of the following
representations at the Effective Time or an explanation prior to such time
as to why confirmation is not possible and (3) that the tax opinions may
not accurately describe the consequences of the Merger if any of the
following representations are not accurate in all respects, hereby
certifies that to the extent the following facts and representations relate
to Fred Meyer, such representations are true, complete and correct in all
respects and, to the extent the following representations relate to Kroger
or Merger Sub, the undersigned has no reason to believe such
representations are not true, and further certifies that (unless otherwise
defined herein, capitalized terms shall have the meanings ascribed to them
in the Agreement):
1. The fair market value of the Kroger Common Stock received by each
Fred Meyer stockholder will be approximately equal to the fair market value
of Fred Meyer Common Stock surrendered in the Merger.
2. Following the Merger, Fred Meyer will hold at least 90 percent of
the fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets and at least 90 percent of the fair market
value of Merger Sub's net assets and at least 70 percent of the fair market
value of Merger Sub's gross assets held immediately prior to the Merger.
For purposes of this representation, amounts used by Fred Meyer or Merger
Sub to pay reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by Fred Meyer or Merger Sub
will be included as assets of Fred Meyer or Merger Sub, respectively,
immediately prior to the Merger.
3. In the Merger, shares of Fred Meyer stock representing control of
Fred Meyer, as defined in Section 368(c) of the Internal Revenue Code of
1986, as amended (the "Code"), will be exchanged solely for voting stock of
Kroger. For purposes of the representation, shares of Fred Meyer stock
exchanged for cash or other property originating with Kroger or any person
related to Kroger (within the meaning of Treasury Regulations Section
1.368-1(e)(3)) will be treated as outstanding Fred Meyer stock on the date
of the Merger.
-1-
<PAGE> 4
4. Immediately prior to the Merger, Fred Meyer will be carrying on
Fred Meyer's historic business or using a significant portion of Fred Meyer
historic business assets in a business (within the meaning of Treasury
Regulations Section 1.368-1(d)).
5. Immediately after the Merger, Kroger will be in control of Fred
Meyer within the meaning of Section 368(c) of the Code, and Fred Meyer has
no plan or intention to issue additional shares of its stock that would
result in Kroger losing control of Fred Meyer within the meaning of Section
368(c) of the Code.
6. All of the outstanding stock of Fred Meyer will be exchanged solely
for Kroger Common Stock. Fred Meyer has not redeemed and will not redeem
any of its stock prior to and in connection with the Merger, and no person
related to Fred Meyer within the meaning of Treasury Regulation Section
1.368-1T(e)(2)(ii) has acquired or will acquire Fred Meyer stock for
consideration other than Kroger Common Stock or Fred Meyer stock prior to
and in connection with the Merger. Other than normal and regular dividends,
Fred Meyer has made no distribution to its shareholders prior to and in
connection with the Merger.
7. Fred Meyer will pay its expenses incurred in connection with the
Merger; provided, however, that (i) the filing fees in connection with the
filing of the Form S-4 and the Joint Proxy Statement/Prospectus with the
SEC, (ii) all filing fees in connection with any filings, permits or
approvals required under applicable state securities or "blue sky" laws in
connection with the Merger, (iii) the expenses incurred in connection with
printing and mailing of the Form S-4 and the Joint Proxy
Statement/Prospectus, and (iv) 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 equally by Kroger and Fred Meyer.
8. At the time of the Merger, Fred Meyer will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in Fred Meyer that, if
exercised or converted, would affect Kroger's acquisition or retention of
control of Fred Meyer, as defined in Section 368(c) of the Code.
9. Fred Meyer is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
-2-
<PAGE> 5
10. On the date of the Merger, the fair market value of the assets of
Fred Meyer will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
11. Fred Meyer is not under the jurisdiction of a court in a case
under Title 11 of the United States code or a receivership, foreclosure or
similar proceeding in a Federal or State court.
12. None of the compensation received by any stockholder-employee of
Fred Meyer will be separate consideration for, or allocable to, any of such
stockholder-employee's shares of Fred Meyer stock; none of the shares of
Kroger stock received by any stockholder-employee of Fred Meyer pursuant to
the Merger will be separate consideration for, or allocable to, any
employment agreement except for Kroger stock issued in satisfaction of Fred
Meyer Options; and the compensation paid to any stockholder-employee of
Fred Meyer will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's length for similar
services.
13. There is no intercorporate indebtedness existing between Kroger
and Fred Meyer or between Merger Sub and Fred Meyer that was issued,
acquired or will be settled at a discount.
14. The Merger will be consummated in compliance with the terms of the
Agreement.
15. Each of the representations made by Fred Meyer and facts
concerning Fred Meyer set forth in the Agreement, the Form S-4 and the
Joint Proxy Statement/Prospectus are true, accurate, and complete in all
material respects as of the date of this letter.
16. Fred Meyer's corporate business reasons for consummating the
Merger are set forth on pages ___ of the Joint Proxy Statement/Prospectus.
18. Fred Meyer has not distributed the stock of a "controlled
corporation" (as defined in Section 355(a) of the Code) in a transaction
subject to Section 355 of the Code within the past two years.
FRED MEYER INC.
Dated: By:
------------ ------------------------------
[NAME]
[Title]
-3-
<PAGE> 1
Exhibit 8.2
DRAFT
January __, 1999
The Kroger Co.
1014 Vine Street
Cincinnati, Ohio 45202
Ladies and Gentlemen:
We are acting as your counsel in connection with the proposed acquisition
by The Kroger Co. ("Kroger") of Fred Meyer, Inc. ("Fred Meyer") pursuant to the
proposed merger (the "Merger") of Jobsite Holdings, Inc., a wholly-owned
subsidiary of Kroger ("Merger Sub"), into Fred Meyer, with Fred Meyer surviving
the Merger. The Merger will be consummated pursuant to the Agreement and Plan of
Merger dated as of October 18, 1998 by and among Kroger, Merger Sub and Fred
Meyer (the "Merger Agreement").
Kroger has filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act"), a registration statement on
Form S-4 (the "Registration Statement"), with respect to the common shares of
Kroger to be issued to holders of shares of common stock of Fred Meyer in
connection with the Merger. In addition, Kroger has prepared, and we have
reviewed, a Joint Proxy Statement/Prospectus which is contained in and made a
part of the Registration Statement (the "Joint Proxy Statement"), and the
Appendices thereto, including the Merger Agreement. In rendering the opinion set
forth below, we have relied upon the facts stated in the Joint Proxy Statement
and upon such other documents as we have deemed appropriate, including the
representations of Kroger and Fred Meyer referred to in the Joint Proxy
Statement and set forth in certain officer's certificates from Kroger and Fred
Meyer.
We have assumed that all parties to the Merger Agreement have acted, and
will act, in accordance with the terms of such Merger Agreement and that the
Merger Agreement will be consummated at the effective time pursuant to the terms
and conditions set forth in the Merger Agreement without the waiver or
modification of any such terms and conditions.
<PAGE> 2
Based upon and subject to the foregoing, and to the qualifications,
limitations, representations and assumptions contained in the portion of the
Joint Proxy Statement captioned "U.S. Federal Income Tax Consequences," and in
certain officer's certificates from Kroger and Fred Meyer, in our opinion, the
portion of the Joint Proxy Statement captioned "U.S. Federal Income Tax
Consequences" is accurate in all material respects. No opinion is expressed on
any matters other than those specifically referred to herein.
This opinion is furnished to you for use in connection with the
Registration Statement and may not be used for any other purpose without our
prior express written consent. We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement and to the use of our name in that
portion of the Joint Proxy Statement captioned "U.S. Federal Income Tax
Consequences." In giving such consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
FRIED, FRANK, HARRIS,
SHRIVER & JACOBSON
<PAGE> 3
DRAFT
THE KROGER CO.
AND
JOBSITE HOLDINGS INC.
OFFICER'S CERTIFICATE
---------------------
The undersigned officer of The Kroger Co., in connection with the
opinions to be delivered by Cleary, Gottlieb, Steen & Hamilton and Fried,
Frank, Harris, Shriver & Jacobson (i) pursuant to Sections 7.2(e) and
7.3(e) of the Agreement and Plan of Merger dated as of October 18, 1998 by
and among The Kroger Co. ("Kroger"), Jobsite Holdings, Inc. ("Merger Sub")
and Fred Meyer, Inc. ("Fred Meyer") (the "Agreement") and (ii) concerning
the Joint Proxy Statement/Prospectus contained in the Form S-4 being filed
with the SEC with respect to the Kroger Common Stock to be issued to Fred
Meyer stockholders in the Merger, and recognizing (1) that said law firms
will rely on this Certificate in delivering such opinions, (2) that it will
be necessary to provide a written confirmation of each of the following
representations at the Effective Time or an explanation prior to such time
as to why confirmation is not possible and (3) that the tax opinions may
not accurately describe the consequences of the Merger if any of the
following representations are not accurate in all respects, hereby
certifies that to the extent the following facts and representations relate
to Kroger or Merger Sub, such representations are true, complete and
correct in all respects and, to the extent the following representations
relate to Fred Meyer, the undersigned has no reason to believe such
representations are not true, and further certifies that (unless otherwise
defined herein, capitalized terms shall have the meanings ascribed to them
in the Agreement):
1. The fair market value of the Kroger Common Stock received by each
Fred Meyer stockholder will be approximately equal to the fair market value
of the Fred Meyer Common Stock surrendered in the Merger.
2. Following the Merger, Fred Meyer will hold at least 90 percent of
the fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets and at least 90 percent of the fair market
value of Merger Sub's net assets and at least 70 percent of the fair market
value of Merger Sub's gross assets held immediately prior to the Merger.
For purposes of this representation, amounts used by Fred Meyer or Merger
Sub to pay reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by Fred Meyer or Merger Sub
will be included as assets of Fred Meyer or Merger Sub, respectively,
immediately prior to the Merger.
3. Prior to the Merger, Kroger will be in control of Merger Sub within
the meaning of Section 368(c) of the Internal Revenue Code of 1986, as
amended (the "Code").
-1-
<PAGE> 4
4. Kroger has no plan or intention to cause Fred Meyer to issue
additional shares of its stock that would result in Kroger losing control
of Fred Meyer within the meaning of Section 368(c) of the Code.
5. Neither Kroger nor any person related to Kroger (within the meaning
of Treasury Regulations Section 1.368-1(e)(3)) will acquire Fred Meyer
Stock in connection with the Merger for any consideration other than Kroger
Common Stock. Kroger will not assume any liabilities of Fred Meyer
shareholders in connection with the Merger. Kroger will not, in connection
with the Merger, repurchase, redeem or otherwise reacquire Kroger Common
Stock issued to stockholders of Fred Meyer pursuant to the Merger, either
directly or through a related person (within the meaning of Treasury
Regulations Section 1.368-1(e)). Kroger will not cause an extraordinary
distribution with respect to Fred Meyer Common Stock to occur and is not
aware of any extraordinary distribution with respect to Fred Meyer Common
Stock that has occurred or is intended, in each case in connection with the
Merger. Kroger also has not participated, and in connection with the
Merger, will not participate, in a redemption or acquisition of Fred Meyer
Common Stock made by Fred Meyer or a person related to Fred Meyer. Kroger
is not aware of any plan of Fred Meyer (or a person related to Fred Meyer)
to affect a redemption or acquisition of Fred Meyer Common Stock.
6. Kroger has no plan or intention to liquidate Fred Meyer, to merge
Fred Meyer with and into another corporation, to sell or otherwise dispose
of the stock of Fred Meyer, or to cause Fred Meyer to sell or otherwise
dispose of any of its assets or any of the assets acquired from Merger Sub,
except, in each case, for dispositions made in the ordinary course of
business or transfers of assets or stock described in Treasury Regulations
Section 1.368-2(k)(2).
7. Merger Sub will have no liabilities assumed by Fred Meyer, and will
not transfer to Fred Meyer any assets subject to liabilities, in the
Merger.
8. Following the Merger, Kroger will cause Fred Meyer and/or members
of Kroger's "qualified group" (within the meaning of Treasury Regulations
Section 1.368-1(d)(4)(ii)) to continue Fred Meyer's historic business or
use a significant portion of Fred Meyer's historic business assets in a
business (within the meaning of Treasury Regulation Section 1.368-1(d)).
9. Kroger and Merger Sub will pay their respective expenses, if any,
incurred in connection with the Merger; provided, however, that (i) the
filing fees in connection with the filing of the Form S-4 and the Joint
Proxy Statement/Prospectus with the SEC, (ii) all filing fees in connection
with any filings, permits or approvals required under applicable state
securities or "blue sky" laws in connection with the Merger, (iii) the
-2-
<PAGE> 5
expenses incurred in connection with printing and mailing of the Form S-4
and the Joint Proxy Statement/Prospectus, and (iv) 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 equally by Kroger and Fred Meyer.
10. There is no intercorporate indebtedness existing between Kroger
and Fred Meyer or between Merger Sub and Fred Meyer that was issued,
acquired, or will be settled at a discount.
11. In the Merger, shares of Fred Meyer stock representing control of
Fred Meyer, as defined in Section 368(c) of the Code, will be exchanged
solely for voting stock of Kroger. For purposes of the representation,
shares of Fred Meyer stock that are exchanged for cash or other property
originating with Kroger or any person related to Kroger (within the meaning
of Treasury Regulations Section 1.368-1(e)(3)) will be treated as
outstanding Fred Meyer stock on the date of the Merger.
12. Neither Kroger nor any person related to Kroger (within the
meaning of Treasury Regulations Section 1.368-1(e)(3)) beneficially owns,
directly or indirectly, nor has beneficially owned during the past five
years, directly or indirectly, any stock of Fred Meyer.
13. Neither Kroger nor Merger Sub is an investment company as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
14. On the date of the Merger, the fair market value of the assets of
Fred Meyer will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
15. None of the compensation received by any stockholder-employee of
Fred Meyer will be separate consideration for, or allocable to, any of such
stockholder-employee's shares of Fred Meyer stock; none of the shares of
Kroger stock received by any stockholder-employee of Fred Meyer pursuant to
the Merger will be separate consideration for, or allocable to, any
employment agreement except for Kroger stock issued in satisfaction of Fred
Meyer Options; and the compensation paid to any stockholder-employee of
Fred Meyer will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's length for similar
services.
-3-
<PAGE> 6
16. Merger Sub was formed solely to facilitate the Merger and has not
conducted and will not conduct any business or activity other than in
connection with the Merger.
17. The Merger will be consummated in compliance with the terms of the
Agreement.
18. Each of the representations made by Kroger and Merger Sub and
facts concerning Kroger set forth in the Agreement, the Form S-4 and the
Joint Proxy Statement/Prospectus are true, accurate, and complete in all
material respects as of the date of this letter.
19. Kroger corporate business reasons for consummating the Merger are
as set forth on pages ____ of the Joint Proxy/Statement Prospectus.
20. Kroger has not distributed the stock of a "controlled corporation"
(as defined in Section 355(a) of the Code) in a transaction subject to
Section 355 of the Code within the past two years.
21. The Fred Meyer shareholders receiving Kroger shares in the Merger
will not receive any rights in connection with the Kroger shares other than
the Kroger Rights, which are not separately tradeable and will not be
separately tradeable or exercisible until there is a tender offer for, or
actual purchase of, [ ]% of Kroger stock. The Kroger rights were adopted in
a plan the principal purpose of which was to establish a mechanism by which
Kroger could, in the future, provide its shareholders with rights to
purchase stock at substantially less than fair market value as a means of
responding to unsolicited offers to acquire Kroger.
THE KROGER CO.
Dated: By:
------------ --------------------------
[NAME]
[Title]
-4-
<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
January 12, 1999
<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
January 8, 1999
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in Registration Statement Nos. 333-35199, 333-36473, and 333-47523 of
Fred Meyer, Inc., all on Form S-8, and Registration Statement Nos. 333-44537,
333-46835, and 333-56637 of Fred Meyer, Inc., all on Form S-3, of our report
dated March 9, 1998, included in the Food 4 Less Holdings, Inc. Form 10-K for
the year ended February 1, 1998, and to all references to our firm included in
or made part of the aforementioned registration statements. Further, 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 year 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
January 7, 1999
<PAGE> 1
Exhibit 99.1
January 5, 1999
The Kroger Co.
1014 Vine Street
Cincinnati, OH 45202
Ladies and Gentlemen:
I hereby consent to the disclosure indicating that I will become a director
of The Kroger Co. ("Kroger") contained in the Joint Proxy Statement/Prospectus
forming a part of the Registration Statement on Form S-4 of Kroger (File No.
333-66961) filed with the Securities and Exchange Commission in connection with
the registration under the Securities Act of 1933, as amended, of the shares of
Common Stock of Kroger to be issued in connection with the Agreement and Plan of
Merger, dated as of October 18, 1998, by and between Kroger, Jobsite Holdings,
Inc. and Fred Meyer, Inc.
/s/ Robert D. Beyer
---------------------------------
Robert D. Beyer
<PAGE> 1
Exhibit 99.2
January 4, 1999
The Kroger Co.
1014 Vine Street
Cincinnati, OH 45202
Ladies and Gentlemen:
I hereby consent to the disclosure indicating that I will become a director
of The Kroger Co. ("Kroger") contained in the Joint Proxy Statement/Prospectus
forming a part of the Registration Statement on Form S-4 of Kroger (File No.
333-66961) filed with the Securities and Exchange Commission in connection with
the registration under the Securities Act of 1933, as amended, of the shares of
Common Stock of Kroger to be issued in connection with the Agreement and Plan of
Merger, dated as of October 18, 1998, by and between Kroger, Jobsite Holdings,
Inc. and Fred Meyer, Inc.
/s/ Ronald W. Burkle
---------------------------------
Ronald W. Burkle
<PAGE> 1
Exhibit 99.3
January 4, 1999
The Kroger Co.
1014 Vine Street
Cincinnati, OH 45202
Ladies and Gentlemen:
I hereby consent to the disclosure indicating that I will become a director
of The Kroger Co. ("Kroger") contained in the Joint Proxy Statement/Prospectus
forming a part of the Registration Statement on Form S-4 of Kroger (File No.
333-66961) filed with the Securities and Exchange Commission in connection with
the registration under the Securities Act of 1933, as amended, of the shares of
Common Stock of Kroger to be issued in connection with the Agreement and Plan of
Merger, dated as of October 18, 1998, by and between Kroger, Jobsite Holdings,
Inc. and Fred Meyer, Inc.
/s/ Carlton J. Jenkins
---------------------------------
Carlton J. Jenkins
<PAGE> 1
Exhibit 99.4
January 4, 1999
The Kroger Co.
1014 Vine Street
Cincinnati, OH 45202
Ladies and Gentlemen:
I hereby consent to the disclosure indicating that I will become a director
of The Kroger Co. ("Kroger") contained in the Joint Proxy Statement/Prospectus
forming a part of the Registration Statement on Form S-4 of Kroger (File No.
333-66961) filed with the Securities and Exchange Commission in connection with
the registration under the Securities Act of 1933, as amended, of the shares of
Common Stock of Kroger to be issued in connection with the Agreement and Plan of
Merger, dated as of October 18, 1998, by and between Kroger, Jobsite Holdings,
Inc. and Fred Meyer, Inc.
/s/ Bruce Karatz
---------------------------------
Bruce Karatz
<PAGE> 1
Exhibit 99.5
January 4, 1999
The Kroger Co.
1014 Vine Street
Cincinnati, OH 45202
Ladies and Gentlemen:
I hereby consent to the disclosure indicating that I will become a director
of The Kroger Co. ("Kroger") contained in the Joint Proxy Statement/Prospectus
forming a part of the Registration Statement on Form S-4 of Kroger (File No.
333-66961) filed with the Securities and Exchange Commission in connection with
the registration under the Securities Act of 1933, as amended, of the shares of
Common Stock of Kroger to be issued in connection with the Agreement and Plan of
Merger, dated as of October 18, 1998, by and between Kroger, Jobsite Holdings,
Inc. and Fred Meyer, Inc.
/s/ Robert G. Miller
---------------------------------
Robert G. Miller
<PAGE> 1
Exhibit 99.6
January 4, 1999
The Kroger Co.
1014 Vine Street
Cincinnati, OH 45202
Ladies and Gentlemen:
I hereby consent to the disclosure indicating that I will become a director
of The Kroger Co. ("Kroger") contained in the Joint Proxy Statement/Prospectus
forming a part of the Registration Statement on Form S-4 of Kroger (File No.
333-66961) filed with the Securities and Exchange Commission in connection with
the registration under the Securities Act of 1933, as amended, of the shares of
Common Stock of Kroger to be issued in connection with the Agreement and Plan of
Merger, dated as of October 18, 1998, by and between Kroger, Jobsite Holdings,
Inc. and Fred Meyer, Inc.
/s/ Steven R. Rogel
---------------------------------
Steven R. Rogel
<PAGE> 1
EXHIBIT 99.7
PLEASE MARK
YOUR VOTE [X]
LIKE THIS
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL
1. The Merger Agreement. Approval and adoption of the Agreement and Plan of
Merger, dated October 18, 1999 among Kroger, Jobsite Holdings, Inc., and Fred
Meyer and approval of the related merger, pursuant to which, subject to the
terms and conditions of the merger agreement, 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.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE
VOTED AS DIRECTED THEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL.
Signature(s)
-------------------------------------
Date: 1999
----------
THIS PROXY SHOULD BE SIGNED EXACTLY AS NAME APPEARS HEREON. Executors,
administrators, trustees and so forth, should give full title as such. If the
signatory is a corporation, please sign full corporate name by a duly authorized
official. If a partnership, please sign in partnership name by an authorized
party. If shares are held in multiple names, at least one must sign as an
authorized party.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[LOGO]
SPECIAL MEETING OF SHAREHOLDERS
[DAY], January [ ], 1999
10:00 A.M.
[LOCATION]
<PAGE> 2
PROXY
[LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE KROGER CO.
The undersigned acknowledges receipt of the Joint Proxy Statement/Prospectus of
The Kroger Co. and hereby appoints Joseph A. Pichler, John T. LaMacchia and T.
Ballard Morton, Jr., and each of them, as Proxies for the undersigned, each with
full power of substitution, to represent the undersigned and to vote all common
shares of The Kroger Co. that the undersigned is entitled to vote at the special
meeting of shareholders to be held at 10:00 a.m., local time on January __,
1999, and any adjournment(s) or postponement(s) thereof, in the manner indicated
on the reverse side of this card. If no other indication is made, the
proxyholders will vote FOR the approval and adoption of the Agreement and Plan
of Merger, dated as of October 18, 1998, among the Kroger, Jobsite Holdings,
Inc., a Delaware corporation and wholly-owned subsidiary of Kroger, and Fred
Meyer, Inc., and approval of the related merger, pursuant to which, subject to
the terms and conditions of the merger agreement, 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.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[LOGO]
SPECIAL MEETING OF SHAREHOLDERS
[DAY], January [ ], 1999
10:00 A.M.
[LOCATION]
<PAGE> 1
Exhibit 99.8
PROXY
FRED MEYER, INC.
Special Meeting, ______________, 1999
PROXY SOLICITED BY BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints Robert G. Miller, Kenneth Thrasher and Roger A.
Cooke, and each of them, proxies with power of substitution to vote on behalf of
the undersigned all shares that the undersigned may be entitled to vote at the
special meeting of stockholders of Fred Meyer, Inc. ("Fred Meyer") on
______________, 1999 and any adjournments thereof, with all powers that the
undersigned would possess if personally present, with respect to the following:
1. A proposal to approve and adopt the Agreement and Plan of Merger, dated as
of October 18, 1998, by and between Fred Meyer, The Kroger Co., and Jobsite
Holdings, Inc. and the transactions contemplated thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Transaction of any business that properly comes before the meeting or any
adjournments thereof. A majority of the proxies or substitutes at the
meeting may exercise all the powers granted hereby.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE> 2
The shares represented by this proxy will be voted as specified on the reverse
hereof, but if no specification is made, this proxy will be voted for adoption
of the Agreement and Plan of Merger and the transactions contemplated thereby.
THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS THAT MAY COME
BEFORE THIS MEETING.
Shares:
Date: , 1999
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---------------------------------
Signature or Signatures
P
R Please date and sign as name is
O imprinted hereon, including
X designation as executor, trustee,
Y etc., if applicable. A corporation
must sign its name by the
president or other authorized
officer.
The Special Meeting of
Stockholders of Fred Meyer, Inc.
will be held on ___________, 1999
at ____ _.m., Pacific Time, at
___________, Portland, Oregon.
Please Note: Any shares of stock of the Company held in the name of fiduciaries,
custodians or brokerage houses for the benefit of their clients may only be
voted by the fiduciary, custodian or brokerage house itself--the beneficial
owner may not directly vote or appoint a proxy to vote the shares and must
instruct the person or entry in whose name the shares are held how to vote the
shares held for the beneficial owner. Therefore, if any shares of stock of Fred
Meyer are held in "street name" by a brokerage house, only the brokerage house,
at the instructions of its client, may vote or appoint a proxy to vote the
shares.
