<PAGE>
Filed pursuant to Rule 424b5
Registration No.: 333-79763
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement is not complete and may be +
+changed. This prospectus supplement and the accompanying prospectus are not +
+an offer to sell these securities and are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion Preliminary Prospectus Supplement dated August 19, 1999
PROSPECTUS SUPPLEMENT
(To prospectus dated July 15, 1999)
$150,000,000
ShopKo Stores, Inc.
% Notes due
-----------
Interest on the notes is payable on and of each year, beginning
, 2000. The notes will mature on , . The notes are redeemable
prior to maturity at our option at redemption prices calculated as described
under "Description of the Notes--Optional Redemption" in this prospectus
supplement.
The notes are unsecured and rank equally with all of our other unsecured
senior indebtedness. The notes will be issued only in registered form in
denominations of $1,000.
-----------
<TABLE>
<CAPTION>
Per Note Total
-------- -----
<S> <C> <C>
Public offering price (1)......................... % $
Underwriting discount............................. % $
Proceeds, before expenses, to ShopKo.............. % $
</TABLE>
(1) Plus accrued interest from August , 1999, if settlement occurs after
that date
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The notes will be ready for delivery in book-entry form only through The
Depository Trust Company on or about August , 1999.
-----------
Merrill Lynch & Co.
Banc of America Securities LLC
Chase Securities Inc.
Lehman Brothers
-----------
The date of this prospectus supplement is August , 1999.
<PAGE>
[Pictures of pharmacy and optical departments, athletic apparel and home office
displays.]
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Our Company................................................................ S-5
Selected Historical Consolidated Financial Data............................ S-9
Use of Proceeds............................................................ S-10
Capitalization............................................................. S-11
Description of the Notes................................................... S-12
Underwriting............................................................... S-16
Legal Matters.............................................................. S-17
Experts.................................................................... S-18
Prospectus
Our Company................................................................ 3
Risk Factors............................................................... 3
Ratio of Earnings to Fixed Charges......................................... 6
Use of Proceeds............................................................ 7
Description of Common Stock................................................ 7
Description of Debt Securities............................................. 10
Book-Entry Securities...................................................... 15
Certain United States Federal Income Tax Consequences...................... 17
Plan of Distribution....................................................... 28
Legal Matters.............................................................. 30
Where You Can Find More Information........................................ 30
Incorporation of Information We File With the SEC.......................... 31
</TABLE>
-----------------
FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and documents
incorporated by reference in this prospectus supplement and the accompanying
prospectus contain certain forward-looking statements regarding the operations
and business of ShopKo. Statements in this document that are not historical
facts are "forward-looking statements." Such forward-looking statements include
those relating to:
. our anticipated growth strategies,
. anticipated trends in our businesses,
. our ability to continue to control costs and maintain quality, and
. statements regarding ShopKo's Year 2000 readiness.
The words "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. These
"forward-looking statements" are found at various places throughout this
prospectus supplement and accompanying prospectus. Wherever they occur in this
prospectus or in other statements attributable to ShopKo, forward-looking
statements are necessarily estimates reflecting our best judgment. However,
these statements still involve a number of risks and uncertainties that could
cause actual results to differ materially from those suggested by the forward-
looking statements. Discussions in this prospectus supplement and accompanying
prospectus under the captions "Risk Factors" and "Use of Proceeds" are
particularly susceptible to risks and uncertainties. Such forward-looking
statements should, therefore, be considered in light of various important
factors, including those set forth in this prospectus supplement and
accompanying prospectus and other factors set
S-3
<PAGE>
forth from time to time in ShopKo's reports and registration statements filed
with the SEC. You are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof. ShopKo disclaims
any intent or obligation to update forward-looking statements. Moreover,
ShopKo, through senior management, may from time to time make forward-looking
statements about the matters described herein or other matters concerning
ShopKo.
-----------------
ShopKo(R) and Pamida(R) are trademarks and servicemarks of ShopKo Stores,
Inc. or its subsidiaries. ProVantage(R) is a trademark and servicemark of
ProVantage Health Services, Inc. All other trademarks, servicemarks and trade
names referred to in this prospectus supplement and the accompanying prospectus
are the property of their respective owners.
-----------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement and the accompanying
prospectus is accurate only as of the dates on the front cover of this
prospectus supplement and the prospectus, respectively. Our business, financial
condition, results of operations and prospects may have changed since that
date.
S-4
<PAGE>
OUR COMPANY
ShopKo's fiscal year conforms to the National Retail Federation calendar
and ends on the Saturday closest to the end of January. ShopKo has adopted a
convention of referring to a fiscal year by the year in which the fiscal year
begins. For example, the fiscal year which began on February 1, 1998 and ended
on January 30, 1999 is referred to as "fiscal 1998." Unless the context
requires otherwise, all references to "ShopKo," "we" and "our" are to ShopKo
Stores, Inc. and its subsidiaries. The information under "ShopKo Retail
Operating Strategy" below does not reflect the Pamida store operations which we
acquired on July 6, 1999. The Pamida retail stores and operations are
significantly different from the ShopKo retail stores and operations. A more
detailed description of Pamida's retail stores and operations can be found in
Pamida's reports filed with the SEC prior to our acquisition of Pamida.
General
We operate in the specialty discount and the managed healthcare
industries. We are a leading specialty discount retailer operating 314 retail
stores in 22 states, primarily in the Midwest, Western Mountain and Pacific
Northwest regions as of July 8, 1999. Retail operations include 158 specialty
discount stores operating under the ShopKo name in mid-sized and larger cities,
152 Pamida discount stores in smaller, rural communities and four Heartland
Home Furnishing stores in Indiana, Iowa, Nebraska and Ohio. We also serve the
rapidly growing managed healthcare industry through our subsidiary, ProVantage
Health Services, Inc. ProVantage is a leading health benefit management company
providing pharmacy benefit and health information technology products and
services to its customers.
Our Strategy
ShopKo Retail Operating Strategy
Our business strategy focuses on serving our customers and building
customer loyalty. We instituted a number of strategic initiatives designed to
build our infrastructure and strengthen our market position. These initiatives
include:
Delivering Comprehensive Value. We believe delivering comprehensive value
builds customer loyalty. Comprehensive value is more than just delivering a
superior quality product at a compelling price. Comprehensive value includes:
. ensuring that merchandise, particularly advertised merchandise, is
available for purchase,
. providing clarity in our merchandise offering,
. continually responding to our customers' changing lifestyle needs,
. ensuring the speed of merchandise to the sales floor, and
. providing simplicity, speed and friendliness in the shopping
experience.
Continuing to Differentiate Our Merchandising Strategy. We are
continuously changing and updating our merchandising strategy to differentiate
our stores from our competitors by projecting a more upscale image and meeting
consumer's changing lifestyle preferences. Our current merchandising strategy
is focused on expanding and dominating certain lifestyle categories in areas
such as:
. home furnishings in linens, domestics and housewares,
. nationally branded activewear for men, women and children,
. vitamin centers,
S-5
<PAGE>
. bath and body centers,
. women's intimate and plus-size apparel, and
. pharmacy and optical services.
Maintaining Competitive Pricing. We price our merchandise to be
competitive with our discount retail competitors, both regional and national.
In approximately 60 circulars per year, we advertise a large group of high
demand items to reinforce our competitive price image and to generate store
traffic. We do not attempt to meet the lowest available price on every item. We
believe we provide our customers with quality brands and trend-correct
assortments at competitive prices.
Enhancing Competitiveness Through Continued Infrastructure
Improvements. We have remodeled substantially all of our stores in the 1990s.
We expect to spend $70 million over the next two years to expand and upgrade
our distribution centers. During the 1990s, we also invested over $140 million
in technology systems and decision system support software. We have closely
linked our merchandising, financing, marketing and logistics functions to
enable us to respond quickly and effectively to changing customer demands.
These improvements have made us more competitive by allowing us to:
. Increase the convenience of the shopping experience, with
improvements such as wide, clear aisles, and informative signing;
. Quickly identify and adapt to changing consumer preferences;
. Improve inventory replenishment and in-stock position;
. Reduce costs associated with the sales process, such as
distribution; and
. Reduce store payroll costs as a percent of revenue.
Capitalizing on Our Pharmacy and Optical Centers. Of our 158 ShopKo
retail stores at July 8, 1999, 156 stores have pharmacy centers and 155 stores
have optical centers. These centers generate store traffic and build customer
loyalty. In addition, offering professional healthcare services contributes
significantly to our overall profitability and provides the opportunity for
additional growth. Our prescription pharmacy sales constituted approximately
16% of our retail store revenues for fiscal 1998, which we believe is a higher
percentage than that of most national discount store chains.
Pamida Acquisition
On July 6, 1999, we acquired Pamida Holdings, which reported sales of
$672 million in the fiscal year ended January 31, 1999. The transaction valued
Pamida at approximately $375 million, including our assumption of $265 million
in debt and capitalized lease obligations. We expect the Pamida acquisition to
be accretive to earnings in the current fiscal year, excluding the effects of
non-recurring charges related to the transaction which are expected to be in
the range of $5 to $8 million. The non-recurring charges reflect the expected
costs of employee retention programs and various integration initiatives.
Pamida operates 152 discount retail stores in 15 Midwestern, North
Central and Rocky Mountain states as of July 8, 1999. Pamida stores are located
in smaller, rural markets and offer consumers the convenience of selection at
discount prices. Virtually all of Pamida's stores operate in markets with
populations of less than 20,000, significantly below the average size of our
ShopKo store markets. In addition, approximately 80% of Pamida's stores are
located where there is no direct local competition from a major discount
retailer. Pamida also operates four Heartland Home Furnishing stores which sell
furniture, rugs, lamps, accessories and other home furnishings.
We have identified more than 500 small, rural markets that can support a
Pamida retail store concept. Pamida planned to open 15 new stores in 1999 and
under our ownership, we expect to accelerate store growth for the year 2000 and
beyond. Pamida provides us with a new retail format with access to a new
customer base in underserved markets. We expect to reduce Pamida's cost
structure by using our
S-6
<PAGE>
lower borrowing costs and financial strength to refinance a portion of Pamida's
existing debt. We also expect to realize significant operating efficiencies in
areas such as retail health services, technology, global sourcing capabilities,
logistics and employee training and development.
We purchased the Pamida common shares for an aggregate purchase price of
approximately $104.3 million with cash on hand. We expect to refinance a
portion of Pamida's debt with a combination of approximately $86 million from
the proceeds of the ProVantage initial public offering which was completed on
July 19, 1999, approximately $147 million from the offering of our common stock
which was completed on July 21, 1999, and this offering.
On July 21, 1999, we called for redemption all $140 million outstanding
principal amount of Pamida's 11.75% senior subordinated notes. The redemption
date for the senior subordinated notes is September 3, 1999. The total amount
due to the holders of the senior subordinated notes is approximately $153
million, which includes principal, accrued interest and premium due on call.
Retail Growth Strategy
We plan to achieve economies of scale and to capitalize on our existing
infrastructure by growing the number of our retail stores through new store
construction, opportunistic acquisitions of existing retail stores or sites and
selective acquisitions of existing value-oriented retail businesses which
compliment our strategy of delivering comprehensive value to the customer.
In reviewing possible acquisitions of store sites and businesses, we take
a disciplined approach to maintain our competitive position and financial
integrity. The key elements of our approach are:
. Maintaining a strong balance sheet, which will demonstrate our
financial strength to the vendor and creditor communities;
. Leveraging off our existing infrastructure, including our advanced
management information and distribution systems; and
. Using an analytical system for site selection that models
demographics, competition, geography and location.
New Store Construction. We plan to concentrate our new store construction
in our existing markets and adjacent geographic areas in order to enhance our
name recognition, increase our market penetration and gain economies of scale
in areas such as advertising, distribution and corporate overhead. We also plan
to continue the practice of purchasing existing pharmacy businesses in the
market where a new ShopKo store opens and transferring the business to the new
store to generate customer traffic and to improve the financial performance of
the store in its initial years.
Opportunistic Acquisitions of Existing Store Sites. We plan to
opportunistically acquire existing store sites, or clusters, with the intention
of remodeling or refurbishing the stores to generally mirror our existing
stores to benefit from our merchandising strategies. Purchasing existing stores
allows us to quickly establish a presence in locations that might otherwise be
difficult to enter. Examples of successfully integrated store acquisitions
include:
. The 1997 acquisition of the Penn-Daniels retail chain which added
17 stores which have been reopened as ShopKo stores; and
. The 1998 acquisition of 10 former Venture locations and one former
Target location which have now reopened as ShopKo stores.
Selective Acquisitions of Existing Value-Oriented Retail Businesses. We
intend to selectively consider acquisitions of existing value-oriented retail
businesses which meet our rigorous financial and strategic criteria. Any
acquired business may be operated as an autonomous business unit and is
expected to accelerate our growth and enhance shareholder value. We would
expect to use our existing infrastructure to enhance the operating
characteristics of an acquired business. We also intend to use our strong
financial position to facilitate growth initiatives of the acquired business.
Our acquisition of Pamida is an example of this strategy.
S-7
<PAGE>
ProVantage
Business Overview. As an extension of our retail business, which includes
the sale of pharmaceutical and optical products and services, we serve the
rapidly growing managed healthcare industry through our subsidiary, ProVantage
Health Services, Inc. ProVantage is a leading health benefit management company
providing pharmacy benefit management and health information technology
products and services to its customers. As of January 1999, ProVantage served
over 3,500 customers, including pharmacy benefit management services covering
approximately 4.5 million individuals and vision benefit management services
covering approximately 500,000 individuals. In addition, ProVantage licensed
products are designed to improve the quality of healthcare, which are currently
being used in programs covering over 13 million people. ProVantage's primary
customers include healthcare payors, self-funded employers, third-party health
plan administrators, state and federal agencies and pharmaceutical
manufacturers.
Pharmacy benefit management companies address the pressing need for
health plan sponsors to manage costs and to better understand the effect of
pharmaceutical utilization on their membership. ProVantage's traditional
pharmacy benefit management products and services include plan design,
administration of a network of over 50,000 retail pharmacies, electronic point-
of-sale claims processing, mail pharmacy services, formulary
administration/management, and physician profiling. In addition, ProVantage's
products go beyond commonly available pharmacy benefit management offerings to
include clinical services and information-based products which are used to
track medical treatment and results. These services enable ProVantage's
customers to assess the safety and effectiveness of healthcare practices and to
identify the most effective treatments, thereby optimizing the quality and
minimizing the cost of healthcare services.
Growth Strategy. ProVantage's goal is to be the leading third-party
supplier of products and services designed to optimize the quality and minimize
the cost of healthcare services. To accomplish this goal, ProVantage intends
to:
. Continue to grow the pharmacy benefit management operations and
expand ProVantage's client base by increasing the number of people
to whom it provides services;
. Leverage information-based clinical expertise to develop and
enhance products and services that help manage ProVantage clients'
healthcare treatment and results; and
. Selectively pursue acquisitions or alliances through which
ProVantage can realize additional scale benefits in pharmacy
benefit management offerings or augment its advanced clinical and
health information technology capabilities.
ProVantage Initial Public Offering. In an effort to increase our
shareholder value, we recently completed the initial public offering of
ProVantage's common stock. The initial public offering of 5,600,000 shares of
ProVantage common stock at $18.00 per share was completed on July 19, 1999.
ShopKo also sold an additional 840,000 shares of ProVantage common stock
pursuant to the underwriters' over-allotment option. We received approximately
$86 million in the transaction, and we retained approximately 64.5% of
ProVantage's common stock.
S-8
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data in the following table for each
of the five years in the period ended January 30, 1999 have been derived from
ShopKo's consolidated financial statements which have been audited by Deloitte
& Touche LLP, independent auditors. The selected consolidated financial data in
the following table for the first half of fiscal 1998 and 1999 have been
derived from ShopKo's unaudited financial statements which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
results of operations and financial position for the periods and as of the
dates presented.
In August 1997, we changed our fiscal year end from the last Saturday in
February to the Saturday nearest January 31. We made this change in order to
conform our fiscal year to the National Retail Federation calendar. This change
caused fiscal 1997 to consist of 49 weeks rather than 52 weeks.
On July 21, 1999, we completed an offering of 4,025,000 shares of our
common stock. The net proceeds of the offering were approximately $147 million.
Results for the 26 weeks ended July 31, 1999 include a $57.2 million pre-
tax gain from the sale of 35.5% of ProVantage's common stock and $0.8 million
in nonrecurring pre-tax charges related to the Pamida acquisition. Results for
the 26 weeks ended August 1, 1998 include a $2.2 million nonrecurring pre-tax
charge related to the Penn-Daniels acquisition.
The selected consolidated financial data should be read in conjunction
with ShopKo's consolidated financial statements and notes thereto incorporated
by reference in this prospectus supplement.
<TABLE>
<CAPTION>
Fiscal Years Ended Fiscal Year To Date
------------------------------------------------------ ---------------------
Feb. 25, Feb. 24, Feb. 22, Jan. 31, Jan. 30, August 1, July 31,
1995 1996 1997 1998 1999 1998 1999
(52 Weeks) (52 Weeks) (52 Weeks) (49 Weeks) (52 Weeks) (26 Weeks) (26 Weeks)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited)
(dollars and shares in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Data:
Summary of Operations
Net Sales.............. $1,853 $1,968 $2,333 $2,448 $2,981 $1,314 $1,621
Gross margin........... 488 501 550 564 662 291 335
Income from
operations............ 91 97 106 111 130 32 41
Gain on sale of
ProVantage stock...... 57
Earnings before income
taxes, minority
interest and
extraordinary item.... 62 63 74 80 92 13 78
Earnings before
minority interest and
extraordinary item.... 38 38 45 49 56 8 47
Net earnings........... 38 38 45 49 56 8 43
Per Share Data
Diluted earnings per
common share before
extraordinary item.... $ 1.18 $ 1.20 $ 1.39 $ 1.71 $ 2.10 $ 0.30 $ 1.75
Diluted earnings per
common share.......... 1.18 1.20 1.39 1.71 2.10 0.30 1.61
Adjusted weighted
average number of
common shares
outstanding........... 32.0 32.0 32.4 28.6 26.5 26.5 26.9
Other Data
Working capital........ $ 187 $ 215 $ 232 $ 144 $ 167 $ 140 $ 60
Property and
equipment--net........ 618 617 603 630 704 647 875
Total assets........... 1,110 1,118 1,234 1,251 1,374 1,279 2,001
Total debt............. 429 416 421 440 472 438 591
Total shareholders'
equity................ 397 422 461 396 459 411 655
Capital expenditures... 95 53 39 32 100 44 54
Depreciation and
amortization.......... 53 56 60 58 68 35 38
Ratio of earnings to
fixed charges......... 2.9 2.7 3.2 3.4 3.2 1.7 4.2
Segment Data
Net Sales
Retail Store......... $1,840 $1,881 $2,006 $2,002 $2,351 $1,036 $1,215
ProVantage........... 14 94 349 472 666 295 430
Gross Margin
Retail Store......... 485 493 525 529 615 270 308
ProVantage........... 3 8 25 35 47 21 28
Income from operations
Retail Store......... 103 107 114 127 141 39 44
ProVantage........... 2 3 10 13 16 6 8
</TABLE>
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USE OF PROCEEDS
We estimate that the net proceeds from this offering of notes, after
deducting the underwriting discount and estimated expenses of this offering,
will be approximately $ million. We intend to use these net proceeds:
. to redeem a portion of Pamida's debt, including all of Pamida's
outstanding senior subordinated notes;
. to reduce borrowings under our credit agreement; and
. for other general corporate purposes.
Pamida's senior subordinated notes have an aggregate principal amount of
$140 million, bear interest at the rate of 11.75% per annum, and were
originally due in March 2003. We have called Pamida's senior subordinated notes
for redemption on September 3, 1999. The total amount due to the holders of the
senior subordinated notes is approximately $153 million, which includes
principal, accrued interest, and premium due on call. As of August 18, 1999, we
had borrowings of $43.3 million under our credit agreement at an average
weighted interest rate of 6.1%. Our credit agreement expires on January 31,
2002. Pending such application, we intend to invest the net proceeds in short-
term investment grade securities.
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<PAGE>
CAPITALIZATION
The following table sets forth our consolidated capitalization and short-
term debt as of July 31, 1999, and as adjusted to give effect to the offering
and the application of the proceeds as described under "Use of Proceeds":
<TABLE>
<CAPTION>
As of July 31, 1999
---------------------
Actual Adjusted
---------- ----------
(In Thousands)
<S> <C> <C>
Short-term debt:
Short-term debt........................................ $ 84,751 $ 75,890
Current maturities of long-term debt................... 146,127 4,988
---------- ----------
Total short-term debt................................ 230,878 80,878
---------- ----------
Long-term debt:
Long-term debt......................................... 358,615 358,615
Notes offered hereby................................... -- 150,000
Long-term obligations under capital leases............. 86,498 86,498
---------- ----------
Total long-term debt................................. 445,113 595,113
---------- ----------
Minority interest........................................ 52,488 52,488
Stockholders' equity:
Common stock........................................... 304 304
Capital in excess of par value......................... 381,201 381,201
Retained earnings...................................... 273,979 273,979
---------- ----------
Total stockholders' equity........................... 655,484 655,484
---------- ----------
Total capitalization and short-term debt............. $1,383,963 $1,383,963
========== ==========
</TABLE>
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<PAGE>
DESCRIPTION OF THE NOTES
The following discussion of the terms of the notes supplements the
description of the general terms and provisions of the debt securities
contained in the accompanying prospectus and identifies any general terms and
provisions described in the accompanying prospectus that will not apply to the
notes.
General
The notes will be our general unsecured and senior obligations and will
be limited to $150,000,000 aggregate principal amount. The notes will mature
on . The notes will rank equally with all of our other unsecured and
unsubordinated debt. We will issue the notes under the indenture referred to
in the accompanying prospectus. You should read the accompanying prospectus
for a general discussion of the terms and provisions of the indenture.
The notes will bear interest at a rate of % per annum from August
, 1999 or from the most recent interest payment date on which we paid or
provided for interest on the notes. We will pay interest on the notes on each
and , beginning , 2000, to the person listed as the
holder of the note, or any predecessor note, in the security register at the
close of business on the preceding or , as the case may be.
The notes are subject to defeasance in the manner described under the
heading "Description of Debt Securities--Defeasance of Debt Securities or
Covenants" in the accompanying prospectus.
ShopKo Stores, Inc. is a legal entity separate and distinct from its
subsidiaries. Our subsidiaries are not obligated to make required payments on
the notes. Accordingly, ShopKo's rights and the rights of holders of the notes
to participate in any distribution of the assets or income from any subsidiary
is necessarily subject to the prior claims of creditors of the subsidiary. The
indenture under which the notes will be issued does not limit the amount of
unsecured debt which our subsidiaries may incur. In addition, we and our
subsidiaries may incur secured debt subject to the limitations described under
"Description of Debt Securities--Limitations on Liens" in the accompanying
prospectus.
Optional Redemption
We will have the right to redeem the notes at any time, in whole or in
part, upon at least 30 days notice mailed to the registered address of each
holder of the notes. We will pay a redemption price equal to the greater of
(1) 100% of the principal amount of the notes to be redeemed or (2) the sum of
the present values of the Remaining Scheduled Payments discounted on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months)
at a rate equal to the sum of the Treasury Rate plus twenty-five basis points.
If we redeem any notes, accrued interest on those notes will be payable
to the redemption date.
"Treasury Rate" means, for any redemption date, the rate per annum equal
to the semiannual equivalent yield to maturity of the Comparable Treasury
Issue, assuming a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
that redemption date.
"Comparable Treasury Issue" means the United States Treasury security,
selected by a Reference Treasury Dealer appointed by us, as having a maturity
comparable to the remaining term of the notes to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of those notes.
"Comparable Treasury Price" means, for any redemption date, (1) the
average of the Reference Treasury Dealer Quotations for that redemption date
after excluding the highest and lowest of those
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Reference Treasury Dealer Quotations, or (2) if the trustee obtains fewer than
five Reference Treasury Dealer Quotations, the average of all the quotations.
"Reference Treasury Dealer" means any nationally recognized investment
banking firm that is a primary U.S. Government securities dealer.
"Reference Treasury Dealer Quotations" means, for each Reference Treasury
Dealer and any redemption date, the average, as determined by the trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the trustee
by that Reference Treasury Dealer at 3:30 p.m., New York City time, on the
third business day preceding that redemption date.
"Remaining Scheduled Payments" means, for each note to be redeemed, the
remaining scheduled payments of principal and interest on that note that would
be due after the related redemption date but for that redemption. If that
redemption date is not an interest payment date with respect to that note, the
amount of the next succeeding scheduled interest payment on that note will be
reduced by the amount of interest accrued on the note to the redemption date.
On and after the redemption date, interest will cease to accrue on the
notes or any portion of the notes called for redemption (unless we default in
the payment of the redemption price and accrued interest). On or before the
redemption date, we will deposit with a paying agent (or the trustee) money
sufficient to pay the redemption price of and accrued interest on the notes to
be redeemed on that date. If less than all of the notes are to be redeemed, the
notes to be redeemed shall be selected by the trustee by any method as the
trustee shall deem fair and appropriate.
The notes will not be entitled to the benefit of any sinking fund or
other mandatory redemption provisions.
Same-Day Settlement
Settlement for the notes will be made by the underwriters in immediately
available funds. The notes will trade in the depositary's settlement system
until maturity. As a result, the depositary will require secondary trading
activity in the notes to be settled in immediately available funds.
Book-Entry System
We will issue the notes in the form of one or more fully registered
global notes which will be deposited with, or on behalf of, The Depository
Trust Company, New York, New York, also referred to as DTC. DTC will act as the
depositary. The notes will be registered in the name of DTC or its nominee.
Ownership of beneficial interests in a global note will be limited to DTC
participants and to persons that may hold interests through institutions that
have accounts with DTC, known as participants. Beneficial interests in a global
note will be shown on, and transfers of those ownership interests will be
effected only through, records maintained by DTC and its participants for such
global note. The conveyance of notices and other communications by DTC to its
participants and by its participants to owners of beneficial interests in the
notes will be governed by arrangements among them, subject to any statutory or
regulatory requirements in effect.
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<PAGE>
DTC holds the securities of its participants and facilitates the
clearance and settlement of securities transactions among its participants in
such securities through electronic book-entry changes in accounts of its
participants. The electronic book-entry system eliminates the need for physical
certificates. DTC's participants include:
. securities brokers and dealers, including the underwriters;
. banks;
. trust companies;
. clearing corporations; and
. certain other organizations, some of which, and/or their
representatives, own DTC.
Banks, brokers, dealers, trust companies and others that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly, also have access to DTC's book-entry system.
Principal and interest payments on the notes represented by a global note
will be made to DTC or its nominee, as the case may be, as the sole registered
owner and the sole holder of the notes represented by the global note for all
purposes under the indenture. Accordingly, we, the trustee and any paying agent
will have no responsibility or liability for:
. any aspect of DTC's records relating to, or payments made on
account of, beneficial ownership interests in a note represented
by a global note;
. any other aspect of the relationship between DTC and its
participants or the relationship between such participants and the
owners of beneficial interests in a global note held through such
participants; or
. the maintenance, supervision or review of any of DTC's records
relating to such beneficial ownership interests.
DTC has advised us that upon receipt of any payment of principal of or
interest on a note, DTC will immediately credit, on its book-entry registration
and transfer system, the accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such global note as shown on DTC's records. The underwriters will initially
designate the accounts to be credited. Payments by participants to owners of
beneficial interests in a global note will be governed by standing instructions
and customary practices, as is the case with securities held for customer
accounts registered in "street name," and will be the sole responsibility of
those participants.
A global note can only be transferred:
. as a whole by DTC to one of its nominees;
. as a whole by a nominee of DTC to DTC or another nominee of DTC;
or
. as a whole by DTC or a nominee of DTC to a successor of DTC or a
nominee of such successor.
Notes represented by a global note can be exchanged for definitive notes
in registered form only if:
. DTC notifies us that it is unwilling or unable to continue as the
depositary for such global note;
. at any time DTC ceases to be a clearing agency registered under
the Securities Exchange Act of 1934, as amended;
. we in our sole discretion determine that such global note will be
exchangeable for definitive notes in registered form and notify
the trustee of our decision; or
S-14
<PAGE>
. an event of default with respect to the notes represented by such
global note has occurred and is continuing.
A global note that can be exchanged under the preceding sentence will be
exchanged for definitive notes that are issued in authorized denominations in
registered form for the same aggregate amount. Such definitive notes will be
registered in the names of the owners of the beneficial interests in such
global notes as directed by DTC.
Except as provided above, (1) owners of beneficial interests in such
global note will not be entitled to receive physical delivery of notes in
definitive form and will not be considered the holders of the notes for any
purpose under the indenture and (2) no notes represented by a global note will
be exchangeable. Accordingly, each person owning a beneficial interest in a
global note must rely on the procedures of DTC, and if such person is not a
participant, on the procedures of the participant through which such person
owns its interest, to exercise any rights of a holder under the indenture or
such global note. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of the securities in definitive
form. Such laws may impair the ability to transfer beneficial interests in a
global note.
We understand that under existing industry practices, if we request
holders to take any action, or if an owner of a beneficial interest in a global
note desires to take any action which a holder is entitled to take under the
indenture, then (1) DTC would authorize the participants holding the relevant
beneficial interests to take such action and (2) such participants would
authorize the beneficial owners owning through such participants to take such
action or would otherwise act upon the instructions of beneficial owners owning
through them.
DTC has provided the following information to us. DTC is:
. a limited-purpose trust company organized under the laws of the
State of New York;
. a "banking organization" within the meaning of the New York
Banking Law;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the New York
Uniform Commercial Code; and
. a "clearing agency" registered under the Exchange Act.
S-15
<PAGE>
UNDERWRITING
General
We intend to offer our notes through a number of underwriters. Subject to
the terms and conditions set forth in a purchase agreement among us and each of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities
LLC, Chase Securities Inc. and Lehman Brothers Inc., we have agreed to sell to
the underwriters, and each of the underwriters severally and not jointly has
agreed to purchase from us, the aggregate principal amount of the notes set
forth opposite its name below.
<TABLE>
<CAPTION>
Principal
Underwriter Amount
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................................... $
Banc of America Securities LLC...................................
Chase Securities Inc.............................................
Lehman Brothers Inc..............................................
-------
Total....................................................... $
=======
</TABLE>
The underwriters have agreed, subject to the terms and conditions of the
purchase agreement, to purchase all of the notes being sold if any of the notes
being sold are purchased. In the event of a default by an underwriter, the
purchase agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreement may be terminated.
We have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The notes are being offered by the several underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the underwriters and certain other
conditions. The underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part.
Commissions and Discounts
The underwriters propose initially to offer the notes to the public at
the initial public offering price set forth on the cover page of this
prospectus supplement, and to certain dealers at such price less a concession
not in excess of % of the principal amount of the notes. The underwriters
may allow, and such dealers may reallow, a discount not in excess of % of
the principal amount of the notes to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $300,000 and are payable by us.
No Sales of Similar Securities
We have agreed not to, without the prior written consent of Merrill Lynch
on behalf of the underwriters, directly or indirectly, issue, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any debt securities of or guaranteed by us or
any securities convertible into or exercisable or exchangeable for debt
securities of or guaranteed by us or file any registration statement under the
Securities Act with respect to any of the foregoing for a period of 15 days
after the
S-16
<PAGE>
date of this prospectus supplement; provided, however, we may at any time and
from time to time borrow funds under our existing credit facilities.
New Issue of Notes
The notes are a new issue of securities with no established trading
market. We do not intend to apply for listing of the notes on any national
securities exchange or for quotation of the notes on any automated dealer
quotation system. We have been advised by the underwriters that they presently
intend to make a market in the notes after the consummation of the offering
contemplated hereby, although they are under no obligation to do so and may
discontinue any market-making activities at any time without any notice. No
assurance can be given as to the liquidity of the trading market for the notes
or that an active public market for the notes will develop. If an active public
trading market for the notes does not develop, the market price and liquidity
of the notes may be adversely affected.
Price Stabilization and Short Positions
In connection with the offering, the underwriters are permitted to engage
in transactions that stabilize the market price of the notes. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the notes. If the underwriters create a short position in the
notes in connection with the offering, i.e., if they sell more notes than are
set forth on the cover page of this prospectus supplement, the underwriters may
reduce that short position by purchasing notes in the open market. In general,
purchases of a security for the purpose of stabilization or to reduce a short
position could cause the price of the security to be higher than it might be in
the absence of such purchases.
Neither our company nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the notes. In addition,
neither we nor any of the underwriters makes any representation that the
underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Other Relationships
Certain of the underwriters and their affiliates have from time to time
provided, and may in the future provide, investment banking and general
financing and banking services to us and our affiliates. Merrill Lynch & Co.
acted as the dealer manager for our tender offer for Pamida's outstanding
common stock. Merrill Lynch also rendered a fairness opinion in connection with
the acquisition of Pamida. Merrill Lynch also acted as the lead underwriter in
a secondary offering of our common stock and as lead underwriter in the initial
public offering of the common stock of our subsidiary, ProVantage Health
Services, Inc.
Because more than 10% of the net proceeds of this offering may be used to
repay indebtedness to affiliates of the underwriters of the offering, this
offering is being conducted in accordance with NASD Conduct Rule 2710(c)(8).
LEGAL MATTERS
The validity of the notes offered hereby will be passed upon for us by
Godfrey & Kahn, S.C., Milwaukee, Wisconsin. Certain legal matters relating to
the notes offered hereby will be passed upon for the underwriters by Fried,
Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York. Fried, Frank, Harris, Shriver & Jacobson
will rely on Godfrey & Kahn, S.C. with respect to matters governed by Wisconsin
law, and Godfrey & Kahn, S.C. will rely on Fried, Frank, Harris, Shriver &
Jacobson with respect to matters governed by New York law.
S-17
<PAGE>
EXPERTS
The consolidated financial statements of ShopKo Stores, Inc. as of
January 30, 1999 and January 31, 1998 and for each of the three fiscal years in
the period ended January 30, 1999 incorporated by reference in this prospectus
supplement and in the accompanying prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated by reference, and has been so incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
S-18
<PAGE>
PROSPECTUS
$500,000,000
ShopKo Stores, Inc.
Common Stock and Debt Securities
-----------------
We may offer from time to time in one or more series, together or
separately,
. shares of common stock, or
. unsecured debt securities consisting of debentures, notes and/or
other evidences of indebtedness.
The securities issued pursuant to this prospectus will have an aggregate
public offering price of up to $500 million. The specific terms of the
securities will be described in an accompanying prospectus supplement.
The common stock is listed on The New York Stock Exchange under the
trading symbol "SKO." Any common stock sold pursuant to a prospectus supplement
will be listed on The New York Stock Exchange.
We may offer the securities directly, to or through agents, underwriters
or dealers which we may designate from time to time, or through a combination
of such methods, at market prices prevailing at the time of sale or at prices
otherwise negotiated. If any agents, underwriters or dealers are involved in
the sale of any of the securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them, will be
included, or will be calculable from the information included, in an
accompanying prospectus supplement.
This prospectus may not be used to consummate sales of securities unless
accompanied by a prospectus supplement. Investing in the common stock or debt
securities involves risks which are described in the "Risk Factors" section
beginning on page 3 of this prospectus.
-----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
-----------------
The date of this prospectus is July 15, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Our Company................................................................ 3
Risk Factors............................................................... 3
Ratio of Earnings to Fixed Charges......................................... 6
Use of Proceeds............................................................ 7
Description of Common Stock................................................ 7
Description of Debt Securities............................................. 10
Book-Entry Securities...................................................... 15
Certain United States Federal Income Tax Consequences...................... 17
Plan of Distribution....................................................... 28
Legal Matters.............................................................. 30
Where You Can Find More Information ....................................... 30
Incorporation of Information We File With The SEC.......................... 31
</TABLE>
2
<PAGE>
OUR COMPANY
We are a leading specialty discount retailer operating 314 retail stores
in 22 states, primarily in the Midwest, Western Mountain and Pacific Northwest
regions as of July 8, 1999. We also serve the rapidly growing managed
healthcare industry through our subsidiary, ProVantage Health Services, Inc.
ProVantage is a leading health benefit management company providing pharmacy
benefit and health information technology products and services to its
customers. Our principal executive offices are located at 700 Pilgrim Way,
Green Bay, Wisconsin 54304. Our telephone number is (920) 497-2211.
RISK FACTORS
You should carefully consider the following risk factors before deciding
to purchase the securities.
Competition in the retail industry could limit our growth opportunities and
reduce our profitability.
We compete in the discount retail merchandise and retail health services
businesses. These businesses are highly competitive. This competitive
environment subjects us to the risk of reduced profitability. We compete with
other discount retail merchants as well as mass merchants, internet retailers
and other general merchandise, apparel and household merchandise retailers. Our
retail health services business competes with independent and chain pharmacies
and optical centers. The discount retail merchandise business is subject to
excess capacity and some of our competitors are much larger and have
substantially greater resources than we have. The competition for customers and
store locations has intensified in recent years as larger competitors, such as
Wal-Mart, Kmart and Target, have moved into our geographic markets. We expect a
further increase in competition from these national discount retailers. We
cannot assure you that we will be able to continue to compete successfully.
Our inability to secure additional retail store sites could limit our growth
opportunities.
If additional retail store sites are unavailable, we may not be able to
carry out a significant part of our growth strategy, which could materially
adversely affect our future growth. Our plans to increase the number of our
retail stores will depend in part on the availability of existing retail stores
or store sites. We cannot assure you that stores or sites will be available to
us for purchase or lease, or that they will be available on terms acceptable to
us. Rising real estate costs and construction and development costs could also
inhibit our ability to grow. If we are unable to grow our retail business, our
financial performance could be materially adversely affected.
Our conversion, integration and operation of companies which we acquire may not
succeed or generate the expected results, which may have a significant adverse
effect on our financial performance and our growth strategy and prospects.
If we are unable to integrate companies which we acquire into our
business, then our financial performance and our growth strategy and prospects
may be adversely affected. A significant part of our growth strategy depends on
our ability to identify and acquire companies which complement our business,
such as Pamida Holdings Corporation, and to integrate those companies into our
management and operational structure. This integration requires substantial
management, logistical and financial resources which might otherwise be devoted
to our existing operations. Our acquisition of Pamida is larger than any other
acquisition we have made. Our failure to accommodate this growth could have a
material adverse affect on our results of operations.
3
<PAGE>
Our ProVantage subsidiary is subject to various risks, which could adversely
affect our financial performance.
If our ProVantage subsidiary is adversely affected by the business and
other risks to which it is subject, then our results of operations and
financial results may suffer. For fiscal 1998, our ProVantage subsidiary
generated approximately 22.0% of our sales and approximately 12.5% of our
income from operations. The ProVantage business is substantially different from
our retail business and is subject to additional and different risks. To the
extent these risks could materially and adversely effect ProVantage, they could
also have a material and adverse effect on us. The risks that ProVantage is
subject to include the following:
. ProVantage's industry is very competitive and this competition is
reducing profitability in ProVantage's industry.
. Consistent with industry practice, ProVantage does not have long-
term contracts with its customers, network pharmacies or
pharmaceutical manufacturers and loss of a significant number of
these contractual relationships could materially adversely affect
ProVantage and its results of operations.
. ProVantage is introducing new products which the market may not
accept.
. ProVantage is growing rapidly, and if ProVantage is unable to
manage this growth, then its business and results of operations
could be materially adversely affected.
. ProVantage's business is subject to extensive government
regulation, and if government regulations are interpreted and
enforced in a manner adverse to ProVantage's business, then
ProVantage may be materially adversely affected.
. Other governmental actions, including changes in healthcare
finance and reimbursement practices and patient confidentiality
laws, could materially adversely affect ProVantage.
. ProVantage may be subject to liability claims which are not
covered by insurance, which may adversely affect ProVantage's
results of operations.
. ProVantage relies on the use of intellectual property, such as
computer software, to conduct its business, which, if not properly
protected, could be lost, restricted, copied or used by other
businesses which could have a material adverse effect on
ProVantage.
The foregoing is a summary of the risk factors applicable to ProVantage.
For a more complete description of those risks, please see "Risk Factors" in
ProVantage's Registration Statement on Form S-1, Reg. No. 333-71743, which
section is incorporated by reference in this prospectus.
Failure to successfully address the Year 2000 problem could materially
adversely affect our business.
Because we depend on the proper functioning of our computer systems and
those of our vendors, systems failures could materially adversely affect our
business. If our computer systems or those of our vendors are not Year 2000
compliant, we may have difficulty obtaining goods for our stores on a timely
basis. We have taken steps to determine whether our vendors are or expect to be
Year 2000 compliant by the end of 1999. Although we believe that we have
minimized the risk of non-compliance, we cannot assure Year 2000 compliance by
the end of 1999. For a further description of Year 2000 risks, please refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000" in the prospectus supplement.
Our general merchandise business is seasonal and quarterly performance
fluctuates, which may cause volatility or a decline in the price of our
securities.
Because our retail business is seasonal, our results of operations may
fluctuate which may lead to significant volatility or declines in the price of
our securities. Our retail general merchandise business is highly seasonal. The
Christmas selling season has historically contributed a significant part of our
4
<PAGE>
earnings and primarily impacts the fourth fiscal quarter. Inventory imbalances
caused by unanticipated fluctuations in consumer demand also results in
fluctuations of our results. This seasonality and these fluctuations cause our
operating results to vary considerably from quarter to quarter and could
materially adversely affect the market price of our securities.
Loss of our key management personnel, especially William J. Podany, our
president and chief executive officer, could materially adversely affect our
business.
Our success depends to a significant extent on the continued services of
our senior management, particularly William J. Podany. We do not have
employment contracts with members of our senior management, including Mr.
Podany. If we lose key senior management, then our business could be materially
adversely affected.
Adverse weather and general economic conditions could have a significant
adverse effect on our business.
Because our business is subject to adverse weather conditions in our
retail markets, particularly in the Midwest, Western Mountain and Pacific
Northwest regions, our operating results may be unexpectedly and materially
adversely affected. Frequent or unusually heavy snow, ice or rain storms in our
markets could have a material adverse effect on our sales and earnings and
could adversely impact our ability to make scheduled interest payments on our
indebtedness. General economic factors in the regions in which we operate that
are beyond our control may also materially adversely affect our forecasts and
actual performance. The factors that may materially adversely affect our
forecasts and actual performance include:
. interest rates,
. recession,
. inflation,
. deflation,
. consumer credit availability,
. consumer debt levels,
. tax rates and policy,
. unemployment trends, and
. other matters that influence consumer confidence and spending.
Increasing volatility in financial markets may cause these factors to
change with a greater degree of frequency and magnitude.
Labor conditions may have a material adverse impact on our performance.
If we cannot attract and retain quality employees, our business will
suffer. We depend on attracting and retaining quality employees. Many of our
employees are in entry level or part-time positions with historically high
rates of turnover. We may be unable to meet our labor needs while controlling
costs due to external factors such as unemployment levels, minimum wage
legislation and changing demographics.
5
<PAGE>
We have a significant amount of debt which could adversely affect our business
and growth prospects.
At January 30, 1999, we had approximately $467.2 million of long-term
debt and other long-term obligations. We expect to incur more debt as we expand
our retail operations. This additional debt could have significant adverse
effects on our business. For example, it could:
. make it more difficult for us to obtain additional financing on
favorable terms,
. require us to dedicate a substantial portion of our cash flows
from operations to the repayment of our debt and the interest on
our debt,
. limit our ability to capitalize on significant business
opportunities,
. make us more vulnerable to economic downturns, and
. contain certain covenants which restrict our ability to operate
our business.
Anti-takeover provisions in our organizational documents and statutes may
inhibit premium offers for our common stock.
Anti-takeover provisions in our amended and restated articles of
incorporation, by-laws and Wisconsin law and our rights plan may deter
unfriendly offers or other efforts to obtain control of ShopKo. This could make
us less attractive to a potential acquirer and deprive our shareholders of
opportunities to sell their shares of common stock at a premium price.
Pending or future litigation could subject us to significant monetary damages.
If we become subject to liability claims which are in excess of our
insurance coverage or are not covered by our insurance policies, then we may be
liable for damages and other expenses which could have a material adverse
effect on our business, operating results and financial condition. In addition,
any claims against us, regardless of merit or eventual outcome, may have a
material adverse effect on our reputation and business. The sale of retail
merchandise and provision of in-store pharmacy and optical services entail a
risk of litigation and liability. We are currently subject to a number of
lawsuits, and we expect that from time to time we will be subject to similar
suits in the ordinary course of business. We currently maintain insurance
intended to cover a majority of liability claims, subject to a $250,000
deductible for general liability claims and a $500,000 deductible for liability
claims arising from prescription dispensing errors. We believe that our
insurance programs are adequate. We cannot assure you that we will be able to
maintain appropriate types or levels of insurance in the future, that adequate
replacement policies will be available on acceptable terms, or that insurance
will cover all claims against us.
RATIO OF EARNINGS TO FIXED CHARGES
Our consolidated ratios of earnings to fixed charges are as follows:
<TABLE>
<CAPTION>
Fiscal Quarters
Fiscal Years Ended Ended
----------------------------------------------- -----------------
Feb. 25, Feb. 24, Feb. 22, Jan 31, Jan. 30, May 2, May 1,
1995 1996 1997 1998 1999 1998 1999
(52 wks) (52 wks) (52 wks) (49 wks)(1) (52 wks) (13 wks) (13 wks)
-------- -------- -------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges.......... 2.9 2.7 3.2 3.4 3.2 1.4 1.7
</TABLE>
- --------
(1) We changed our fiscal year end from the last Saturday in February to the
Saturday nearest January 31.
For purposes of computing the ratio of earnings to fixed charges,
earnings consist of earnings before change in accounting principle plus income
taxes, interest expense, the interest portion of rent expense and amortization
expense of capitalized interest. Fixed charges consist of interest expense, the
interest portion of rental expense and capitalized interest.
6
<PAGE>
USE OF PROCEEDS
Unless we indicate a different use in an accompanying prospectus
supplement, the net proceeds from the sale of the securities will be added to
our general funds and may be used for:
.working capital,
.capital expenditures,
.debt refinancing or debt reduction,
.acquisition of companies, businesses, real property, store sites and other
assets,
.short-term investments pending use of such funds for other purposes, and
.other general corporate purposes.
DESCRIPTION OF COMMON STOCK
General
We have 75,000,000 shares of common stock, $0.01 par value per share,
authorized for issuance. As of March 31, 1999, we had 26,140,380 shares of
common stock issued and outstanding. All of such shares are validly issued,
fully paid and non-assessable, and upon completion of the offering all of the
outstanding shares of common stock will be validly issued, fully paid and non-
assessable, except as provided by Section 180.0622(2)(b) of the Wisconsin
Business Corporation Law, the WBCL. Under Section 180.0622(2)(b), holders of
common stock are liable up to the amount equal to the par value of the common
stock owned by such holder for all debt owing to employees for services
performed, but not exceeding six months' service in any one case. Some
Wisconsin courts have interpreted "par value" to mean the full amount paid by
the holders to purchase the common stock.
We have summarized below certain provisions of our common stock. This
summary is not complete. You should refer to all of the provisions of our
amended and restated articles of incorporation and by-laws, which have been
filed as exhibits to the registration statement.
Voting. For all matters submitted to a vote of shareholders, each holder
of common stock is entitled to one vote for each share held of record. Our
common stock does not have cumulative voting rights. As a result, subject to
the voting rights of any outstanding preferred stock and any voting limitations
imposed by the WBCL, persons who hold more than 50% of the outstanding common
stock can elect all of the directors who are nominated for election in a
particular year.
Staggered Board of Directors. Our amended and restated articles of
incorporation divide the board of directors into three classes serving
staggered three-year terms. As a result, at least two annual meetings will
generally be required for shareholders to effect a change of a majority of the
board of directors. Any director, or the entire board of directors, may be
removed from office only for cause. Proposals to amend, alter or repeal these
provisions in the amended and restated articles of incorporation require a 75%
vote of shareholders and a majority vote of each class or series, if any.
Dividends. If our board of directors declares a dividend, holders of
common stock will receive payments from the funds of ShopKo that are legally
available to pay dividends. However, this dividend right is subject to any
preferential dividend rights we may grant to the persons who hold preferred
stock, if any is outstanding.
Liquidation. If ShopKo is dissolved, the holders of common stock will be
entitled to share ratably in all the assets that remain after we pay our
liabilities and any amounts we may owe to the persons who hold preferred stock,
if any is outstanding.
7
<PAGE>
Other Rights and Restrictions. Holders of common stock do not have
preemptive rights, and they have no right to convert their common stock into
any other securities. Our common stock is not redeemable.
Listing. Our common stock is listed on The New York Stock Exchange.
Transfer Agent and Registrar. The transfer agent and registrar for our
common stock is Norwest Shareowner Services.
Anti-Takeover Provisions
Certain provisions of our shareholder rights plan and the WBCL could have
the effect of delaying, deterring or preventing a change in control of ShopKo.
Shareholder Rights Plan
We have a shareholder rights plan pursuant to which one right to purchase
one one-thousandth of a share of Series B junior participating preferred stock,
par value $0.01 per share, is attached to each outstanding share of common
stock. One right also attaches to each newly issued share of our common stock.
Each right, when exercisable, represents the right to purchase one one-
thousandth of a share of Series B junior participating preferred stock at a
specified price. The rights become exercisable ten days after a person or group
acquires 15% or more of our outstanding common stock, or commences or announces
a tender or exchange offer which would result in such ownership of 15% or more
of our outstanding common stock.
If, after the rights become exercisable, we were to be acquired through a
merger or other business combination transaction or 50% or more of our assets
or earning power were sold, each right would permit the holder to purchase, for
the exercise price, common stock of the acquiring company having a market value
of twice the exercise price. In addition, if any person acquires 15% or more of
our outstanding common stock, each right not owned by the acquiring person
would permit the purchase, for the exercise price of $100.00, of common stock
having a market value of twice the exercise price.
The rights expire on September 23, 2007, unless earlier redeemed by us in
accordance with the terms of the rights plan. The purchase price payable and
the shares of Series B junior participating preferred stock issuable upon
exercise of the rights is subject to adjustment from time to time as specified
in the rights plan. In addition, the board of directors retains the authority
to redeem, at $0.01 per right, and replace the rights with new rights at any
time, provided that no such redemption could occur after a person or group
acquires 15% or more of our outstanding common stock.
Shares of Series B junior participating preferred stock, when issued upon
exercise of the rights, will be nonredeemable and will rank junior to all
series of any other class of preferred stock. Each share of Series B junior
participating preferred stock will be entitled to a cumulative preferential
quarterly dividend payment equal to the greater of $10.00 per share or 1,000
times the dividend declared per share of common stock. In the event of
liquidation, the holders of shares of Series B junior participating preferred
stock will be entitled to a preferential liquidation payment equal to the
greater of $1,000.00 per share or 1,000 times the payment made per share of
common stock. Each share of Series B junior participating preferred stock will
entitle the holder to 1,000 votes, and will vote together with the common
stock. Finally, in the event of any merger, consolidation or other transaction
in which common stock is exchanged, each share of Series B junior participating
preferred stock will be entitled to receive 1,000 times the amount received per
share of common stock. The rights described above are subject to antidilution
adjustments. The number of shares constituting the series of Series B junior
participating preferred stock is 100,000.
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Wisconsin Business Corporation Law
Restrictions on Business Combinations. Sections 180.1130 to 180.1134 of
the WBCL provide generally that in addition to the vote otherwise required by
law or the articles of incorporation of a resident domestic corporation, such
as ShopKo, certain business combinations not meeting certain fair price
standards specified in the statute must be approved by the affirmative vote of
at least (1) 80% of the votes entitled to be cast by the outstanding voting
shares of the corporation, and (2) two-thirds of the votes entitled to be cast
by the holders of voting shares other than voting shares beneficially owned by
a "significant shareholder" or an affiliate or associate of a significant
shareholder who is a party to the transaction. The term "business combination"
is defined to include, subject to certain exceptions, a merger or share
exchange of the issuing public corporation, or any subsidiary thereof, with, or
the sale or other disposition of substantially all of the property and assets
of the issuing public corporation to, any significant shareholder or affiliate
of a significant shareholder. "Significant shareholder" is defined generally to
mean a person that is the beneficial owner of 10% or more of the voting power
of the outstanding voting shares of the issuing public corporation. These
statutory sections also restrict the repurchase of shares and the sale of
corporate assets by an issuing public corporation in response to a takeover
offer.
Sections 180.1140 to 180.1144 of the WBCL prohibit certain business
combinations between a resident domestic corporation, such as ShopKo, and a
person beneficially owning 10% or more of the voting power of the outstanding
voting stock of the resident domestic corporation, within three years after the
date such person became a 10% beneficial owner, unless the business combination
or the acquisition of such stock has been approved before the stock acquisition
date by the corporation's board of directors. A person who owns 10% or more of
the voting power of a resident domestic corporation is known as an interested
shareholder. After the three-year period, a business combination with the
interested shareholder may be consummated only with the approval of the holders
of a majority of the voting stock not beneficially owned by the interested
shareholder at a meeting called for that purpose, unless the business
combination satisfies certain adequacy-of-price standards intended to provide a
fair price for shares held by disinterested shareholders.
Control Share Voting Restrictions. Under Section 180.1150(2) of the WBCL,
if any person owns shares of a resident domestic corporation, such as ShopKo,
which represent in excess of 20% of the voting power in the election of
directors, then the voting power of the excess shares will be reduced to 10% of
their full voting power on all matters. This reduction in voting power will not
occur if provided otherwise in the articles of incorporation or if full voting
rights of the excess shares have been restored at a special meeting of the
shareholders called for that purpose. This statute is designated to protect
corporations against uninvited takeover bids by reducing to one-tenth of their
normal voting power all shares in excess of 20% owned by an acquiring person.
Section 180.1150(3) excludes shares held or acquired under certain
circumstances from the application of Section 180.1150(2), including, among
others, shares acquired directly from ShopKo and shares acquired in a merger or
share exchange to which ShopKo is a party.
Constituency Provision. Under Section 180.0827 of the WBCL, in
discharging his or her duties, a director or officer of ShopKo may, in addition
to considering the effects of any action on shareholders, consider the effects
of any action on employees, suppliers, customers, the communities in which
ShopKo operates and any other factors that the director or officer considers
pertinent.
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DESCRIPTION OF DEBT SECURITIES
The debt securities we may offer will be senior debt securities. The
securities will be issued under an indenture dated July 15, 1993 between us and
First Trust National Association, as trustee. A copy of the form of indenture
has been filed as an exhibit to the registration statement of which this
prospectus forms a part.
We have summarized selected provisions of the indenture. The summary is
not complete. You should read the indenture for provisions that may be
important to you.
Terms of the Securities
The securities will be not be secured by any of our assets. The indenture
does not limit the amount of securities that we may issue and provides that we
may issue securities from time to time in one or more series. The indenture
does not limit the principal amount of any particular series of securities. The
securities will rank equally with all of our other unsecured and non-
subordinated indebtedness.
Each prospectus supplement will specify the particular terms of the
securities offered. These terms may include:
. the title of the securities,
. any limit on the aggregate principal amount of the securities,
. the date or dates on which the securities will mature,
. the interest rate or rates of the securities, if any, and the date
or dates from which interest will accrue,
. the interest payment dates, the dates on which payment of any
interest will begin and the regular record dates,
. any mandatory or optional redemption provisions applicable to the
securities,
. any mandatory or optional sinking fund or similar provisions
applicable to the securities,
. the terms on which the securities may be repayable prior to final
maturity,
. the portion of the principal amount payable upon acceleration of
maturity,
. certain events of default,
. if other than U.S. dollars, the currency or currencies in which
payments on the securities will be payable,
. the method of determining the amount of any payments on the
securities which are linked to an index,
. whether the securities will be issuable only in global form, which
is known as a global security, and, if so, the identity of the
depositary for the global security and the circumstances under
which the global security may be registered for transfer or
exchange in the name of a person other than the depositary, and
. any other specific terms of the securities.
Some of the securities may be issued as original issue discount
securities. Original issue discount securities bear no interest or bear
interest at below-market rates and will be sold at a discount below their
stated principal amount. The prospectus supplement will also contain any
special tax or other information relating to original issue discount
securities.
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Events of Default
The following will be events of default under the indenture with respect
to securities of a series:
. our failure to pay principal of, or any premium on, any security
of that series when the payment is due,
. our failure to pay any interest on any security of that series
when the interest payment is due, and continuance of this default
for 30 days,
. our failure to deposit any sinking fund payment for security of
that series when the deposit is due,
. our failure to perform any of our other covenants in the
indenture, other than a covenant included in the indenture solely
for the benefit of a different series of securities, which has
continued for 60 days after we have been given written notice of
the default as provided in the indenture,
. acceleration of indebtedness in a principal amount of at least
$25,000,000 for money borrowed by us or by a subsidiary, and the
acceleration is not annulled, or we do not discharge the
indebtedness, within 10 days after written notice is given
according to the indenture,
. the occurrence of certain events in bankruptcy, insolvency or
reorganization, and
. any other event of default regarding that series of securities.
If an event of default in connection with any outstanding series of
securities occurs and is continuing, the trustee or the holders of at least
25% in principal amount of the outstanding securities of that series may
declare the principal amount due and payable immediately. If the securities of
that series are original issue discount securities, the holders of at least
25% in principal amount of those securities may declare the portion of the
principal amount specified in the terms of that series of securities to be due
and payable immediately. In either case, a written notice must be given to us,
and must also be given to the trustee, if notice is given by the holders
instead of the trustee. Subject to certain conditions, the declaration of
acceleration may be rescinded and annulled, and past defaults, except
nonpayment of accelerated principal, may be waived, by the holders of a
majority of the principal amount of securities of that series.
You should refer to the prospectus supplement relating to each series of
securities which are original issue discount securities for the particular
provisions relating to acceleration of the maturity upon the occurrence and
continuation of an event of default.
Consolidation, Merger and Transfer of Assets
We may not consolidate or merge with or into any other person, and we
may not convey, transfer or lease all or substantially all of our properties
or assets to another person, unless
. the person, other than us, surviving the merger, formed by the
consolidation or which acquires our assets expressly assumes our
obligations under the indenture,
. there is no event of default, and
. if our property or assets become subject to a lien which is not
permitted by the limitations on liens in the indenture, we or our
successor secure the securities equally and ratably with debt
secured by the impermissible lien.
Registration and Transfer
Unless otherwise indicated in the applicable prospectus supplement, each
series of the offered securities will be issued in registered form only,
without coupons.
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Unless otherwise indicated in the applicable prospectus supplement, the
securities issued in certificated form will be issued in integral multiples of
$1,000.00. No service charge will be made for any transfer or exchange of the
securities, but we may require payment of an amount sufficient to cover any tax
or other governmental charge payable in connection with a transfer or exchange.
Payment and Paying Agent
We will pay principal, interest and any premium on fully registered
securities at the office or agency of the trustee in St. Paul, Minnesota. At
our option, payment of interest on fully registered securities may also be made
by check mailed to the persons in whose names the securities are registered.
No Protection in the Event of a Highly Leveraged Transaction
The indenture does not protect holders from a sudden and significant
decline in the credit quality of ShopKo resulting from takeovers,
recapitalizations, similar restructurings or other highly leveraged
transactions.
Global Securities
The securities of a series may be issued in whole or in part in the form
of one or more global securities that will be deposited with a depositary that
we will identify in a prospectus supplement. Unless and until a global security
is exchanged in whole or in part for individual certificates in definitive form
which evidence the securities represented by a global security, a global
security may not be transferred except as a whole by the depositary to a
nominee of that depositary or by a nominee of that depositary to a depositary
or another nominee of that depositary.
The specific terms of the depositary arrangements for each series of
securities will be described in the applicable prospectus supplement.
Modification and Waiver
The indenture provides that modifications and amendments may be made by
us and the trustee with the consent of the holders of a majority of the
principal amount of the outstanding securities of each series affected by the
amendment of modification. However, no modification or amendment may, without
the consent of each holder affected:
. change the stated maturity date of the principal of, or any
installment of interest on, any security,
. reduce the principal amount, the premium or interest on any
security,
. reduce the principal amount of original issue discount securities
which could be declared due and payable upon an acceleration of
their maturity,
. change the place of payment or currency in which any security or
any premium or interest thereon is payable,
. impair the right to institute suit for the enforcement of any
payment on or after the stated maturity date of any security,
. reduce the percentage of securities required to modify or amend
the indenture, or
. reduce the percentage of the principal amount of securities of any
series necessary for waiver of compliance with certain provisions
or for waiver of certain defaults under the indenture.
The holders of a majority of the principal amount of the outstanding
securities of any series may waive compliance by us with certain provisions of
the indentures. The holders of a majority of the
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principal amount of the outstanding securities of any series may waive any past
default under applicable indenture with respect to that series, except a
default in the payment of the principal, or any premium or interest payable on
security of that series or in respect of a provision which under the indenture
cannot be modified or amended, without the consent of each affected holder.
Defeasance of Debt Securities or Covenants
Defeasance and Discharge. We may be discharged from our obligations with
respect to the securities of any series upon the deposit with the trustee, in
trust, of money and/or U.S. government obligations sufficient to pay and
discharge the principal, and premium, if any, and interest on and any mandatory
sinking fund payments in respect of the securities of that series on the stated
maturity date of the payments in accordance with the terms of the indenture and
the securities. A discharge may only occur if we have received from, or there
has been published by, the Internal Revenue Service a ruling, or there has been
a change in the federal income tax law, in each case stating that holders of
the outstanding securities of that series will not recognize income, gain or
loss for federal income tax purposes as a result of the deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and in
the same manner and at the same times as they would have been if the deposit,
defeasance and discharge had not occurred.
Covenant Defeasance. At our option, we may omit to comply with and have
no liability with respect to certain covenants set forth in the indenture, but
the remainder of the indenture and the securities of that series will be
unaffected. In order to exercise our option, we will be required to deposit
with the trustee money and/or U.S. government obligations sufficient to pay
principal, and premium, if any, and interest on and any mandatory sinking fund
payments in respect of the securities of the series on the stated maturity date
of the payments in accordance with the terms of the indenture and the
securities. We will also be required to deliver to the trustee certain evidence
to the effect that the deposit and related covenant defeasance will not cause
the holders of the outstanding securities of that series to recognize gain or
loss for federal income tax purposes as a result of our deposit and related
covenant defeasance and will be subject to federal income tax on the same
amount and in the same manner and at the same times as they would have been if
the deposit and related covenant defeasance had not occurred.
Limitations on Liens
We may not, and may not permit any subsidiary to, incur or suffer to
exist any lien on any operating property or on any shares of stock of any
subsidiary without securing the securities equally and ratably with the lien.
This limitation will not apply to:
. liens existing at the date of the indenture,
. liens securing only the securities issued under the indenture,
. liens in favor of only ShopKo,
. liens on property of a person existing at the time the person
merges into or consolidates with ShopKo or any subsidiary,
. liens on property existing immediately prior to the time of
acquisition,
. liens on an operating property to secure debt incurred for
financing all or part of the purchase price or cost of
construction or improvement provided that the operating property
first becomes an operating property after, or construction or
development of the operating property is underway on and completed
after, March 12, 1992 and is incurred within 24 months after the
later of the purchase and the completion of construction or
improvements,
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. liens securing debt incurred to extend, renew, refinance or refund
debt secured by any lien referred to above, and
. liens securing debt owed by us to a wholly-owned subsidiary.
Limitations on Sale and Leaseback Transactions
A sale and leaseback transaction is an arrangement with any lender or
investor providing for the leasing by the lender or investor of any operating
property that within a certain time period has been or is to be sold, conveyed,
transferred or otherwise disposed of by the lender or investor with the
intention of taking back a lease on the operating property. We may not, and may
not permit any subsidiary to, enter into any sale and leaseback transaction
without equally and ratably securing the securities, or, if none, any other
indebtedness or, if none, indebtedness of any subsidiary, unless:
. the sum of (a) the principal amount of debt secured by all liens
incurred after the date of the indenture and otherwise prohibited
by the indenture and (b) the attributable value of all sale and
leaseback transactions entered into after the date of the
indenture and otherwise prohibited by the indenture does not
exceed 15% of our consolidated tangible assets, or
. we or the subsidiary apply or commit to apply, within 60 days
before or after the sale transaction pursuant to the sale and
leaseback transaction, an amount equal to the net available
proceeds from the transaction to the repayment of our
indebtedness, including any outstanding securities.
The foregoing limitation will not apply to any sale and leaseback
transaction for a term of not more than 36 months.
Additional Provisions
We may in certain circumstances set any day as the record date for the
purpose of determining the holders of outstanding securities of any series
entitled to give or take any request, demand, authorization, direction, notice,
waiver or other action as provided or permitted by the indenture.
The trustee has the duty to act with the required standard of care during
an event of default. The trustee is not otherwise obligated to exercise any of
its rights or powers under the indenture at the request or direction of any of
the holders of the securities, unless the holders have offered the trustee
reasonable indemnification. The indenture provides that the holders of a
majority of the principal amount of outstanding securities of any series may,
in certain circumstances, direct the time, method and place of conducting any
proceeding for any remedy available to the trustee, or exercising any trust or
other power conferred on the trustee.
No holder of a security of any series will have the right to institute
any proceeding for any remedy under the applicable indenture, unless:
. the holder has provided the trustee with written notice of a
continuing event of default regarding the holder's series of
securities,
. the holders of at least 25% in principal amount of the outstanding
securities of a series have made a written request, and offered
reasonable indemnity to the trustee, to institute a proceeding for
remedy,
. the trustee has not received a direction during such 60 day period
inconsistent with such request from the holders of a majority in
principal amount of the outstanding securities of that series, and
. the trustee has failed to institute the proceeding within 60 days
after the receipt of such request.
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However, the holder of any security will have an absolute and
unconditional right to receive payment of the principal, any premium, any
interest or any additional amounts in respect of such security on or after the
due dates expressed in such security and to institute suit for the enforcement
of any such payment.
We are required to furnish the trustee an annual statement regarding
whether we are in default under the indenture. The trustee may withhold notice
to the holders of securities of any series of any default, except notice of
nonpayment of principal, any premium, interest or any sinking fund payment,
with respect to the securities of the series if the trustee considers it in the
interests of the holders of securities of the series to do so.
The Trustee
The trustee is affiliated with First Bank National Association. The
trustee is also the trustee under two other indentures with us dated as of
March 22, 1992 under which we have issued senior notes. We have a letter of
credit arrangement with and receive certain cash management services from First
Bank. First Bank also participates in our revolving credit agreement. In
addition, we may enter into other borrowing arrangements with First Bank in the
future. As a result, if a default occurs with respect to securities of any
series, the trustee may be deemed to have a conflict of interest which would
require it to resign as trustee and require us to appoint a successor trustee.
BOOK-ENTRY SECURITIES
Unless we specify otherwise in the applicable prospectus supplement, we
will issue debt securities in the form of one or more book-entry certificates,
which is referred to below as the book-entry security, registered in the name
of a depositary or a nominee of a depositary. Unless we specify otherwise in
the applicable prospectus supplement, the depositary will be The Depository
Trust Company, or DTC. We have been informed by DTC that its nominee will be
Cede & Co. Accordingly, Cede & Co. is expected to be the initial registered
holder of all securities that we issue in book-entry form.
No person that acquires a beneficial interest in a book-entry security,
known as a beneficial owner, will be entitled to receive a certificate, except
as set forth in this prospectus or in the applicable prospectus supplement.
Unless and until definitive securities are issued under the limited
circumstances described below, all references to actions by beneficial owners
of securities issued in book-entry form will refer to actions taken by DTC upon
instructions from its participants, and all references to payments and notices
to beneficial owners will refer to payments and notices to DTC or Cede & Co.,
as the registered holder of a book-entry security.
DTC has informed us that it is:
. A limited purpose trust company organized under New York banking
laws;
. A "banking organization" within the meaning of the New York
banking laws;
. A member of the Federal Reserve System; and
. A "clearing agency" registered under the Exchange Act.
DTC has also informed us that it was created to:
. Hold securities for its participating clients, known as
participants; and
. Facilitate the clearance and settlement of securities transactions
among participants through electronic book-entry, thereby
eliminating the need for the physical movement of securities
certificates.
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Participants include securities brokers and dealers, banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly, which are referred to as indirect participants.
Persons that are not participants or indirect participants but that
desire to buy, sell or otherwise transfer ownership of or interest in
securities may do so only through participants and indirect participants. Under
the book-entry system, beneficial owners may experience some delay in receiving
payments, as such payments will be forwarded by our agent to Cede & Co., as
nominee for DTC. DTC will forward such payments to its participants, which
thereafter will forward them to indirect participants or beneficial owners.
Beneficial owners will not be recognized by the applicable registrar, transfer
agent or trustee as registered holders of the securities entitled to the
benefits of the certificate or the applicable Indenture. Beneficial owners that
are not participants will be permitted to exercise their rights as an owner
only indirectly through participants and, if applicable, indirect participants.
Under the current rules and regulations affecting DTC, DTC will be
required to make book-entry transfers of securities among participants and to
receive and transmit payments to participants. Participants and indirect
participants with which beneficial owners of securities have accounts are also
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective account holders.
Because DTC can act only on behalf of participants, who in turn act only
on behalf of other participants or indirect participants, and on behalf of
certain banks, trust companies and other persons approved by it, the ability of
a beneficial owner of securities issued in book-entry form to pledge such
securities to persons or entities that do not participate in the DTC system may
be limited due to the unavailability of physical certificates for such
securities.
DTC has advised us that DTC will take any action permitted to be taken by
a registered holder of any securities under the certificate or the applicable
indenture, only at the direction of one or more participants to whose accounts
with DTC such securities are credited.
Unless otherwise specified in the applicable prospectus supplement, a
book-entry security will be exchangeable for definitive securities registered
in the names of persons other than DTC or its nominee only if:
. DTC notifies us that it is unwilling or unable to continue as
depositary for such book-entry security or DTC ceases to be a
clearing agency registered under the Exchange Act at a time when
DTC is required to be so registered;
. We execute and deliver to the applicable registrar, transfer agent
and/or trustee an order complying with the requirements of the
certificate or the applicable indenture that such book-entry
security will be so exchangeable; or
. There is a default in the payment of any amount due in respect of
the securities or an event of default.
Any book-entry security that is exchangeable pursuant to the preceding sentence
will be exchangeable for securities registered in such names as DTC directs.
If one of the events described in the immediately preceding paragraph
occurs, DTC is generally required to notify all participants of the
availability through DTC of definitive securities. Upon surrender by DTC of the
book-entry security representing the securities and delivery of instructions
for reregistration, the registrar, transfer agent or trustee, as the case may
be, will reissue the securities as definitive securities. After reissuance of
the securities, such persons will recognize the beneficial owners of such
definitive securities as registered holders of securities.
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Except as described above:
. A book-entry security may not be transferred except as a whole
book-entry security by or among DTC, a nominee of DTC and/or a
successor depositary appointed by us; and
. DTC may not sell, assign or otherwise transfer any beneficial
interest in a book-entry security unless such beneficial interest
is in an amount equal to an authorized denomination for the
securities evidenced by the book-entry security.
We, the trustees, any registrar and transfer agent, or any agent of any
of them, will not have any responsibility or liability for any aspect of DTC's
or any participant's records relating to, or for payments made on account of,
beneficial interests in a book-entry security.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of debt securities,
or common stock, as the case may be, by U.S. Holders (as defined below). This
summary is for general information only and is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), applicable income tax regulations,
published rulings, administrative pronouncements and court decisions, all as in
effect on the date hereof and all of which are subject to change or differing
interpretations at any time and in some circumstances with retroactive effect.
This summary does not discuss all aspects of federal income taxation that may
be relevant to a particular investor in light of the investor's particular
circumstances, or to certain types of investors subject to special treatment
under the federal income tax laws, including, but not limited to, financial
institutions, tax-exempt organizations, insurance companies, regulated
investment companies, brokers, dealers, traders in securities that elect
market-to-market accounting treatment, foreign persons and entities, persons
holding securities as part of a "straddle", "conversion" or hedging
transaction, Non-U.S. Holders (as defined below) who own, actually or
constructively, more than 5% of our common stock, or persons whose functional
currency is not the U.S. Dollar. In addition, this summary does not consider
the effect of any foreign, state, local or other tax laws, or any other United
States tax consequences other than income tax consequences, that may be
applicable to particular investors. This summary also assumes that the
securities, or common stock, as the case may be, are held as capital assets.
Each prospective purchaser of the securities should consult its own tax advisor
concerning the application of United States federal income tax laws to its
particular situation as well as any consequences of the purchase, ownership and
disposition of the securities, or common stock, as the case may be, arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a debt
security or common stock, as the case may be, that is, for United States
federal income tax purposes,
. a citizen or individual resident of the United States,
. a corporation or partnership created or organized in or under the
laws of the United States or of any political subdivision thereof,
other than a partnership that is not treated as a U.S. person
under any applicable Treasury regulations,
. an estate the income of which is subject to United States federal
income taxation regardless of its source, or
. a trust if, in general, a court within the United States is able
to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to
control all substantial decisions of the trust.
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Debt Securities
Payments of Stated Interest
Generally, the amount of any stated interest payment on a debt security
which constitutes "qualified stated interest" (as defined below), will be
taxable to a U.S. Holder as ordinary interest income when it is accrued or
received in accordance with the U.S. Holder's method of accounting for federal
income tax purposes.
Original Issue Discount
If a U.S. Holder holds a security which has original issue discount
("OID"), as defined below, and a maturity of more than one year from its date
of issue (a "discount security"), such U.S. Holder will generally be required
to recognize such OID as ordinary interest income on a constant yield basis in
advance of the receipt of cash payments to which such income is attributable,
regardless of the U.S. Holder's method of tax accounting.
A security has OID to the extent that the security's "stated redemption
price at maturity" exceeds its "issue price;" provided that such excess equals
or exceeds a de minimis amount (generally defined as 0.25% of the security's
stated redemption price at maturity multiplied by the number of complete years
from its issue date to its maturity). The stated redemption price at maturity
of a security is the sum of all payments provided by the security other than
payments of "qualified stated interest." The term "qualified stated interest"
generally means stated interest that is unconditionally payable in cash or
property (other than debt instruments of ours) at least annually at a single
fixed rate, or at certain floating rates, that appropriately takes into account
the length of the interval between stated interest payments. The issue price of
a security is the first price at which a substantial amount of such issue of
securities has been sold, ignoring sales to bond houses, brokers, or similar
persons or organizations acting in the capacity of dealers, placement agents,
or wholesalers.
In general, if the excess of a security's stated redemption price at
maturity over its issue price is de minimis, then such excess constitutes "de
minimis OID." Unless the election described below under "--Possible Election to
Treat All Interest as OID" is made, such a security will not be treated as
issued with OID (in which case the following paragraphs under "--Original Issue
Discount" will not apply) and a U.S. Holder of such a security will recognize
capital gain with respect to such de minimis OID as stated principal payments
on the security are made. The amount of such gain with respect to each such
payment will equal the product of the total amount of the security's de minimis
OID and a fraction, the numerator of which is the amount of the principal
payment and the denominator of which is the stated principal amount of the
security.
Except as described below with respect to short-term securities (as
hereinafter defined), the amount of OID that a U.S. Holder will be required to
include in gross income in a taxable year will equal the sum of the "daily
portions" of OID, determined by allocating to each day of the taxable year
during which the U.S. Holder holds the security a pro rata portion of OID
allocable to each "accrual period" in such taxable year. An accrual period may
be of any length selected by the U.S. Holder and the accrual periods may vary
in length over the term of the security as long as (1) each accrual period is
no longer than one year, and (2) each scheduled payment of principal or
interest occurs either on the final day of an accrual period or on the first
day of an accrual period. The amount of OID allocable to each accrual period
generally will equal the product of (1) the security's "adjusted issue price"
at the beginning of such accrual period and (2) its "yield to maturity"
determined on the basis of compounding at the close of each accrual period and
appropriately adjusted to take into account the length of the particular
accrual period, less the amount of any qualified stated interest payments
allocable to such accrual period. The "adjusted issue price" of a security at
the beginning of the first accrual period is simply the issue price.
Thereafter, the "adjusted issue price" of a security generally is the sum of
the issue price plus the amount of OID previously includible in the gross
income of the U.S. Holder reduced by the amount of any payments previously made
on the security, other than payments of qualified stated interest. A
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discount security's "yield to maturity" is the discount rate that causes the
present value on the issue date of the payments provided for in such security
to equal the security's issue price. Thus, under these rules, a U.S. Holder
generally will have to include in gross income increasingly greater amounts of
OID during the life of the security. Special rules apply for calculating OID in
short initial or final accrual periods.
Optional Redemption. Generally, special rules apply for determining the
yield to maturity of discount securities which are subject to certain options.
If we have an unconditional option to redeem a discount security, or the U.S.
Holder has an unconditional option to cause a discount security to be
repurchased, in any case prior to the discount security's stated maturity, such
option will be presumed to be exercised if, by utilizing any date on which such
discount security may be redeemed or repurchased as the maturity date and the
amount payable on such date in accordance with the terms of the discount
security as the stated redemption price at maturity, the yield on the discount
security would be (a) in the case of an option of ours, lower than its yield to
stated maturity or (b) in the case of an option of the U.S. Holder, higher than
its yield to stated maturity. If such option is not in fact exercised when
presumed to be exercised, the discount security would be treated solely for OID
purposes as if it were retired and then reissued on the presumed exercise date
for an amount equal to the discount security's adjusted issue price on that
date.
Acquisition Premium. A U.S. Holder that purchases a discount security for
an amount that is greater than its adjusted issue price and less than or equal
to the sum of all amounts payable on the discount security after the purchase
date, other than payments of qualified stated interest, will be considered to
have purchased such discount security at an "acquisition premium." Under the
acquisition premium rules, the daily portion of OID which such U.S. Holder must
otherwise include in its gross income with respect to such discount security
for any day will be reduced by an amount which would be the daily portion of
OID for such day multiplied by a fraction, the numerator of which is the excess
of the U.S. Holder's adjusted basis in the discount security immediately after
its purchase over the adjusted issue price of the discount security, and the
denominator of which is the sum of the daily portions for such discount
security for all days after the date of purchase and ending on the stated
maturity date, i.e., the total OID remaining on the discount security.
Alternatively, rather than applying the acquisition premium fraction to
reduce the daily portion of accrued OID, a U.S. Holder of a discount security
may, as discussed below under "--Possible Election to Treat All Interest as
OID", elect to treat all interest on the discount security as OID, adjusted for
acquisition premium, and thus compute OID by treating the purchase of the
discount security as a purchase at original issuance and applying the mechanics
of the constant yield method. Prior to making this election, a U.S. Holder of a
discount security should consult its own tax advisor concerning the potential
United States federal income tax consequences of such election in its
particular situation.
Variable Securities. Floating rate securities and indexed securities
("variable securities") that qualify as "variable rate debt instruments" will
be subject to special rules. Generally, provided the variable security provides
for stated interest at a single "qualified floating rate" or "objective rate"
(each as defined in the applicable income tax regulations) that is
unconditionally payable in cash or in property, other than debt instruments of
ours, at least annually, then (a) all stated interest with respect to such
variable security is qualified stated interest, and (b) the amount of OID, if
any, is determined under the general OID rules (as described above under "--
Original Issue Discount") by assuming that the variable rate is a fixed rate
equal to (a) in the case of a qualified floating rate or inverse floating rate,
the value, as of the issue date, of such qualified floating rate or inverse
floating rate, or (b) in the case of an objective rate other than an inverse
floating rate, a rate that reflects the yield that is reasonably expected for
such variable security. Additional rules will apply, as set forth in the
applicable pricing supplement, if a variable security does not provide for
stated interest at a single qualified floating rate or objective rate, or if a
variable security provides for stated interest either at one or more qualified
floating rates or at an inverse floating rate and in addition provides for
stated interest at a single fixed rate.
Short-Term Securities. A security that has a fixed maturity date of not
more than one year from the date of issue (a "short-term security") will be
treated as issued with OID equal to the excess of the
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total principal and interest payments thereon over its issue price. Generally,
an individual or other cash basis U.S. Holder of a short-term security is not
required to include OID in gross income currently for United States federal
income tax purposes unless it elects to do so. Such an election by a cash basis
U.S. Holder will apply to all short-term obligations acquired on or after the
beginning of the first taxable year to which the election applies and in all
subsequent taxable years unless the IRS consents to the revocation of the
election. Accrual basis U.S. Holders and certain other U.S. Holders, including
banks, regulated investment companies, dealers in securities, common trust
funds, U.S. Holders that hold short-term securities as part of certain
identified hedging transactions, certain pass-through entities and cash basis
U.S. Holders that so elect, are required to include currently in gross income
the OID on a short-term security on either a straight-line basis or, at the
irrevocable election of the U.S. Holder, under the constant yield method based
on daily compounding. In the case of a U.S. Holder not required and not
electing to include OID in gross income currently, any gain realized on the
sale or retirement of the short-term security will be ordinary income to the
extent of the OID accrued on a straight-line basis (unless an irrevocable
election is made to accrue the OID under the constant yield method) through the
date of sale or retirement. U.S. Holders that are not required and do not elect
to include OID on short-term securities in gross income currently will be
required to defer deductions for all or a portion of interest expense on
indebtedness incurred or maintained to purchase or carry the short-term
securities.
Any U.S. Holder of a short-term security can elect to apply the rules in
the preceding paragraph taking into account the amount of "acquisition
discount," if any, with respect to the security, rather than the OID with
respect to such security. Such election will apply to all short-term debt
obligations acquired by the U.S. Holder on or after the first day of the first
taxable year to which the election applies and in all subsequent taxable years,
and may not be revoked without the consent of the IRS. Acquisition discount is
the excess of the stated redemption price at maturity of the short-term
security over the U.S. Holder's purchase price therefor. Acquisition discount
will be treated as accruing on a ratable basis or, at the irrevocable election
of the holder, on a constant yield basis (with daily compounding).
For purposes of determining the amount of OID or acquisition discount
subject to these rules, the OID rules provide that no interest payments on a
short-term security are qualified stated interest and, therefore, such interest
payments are included in the short-term security's stated redemption price at
maturity.
Market Discount
The market discount rules in the Code generally provide that if a person
acquires a security, other than a short-term security, with more than a de
minimis amount of "market discount" (the amount by which the stated redemption
price at maturity or, in the case of a discount security, the "revised issue
price" of the security exceeds the U.S. Holder's tax basis for the security
immediately following its acquisition) (a "market discount security"), any gain
realized upon a disposition, including redemption or retirement, of the
security (other than in connection with certain nonrecognition transactions),
or any partial principal payment on the security, will be treated as ordinary
income (generally, interest income) to the extent of the market discount which
accrued while such U.S. Holder held the security. The "revised issue price" of
a market discount security is equal to the issue price of the security plus the
amount of OID includible in the income of all holders for periods prior to the
acquisition of the security by the U.S. Holder, determined without regard to
the acquisition premium rules discussed above. Market discount is de minimis if
it is less than 0.25% of the security's stated redemption price at maturity
multiplied by the number of complete years remaining from the time the taxpayor
acquired the security until its maturity. The amount of market discount treated
as having accrued will be determined either (a) on a ratable basis by
multiplying the market discount and a fraction, the numerator of which is the
number of days the security was held by the U.S. Holder and the denominator of
which is the total number of days after the date such U.S. Holder acquired the
security up to and including its maturity date, or (b) if the U.S. Holder so
elects on an irrevocable basis with respect to the security, on a constant
yield basis. The market discount rules also provide that a U.S. Holder that
acquires a market discount security may be required to defer the deduction of
all or a portion of interest expense that may otherwise
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be deductible on any indebtedness incurred or maintained to purchase or carry
the security until the holder disposes of the security in a taxable
transaction.
Instead of recognizing market discount, if any, upon the disposition of,
or partial principal payment on, a market discount security, a U.S. Holder may
elect to include market discount in gross income currently as it accrues,
either on a ratable basis or on a constant yield basis, as described above. The
current inclusion election, once made, applies to all market discount
obligations of the holder acquired on or after the first day of the taxable
year in which the election applies and in all subsequent taxable years and may
not be revoked without the consent of the IRS. If a U.S. Holder elects to
include market discount in gross income in accordance with these rules (or
makes the election described below under "--Possible Election to Treat All
Interest as OID"), the foregoing discussion regarding the deferral of interest
deductions on indebtedness incurred or maintained to purchase or carry the
security would not apply. Further, if a U.S. Holder makes the election,
discussed below, to treat as OID all interest on a market discount security,
the U.S. Holder is deemed to have made the election to include market discount
in gross income currently using a constant yield method on all other market
discount obligations. Finally, if a U.S. Holder has previously made the
election to include market discount currently, the conformity requirements of
that election are satisfied for market discount securities with respect to
which the U.S. Holder elects to treat all interest as OID.
The Treasury Department is authorized to issue regulations implementing
the market discount provisions of the Code. The Treasury Department has not
issued or proposed any such regulations. It is impossible to anticipate what
effect, if any, such regulations would have on purchasers of the securities.
On February 1, 1999, the Clinton Administration proposed an amendment to
the market discount rules in the Code that, if enacted, will require a U.S.
Holder that uses the accrual method of tax accounting to include market
discount in gross income currently as it accrues, using a yield for purposes of
accruing market discount that is limited to the greater of (a) the original
yield to maturity of the security plus 5% or (b) the applicable federal rate at
the time the U.S. Holder acquired the security plus 5%. This amendment is
proposed to apply to debt instruments acquired on or after the date of its
enactment. It is impossible, however, to predict whether the proposed amendment
will be enacted and, if enacted, whether it will be enacted in its proposed
form. U.S. Holders of market discount securities that use the accrual method of
tax accounting should consult their own tax advisors regarding the proposed
amendment.
Amortizable Bond Premium
Generally, if the tax basis of a security immediately after its purchase
by a U.S. Holder exceeds the sum of all amounts payable on the security after
the purchase date, other than payments of qualified stated interest, such
excess will constitute "bond premium" which a U.S. Holder may elect to amortize
over the period from the security's acquisition date to its maturity date (or,
in certain circumstances, until an earlier call date). A U.S. Holder that
purchases a security with bond premium is not required to include in gross
income any OID on the security. A U.S. Holder which makes the election to
amortize bond premium is required to allocate the bond premium to each accrual
period under the constant yield method, using a yield computed based on the
U.S. Holder's initial tax basis for the security and all payments to be made
thereon after the security's acquisition date, in a manner similar to the
application of such method in the accrual of OID (as discussed above). The
amount of the amortized bond premium allocated to an accrual period generally
will be treated first as a reduction of the qualified stated interest on the
security included by the U.S. Holder in that accrual period to the extent
thereof, then as a deduction allowed in that accrual period to the extent of
the U.S. Holder's prior interest inclusions on the security, and finally as a
carryforward allowable against the U.S. Holder's future interest inclusions on
the security. A U.S. Holder that elects to amortize bond premium must reduce
its tax basis in the security by the amount of the bond premium used to reduce
qualified stated interest on the security and the amount allowed as a deduction
against the U.S. Holder's prior interest inclusions on the security. The
election to amortize bond premium will apply to all debt instruments held by
the U.S. Holder at the beginning of the first taxable year to which the
election applies or thereafter acquired, and is irrevocable
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without the consent of the IRS. The election to treat all interest, including
for this purpose, amortizable bond premium, as OID (discussed below under "--
Possible Election to Treat All Interest as OID") is deemed to be an election to
amortize bond premium for purposes of the conformity requirements of the latter
election. In addition, if a U.S. Holder has already made an election to
amortize bond premium, the conformity requirements will be deemed satisfied
with respect to a security for which the U.S. Holder makes an election to treat
all interest as OID.
In the case of a security that may be called at a premium prior to
maturity, an earlier call date of the security is treated as the maturity date
of the security and the amount of bond premium is determined by treating the
amount payable on such call date as the amount payable at maturity if such a
calculation produces a smaller amortizable bond premium than the method
described in the preceding paragraph. If the security is not redeemed on such
call date, the remaining bond premium may be amortized to a later call date or
to maturity under the rules set forth above. In general terms, if a security
purchased with bond premium is redeemed prior to its maturity, a U.S. Holder
that has elected to amortize the bond premium may deduct any remaining
unamortized bond premium as an ordinary loss in the taxable year of the
redemption.
If an election to amortize bond premium is not made by a U.S. Holder, the
U.S. Holder must include in gross income the full amount of each interest
payment on the security and will include the bond premium in its tax basis for
the security for purposes of computing its gain or loss on the disposition of
the security.
Special rules apply to certain variable securities, and U.S. Holders
should consult their tax advisors regarding these rules.
Possible Election to Treat All Interest as OID
A U.S. Holder of a debt instrument is entitled to elect to treat all
interest that accrues on the instrument as OID. Interest for this purpose
includes stated interest, OID (including any de minimis OID), acquisition
discount, market discount (including any de minimis market discount), and
unstated interest, adjusted for amortizable bond premium and acquisition
premium. Special rules and limitations apply to taxpayors that make this
election and, as discussed herein, this election may affect the tax treatment
of other debt instruments held by a U.S. Holder. The election is made for the
year in which the U.S. Holder acquired the security, and may not be revoked
without the consent of the IRS. Prior to making such an election, U.S. Holders
should consult their own tax advisors regarding the decision of whether to make
this election.
Disposition of a Security
Except as discussed above, upon the sale, exchange, retirement or other
taxable disposition of a security, a U.S. Holder generally will recognize
taxable gain or loss equal to the difference between the amount realized on the
disposition, other than amounts representing accrued and unpaid interest, which
will be taxable as such, and such U.S. Holder's adjusted tax basis in such
security. A U.S. Holder's adjusted tax basis in a security generally will equal
such U.S. Holder's initial investment in such security, increased by any OID or
acquisition discount and any accrued market discount includible in gross
income, and decreased by the amount of any payments that are not qualified
stated interest payments and amortizable bond premium applied to reduce, or
allowed as a deduction against, interest with respect to such security. Except
as discussed above with respect to short-term securities, market discount
securities and contingent securities, such gain or loss generally will be long-
term capital gain or loss if the security was held for more than one year at
the time of the disposition.
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Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a security, including accrual of OID on
a discount security, and the proceeds of the sale of a security before maturity
within the United States to non-corporate U.S. Holders. In addition, "backup
withholding" at a rate of 31% will apply to such payments and to payments of
OID if the U.S. Holder fails to provide an accurate taxpayor identification
number or is notified by the IRS that it has failed to report all interest and
dividends required to be shown on its federal income tax returns.
Any amounts withheld under the backup withholding rules from payment to a
beneficial owner would be allowed as a refund or credit against such beneficial
owner's United States federal income tax provided the required information is
furnished to the IRS.
Non-U.S. Holders
As used herein, a "Non-U.S. Holder" means a beneficial owner of a
security or common stock, as the case may be, other than a U.S. Holder. An
individual may, subject to certain exceptions, be deemed to be a resident alien
as opposed to a nonresident alien by virtue of being present in the United
States for at least 31 days in the calendar year and for an aggregate of at
least 183 days during a three-year period ending in the current calendar year,
counting for such purposes all of the days present in the current year, one-
third of the days present in the immediately preceding year and one-sixth of
the days present in the second preceding year. Resident aliens are subject to
U.S. federal tax as if they were U.S. citizens.
Under present U.S. federal income and estate tax law and subject to the
discussion of backup withholding below:
(1) payments of principal, premium, if any, interest and original issue
discount on a security by us or any of our agents to any Non-U.S. Holder will
not be subject to withholding of U.S. federal income tax, provided that in the
case of interest and original issue discount:
. the Non-U.S. Holder does not directly or indirectly, actually or
constructively, own ten percent or more of the total combined
voting power of all classes of our stock entitled to vote;
. the Non-U.S. Holder is not (x) a controlled foreign corporation
that is related to us through sufficient stock ownership, or (y) a
bank receiving interest described in Section 881(c)(3)(A) of the
Internal Revenue Code; and
. either the beneficial owner of the security certifies to us or our
agent, under penalties of perjury, that it is not a "United States
person" under the meaning of the Internal Revenue Code and
provides its name and address, or a securities clearing
organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or
business that holds the note on behalf of the beneficial owner
certifies to us or our agent under penalties of perjury that it,
or the financial institution between it and the beneficial owner,
has received from the beneficial owner a statement, under
penalties of perjury, that it is not a "United States person" and
provides the payor with a copy of this statement;
(2) a Non-U.S. Holder will not be subject to U.S. federal income tax on
any gain or income realized on the sale, exchange, redemption, retirement at
maturity or other disposition of a security, provided that, in the case of
proceeds representing accrued interest, the conditions described in paragraph
(1) above are met, unless:
. the Non-U.S. Holder is an individual who is present in the United
States for 183 days or more during the taxable year and some other
conditions are met; or
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. the gain is effectively connected with the conduct of a U.S. trade
or business by the Non-U.S. Holder, or if an income tax treaty
applies, is generally attributable to a U.S. "permanent
establishment" maintained by the Non-U.S. Holder; and
(3) a security held by an individual who at the time of death is not a
citizen or resident of the United States will not be subject to U.S. federal
estate tax as a result of the individual's death if, at the time of the
individual's death:
. the individual did not directly or indirectly, actually or
constructively, own ten percent or more of the total combined
voting power of all classes of our stock entitled to vote; and
. the income on the security would not have been effectively
connected with the conduct of a trade or business by the
individual in the United States.
If a Non-U.S. Holder is engaged in a trade or business in the United
States and interest, including original issue discount, on the security is
effectively connected with the conduct of this trade or business or if an
income tax treaty applies and the Non-U.S. Holder maintains a U.S. "permanent
establishment" to which the interest, including original issue discount, is
generally attributable, although the Non-U.S. Holder is exempt from the
withholding tax discussed in the preceding paragraph (1) provided that the
holder furnishes a properly executed United States Internal Revenue Service
Form W-8ECI or successor form on or before any payment date to claim the
exemption, the holder may be subject to U.S. federal income tax on such
interest, including original issue discount, on a net basis in the same manner
as if it were a U.S. Holder.
In addition, a foreign corporation that is a holder of a security may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to some adjustments, unless
it qualifies for a lower rate under an applicable income tax treaty. For this
purpose, interest on a security or gain recognized on the disposition of a
security will be included in earnings and profits if the interest or gain is
effectively connected with the conduct by the foreign corporation of a trade or
business in the United States.
Recently finalized Treasury Regulations generally effective for payments
made after December 31, 2000 will provide alternative methods for satisfying
the certification requirement described in the third bullet point of paragraph
(1) above and will require a Non-U.S. Holder that provides an Internal Revenue
Service Form W-8ECI or successor form as discussed above as well as a Non-U.S.
Holder claiming the benefit of an income tax treaty, to also provide its U.S.
taxpayor identification number. The finalized Treasury Regulation generally
also will require, in the case of a security held by a foreign partnership,
that the certification described in the third bullet point of paragraph (1)
above be provided by the partners and that the partnership provide certain
information, including a U.S. taxpayor identification number. A look-through
rule will apply in the case of tiered partnerships.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by us or any of our agents, in their
capacities as agents, to a Non-U.S. Holder of a security if the holder has
provided the required certification that it is not a United States person as
set forth in paragraph (1) above, provided that neither we nor our agent has
actual knowledge that the holder is a United States person. We or our agent
may, however, report payments of interest on the securities. Payments of the
proceeds from a disposition by a Non-U.S. Holder of a security made to or
through a foreign office of a broker will not be subject to information
reporting or backup withholding, except that information reporting may apply to
those payments if the broker is:
. a United States person,
. a controlled foreign corporation for U.S. federal income tax
purposes,
. a foreign person 50% or more of whose gross income is effectively
connected with a U.S. trade or business for a specified three-year
period, or
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. with respect to payments made after December 31, 2000, a foreign
partnership, if at any time during its tax year, one or more of
its partners are U.S. persons, as defined in Treasury Regulations,
who in the aggregate hold more than 50% of the income or capital
interest in the partnership or if, at any time during its tax
year, the foreign partnership is engaged in a U.S. trade or
business.
Payments of the proceeds from a disposition by a Non-U.S. Holder of a
note made to or through the U.S. office of a broker are subject to information
reporting and backup withholding unless the holder or beneficial owner
certifies as to its taxpayor identification number or otherwise establishes an
exemption from information reporting and backup withholding.
Any amounts withheld under the backup withholding rules from a payment to
a Non-U.S. Holder would be allowed as a refund or a credit against the holder's
U.S. federal income tax liability, provided the required information is
furnished to the U.S. Internal Revenue Service.
Common Stock
Dividends
We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. Should we pay dividends, dividends paid to a Non-U.S.
Holder of common stock generally will be subject to withholding of U.S. federal
income tax at a 30% rate or such lower rate which an applicable income tax
treaty specifies. Non-U.S. Holders should consult their tax advisors regarding
their entitlement to benefits under a relevant income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct
of a trade or business in the U.S. (or, if an income tax treaty applies,
attributable to a permanent establishment, or, in the case of an individual, a
"fixed base" in the U.S., as provided in such treaty) ("U.S. trade or business
income") are generally subject to U.S. federal income tax on a net income basis
at regular graduated rates, but generally are not subject to the 30%
withholding tax if the Non-U.S. Holder files the appropriate U.S. Internal
Revenue Service form with the payor. Any U.S. trade or business income received
by a Non-U.S. Holder that is a corporation may, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate or such lower rate
which an applicable income tax treaty specifies.
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
that country for purposes of the withholding discussed above and for purposes
of determining the applicability of an income tax treaty rate. For dividends
paid after 2000:
. a Non-U.S. Holder of common stock that claims the benefit of an
income tax treaty rate generally will be required to satisfy
applicable certification and other requirements.
. in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the
partners of the partnership, and the partnership will be required
to provide certain information, including a U.S. taxpayor
identification number.
. look-through rules will apply to tiered partnerships.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit
of any excess amounts withheld by filing an appropriate claim for a refund with
the U.S. Internal Revenue Service.
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Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to U.S. federal income
tax in respect of gain recognized on a disposition of common stock unless:
. the gain is U.S. trade or business income, in which case the
branch profits tax described above may also apply to a corporate
Non-U.S. Holder,
. the Non-U.S. Holder is an individual who holds the common stock as
a capital asset within the meaning of Section 1221 of the U.S.
Internal Revenue Code, is present in the United States for more
than 182 days in the taxable year of the disposition and meets
certain other requirements,
. the Non-U.S. Holder is subject to tax under provisions of U.S. tax
law applicable to certain U.S. expatriates, or
. we are or have been a "U.S. real property holding corporation" for
U.S. federal income tax purposes at any time during the shorter of
the five-year period ending on the date of disposition and the
Non-U.S. Holder's holding period for the common stock.
The tax relating to stock in a "U.S. real property holding corporation"
will not apply to a Non-U.S. Holder whose holdings, actual and constructive, at
all times during the applicable period, amount to 5% or less of the common
stock, provided that the common stock is regularly traded on an established
securities market. Generally, a corporation is a "U.S. real property holding
corporation" if the fair market value of its "U.S. real property interests"
equals or exceeds 50% of the sum of the fair market value of its worldwide real
property interests and its other assets used or held for use in a trade or
business.
Federal Estates Taxes
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes and may be subject to U.S. federal estate
tax, unless an applicable estate tax treaty provides otherwise.
Information Reporting Requirements and Backup Withholding Tax
We must report annually to the U.S. Internal Revenue Service and to each
Non-U.S. Holder the amount of the dividends paid to that holder and any tax
withheld with respect to those dividends. These information reporting
requirements apply regardless of whether withholding is required. Copies of the
information returns reporting those dividends and withholding may also be made
available, under an applicable income tax treaty or agreement, to the tax
authorities in the country in which the Non-U.S. Holder resides.
Under certain circumstances, U.S. Treasury regulations require
information reporting and backup withholding at a rate of 31% on certain
payments on common stock. Under currently applicable law, Non-U.S. Holders of
common stock generally will be exempt from these information reporting
requirements and from backup withholding on dividends paid prior to 2001 to an
address outside the U.S. For dividends paid after 2000, however, a Non-U.S.
Holder of common stock that fails to certify its Non-U.S. Holder status in
accordance with applicable U.S. Treasury regulations may be subject to backup
withholding at a rate of 31% on payments of dividends.
The payment of the proceeds of the disposition of common stock by or
through the U.S. office of a broker generally will be subject to information
reporting and backup withholding at a rate of 31% unless the holder certifies
its status as a Non-U.S. Holder under penalties of perjury or otherwise
establishes an exemption. The payment of the proceeds of the disposition by a
Non-U.S. Holder of common stock by or through a non-U.S. office of a non-U.S.
broker will not be subject to backup withholding or information reporting
unless the non-U.S. broker is a "U.S. related person". In the case
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of the payment of proceeds from disposition of common stock by or through a
non-U.S. office of a broker that is a U.S. person or a "U.S. related person,"
information reporting, but currently not backup withholding, on the payment
applies unless, in general, the holder certifies its status as a Non-U.S.
Holder under penalties of perjury or the broker has documentary evidence in its
files that the holder is a Non-U.S. Holder and the broker has no actual
knowledge to the contrary. For this purpose, a "U.S. related person" is:
. a "controlled foreign corporation" for U.S. federal income tax
purposes,
. a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its
taxable year preceding the payment, or for such part of the period
that the broker has been in existence, is derived from activities
that are effectively connected with the conduct of a U.S. trade or
business, or
. effective after 2000, a foreign partnership if, at any time during
the taxable year, (A) at least 50% of the capital or profits
interest in which is owned by U.S. persons, or (B) that is engaged
in a U.S. trade or business.
Effective after 2000, backup withholding may apply to the payment of
disposition proceeds by or through a non-U.S. office of a broker that is a U.S.
person or a "U.S. related person" unless certain certification requirements are
satisfied or an exemption is otherwise established and the broker has no actual
knowledge that the holder is a U.S. person. Non-U.S. Holders should consult
their own tax advisors regarding the application of the information reporting
and backup withholding rules to them, including changes to these rules that
will become effective after 2000.
Any amounts withheld under the backup withholding rules from a payment to
a Non-U.S. Holder will be refunded or credited against the holder's U.S.
federal income tax liability, if any, if the required information is furnished
to the U.S. Internal Revenue Service.
Limitations On Issuance Of Bearer Securities
To avoid potential adverse United States federal tax consequences to
holders of the securities, Bearer Securities, including securities in permanent
global form that are either Bearer Securities or exchangeable for Bearer
Securities, may not be offered or sold during the restricted period (as defined
in Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)) within the United
States or to United States persons (each as defined below) other than to an
office of a financial institution (as defined in Treasury Regulations Section
1.165-12(c)(1)(v)) which is located outside the United States. That office must
be purchasing for its own account or for resale or for the account of certain
customers, and must provide a certificate stating that it agrees to comply with
the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue
code and the Treasury Regulations thereunder, or to certain other persons
described in Treasury Regulations Section 1.163-5(c)(2)(i)(D)(1)(iii)(B).
Bearer Securities may not be delivered in connection with their sale
during the restricted period within the United States. Any distributor (as
defined in Treasury Regulations Section 1.163-5(c)(2)(i)(D)(4)) participating
in the offering or sale of Bearer Securities must certify that:
. it will not offer or sell during the restricted period any Bearer
Securities within the United States or to United States persons
(other than the persons described above),
. it will not deliver any Bearer Securities during the restricted
period within the United States; and
. it has in effect procedures reasonably designed to ensure that its
employees and agents who are directly engaged in selling the
Bearer Securities are aware of the restrictions on offers and
sales described above.
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No Bearer Securities, other than a temporary global security may be
delivered, nor may any amounts be paid on any Bearer Security until we receive:
. a Depositary Tax Certification in the case of temporary global
securities, or
. an Owner Tax Certification in all other cases.
Bearer Securities will bear a legend similar to the following: "Any
United States person who holds this obligation will be subject to limitations
under the United States income tax laws, including the limitations provided in
Section 165(j) and 1287(a) of the Internal Revenue Code."
Purchasers of Bearer Securities may be affected by certain United States
tax laws. Such laws will be discussed in the applicable prospectus supplement.
As used in this section "United States person" means any citizen or
resident of the United States, any corporation or partnership created or
organized in or under the laws of the United States or any political
subdivision thereof, other than a partnership that is not treated as a U.S.
person under any applicable Treasury regulations, any estate the income of
which is subject to United States federal income taxation regardless of its
source, and a trust, in general, if both (i) a U.S. court is able to exercise
primary supervision over the administration of the trust and (ii) one or more
United States persons have the authority to control all substantial decisions
of the trust, and "United States" means the United States of America, including
all of its states, the District of Columbia and its possessions.
PLAN OF DISTRIBUTION
General
We may sell securities to or through one or more underwriters, directly
to institutional investors or other purchasers, through agents or through a
combination of any such or other methods. The distribution of the securities
may be effected from time to time in one or more transactions at a fixed price
or prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices.
The prospectus supplement with respect to the securities offered by such
supplement will describe the terms of the offering of such securities,
including:
. the name or names of any underwriters, dealers or agents,
. the purchase price of such securities,
. the proceeds to our company from such sale,
. any underwriting discounts and other items constituting
compensation to underwriters, dealers or agents,
. any initial public offering price,
. any discounts or concessions allowed or reallowed or paid by
underwriters or dealers to other dealers, and
. any securities exchanges on which such securities may be listed.
Only underwriters named in the prospectus supplement are deemed to be
underwriters in connection with the securities offered thereby.
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Sales May be Underwritten
If underwriters or dealers are used in the sale, the securities will be
acquired by the underwriters or dealers for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters, or
directly by one or more of such firms.
Unless otherwise set forth in the prospectus supplement, the obligations
of the underwriters to purchase securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all of
the securities offered by the prospectus supplement if any are purchased. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
Underwriting Compensation
In connection with the sale of securities, underwriters or agents may
receive compensation from our company or from purchasers of securities for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act
as agents.
Underwriters, dealers and agents that participate in the distribution of
securities may be deemed to be underwriters, and any discounts or commissions
received by them from our company and any profit on the resale of securities by
them may be deemed to be underwriting discounts and commissions under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from our company will be described in the related
prospectus supplement.
Delayed Delivery Contracts
If so indicated in the related prospectus supplement, we will authorize
underwriters, dealers or other persons acting as our agents to solicit offers
by certain institutions to purchase securities from us at the public offering
price described in the prospectus supplement pursuant to contracts providing
for payment and delivery on a specified future date. Institutions with which
such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and such other institutions as may be approved by us.
The obligations of any purchaser under any such contract will not be
subject to any conditions except that:
. the purchase of the securities shall not, at the time of delivery,
be prohibited under the laws of the jurisdiction to which such
purchaser is subject, and
. we shall have sold to the underwriters the total amount of
securities being offered pursuant to the prospectus supplement
less the amount of securities subject to such delayed delivery and
payment arrangements.
The prospectus supplement will describe the commission payable for solicitation
of such contracts. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
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Indemnification
Underwriters, dealers and agents who participate in the distribution of
securities may be entitled, under agreements which may be entered into by our
company, to indemnification by us against certain liabilities, including
liabilities under the Securities Act, or to contribution by us with respect to
payments they may be required to make in respect thereof.
Other Relationships
Certain of the underwriters or agents and their associates may engage in
transactions with and perform services to our company or affiliates in the
ordinary course of their respective businesses.
Listing
The debt securities may or may not be listed on a national securities
exchange. Any common stock sold pursuant to a prospectus supplement will be
listed on The New York Stock Exchange, subject to official notice of issuance.
No assurances can be given that there will be an active trading market for the
securities.
Price Stabilization and Short Positions
If underwriters or dealers are used in the sale, until the distribution
of the securities is completed, rules of the Securities and Exchange Commission
may limit the ability of any such underwriters and selling group members to bid
for and purchase the securities. As an exception to these rules,
representatives of any underwriters are permitted to engage in transactions
that stabilize the price of the securities. Such transactions may consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price
of the securities.
If the underwriters create a short position in the securities in
connection with the offering, i.e., if they sell more securities than are set
forth on the cover page of the prospectus supplement, the representatives of
the underwriters may reduce that short position by purchasing securities in the
open market. The representatives of the underwriters may also elect to reduce
any short position by exercising all or part of any over-allotment option
described in the prospectus supplement.
We make no representation or prediction as to the direction or magnitude
of any effect that the transactions described above may have on the price of
the securities. In addition, we make no representation that the representatives
of any underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for
us by Godfrey & Kahn, S.C., Milwaukee, Wisconsin.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information
on the public reference rooms and their copy charges. You may also inspect our
SEC reports and other information at the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
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We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information about our company and the securities,
you should refer to our registration statement and its exhibits. This
prospectus summarizes material provisions of contracts and other documents
that we refer you to. Since the prospectus may not contain all the information
that you may find important, you should review the full text of these
documents. We have included copies of these documents as exhibits to our
registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means that:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to
those documents; and
. information that we file with the SEC will automatically update
and supersede this prospectus.
We incorporate by reference the documents listed below which were filed
with the SEC:
. Annual Report on Form 10-K for the year ended January 30, 1999,
. Current Reports on Form 8-K dated January 22, 1999 and July 6,
1999,
. Quarterly Report on Form 10-Q for the quarter ended May 1, 1999,
and
. the description of our common stock contained in our registration
statement on Form 8-A under the Exchange Act, including any
amendment or reports filed for the purpose of updating such
description.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus, including any
documents we file after the date we filed our registration statement and
before the registration statement becomes effective:
. Reports filed under Sections 13(a) and (c) of the Exchange Act,
. Definitive proxy or information statements filed under Section 14
of the Exchange Act in connection with any subsequent
shareholders' meeting, and
. Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above, excluding
exhibits, at no cost, by contacting us orally or in writing at the following
address or telephone number:
ShopKo Stores, Inc.
700 Pilgrim Way
P.O. Box 19060
Green Bay, Wisconsin 54304
Attention: Investor Relations
(920) 429-7039
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[Circle with the following words on the outside: Differentiating Strategy;
Integrated Business Planning Process, Integrated Lateral Organization for
Execution and Comprehensive Value; and the following words on the inside;
Performance through Improved Customer Satisfaction.]
[Description of graphics: Map of the United States indicating with triangles the
location of ShopKo retail stores, and distribution centers, and with circles the
location of Pamida retail stores and distribution centers, as of May 1, 1999 for
ShopKo and as of January 31, 1999 for Pamida.
Retail Stores:
California
ShopKo - 1
Colorado
ShopKo - 3
Idaho
ShopKo - 8
Illinois
ShopKo - 13
Pamida - 3
Indiana
ShopKo - 2
Pamida - 4
Iowa
ShopKo - 13
Pamida - 26
Kansas
ShopKo - 2
Pamida - 3
Kentucky
ShopKo - 1
Pamida - 2
Michigan
ShopKo - 4
Pamida - 12
Minnesota
ShopKo - 13
Pamida - 29
Missouri
ShopKo - 3
Pamida - 1
Montana
ShopKo - 5
Pamida - 6
Nebraska
ShopKo - 11
Pamida - 14
Nevada
ShopKo - 3
North Dakota
Pamida - 7
Ohio
Pamida - 10
Oregon
ShopKo - 4
South Dakota
ShopKo - 6
Pamida - 6
Utah
ShopKo - 15
Washington
ShopKo - 10
Wisconsin
ShopKo - 41
Pamida - 15
Wyoming
Pamida - 9
Distribution Centers
ShopKo - 4 - WI, ID, NE, IL
Pamida - 3 - NE(2), IN
<PAGE>
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$150,000,000
ShopKo Stores, Inc.
% Notes due
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
Merrill Lynch & Co.
Banc of America Securities LLC
Chase Securities Inc.
Lehman Brothers
August , 1999
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