DEFM14A 1 d30686.htm DEFM14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No.    )

 

Filed by the Registrant T    
 
Filed by a Party other than the Registrant £    
 
Check the appropriate box:    
 
£ Preliminary Proxy Statement    
£ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
T Definitive Proxy Statement    
£ Definitive Additional Materials    
£ Soliciting Material under  § 240.14a-12    

 

HARRIS TEETER SUPERMARKETS, INC.

(Name of Registrant as Specified in Its Charter)
 
 



(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

PAYMENT OF FILING FEE (Check the appropriate box):
 
£ No fee required
 
£ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
 
  1)

Title of each class of securities to which transaction applies:

 

 
  2)

Aggregate number of securities to which transaction applies:

 

 
  3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 
  4)

Proposed maximum aggregate value of transaction:

 

 
  5)

Total fee paid:

 

T

Fee paid previously with preliminary materials:

 

 
£

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  1)

Amount Previously Paid:

 

 
  2)

Form, Schedule or Registration Statement No.:

 

 
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Filing Party:

 

 
  4)

Date Filed:

 

 


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701 Crestdale Road
Matthews, North Carolina 28105

August 27, 2013

Dear Shareholder of Harris Teeter Supermarkets, Inc.:

On July 8, 2013, Harris Teeter Supermarkets, Inc. (“Harris Teeter”) entered into a definitive Agreement and Plan of Merger (the “merger agreement”) to be acquired by The Kroger Co. (“Kroger”). Subject to the terms and conditions of the merger agreement, a wholly owned subsidiary of Kroger will be merged with and into Harris Teeter and Harris Teeter will survive the merger as a wholly owned subsidiary of Kroger.

If the merger is completed, our shareholders will have the right to receive $49.38 in cash, without interest and less any applicable withholding taxes, for each share of common stock, no par value per share, of Harris Teeter (“Harris Teeter common stock”) that they own immediately prior to the effective time of the merger, which represents a premium of approximately 33.7% to the $36.94 per share closing price of our common stock on the New York Stock Exchange on January 18, 2013, the day of the first media report after the market close that Harris Teeter was evaluating strategic alternatives.

You are cordially invited to attend a special meeting of our shareholders to be held in connection with the proposed merger on October 3, 2013 at 10:00 A.M., Eastern Time at Harris Teeter’s headquarters located at 701 Crestdale Road, Matthews, North Carolina 28105. At the special meeting, in addition to the other proposals described below, shareholders will be asked to vote on a proposal to approve the merger agreement. The affirmative vote of a majority of the shares of Harris Teeter common stock outstanding at the close of business on August 22, 2013 is required to approve the merger agreement.

Following careful consideration, the Harris Teeter board of directors unanimously adopted and approved the merger agreement, the merger and the other transactions contemplated by the merger. The Harris Teeter board of directors unanimously recommends that Harris Teeter shareholders vote “FOR” the proposal to approve the merger agreement.

The merger cannot be completed unless Harris Teeter shareholders approve the merger agreement. Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend the special meeting in person, please vote or otherwise submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the special meeting. The failure to vote on the proposal to approve the merger agreement will have the same effect as a vote “AGAINST” this proposal.

At the special meeting, shareholders will also be asked to vote on (i) a proposal to approve, on a nonbinding, advisory basis, compensation that will or may be paid to Harris Teeter’s named executive officers by Harris Teeter based on or otherwise relating to the merger, as required by the rules adopted by the Securities and Exchange Commission and (ii) a proposal to approve an adjournment of the special meeting, if necessary or appropriate, to solicit additional votes for the approval of the proposal to approve the merger agreement. The Harris Teeter board of directors unanimously recommends that Harris Teeter shareholders vote “FOR” each of the foregoing proposals.

The obligations of Harris Teeter and Kroger to complete the merger are subject to the satisfaction or waiver of conditions. The accompanying proxy statement contains detailed information about Harris Teeter, the special meeting, the merger agreement, the merger and the transactions contemplated by the merger agreement.

Thank you for your confidence in Harris Teeter.

 
           
Sincerely,
 
           
 
 
           
Thomas W. Dickson
Chairman of the Board and
Chief Executive Officer
 


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Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the merger, passed upon the merits of the merger agreement or the merger or determined if the accompanying proxy statement is accurate or complete. Any representation to the contrary is a criminal offense.

The accompanying proxy statement is dated August 27, 2013 and, together with the enclosed form of proxy, is first being mailed to Harris Teeter shareholders on or about August 27, 2013.



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701 Crestdale Road
Matthews, North Carolina 28105

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

DATE & TIME
           
October 3, 2013 at 10:00 A.M., Eastern Time
 
PLACE
           
701 Crestdale Road, Matthews, North Carolina 28105
 
ITEMS OF BUSINESS
           
1.     To consider and vote on a proposal to approve the Agreement and Plan of Merger, dated as of July 8, 2013 (the “merger agreement”), among Harris Teeter Supermarkets, Inc. (“Harris Teeter”), The Kroger Co. (“Kroger”) and Hornet Acquisition, Inc. (“Merger Sub”), pursuant to which Merger Sub will merge with and into Harris Teeter with Harris Teeter surviving as a wholly owned subsidiary of Kroger (the “merger proposal”);
 
 
           
2.     To consider and vote on a proposal to approve, on a nonbinding, advisory basis, compensation that will or may be paid by Harris Teeter to its named executive officers that is based on or otherwise relates to the merger (the “named executive officer merger-related compensation proposal”);
 
 
           
3.     To consider and vote on a proposal to approve an adjournment of the special meeting of shareholders of Harris Teeter (the “special meeting”), if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger proposal (the “adjournment proposal”); and
 
 
           
4.     To transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.
 
RECORD DATE
           
Only shareholders of record at the close of business on August 22, 2013 (the “record date”) are entitled to notice of, and to vote at, the special meeting and at any adjournment or postponement of the special meeting.
 
VOTING BY PROXY
           
The Harris Teeter board of directors (the “Harris Teeter Board”) is soliciting your proxy to assure that a quorum is present and that your shares are represented and voted at the special meeting. For information on submitting your proxy over the internet, by telephone or by mailing back the traditional proxy card, please see the attached proxy statement and enclosed proxy card. If you later decide to vote in person at the special meeting, information on revoking your proxy prior to the special meeting is also provided.
 
RECOMMENDATIONS
           
The Harris Teeter Board unanimously recommends that you vote:
 
 
           
•     “FOR” the merger proposal;
 
 
           
•     “FOR” the named executive officer merger-related compensation proposal; and
 
 
           
•     “FOR” the adjournment proposal.
 

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE VOTE OVER THE INTERNET OR BY TELEPHONE AS DESCRIBED IN THE INSTRUCTIONS CONTAINED IN THESE MATERIALS OR COMPLETE, DATE, SIGN AND RETURN A PROXY CARD AS PROMPTLY AS POSSIBLE. IF YOU RECEIVE MORE THAN ONE



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PROXY BECAUSE YOU OWN SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY SHOULD BE VOTED. IF YOU DO NOT SUBMIT YOUR PROXY, INSTRUCT YOUR BROKER HOW TO VOTE YOUR SHARES OR VOTE IN PERSON AT THE SPECIAL MEETING ON THE MERGER PROPOSAL, IT WILL HAVE THE SAME EFFECT AS A VOTE “AGAINST” THE MERGER PROPOSAL.

Your proxy may be revoked at any time before the vote at the special meeting by following the procedures outlined in the accompanying proxy statement.

Please note that we intend to limit attendance at the special meeting to Harris Teeter shareholders as of the record date (or their authorized representatives), as well as our invited guests. If your shares are held by a broker, bank or other nominee and you wish to vote in person at the special meeting, you must bring to the special meeting a legal proxy from the broker, bank or other nominee that holds your shares authorizing you to vote in person at the special meeting. Please also bring to the special meeting your account statement evidencing your beneficial ownership of Harris Teeter common stock as of the record date. All shareholders should also bring photo identification.

The proxy statement of which this notice forms a part provides a detailed description of the merger agreement, the merger and the transactions contemplated by the merger agreement. We urge you to read the proxy statement, including any documents incorporated by reference and its annexes carefully and in their entirety. If you have any questions concerning the merger or the proxy statement, would like additional copies of the proxy statement or need help voting your shares of Harris Teeter common stock, please contact Harris Teeter’s proxy solicitor, Morrow & Co., LLC, at 470 West Avenue, Stamford, Connecticut 06902 or 1-855-201-1081.

 
           
By Order of the Board of Directors,
 
           
 
 
           
Douglas J. Yacenda
Secretary
 

Matthews, North Carolina
August 27, 2013



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SUMMARY TERM SHEET

This summary highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you with respect to the merger and the other matters being considered at the special meeting of Harris Teeter shareholders. We urge you to read carefully the remainder of this proxy statement, including the attached annexes and the other documents to which we have referred you. For additional information on Harris Teeter included in documents incorporated by reference into this proxy statement, see the section titled “Where You Can Find More Information” beginning on page 79. We have included page references in this summary to direct you to a more complete description of the topics presented below.

All references to “Harris Teeter,” “we,” “us” or “our” in this proxy statement refer to Harris Teeter Supermarkets, Inc., a North Carolina corporation; all references to “Kroger” refer to The Kroger Co., an Ohio corporation; all references to “Merger Sub” refer to Hornet Acquisition, Inc., a North Carolina corporation and a wholly owned subsidiary of Kroger formed for the sole purpose of effecting the merger; all references to “Harris Teeter common stock” refer to the common stock, no par value per share, of Harris Teeter; all references to the “Harris Teeter Board” refer to the board of directors of Harris Teeter; all references to the “merger” refer to the merger of Merger Sub with and into Harris Teeter with Harris Teeter surviving as a wholly owned subsidiary of Kroger; all references to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of July 8, 2013, and as may be further amended from time to time, by and among Harris Teeter, Kroger and Merger Sub, a copy of which is included as Annex A to this proxy statement. Harris Teeter, following the completion of the merger, is sometimes referred to in this proxy statement as the “surviving corporation.”

The Companies

Harris Teeter (see page 18)

Harris Teeter operates a regional chain of supermarkets in eight states primarily in the southeastern and mid-Atlantic United States and the District of Columbia. As of July 31, 2013, Harris Teeter operated 213 supermarkets located in North Carolina, Virginia, South Carolina, Maryland, Tennessee, Delaware, Florida, Georgia and the District of Columbia. Harris Teeter also operates distribution centers for grocery, frozen and perishable foods in Greensboro, North Carolina and Indian Trail, North Carolina and a dairy facility in High Point, North Carolina.

Shares of Harris Teeter common stock are listed with, and trade on, the New York Stock Exchange (“NYSE”) under the symbol “HTSI.” Our corporate website address is www.harristeeter.com. The information provided on the Harris Teeter website is not part of this proxy statement and is not incorporated in this proxy statement by reference hereby or by any other reference to Harris Teeter’s website provided in this proxy statement.

Kroger (see page 18)

Kroger, one of the world’s largest retailers, employs 343,000 associates who serve customers in 2,419 supermarkets and multi-department stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry’s, King Soopers, QFC, Ralphs and Smith’s. Kroger also operates 784 convenience stores, 322 fine jewelry stores, 1,182 supermarket fuel centers and 37 food processing plants in the U.S.

Kroger’s website is www.kroger.com. The information provided on the Kroger website is not part of this proxy statement and is not incorporated in this proxy statement by reference hereby or by any other reference to Kroger’s website provided in this proxy statement.

Merger Sub (see page 18)

Merger Sub was formed in July 2013 solely for the purpose of completing the merger with Harris Teeter. Merger Sub has not carried out any activities to date, except for activities incidental to its incorporation and activities undertaken in connection with the transactions contemplated by the merger agreement.

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The Special Meeting

Date, Time and Place (see page 19)


The special meeting of Harris Teeter shareholders (the “special meeting”) is scheduled to be held at Harris Teeter’s headquarters located at 701 Crestdale Road, Matthews, North Carolina 28105 on October 3, 2013 at 10:00 A.M., Eastern Time.


Purpose of the Special Meeting (see page 19)

The special meeting is being held in order to consider and vote on the following proposals:

•    
  to approve the merger agreement (the “merger proposal”);

•    
  to approve, on a nonbinding, advisory basis, compensation that will or may be paid by Harris Teeter to its named executive officers that is based on or otherwise relates to the merger (the “named executive officer merger-related compensation proposal”);

•    
  to approve the adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger proposal (the “adjournment proposal”); and

•    
  to transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

Harris Teeter shareholders must vote to approve the merger proposal as a condition for the merger to occur. If the Harris Teeter shareholders fail to approve the merger proposal, the merger will not occur.

Record Date; Shareholders Entitled to Vote (see page 20)


Only holders of Harris Teeter common stock at the close of business on August 22, 2013, the record date for the special meeting (the “record date”), will be entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of the special meeting. At the close of business on the record date, 49,458,968 shares of Harris Teeter common stock were issued and outstanding.

Holders of Harris Teeter common stock are entitled to one vote for each share of Harris Teeter common stock they own at the close of business on the record date.

Quorum (see page 20)

The presence at the special meeting, in person or by proxy, of the holders of a majority of the shares of Harris Teeter common stock outstanding on the record date will constitute a quorum. There must be a quorum for business to be conducted at the special meeting. However, even if a quorum does not exist, a majority of the shares of Harris Teeter common stock present or represented by proxy at the special meeting and entitled to vote may adjourn the meeting to another place, date or time. Failure of a quorum to be represented at the special meeting will necessitate an adjournment or postponement of the special meeting and will subject Harris Teeter to additional expense.

Required Vote (see page 20)

Approval of the merger proposal requires the affirmative vote of at least a majority of the shares of Harris Teeter common stock outstanding at the close of business on the record date.

Approval of the named executive officer merger-related compensation proposal (on an advisory basis) and the adjournment proposal requires the affirmative vote of a majority of the votes cast with respect to this matter in person or represented by proxy at the special meeting and entitled to vote thereon.

Voting at the Special Meeting (see page 21)

If your shares are registered directly in your name with our transfer agent, you are considered a “shareholder of record” and you may vote your shares in person at the special meeting or by mail, over the internet or by telephone. If you plan to attend the special meeting and wish to vote in person, you will be

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given a ballot at the special meeting. Although Harris Teeter offers four different voting methods, Harris Teeter encourages you to vote over the internet or by telephone, as Harris Teeter believes they are convenient, cost-effective and reliable voting methods. If you choose to vote your shares over the internet or by telephone, there is no need for you to mail back your proxy card.

If your shares are held by your broker, bank or other nominee, you are considered the beneficial owner of shares held in “street name” and you will receive a form from your broker, bank or other nominee seeking instruction from you as to how your shares should be voted. If you are a beneficial owner and you wish to vote in person at the special meeting, you must bring to the special meeting a legal proxy from the broker, bank or other nominee that holds your shares authorizing you to vote in person at the special meeting.

Shareholders who are entitled to vote at the special meeting, as well as Harris Teeter’s invited guests, may attend the special meeting. Beneficial owners should bring a copy of an account statement reflecting their ownership of Harris Teeter common stock as of the record date. All shareholders should bring photo identification.

Harris Teeter recommends that you vote as soon as possible, even if you are planning to attend the special meeting, so that the vote count will not be delayed.

Solicitation of Proxies (see page 22)

The Harris Teeter Board is soliciting your proxy, and Harris Teeter will bear the cost of soliciting proxies. Harris Teeter has retained Morrow & Co., LLC (“Morrow & Co.”) to assist with the solicitation of proxies. Morrow & Co. will be paid approximately $55,000 and will be reimbursed for its reasonable out-of-pocket expenses for these and other advisory services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks and other nominees to the beneficial owners of shares of Harris Teeter common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by Morrow & Co. or, without additional compensation, Harris Teeter’s directors, officers and employees.

Adjournment (see page 22)

In addition to the merger proposal and the named executive officer merger-related compensation proposal, Harris Teeter shareholders are also being asked to approve the adjournment proposal, which will give the Harris Teeter Board authority to adjourn the special meeting for the purpose of soliciting additional votes in favor of the merger proposal if there are not sufficient votes at the time of the special meeting to approve the merger proposal. If the adjournment proposal is approved, the special meeting could be adjourned by the Harris Teeter Board as permitted under the terms of the merger agreement. In addition, the Harris Teeter Board, as permitted under the terms of the merger agreement, could postpone the meeting before it commences, whether for the purpose of soliciting additional votes or for other reasons. If the special meeting is adjourned for the purpose of soliciting additional votes, shareholders who have already submitted their proxies will be able to revoke them at any time prior to their use.

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The Merger

Structure of the Merger (see page 24)

If the merger is completed, then at the effective time of the merger (the “effective time”), Merger Sub will merge with and into Harris Teeter, the separate corporate existence of Merger Sub will cease and Harris Teeter will survive the merger as a wholly owned subsidiary of Kroger. After the effective time, Kroger will own 100% of Harris Teeter’s outstanding stock and current shareholders will no longer have any equity interest in Harris Teeter.

What Shareholders Will Receive in the Merger (see page 24)

Upon the terms and subject to the conditions of the merger agreement, at the effective time, Harris Teeter shareholders will have the right to receive $49.38 in cash, without interest and less any applicable withholding taxes, for each share of Harris Teeter common stock that they own immediately prior to the effective time.

Treatment of Harris Teeter Equity Awards (see page 24)

The merger agreement provides that outstanding equity-based awards under Harris Teeter’s equity plans will be treated as set forth below.

Stock Options. At the effective time, Harris Teeter will cause each outstanding option to purchase shares of Harris Teeter stock, whether vested or unvested, to represent the right to receive a payment in cash, without interest and less any applicable withholding taxes, equal to the product of the excess, if any, of the merger consideration of $49.38 over the exercise price of the option, multiplied by the number of shares subject to such option.

Restricted Shares and Performance Shares. At the effective time, each performance share and outstanding share of Harris Teeter common stock subject to time-based, performance or other vesting or lapse restrictions under any stock or incentive plan of Harris Teeter will fully vest such that each holder thereof will be entitled to 100% of the shares of Harris Teeter’s common stock underlying such awards and the holder thereof will receive the merger consideration of $49.38 for each such share.

Recommendation of the Harris Teeter Board of Directors (see page 33)


The Harris Teeter Board unanimously determined that the merger agreement is fair, advisable and in the best interests of Harris Teeter and its shareholders and adopted and approved the merger agreement. In the course of reaching this decision, the Harris Teeter Board considered a number of factors in its deliberations, which can be found in the section titled “The Merger Proposal (Proposal 1) — Recommendation of the Harris Teeter Board and Reasons for the Merger” beginning on page 33. The Harris Teeter Board unanimously recommends that the Harris Teeter shareholders vote:

•    
  “FOR” the merger proposal;

•    
  “FOR” the named executive officer merger-related compensation proposal; and

•    
  “FOR” the adjournment proposal.

Opinion of J.P. Morgan Securities LLC (See page 38)


In connection with the execution of the merger agreement, the Harris Teeter Board received an opinion, dated July 8, 2013, from Harris Teeter’s financial advisor, J.P. Morgan Securities LLC, which we refer to as J.P. Morgan, as to the fairness, from a financial point of view, of the consideration to be paid to the holders of shares of Harris Teeter common stock pursuant to the merger agreement, as of the date of the opinion. The full text of the written opinion of J.P. Morgan, dated July 8, 2013, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by J.P. Morgan in connection with rendering its opinion, is included as Annex B to this proxy statement and is incorporated by reference herein in its entirety. You are encouraged to read the opinion and the description beginning on page 38 carefully in their entirety. This summary and the description of the

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opinion beginning on page 38 are qualified in their entirety by reference to the full text of the opinion. J.P. Morgan provided its opinion to the Harris Teeter Board (in its capacity as such) in connection with, and for purposes of, its evaluation of the transaction contemplated by the merger agreement. J.P. Morgan’s written opinion is addressed to the Harris Teeter Board, is directed only to the consideration to be paid to the holders of shares of Harris Teeter common stock pursuant to the merger agreement and does not address any other matter. The opinion does not constitute a recommendation to any shareholder as to how such shareholder should vote with respect to the approval of the merger agreement or whether to take any other action with respect to the merger.


Interests of Harris Teeter Directors and Executive Officers in the Merger (see page 46)

In considering the recommendation of the Harris Teeter Board that you vote “FOR” the merger proposal, you should be aware that, aside from their interests as Harris Teeter shareholders, Harris Teeter’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of other Harris Teeter shareholders generally. The Harris Teeter Board was aware of these interests and considered them, among other things, in approving the merger agreement and recommending that the shareholders approve the merger agreement. These interests include:

•    
  accelerated vesting of all restricted shares and performance shares held by Harris Teeter officers and the cash out of stock options held by Harris Teeter directors;

•    
  payments under the change in control and severance agreements between each executive officer and Harris Teeter;

•    
  cash payment of incentive bonuses at the effective time of the merger to each of the executive officers of Harris Teeter equal to 35% of their fiscal 2013 base salary (resulting in bonuses to Thomas W. Dickson, Frederick J. Morganthall, II, John B. Woodlief and Rodney C. Antolock of $262,500, $188,125, $175,000 and $156,625, respectively);

•    
  payment of previously accrued benefits under a supplemental pension plan and director deferred compensation plan; and

•    
  the provision of indemnification and insurance arrangements under the merger agreement and Harris Teeter’s articles of incorporation and bylaws.

Financing of the Merger (see page 55)

There is no financing condition to the merger. Kroger intends to use cash on hand and the proceeds of debt financing to pay the merger consideration and merger-related costs.

Regulatory Clearances and Approvals Required for the Merger (see page 55)

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), we cannot complete the merger until we have given notification and furnished information to the Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice, and until the applicable waiting period has expired or has been terminated. Harris Teeter and Kroger have initiated discussions relating to the merger with the FTC staff and thereafter will file the requisite premerger notification and report form under the HSR Act.

While we have no reason to believe it will not be possible to obtain the HSR Act approval in a timely manner or without the imposition of burdensome conditions, there is no certainty that this approval will be obtained within the period of time contemplated by the merger agreement or that any such approval would not be conditioned upon actions that would be materially adverse to Harris Teeter or Kroger, or that a regulatory challenge to the merger will not be made.

Kroger has agreed to pay Harris Teeter a termination fee of $200,000,000 if the merger agreement is terminated under circumstances in which there has been a failure to obtain all necessary antitrust consents and approvals and the expiration of any applicable waiting periods required under the HSR Act and in which Harris Teeter has otherwise satisfied its closing conditions.

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Material U.S. Federal Income Tax Consequences of the Merger (see page 76)


The conversion of each share of Harris Teeter common stock into the right to receive cash in the merger will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under state and local and other tax laws. You should read the section titled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 76, and you are encouraged to consult your own tax advisors regarding the U.S. federal income tax consequences of the merger to you in your particular circumstances, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.


Appraisal Rights (see page 56)

In accordance with Section 55-13-02 of the North Carolina Business Corporation Act, no appraisal rights will be available to the holders of Harris Teeter common stock in connection with the merger or the other transactions contemplated by the merger agreement.

Expected Timing of the Merger (see page 55)


We expect to complete the merger during the fourth quarter of calendar year 2013. However, Harris Teeter cannot predict the actual date on which the merger will be completed, if at all, because completion is subject to conditions beyond Harris Teeter’s control. There may be a substantial amount of time between the special meeting and the completion of the merger. We expect to complete the merger promptly following the receipt of all required clearances and approvals and the satisfaction or, to the extent permitted, waiver of the other conditions to the consummation of the merger. See the sections titled “The Merger Proposal (Proposal 1) — Regulatory Clearances and Approvals Required for the Merger” beginning on page 55 and “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 67.


Restrictions on Solicitation of Acquisition Proposals (see page 63)

From the date of the merger agreement until the earlier of the effective time or the termination of the merger agreement, Harris Teeter is required to immediately cease any solicitations, discussions or negotiations that may be ongoing with respect to an acquisition proposal with any person. Harris Teeter is generally not permitted to:

•    
  initiate, solicit or knowingly encourage, facilitate or assist the making of a competing acquisition proposal;

•    
  engage in, continue or participate in any discussions or negotiations with any person regarding any competing acquisition proposal;

•    
  furnish to any person any nonpublic information or afford access to the business, properties, assets or personnel of Harris Teeter to facilitate the making of any competing acquisition proposal; or

•    
  enter into any acquisition agreement, merger agreement or other contract contemplating a competing acquisition proposal.

If, however, before the Harris Teeter shareholders approve the merger agreement, Harris Teeter receives from a third party a bona fide written competing acquisition proposal that the Harris Teeter Board determines in good faith, after consultation with its financial advisors and outside legal counsel, constitutes a superior proposal or would reasonably be expected to result in a superior proposal, then:

•    
  Harris Teeter may furnish to such third party access and nonpublic information with regard to Harris Teeter and its subsidiaries under a confidentiality agreement;

•    
  Harris Teeter may engage or participate in any discussions with such person; and

•    
  the Harris Teeter Board may withhold, withdraw or change its recommendation to Harris Teeter’s shareholders regarding the transaction with Kroger following receipt of a superior proposal, subject to complying with certain notice and other specified conditions, including giving Kroger the opportunity to propose changes to the merger agreement in response to such superior proposal.

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Conditions to the Closing of the Merger (see page 67)

Each party’s obligation to effect the merger is subject to the satisfaction or, to the extent permitted, waiver of various conditions, including the following:

•    
  the merger agreement is approved by Harris Teeter’s shareholders at the special meeting;

•    
  all applicable waiting periods under the HSR Act have expired or been terminated;

•    
  no governmental authority has enacted, issued, enforced or entered any order, injunction or decree or statute, rule or regulation that makes illegal, enjoins or otherwise prohibits the consummation of the transactions contemplated by the merger agreement;

•    
  Harris Teeter’s, Kroger’s and Merger Sub’s respective representations and warranties in the merger agreement must be true and correct, subject to certain materiality thresholds, as of the date of the closing of the merger;

•    
  Harris Teeter, Kroger and Merger Sub shall have performed or complied in all material respects with each of their respective obligations under the merger agreement at or prior to the closing of the merger; and

•    
  since the date of the merger agreement, no event, change, circumstance, occurrence, effect or state of facts has occurred that would result in a material adverse effect on Harris Teeter.

Termination of the Merger Agreement (see page 67)

Harris Teeter and Kroger can terminate the merger agreement under certain circumstances, including:

•    
  by mutual written consent;

•    
  if the merger has not occurred on or before March 31, 2014, subject to one automatic three-month extension and one subsequent three-month extension at the election of either Kroger or Harris Teeter, in the case of each such extension if substantially all conditions to closing have been satisfied or are capable of being satisfied at closing other than the receipt of required regulatory approvals, including the expiration or termination of any applicable waiting period under the HSR Act and the absence of any order, injunction or decree preventing the completion of the merger;

•    
  if a governmental authority has issued a final and nonappealable order having the effect of permanently restraining, enjoining or otherwise prohibiting the consummation of the merger, provided that the right to terminate the merger agreement under this circumstance will not be available to any party whose failure to perform its obligations under the merger agreement has been a principal cause of or resulted in such order; or

•    
  if approval of the merger proposal by the Harris Teeter shareholders has not been obtained at the special meeting or at any adjournment or postponement thereof at which a vote on the approval of the merger proposal was taken.

Harris Teeter can terminate the merger agreement:

•    
  upon a breach or inaccuracy in any of Kroger’s or Merger Sub’s representations or warranties or the failure by Kroger or Merger Sub to perform any of its obligations under the merger agreement, which in any case would result in the failure of any condition to our obligation to close the merger to be satisfied and which breach, inaccuracy or failure is not capable of being cured before the earlier of (i) 20 days following receipt by Kroger of written notice of such breach, inaccuracy or failure to perform and (ii) March 31, 2014 (subject to certain extensions);

•    
  if Harris Teeter has received a superior proposal from a third party and the Harris Teeter Board has made a determination to accept such proposal; or

•    
  if the mutual conditions to the parties’ obligations to consummate the merger and the conditions to the obligations of Kroger and Merger Sub to consummate the merger are satisfied (other than those conditions that by their terms are to be satisfied by actions taken at the closing of the merger), Harris

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  Teeter has notified Kroger that it is ready and willing to close and Kroger has failed to consummate the merger within three business days of receiving such notice.

Kroger can terminate the merger agreement:

•    
  upon a breach or inaccuracy in any of Harris Teeter’s representations or warranties or Harris Teeter’s failure to perform any of its obligations under the merger agreement, which in any case would result in the failure of any condition to Kroger’s obligation to close the merger to be satisfied and which breach, inaccuracy or failure is not capable of being cured before the earlier of (i) 20 days following receipt by Harris Teeter of written notice of such breach, inaccuracy or failure to perform and (ii) March 31, 2014 (subject to certain extensions); or

•    
  if (i) the Harris Teeter Board has failed to recommend the merger to the Harris Teeter shareholders, has withdrawn, modified or qualified such recommendation in a manner adverse to Kroger or has taken public action, or made public comment, inconsistent with such recommendation or (ii) the Harris Teeter Board has failed to reaffirm publicly its recommendation that the Harris Teeter shareholders approve the merger agreement within five business days after Kroger’s request to do so following Harris Teeter’s receipt of an acquisition proposal.

Termination Fees and Expenses (see page 68)

Harris Teeter has agreed to pay Kroger a termination fee of $75,000,000 under any of the following circumstances:

•    
  (i) the merger agreement is terminated in connection with the failure of the merger to close by March 31, 2014 (subject to one automatic three-month extension and one subsequent three-month extension at the election of either Kroger or Harris Teeter), the failure of the Harris Teeter shareholders to approve the merger or a breach of the merger agreement by Harris Teeter and (ii) within 12 months of the termination of the merger agreement, Harris Teeter enters into an alternative acquisition agreement in respect of a superior proposal made prior to the termination of the merger agreement;

•    
  if the merger agreement is terminated by Harris Teeter in connection with its acceptance of a superior proposal; or

•    
  if the merger agreement is terminated by Kroger in connection with the Harris Teeter Board failing to recommend the merger to the Harris Teeter shareholders, or otherwise withdrawing, modifying or failing to reaffirm such recommendation within five business days after Kroger’s request to do so following receipt by Harris Teeter of an alternative acquisition proposal.

The merger agreement also provides that Kroger will be required to pay Harris Teeter a reverse termination fee of $200,000,000 if the merger agreement is terminated under circumstances in which there has been a failure to obtain required antitrust approvals or any decree, judgment, injunction or other order relating to antitrust laws preventing, prohibiting or delaying the consummation of the merger exists or is in effect, the Harris Teeter shareholders have adopted and approved the merger agreement, the representations and warranties of Harris Teeter are true and correct, Harris Teeter has performed all obligations required of it under the merger agreement and no Harris Teeter material adverse effect has occurred.

Directors’ and Officers’ Indemnification and Insurance (see page 66)

Following the effective time, Kroger shall cause the surviving corporation to indemnify Harris Teeter’s and its subsidiaries’ present and former directors and executive officers. In addition, following the effective time, the surviving corporation will maintain in effect provisions in the surviving corporation’s organizational documents related to indemnification and advancement of expenses and not amend or repeal such terms in any manner that would adversely affect the rights of such individuals. The merger agreement also provides that Harris Teeter’s current officers and directors must be covered under Harris Teeter’s existing directors’ and officers’ liability insurance policies, or coverage that is no less favorable, covering any claims arising with respect to acts or omissions before the effective time of the merger. At or before to the effective time, Harris

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Teeter may purchase a directors’ and officers’ liability “tail” insurance policy that must be honored and maintained by Kroger following the effective time.

Delisting and Deregistration of Harris Teeter Common Stock (see page 56)

If the merger is completed, Harris Teeter common stock will be delisted from the NYSE and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Litigation Relating to the Merger (see page 56)


Four purported class action complaints relating to the merger have been filed on behalf of putative classes of Harris Teeter public shareholders. Three of the complaints name as defendants the members of the Harris Teeter Board, Harris Teeter, Kroger and Merger Sub and generally allege that the members of the Harris Teeter Board breached their fiduciary duties to Harris Teeter’s shareholders and that the other defendants aided and abetted that breach. The fourth complaint alleges similar claims, but does not name Kroger or Merger Sub as defendants. Each complaint seeks, among other things, injunctive relief preventing the consummation of the merger and an award of plaintiff’s expenses and attorneys’ fees.


Market Prices of Harris Teeter Common Stock (see page 72)


The merger consideration of $49.38 per share of Harris Teeter common stock represents a premium of approximately 33.7% to the $36.94 closing price per share of Harris Teeter common stock on the NYSE on January 18, 2013, the day of the first media report after market close that Harris Teeter was evaluating strategic alternatives. The closing price of the Harris Teeter common stock on the NYSE on August 22, 2013, the most recent practicable date prior to the filing of this proxy statement, was $49.22 per share. You are encouraged to obtain current market prices of Harris Teeter common stock in connection with voting your shares of Harris Teeter common stock.

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following are brief answers to some of the questions that you may have regarding the merger, the special meeting and the proposals being considered at the special meeting. We urge you to carefully read the remainder of this proxy statement because the information in this section does not provide all the information that might be important to you with respect to the merger and the special meeting. Additional important information is also contained in the annexes attached to this proxy statement and the documents referred to or incorporated by reference into this proxy statement.

Q.    
  Why am I receiving these proxy materials?

A.    
  On July 8, 2013, Harris Teeter entered into the merger agreement providing for the merger of Merger Sub with and into Harris Teeter, pursuant to which Harris Teeter will survive the merger as a wholly owned subsidiary of Kroger. You are receiving this proxy statement in connection with the solicitation by the Harris Teeter Board of proxies of Harris Teeter shareholders in favor of the merger proposal and the other matters to be voted on at the special meeting.

Q.    
  What is the proposed transaction?

A.    
  If the merger proposal is approved by Harris Teeter shareholders and the other conditions to the consummation of the merger contained in the merger agreement are satisfied or waived, Merger Sub will merge with and into Harris Teeter. Harris Teeter will be the surviving corporation in the merger and will be privately held as a wholly owned subsidiary of Kroger.

Q.    
  What will I receive in the merger?

A.    
  Under the terms of the merger agreement, if the merger is completed, you will be entitled to receive $49.38 in cash, without interest and less any applicable withholding taxes, for each share of Harris Teeter common stock you own. For example, if you own 100 shares of Harris Teeter common stock, you will be entitled to receive $4,938 in cash in exchange for your shares, without interest and less any applicable withholding taxes. You will not be entitled to receive shares in the surviving corporation or in Kroger.

Q.    
  Where and when is the special meeting, and who may attend?

A.    
  The special meeting will be held at Harris Teeter’s headquarters located at 701 Crestdale Road, Matthews, North Carolina 28105 on October 3, 2013 at 10:00 A.M., Eastern Time. The meeting room will open at 9:00 A.M., Eastern Time and registration will begin at that time. Shareholders who are entitled to vote, as well as our invited guests, may attend the meeting.

Q.    
  What must I bring to attend the special meeting?

A.    
  Beneficial owners of shares held in “street name” should bring a copy of an account statement reflecting their ownership of Harris Teeter common stock as of the record date. All shareholders should bring photo identification.

Q.    
  Who can vote at the special meeting?

A.    
  All Harris Teeter shareholders of record as of the close of business on August 22, 2013, the record date for the special meeting, are entitled to receive notice of, attend and vote at the special meeting, or any adjournment or postponement thereof. Each share of Harris Teeter common stock is entitled to one vote on all matters that come before the meeting. At the close of business on the record date, there were 49,458,968 shares of Harris Teeter common stock issued and outstanding.

Q.    
  What matters will be voted on at the special meeting?

A.    
  At the special meeting, you will be asked to consider and vote on the following proposals:

•    
  the merger proposal;

•    
  the named executive officer merger-related compensation proposal;

•    
  the adjournment proposal; and

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•    
  to transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

Q.    
  How does the Harris Teeter Board recommend that I vote on the proposals?

A.    
  Harris Teeter’s Board unanimously recommends that you vote:

•    
  FOR” the merger proposal;

•    
  FOR” the named executive officer merger-related compensation proposal; and

•    
  FOR” the adjournment proposal.

Q.    
  What vote is required to approve the merger proposal?

A.    
  The merger proposal will be approved if shareholders holding at least a majority of the shares of Harris Teeter common stock outstanding and entitled to vote at the close of business on the record date vote “FOR” the proposal.

Q.    
  What vote is required to approve the other proposals?

A.    
  The named executive officer merger-related compensation proposal and the adjournment proposal will each be approved if a majority of the votes cast with respect to this matter in person or represented by proxy at the special meeting and entitled to vote thereon vote “FOR” each such proposal.

Q.    
  Do you expect the merger to be taxable to Harris Teeter shareholders?

A.    
  The exchange of Harris Teeter common stock for cash in the merger will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under state, local or other tax laws. You should read the section titled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 76, and you are encouraged to consult your own tax advisors regarding the U.S. federal income tax consequences of the merger to you in your particular circumstances, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

Q.    
  What other effects will the merger have on Harris Teeter?

A.    
  If the merger is completed, Harris Teeter common stock will be delisted from the NYSE and deregistered under the Exchange Act, and Harris Teeter will no longer be required to file periodic reports with the Securities and Exchange Commission (the “SEC”) with respect to Harris Teeter common stock, in each case in accordance with applicable law. Following the completion of the merger, Harris Teeter common stock will no longer be publicly traded and you will no longer have any interest in Harris Teeter’s future earnings or growth; each share of Harris Teeter common stock you hold will represent only the right to receive $49.38 in cash, without interest and less any applicable withholding taxes.

Q.    
  When is the merger expected to be completed?

A.    
  The parties to the merger agreement expect to complete the merger during the fourth quarter of calendar year 2013, subject to receipt of shareholder approval of the merger proposal and the receipt of regulatory approval. However, Harris Teeter cannot predict the actual date on which the merger will be completed, if at all, because completion is subject to conditions beyond Harris Teeter’s control. See the sections titled “The Merger Proposal (Proposal 1) — Regulatory Clearances and Approvals Required for the Merger” beginning on page 55 and “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 67.

Q.    
  What happens if the merger is not completed?

A.    
  If the merger proposal is not approved by Harris Teeter shareholders, or if the merger is not completed for any other reason, Harris Teeter shareholders will not receive any payment for their shares of Harris Teeter common stock in connection with the merger. Instead, Harris Teeter will remain an independent public company and shares of Harris Teeter common stock will continue to be listed and traded on the NYSE. If the merger agreement is terminated under specified circumstances, Harris Teeter may be required to pay Kroger a termination fee of $75,000,000, or Kroger may be required to pay Harris Teeter

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  a termination fee of $200,000,000. See the section titled “The Merger Agreement — Termination Fees and Expenses” beginning on page 68 for a discussion of the circumstances under which either party will be required to pay a termination fee.

Q.    
  Why am I being asked to consider and vote on the named executive officer merger-related compensation proposal?

A.    
  SEC rules require Harris Teeter to seek approval on a nonbinding, advisory basis with respect to payments that will or may be made to Harris Teeter’s named executive officers in connection with the merger. Approval of the named executive officer merger-related compensation proposal is not required to complete the merger.

Q.    
  Who is soliciting my vote?

A.    
  The Harris Teeter Board is soliciting your proxy, and Harris Teeter will bear the cost of soliciting proxies. Harris Teeter has retained Morrow & Co. to assist with the solicitation of proxies. Morrow & Co. will be paid approximately $55,000 and will be reimbursed for its reasonable out-of-pocket expenses for these and other advisory services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks or other nominees to beneficial owners of shares of Harris Teeter common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by Morrow & Co. or, without additional compensation, by Harris Teeter’s directors, officers and employees.

Q.    
  What do I need to do now?

A.    
  Carefully read and consider the information contained in and incorporated by reference into this proxy statement, including the attached annexes. Whether or not you expect to attend the special meeting in person, please submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the special meeting.

Q.    
  How do I vote if my shares are registered directly in my name?

A.    
  If your shares are registered directly in your name with our transfer agent, you are considered a “shareholder of record” and there are four methods by which you may vote your shares at the special meeting:

•    
  Internet: To vote over the internet, go to www.proxyvote.com and follow the steps outlined on the secure website. Please have your proxy card available for reference because you will need the validation details that are located on your proxy card in order to cast your vote over the internet. If you vote over the internet, you do not have to mail in a proxy card.

•    
  Telephone: To vote by telephone, call toll-free 1-800-690-6903 within the United States any time prior to 11:59 P.M. Eastern Time, on October 2, 2013 on a touchtone phone. Please have your proxy card available for reference because you will need the validation details that are located on your proxy card in order to cast your vote by telephone. If you vote by telephone, you do not have to mail in a proxy card.

•    
  Mail: To vote by mail, complete, sign and date a proxy card and return it promptly to the address indicated on the proxy card. If you return your signed proxy card to us before the special meeting and do not subsequently revoke your proxy, we will vote your shares as you direct.

•    
  In Person: You may attend the special meeting and vote your shares in person, rather than voting your shares by mail, over the internet or by telephone. You will be given a ballot when you arrive.

Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person if you have already voted by proxy. Please choose only one method to cast your vote by proxy. We encourage you to vote over the internet or by telephone, both of which are convenient, cost-effective and reliable alternatives to returning a proxy card by mail.

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Q.    
  How do I vote if my shares are held in the name of my broker, bank or other nominee?

A.    
  If your shares are held by your broker, bank or other nominee, you are considered the beneficial owner of shares held in “street name” and you will receive a form from your broker, bank or other nominee seeking instruction from you as to how your shares should be voted. If you are a beneficial owner and you wish to vote in person at the special meeting, you must bring to the special meeting a legal proxy from the broker, bank or other nominee that holds your shares authorizing you to vote in person at the special meeting.

Q.    
  Can I change or revoke my proxy after it has been submitted?

A.    
  Yes. You can change or revoke your proxy at any time before the final vote at the special meeting. If you are the record holder of your shares, you may change or revoke your proxy by:

•    
  voting again over the internet or by telephone prior to 11:59 P.M., Eastern Time, on October 2, 2013;

•    
  timely sending a written notice that you are revoking your proxy to our Secretary;

•    
  timely delivering a valid, later-dated proxy; or

•    
  attending the special meeting and notifying the election officials that you wish to revoke your proxy to vote in person. Simply attending the special meeting will not, by itself, revoke your proxy.

If you are the beneficial owner of shares held in “street name,” you will have to follow the instructions provided by your broker, bank or other nominee to change or revoke your proxy.

Q.    
  How many shares of Harris Teeter common stock must be present to constitute a quorum for the meeting?

A.    
  The presence at the special meeting, in person or by proxy, of a majority of the shares of Harris Teeter common stock outstanding on the record date will constitute a quorum. There must be a quorum for business to be conducted at the special meeting. However, even if a quorum does not exist, a majority of the shares of Harris Teeter common stock present or represented by proxy at the special meeting and entitled to vote may adjourn the special meeting to another place, date or time. Failure of a quorum to be present at the special meeting will necessitate an adjournment or postponement of the special meeting and will subject Harris Teeter to additional expense. As of the record date, there were 49,458,968 shares of Harris Teeter common stock outstanding. Accordingly, 24,729,485 shares of Harris Teeter common stock must be present or represented by proxy at the special meeting to constitute a quorum.

Q.    
  What if I abstain from voting on any proposal?

A.    
  If you attend the special meeting or submit a proxy card, but abstain from voting on any proposal, your shares will still be counted for purposes of determining whether a quorum exists, but will not be voted on any proposal. As a result, your abstention from voting will have the same effect as a vote “AGAINST” the merger proposal, but will have no effect on the outcome of the named executive officer merger-related compensation proposal and the adjournment proposal.

Q.    
  Will my shares be voted if I do not sign and return my proxy card or vote by telephone or over the internet or in person at the special meeting?

A.    
  If you are a shareholder of record and you do not sign and return your proxy card or vote by telephone, over the internet or in person, your shares will not be voted at the special meeting and will not be counted for purposes of determining whether a quorum exists. The failure to return your proxy card or otherwise vote your shares at the special meeting will have no effect on the outcome of the named executive officer merger-related compensation proposal or the adjournment proposal. However, the vote to approve the merger proposal is based on the total number of shares of Harris Teeter common stock outstanding on the record date, not just the shares that are counted as present in person or by proxy at the special meeting. As a result, if you fail to return your proxy card or otherwise vote your shares at the special meeting, it will have the same effect as a vote “AGAINST” the merger proposal.

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You will have the right to receive the merger consideration if the merger proposal is approved and the merger is completed even if your shares are not voted at the special meeting. However, if your shares are not voted at the special meeting, it will have the same effect as a vote “AGAINST” the merger proposal.

Q.    
  What is a broker non-vote?

A.    
  Broker non-votes are shares held in “street name” by brokers, banks and other nominees that are present or represented by proxy at the special meeting, but with respect to which the broker, bank or other nominee is not instructed by the beneficial owner of such shares how to vote on a particular proposal and such broker, bank or nominee does not have discretionary voting power on such proposal. Because, under NYSE rules, brokers, banks and other nominees holding shares in “street name” do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement, if a beneficial owner of shares of Harris Teeter common stock held in “street name” does not give voting instructions to the broker, bank or other nominee, then those shares will not be counted as present in person or by proxy at the special meeting. As a result, it is expected that there will not be any broker non-votes in connection with any of the three proposals described in this proxy statement. The failure to issue voting instructions to your broker, bank or other nominee will have no effect on the outcome of the named executive officer merger-related compensation proposal or the adjournment proposal. However, the vote to approve the merger proposal is based on the total number of shares of Harris Teeter common stock outstanding on the record date, not just the shares that are counted as present in person or by proxy at the special meeting. As a result, if you fail to issue voting instructions to your broker, bank or other nominee, it will have the same effect as a vote “AGAINST” the merger proposal.

Q.    
  Will my shares held in “street name” or another form of record ownership be combined for voting purposes with shares I hold of record?

A.    
  No. Because any shares you may hold in “street name” will be deemed to be held by a different shareholder than any shares you hold of record, any shares held in “street name” will not be combined for voting purposes with shares you hold of record. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity must be voted by an authorized officer of the entity. Shares held in an individual retirement account must be voted under the rules governing the account.

Q.    
  Am I entitled to exercise appraisal rights instead of receiving the merger consideration for my shares of Harris Teeter common stock?

A.    
  No. In accordance with Section 55-13-02 of the North Carolina Business Corporation Act, no appraisal rights will be available to the holders of Harris Teeter common stock in connection with the merger or the other transactions contemplated by the merger agreement.

Q.    
  What happens if I sell my shares of Harris Teeter common stock before the completion of the merger?

A.    
  If you transfer your shares of Harris Teeter common stock, you will have transferred your right to receive the merger consideration in the merger. In order to receive the merger consideration, you must hold your shares of Harris Teeter common stock through the completion of the merger.

Q.    
  Should I send in my stock certificates or other evidence of ownership now?

A.    
  No. After the merger is completed, you will receive a letter of transmittal from the paying agent for the merger with detailed written instructions for exchanging your shares of Harris Teeter common stock for the consideration to be paid to former Harris Teeter shareholders in connection with the merger. If you are the beneficial owner of shares of Harris Teeter common stock held in “street name,” you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to effect the surrender of such shares. Please do not send in your stock certificates now.

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Q:    
  When will I receive the cash consideration for my shares?

A:    
  After the merger is completed, when you properly complete and return the letter of transmittal and required documentation described in the written instructions referenced above, you will receive from the paying agent a payment of the cash consideration for your shares.

Q.    
  What does it mean if I get more than one proxy card or voting instruction card?

A.    
  If your shares are registered differently or are held in more than one account, you will receive more than one proxy card or voting instruction card. Please complete and return all of the proxy cards or voting instruction cards you receive (or submit each of your proxies over the internet or by telephone) to ensure that all of your shares are voted.

Q.    
  What is householding and how does it affect me?

A.    
  The SEC permits companies to send a single set of proxy materials to any household at which two or more shareholders reside, unless contrary instructions have been received, but only if the company provides advance notice and follows certain procedures. In such cases, each shareholder continues to receive a separate notice of meeting and proxy card. Harris Teeter has not implemented these householding rules with respect to its record holders; however, certain brokerage firms may have instituted householding for beneficial owners of Harris Teeter common stock held through brokerage firms. If your family has multiple accounts holding common stock, you may have already received a householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this proxy statement. The broker will arrange for delivery of a separate copy of this proxy statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies of proxy materials.

Q.    
  When will Harris Teeter announce the voting results of the special meeting, and where can I find the voting results?

A.    
  Harris Teeter intends to announce the preliminary voting results at the special meeting, and will report the final voting results of the special meeting in a Current Report on Form 8-K filed with the SEC. All reports that Harris Teeter files with the SEC are publicly available when filed.

Q:    
  Who can help answer my other questions?

A:    
  If you have questions about the merger, require assistance in submitting your proxy or voting your shares, or need additional copies of this proxy statement or the enclosed proxy card, please contact Morrow & Co., which is acting as the proxy solicitation agent for Harris Teeter in connection with the merger.

Morrow & Co., LLC
470 West Avenue
Stamford, Connecticut 06902
Toll Free: 1-855-201-1081

If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Readers of this proxy statement should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this document. The statements are representative only as of the date they are made, and we undertake no obligation to update any forward-looking statement.

All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. We face risks that are inherent in the businesses and the markets in which we operate. Factors that might cause our future performance to vary from that described in our forward-looking statements include:

•    
  the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement;

•    
  the failure to receive, on a timely basis or otherwise, approval of the merger proposal by our shareholders or the approval of government or regulatory agencies with regard to the merger;

•    
  the failure of one or more conditions to the closing of the merger agreement to be satisfied;

•    
  the amount of the costs, fees, expenses and charges related to the merger agreement or merger;

•    
  risks arising from the merger’s diversion of management’s attention from our ongoing business operations;

•    
  risks that our stock price may decline significantly if the merger is not completed;

•    
  the ability to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners pending the completion of the merger;

•    
  changes in federal, state or local laws or regulations;

•    
  cost and stability of energy sources;

•    
  management’s ability to predict accurately the adequacy of our present liquidity to meet future financial requirements;

•    
  continued solvency of any third parties on leases we have guaranteed;

•    
  management’s ability to predict the required contributions to our pension plans;

•    
  our requirement to impair recorded goodwill or other long-lived assets;

•    
  changes in labor and employee benefit costs, such as increased health care and other insurance costs;

•    
  our ability to recruit, train and retain effective employees and management;

•    
  the extent and speed of successful execution of strategic initiatives;

•    
  volatility of financial and credit markets, which would affect our access to capital;

•    
  our ability to pass along product cost increases through increased sales prices;

•    
  unexpected outcomes of any legal proceedings arising in the normal course of our business or in connection with the merger; and

•    
  other risks and uncertainties set forth in our filings with the SEC, especially in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our annual reports on Form 10-K and quarterly reports on Form 10-Q, current reports on Form 8-K and other SEC filings.

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Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and also could cause actual results to differ materially from those included, contemplated or implied by the forward-looking statements made in this report, and the reader should not consider any of the above list of factors to be a complete set of all potential risks or uncertainties. All subsequent written or oral forward-looking statements concerning the merger or the other transactions contemplated by the merger agreement or other matters addressed in this proxy statement and attributable to Harris Teeter or any person acting on Harris Teeter’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section of this proxy statement.

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THE COMPANIES

Harris Teeter Supermarkets, Inc.

Harris Teeter Supermarkets, Inc.
701 Crestdale Road
Matthews, North Carolina 28105
(704) 844-3100

Harris Teeter operates a regional chain of supermarkets in eight states primarily in the southeastern and mid-Atlantic United States and the District of Columbia. As of July 31, 2013, we operated 213 supermarkets (148 of which contained pharmacies), located in North Carolina (139), Virginia (39), South Carolina (14), Maryland (8), Tennessee (5), Delaware (3), the District of Columbia (3), Florida (1) and Georgia (1). These supermarkets offer a full assortment of groceries, produce, meat and seafood, delicatessen items, bakery items, wines and nonfood items such as health and beauty care, general merchandise and floral. Retail supermarket operations are supported by two Harris Teeter-owned distribution centers and one Harris Teeter-owned dairy production facility. Other than milk, yogurt and ice cream produced by the Harris Teeter-owned facility, we purchase most of the products we sell, including our store brand products, from outside suppliers or directly from the manufacturers.

Shares of Harris Teeter common stock are listed with, and trade on, the New York Stock Exchange under the symbol “HTSI.” Our corporate website address is www.harristeeter.com. The information provided on the Harris Teeter website is not part of this proxy statement and is not incorporated in this proxy statement by reference hereby or by any other reference to Harris Teeter’s website provided in this proxy statement.

For additional information about Harris Teeter included in documents incorporated by reference into this proxy statement, see the section titled “Where You Can Find More Information” on page 79.

The Kroger Co.

The Kroger Co.
1014 Vine Street
Cincinnati, Ohio 45202
(513) 762-4000

The Kroger Co., which we refer to in this proxy statement as Kroger, one of the world’s largest retailers, employs 343,000 associates who serve customers in 2,419 supermarkets and multi-department stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry’s, King Soopers, QFC, Ralphs and Smith’s. Kroger also operates 784 convenience stores, 322 fine jewelry stores, 1,182 supermarket fuel centers and 37 food processing plants in the U.S.

Kroger’s website is www.kroger.com. The information provided on the Kroger website is not part of this proxy statement and is not incorporated in this proxy statement by reference hereby or by any other reference to Kroger’s website provided in this proxy statement.

Hornet Acquisition, Inc.

Hornet Acquisition, Inc., which we refer to in this proxy statement as Merger Sub, was formed in July 2013 solely for the purpose of completing the merger with Harris Teeter. Merger Sub has not carried out any activities to date, except for activities incidental to its incorporation and activities undertaken in connection with the transactions contemplated by the merger agreement. Upon consummation of the merger, Merger Sub will merge with and into Harris Teeter, the separate corporate existence of Merger Sub will cease and Harris Teeter will continue as the surviving corporation and a wholly owned subsidiary of Kroger.

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THE SPECIAL MEETING

This proxy statement is being provided to the Harris Teeter shareholders as part of a solicitation of proxies by the Harris Teeter Board for use at the special meeting to be held at the time and place specified below, and at any properly convened meeting following an adjournment or postponement of the special meeting.

Date, Time and Place

The special meeting is scheduled to be held at Harris Teeter’s headquarters located at 701 Crestdale Road, Matthews, North Carolina 28105 on October 3, 2013 at 10:00 A.M., Eastern Time.

Purpose of the Special Meeting

At the special meeting, Harris Teeter shareholders will be asked to consider and vote on the following proposals:

•    
  the merger proposal, which is further described in the sections titled “The Merger Proposal (Proposal 1)” and “The Merger Agreement,” beginning on pages 24 and 57, respectively;

•    
  the named executive officer merger-related compensation proposal, discussed under the section titled “The Merger Proposal (Proposal 1) — Interests of Harris Teeter Directors and Executive Officers in the Merger” beginning on page 46;

•    
  the adjournment proposal; and

•    
  to transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

Harris Teeter shareholders must approve the merger proposal as a condition to the completion of the merger. If the Harris Teeter shareholders fail to approve the merger proposal, the merger will not occur. The vote on the named executive officer merger-related compensation proposal is a vote separate and apart from the vote to approve the merger proposal. Accordingly, a shareholder may vote to approve the merger proposal and vote not to approve the named executive officer merger-related compensation proposal, and vice versa. Because the vote on the named executive officer merger-related compensation proposal is only advisory in nature, it will not be binding on Harris Teeter, Kroger or the surviving corporation. Accordingly, because Harris Teeter is contractually obligated to pay such merger-related compensation, the compensation will be payable, subject only to the conditions applicable to those payments, if the merger proposal is approved, regardless of the outcome of the advisory vote.

Other than the matters described above, Harris Teeter does not expect a vote to be taken on any other matters at the special meeting or any adjournment or postponement thereof. However, if any other matters are properly presented at the special meeting or any adjournment or postponement thereof for consideration, the holders of the proxies will have discretion to vote on such matters in accordance with their best judgment.

Recommendation of the Harris Teeter Board of Directors

The Harris Teeter Board unanimously determined the merger agreement is fair, advisable and in the best interests of Harris Teeter and its shareholders and adopted and approved the merger agreement. In the course of reaching this decision, the Harris Teeter Board considered a number of factors in its deliberations, which can be found in the section titled “The Merger Proposal (Proposal 1) — Recommendation of the Harris Teeter Board and Reasons for the Merger” beginning on page 33.

The Harris Teeter Board unanimously recommends that the Harris Teeter shareholders vote “FOR” the merger proposal, “FOR” the named executive officer merger-related compensation proposal and “FOR” the adjournment proposal.

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Record Date; Shareholders Entitled to Vote

Only holders of Harris Teeter common stock at the close of business on August 22, 2013, the record date for the special meeting, will be entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of the special meeting. At the close of business on the record date, 49,458,968 shares of Harris Teeter common stock were issued and outstanding.

Holders of Harris Teeter common stock are entitled to one vote for each share of Harris Teeter common stock they own at the close of business on the record date.

Quorum

The presence at the special meeting, in person or by proxy, of the holders of a majority of the shares of Harris Teeter common stock outstanding on the record date will constitute a quorum. There must be a quorum for business to be conducted at the special meeting. However, even if a quorum does not exist, a majority of the shares of Harris Teeter common stock present or represented by proxy at the special meeting and entitled to vote may adjourn the meeting to another place, date or time. Failure of a quorum to be represented at the special meeting will necessitate an adjournment or postponement of the special meeting and will subject Harris Teeter to additional expense.

Once a share is represented in person or by proxy at the special meeting, it will be counted for purposes of determining whether a quorum exists at the special meeting and any adjournment or postponement of the special meeting. However, if a new record date is set for the adjourned or postponed special meeting, a new quorum will have to be established. If you submit a properly executed proxy card, even if you abstain from voting, your shares will be counted for purposes of determining whether a quorum exists at the special meeting.

Required Vote

The approval of the merger proposal requires the affirmative vote of a majority of the shares of Harris Teeter common stock outstanding at the close of business on the record date.

Approval of each of the named executive officer merger-related compensation proposal and the adjournment proposal requires the affirmative vote of a majority of the votes cast with respect to such matter in person or represented by proxy at the special meeting and entitled to vote thereon.

Abstentions and Broker Non-Votes

An abstention occurs when a shareholder attends a meeting, either in person or by proxy, but abstains from voting. At the special meeting, abstentions will be counted for purposes of determining whether a quorum exists. Abstaining from voting will have the same effect as a vote “AGAINST” the merger proposal, but will have no effect on the outcome of the named executive officer merger-related compensation proposal and the adjournment proposal.

If no instruction as to how to vote is given (including no instruction to abstain from voting) in an executed, duly returned and not revoked proxy, the proxy will be voted “FOR” (i) approval of the merger proposal, (ii) approval of the named executive officer merger-related compensation proposal and (iii) approval of the adjournment proposal.

Broker non-votes are shares held in “street name” by brokers, banks and other nominees that are present or represented by proxy at the special meeting, but with respect to which the broker, bank or other nominee is not instructed by the beneficial owner of such shares how to vote on a particular proposal and such broker, bank or nominee does not have discretionary voting power on such proposal. Because, under NYSE rules, brokers, banks and other nominees holding shares in “street name” do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement, if a beneficial owner of shares of Harris Teeter common stock held in “street name” does not give voting instructions to the broker, bank or other nominee, then those shares will not be counted as present in person or by proxy at the special meeting. As a result, it is expected that there will not be any broker non-votes in connection with any of the three proposals described in this proxy statement.

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Failure to Vote

If you are a shareholder of record and you do not sign and return your proxy card or vote over the internet, by telephone or in person at the special meeting, your shares will not be voted at the special meeting, will not be counted as present in person or by proxy at the special meeting and will not be counted for purposes of determining whether a quorum exists.

As discussed above, under NYSE rules, brokers and other record holders do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement. Accordingly, if you are the beneficial owner of shares held in “street name” and you do not issue voting instructions to your broker, bank or other nominee, your shares will not be voted at the special meeting and will not be counted as present in person or by proxy at the special meeting or counted for purposes of determining whether a quorum exists.

A failure to vote will have no effect on the outcome of the named executive officer merger-related compensation proposal or the adjournment proposal. However, the vote to approve the merger proposal is based on the total number of shares of Harris Teeter common stock outstanding on the record date, not just the shares that are counted as present in person or by proxy at the special meeting. As a result, if you fail to vote your shares, it will have the same effect as a vote “AGAINST” the merger proposal.

Voting by Harris Teeter’s Directors and Executive Officers

At the close of business on the record date, directors and executive officers of Harris Teeter and their affiliates were entitled to vote 551,256 shares of Harris Teeter common stock, or approximately 1.1% of the shares of Harris Teeter common stock issued and outstanding on that date. Harris Teeter’s directors and executive officers have informed us that they intend to vote their shares in favor of the merger proposal and the other proposals to be considered at the special meeting so long as the recommendation of the Harris Teeter Board with respect to these proposals has not changed, although none of Harris Teeter’s directors and executive officers is obligated to do so.

Voting at the Special Meeting

If your shares are registered directly in your name with our transfer agent, you are considered a “shareholder of record” and there are four methods by which you may vote your shares at the special meeting. You may attend the special meeting and vote your shares in person, rather than signing and returning your proxy card, or you may vote your shares by authorizing the persons named as proxies on the proxy card to vote your shares at the special meeting by returning the proxy card by mail, through the internet or by telephone. Although Harris Teeter offers four different voting methods, Harris Teeter encourages you to vote over the internet or by telephone, as Harris Teeter believes they are the most convenient, cost-effective and reliable voting methods. If you choose to vote your shares over the internet or by telephone, there is no need for you to mail back your proxy card. We also recommend that you vote as soon as possible, even if you are planning to attend the special meeting, so that the vote count will not be delayed.

•    
  To Vote in Person: If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting.

•    
  To Vote Over the Internet: To vote over the internet, go to www.proxyvote.com and follow the steps outlined on the secure website. Please have your proxy card available for reference because you will need the validation details that are located on your proxy card in order to cast your vote. If you vote over the internet, you do not have to mail in a proxy card.

•    
  To Vote by Telephone: To vote by telephone, call toll-free 1-800-690-6903 within the United States at any time prior to 11:59 P.M., Eastern Time, on October 2, 2013 on a touchtone phone. Please have your proxy card available for reference because you will need the validation details that are located on your proxy card in order to cast your vote. If you vote by telephone, you do not have to mail in a proxy card.

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•    
  To Vote by Mail: To vote by mail, complete, sign and date the proxy card and return it promptly to the address indicated on the proxy card. If you sign and return your proxy card without indicating how you want your shares of Harris Teeter common stock to be voted with regard to a particular proposal, your shares of Harris Teeter common stock will be voted in favor of such proposal. If you return your proxy card without a signature, your shares will not be counted as present at the special meeting and cannot be voted.

If your shares are held by your broker, bank or other nominee, you are considered the beneficial owner of shares held in “street name” and you will receive a form from your broker, bank or other nominee seeking instruction from you as to how your shares should be voted. If you are a beneficial owner and you wish to vote in person at the special meeting, you must bring to the special meeting a legal proxy from the broker, bank or other nominee that holds your shares authorizing you to vote in person at the special meeting.

Shareholders who are entitled to vote at the special meeting, as well as our invited guests, may attend the special meeting. Beneficial owners should bring a copy of an account statement reflecting their ownership of Harris Teeter common stock as of the record date. All shareholders should bring photo identification.

Revocation of Proxies

You can change or revoke your proxy at any time before the final vote at the special meeting. If you are the record holder of your shares, you may revoke your proxy by:

•    
  voting again over the internet or by telephone prior to 11:59 P.M., Eastern Time, on October 2, 2013;

•    
  timely sending a written notice that you are revoking your proxy to our Secretary;

•    
  timely delivering a valid, later-dated proxy; or

•    
  attending the special meeting and notifying the election officials that you wish to revoke your proxy to vote in person. Simply attending the special meeting will not, by itself, revoke your proxy.

If you are the beneficial owner of shares held in “street name,” you should contact your broker, bank or other nominee with questions about how to change or revoke your voting instructions.

Solicitation of Proxies

The Harris Teeter Board is soliciting your proxy, and Harris Teeter will bear the cost of soliciting proxies. Harris Teeter has retained Morrow & Co. to assist with the solicitation of proxies. Morrow & Co. will be paid approximately $55,000 and will be reimbursed for its reasonable out-of-pocket expenses for these and other advisory services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks and other nominees to the beneficial owners of shares of Harris Teeter common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by Morrow & Co. or, without additional compensation, by Harris Teeter’s directors, officers and employees.

Adjournment

In addition to the merger proposal and the named executive officer merger-related compensation proposal, Harris Teeter shareholders are also being asked to approve the adjournment proposal, which will give the Harris Teeter Board authority to adjourn the special meeting for the purpose of soliciting additional votes in favor of the merger proposal if there are not sufficient votes at the time of the special meeting to approve the merger proposal. If a quorum does not exist, the holders of a majority of the shares of Harris Teeter common stock present or represented by proxy at the special meeting and entitled to vote may adjourn the special meeting to another place, date or time. If the adjournment proposal is approved, the special meeting could be adjourned by the Harris Teeter Board as permitted under the terms of the merger agreement. In addition, the Harris Teeter Board, as permitted under the terms of the merger agreement, could postpone the meeting before it commences, whether for the purpose of soliciting additional votes or for other reasons. If the special meeting is adjourned or postponed for the purpose of soliciting additional votes, shareholders who have

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already submitted their proxies will be able to revoke them at any time prior to their use. If you return a proxy and do not indicate how you wish to vote on the adjournment proposal, your shares will be voted in favor of the adjournment proposal.

The Harris Teeter Board unanimously recommends a vote “FOR” the adjournment proposal.

Other Information

You should not return your stock certificate or send documents representing Harris Teeter common stock with the proxy card. If the merger is completed, the paying agent for the merger will send you a letter of transmittal and instructions for exchanging your shares of Harris Teeter common stock for the consideration to be paid to the former Harris Teeter shareholders in connection with the merger.

Assistance

If you have questions about the merger, require assistance in submitting your proxy or voting your shares, or need additional copies of this proxy statement or the enclosed proxy card, please contact Morrow & Co., which is acting as the proxy solicitation agent for Harris Teeter in connection with the merger.

Morrow & Co., LLC
470 West Avenue
Stamford, Connecticut 06902
Toll Free: 1-855-201-1081

If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.

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THE MERGER PROPOSAL
(PROPOSAL 1)

The discussion of the merger in this proxy statement is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A, and hereby incorporated by reference into this proxy statement. We urge you to read carefully the proxy statement, the merger agreement and the other documents referred to herein, including the documents incorporated by reference, for a more detailed description of the merger.

Structure of the Merger

Subject to the terms and conditions of the merger agreement and in accordance with the North Carolina Business Corporation Act, at the effective time, Merger Sub will merge with and into Harris Teeter, the separate corporate existence of Merger Sub will cease and Harris Teeter will survive the merger as a wholly owned subsidiary of Kroger.

What Shareholders Will Receive in the Merger

At the effective time, each outstanding share of Harris Teeter common stock (other than Harris Teeter common stock held by Kroger or Merger Sub) will be automatically converted into the right to receive $49.38 in cash, without interest and less any applicable withholding taxes. After the merger is completed, current holders of Harris Teeter common stock will have only the right to receive a cash payment in respect of their shares of Harris Teeter common stock, and will no longer have any rights as holders of Harris Teeter common stock, including voting or other rights, and Kroger will own 100% of Harris Teeter’s outstanding common stock. Shares of Harris Teeter common stock held by Kroger or Merger Sub will be canceled at the effective time.

Treatment of Harris Teeter Equity Awards

Stock Options. At the effective time, Harris Teeter will cause each outstanding option to purchase shares of Harris Teeter’s stock, whether vested or unvested, to represent the right to receive a payment in cash, without interest and less any applicable withholding taxes, equal to the product of the excess, if any, of the merger consideration of $49.38 over the exercise price of the option, multiplied by the number of shares subject to such option.

Restricted Shares and Performance Shares. At the effective time, each performance share and outstanding share of Harris Teeter’s common stock subject to time-based, performance or other vesting or lapse restrictions under any stock or incentive plan of Harris Teeter will fully vest such that each holder thereof will be entitled to 100% of the shares of Harris Teeter’s common stock underlying such awards and the holder thereof will receive the merger consideration of $49.38 for each such share.

Effects on Harris Teeter if the Merger Is Not Completed

If the merger proposal is not approved by Harris Teeter shareholders or if the merger is not completed for any other reason, Harris Teeter shareholders will not receive any payment for their shares in connection with the merger. Instead, Harris Teeter will remain an independent public company and shares of Harris Teeter common stock will continue to be listed and traded on the NYSE. In addition, if the merger is not completed, Harris Teeter expects that management will operate Harris Teeter’s business in a manner similar to that in which it is being operated today and that Harris Teeter shareholders will continue to be subject to the same opportunities and risks to which they are currently subject, including, without limitation, risks related to the highly competitive industry in which Harris Teeter operates and adverse economic conditions.

Furthermore, if the merger is not completed, and depending on the circumstances that would have caused the merger not to be completed, it is likely that the price of Harris Teeter’s common stock will decline. If that were to occur, it is uncertain when, if ever, the price of Harris Teeter’s common stock would return to the price at which it trades as of the date of this proxy statement.

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Accordingly, if the merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of Harris Teeter’s common stock. If the merger is not completed, the Harris Teeter Board will continue to evaluate and review Harris Teeter’s business operations, properties, dividend policy and capitalization, among other things, make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to enhance shareholder value. If the merger proposal is not approved by Harris Teeter shareholders or if the merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to Harris Teeter will be offered or that Harris Teeter’s business, prospects or results of operation will not be adversely impacted.

Further, if the merger agreement is terminated under specified circumstances, Harris Teeter may be required to pay Kroger a termination fee of $75,000,000, or Kroger may be required to pay Harris Teeter a termination fee of $200,000,000. See the section titled “The Merger Agreement — Termination Fees and Expenses” beginning on page 68 for a discussion of the circumstances under which either party will be required to pay a termination fee.

Background of the Merger

As part of the ongoing oversight and management of Harris Teeter, the Harris Teeter Board and executive management regularly review and assess Harris Teeter’s long-term strategic goals and opportunities, the competitive environment, trends and changes in the food retail industry, Harris Teeter’s short- and long-term performance in light of its strategic plan and the performance of Harris Teeter’s management team. In connection with these activities, the Harris Teeter Board also periodically considers strategic alternatives, including potential business combinations, acquisitions and dispositions.

In addition, the Harris Teeter Board and management discussed the increasing consolidation in the food retail industry and the potential benefits to Harris Teeter from enhanced scale. Harris Teeter considered various alternatives for participating in the ongoing consolidation in the food retail industry, including acquiring individual stores, groups of stores and small food retail chains, as well as participating in other potential combinations such as a merger or sale.

Prior to November 2011, Harris Teeter (then known as Ruddick Corporation) had two primary operating subsidiaries: Harris Teeter, Inc. and American & Efird, Inc. (“American & Efird”), one of the world’s largest manufacturers and distributors of industrial sewing thread and technical textiles. For several years, the Harris Teeter Board and management evaluated the merits of operating the disparate businesses as a single public company.

The Harris Teeter Board determined that selling American & Efird would allow Harris Teeter to better focus its resources, including management’s time, on the supermarket business. Harris Teeter management believed that its continued ownership of American & Efird complicated its ability to participate in the ongoing consolidation of the food retail industry. This perspective was validated by informal conversations with several potential strategic partners. Harris Teeter engaged financial advisors, conducted a sales process and sold American & Efird in a transaction that closed on November 7, 2011. The American & Efird transaction not only allowed Harris Teeter to utilize the cash proceeds from the sale to enhance store growth and repay debt, but also better positioned Harris Teeter competitively as a pure-play food retailer.

At an industry meeting that occurred in April 2011, the President of Party A (a supermarket chain) approached Mr. Morganthall, the President of Harris Teeter, to make an informal inquiry as to whether Harris Teeter would be interested in discussing a combination with Party A. On June 1, 2011, Harris Teeter and Party A entered into a confidentiality agreement. A meeting was arranged, and the Chief Executive Officer of Harris Teeter, Mr. Dickson, met with the Chairman of Party A in July 2011. In connection with the meeting, Mr. Dickson toured some of Party A’s stores. A subsequent visit was arranged in August 2011, at which three senior executives of Party A met with Mr. Dickson and Mr. Morganthall to visit some Harris Teeter stores. The discussions were very general and remained at a high level. At the regularly scheduled August 18, 2011 meeting of the Harris Teeter Board, Mr. Dickson reported on the visits.

During the remainder of 2011 and early 2012, Harris Teeter exchanged additional high-level information with Party A, but no serious discussions regarding a strategic combination took place. At the May 17, 2012

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regular quarterly meeting of the Harris Teeter Board, Mr. Dickson informed the Harris Teeter Board that discussions with Party A had moved very slowly, but that the Party A CEO remained interested in continuing discussions about a transaction. The Harris Teeter Board discussed the possibility of engaging a financial advisor to facilitate discussions, but, in light of the slow movement of Party A, the Harris Teeter Board made no decision on the engagement of financial advisors at that time. Ultimately, Party A chose not to pursue a combination with Harris Teeter.

In May 2012, representatives of Party B, a private equity firm, visited Harris Teeter’s offices to meet with Mr. Dickson and Harris Teeter’s Chief Financial Officer, Mr. Woodlief. In June 2012, representatives of Party C, another private equity firm, also visited Harris Teeter’s offices and spoke with Mr. Dickson, Mr. Morganthall and Mr. Woodlief. Both Party B and Party C discussed their interest and relevant transaction expertise in the food retail sector and expressed a desire to learn more about Harris Teeter. Mr. Dickson thanked each of Party B and Party C for their interest and indicated he would update the Harris Teeter Board on their inquiry. He further indicated that management was in the annual process of preparing Harris Teeter’s five-year strategic plan, and that it would not make sense to have further discussions until the plan was completed, since the Harris Teeter Board would want to assess Harris Teeter’s prospects for continuing to operate as an independent company before evaluating strategic alternatives.

At the regular quarterly meeting of the Harris Teeter Board held on August 16, 2012, Harris Teeter’s management made its annual presentation to the Harris Teeter Board of the five-year strategic plan and Mr. Dickson informed the Harris Teeter Board of the visits from Party B and Party C. Party B and Party C continued to make inquiries of Harris Teeter and ask for follow-up visits, but no further substantive discussions were held with Party B or Party C until after J.P. Morgan had been formally engaged as Harris Teeter’s financial advisor (on November 16, 2012). At the Harris Teeter Board meeting on August 16, 2012, following management’s presentation of the five-year strategic plan and Mr. Dickson’s presentation regarding his discussions with Parties B and C, the Harris Teeter Board encouraged management to take a more active approach in the exploration of strategic alternatives.

Between the August 16, 2012 Board meeting and the regular quarterly Harris Teeter Board meeting held on November 15, 2012, Harris Teeter’s management discussed with J.P. Morgan its potential engagement as financial advisor to Harris Teeter in connection with (a) evaluating the merits of a potential sale, merger, joint venture and/or other business combination and (b) comparing the merits of such a transaction to the prospects of Harris Teeter as a standalone public company. On November 15, 2012, the Harris Teeter Board discussed J.P. Morgan’s extensive advisory and transaction experience in the retail sector, and in the food retail industry in particular. Management reviewed with the Harris Teeter Board the principal terms of the proposed engagement with J.P. Morgan, including the proposed fees, and compared the proposed fees to fees charged by other investment bankers in connection with similar engagements. The Harris Teeter Board expressed its support for the exploration of strategic alternatives and the engagement of J.P. Morgan and determined that the process would be overseen by the Harris Teeter Board as a whole.

On November 16, 2012, Harris Teeter engaged J.P. Morgan as its financial advisor. J.P. Morgan advised that Harris Teeter should consider continuing its discussions with Party B and Party C and initiating discussions with other potential purchasers.

Over the course of the next two weeks, management and J.P. Morgan worked together to develop a list of additional potential purchasers. During the period beginning November 21, 2012 and ending December 3, 2012, J.P. Morgan contacted eleven additional potential purchasers, each of which had demonstrated expertise in food retail and the financial capacity to consummate an acquisition of, or combination with, Harris Teeter. Between December 5, 2012 and December 20, 2012, Harris Teeter executed eight confidentiality agreements, including with each of Party B and Party C, as well as Party D, Party E, Party F, Party G, Party H and Party I, respectively.

Between December 7, 2012 and December 20, 2012, J.P. Morgan sent summary information regarding Harris Teeter to each of the eight parties, discussed with each of them the materials that had been distributed to them and answered their questions regarding Harris Teeter. Also between December 7, 2012 and December 20, 2012, J.P. Morgan submitted an instruction letter to each of the parties. The instruction letter,

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among other things, requested that preliminary nonbinding indications of interest be submitted by December 21, 2012.

J.P. Morgan received preliminary nonbinding indications of interest on December 21, 2012 from Party B, Party C, Party D, Party E, Party F and Party I. A preliminary indication of interest was received from Party H on January 4, 2013. Party G did not submit an indication of interest and did not continue to participate in the process.

The preliminary nonbinding indications of interest received ranged from $44 to $50 per share. Party B’s indication of interest was at $50 per share, but included a requirement for an immediate 45-day exclusivity period in order for Party B to conduct due diligence and negotiate a purchase agreement. Harris Teeter, following discussions with its financial and legal advisors and members of the Harris Teeter Board, determined that it was not in the best interest of its shareholders to suspend the process for the purpose of allowing Party B, which had not yet conducted any due diligence, to determine whether it was interested in pursuing a transaction. Party B was informed that it would not be granted a 45-day exclusivity period, and Party B elected not to further participate in the process. Party F’s preliminary indication of interest was at the low end of the range, and Party F was excluded from the process.

All preliminary nonbinding indications of interest were expressly conditioned on the completion of due diligence and the negotiation of satisfactory definitive agreements.

From January 25, 2013 through February 7, 2013, Harris Teeter’s management met with, made presentations to and provided store tours to each of Party C, Party D, Party E, Party H and Party I.

The potential buyers who attended the management presentations were given access to a virtual data room prepared by Harris Teeter with the assistance of J.P. Morgan and McGuireWoods LLP, Harris Teeter’s corporate and securities counsel. During the week of February 11, 2013, all of the potential buyers submitted requests for additional information in order to complete their analysis. In response to these diligence requests, Harris Teeter provided access to extensive data through the virtual data room.

During the 52-week period ended January 18, 2013, Harris Teeter stock traded in a range from $35.72 to $44.40 per share. On January 18, 2013, the closing price of Harris Teeter stock was $36.94 per share. After the market closed on that day, Mergermarket reported that Harris Teeter was conducting a strategic review. On the following day, the closing price for Harris Teeter stock was $39.31, a 6.4% increase over the previous closing price. On January 31, 2013, Harris Teeter’s stock closed at $41.49. Following the close of the market that day, Harris Teeter announced its earnings for the first quarter of its 2013 fiscal year, and the following day the stock closed at $37.67, a 9.2% decrease.

On February 12, 2013 at 3:50 p.m., The Wall Street Journal reported that Harris Teeter was considering a sale and that it had retained J.P. Morgan as its financial advisor. Harris Teeter stock had opened that day at $37.04; it closed at $39.50, a 6.6% increase. The articles in Mergermarket and The Wall Street Journal, along with other online and print publications, created significant uncertainty among Harris Teeter’s employees, vendors and customers. As a result, Harris Teeter issued a press release on February 13, 2013 following the closing of the market, confirming that it had retained J.P. Morgan as its financial advisor to explore strategic alternatives. Harris Teeter stock closed at $41.39 the following day. The announcement by Harris Teeter received substantial press coverage. Following Harris Teeter’s public confirmation that it had engaged J.P. Morgan as its financial advisor, J.P. Morgan received calls from several additional interested parties, including Party J, Party K, Party L, Party M, Party N and Party O.

Party J called J.P. Morgan on February 25, 2013 to express its interest in acquiring Harris Teeter. After reviewing public information, Party J decided not to pursue a transaction.

Party K reached out to J.P. Morgan on February 26, 2013 and requested a confidentiality agreement, which J.P. Morgan provided that same day. However, Party K decided neither to sign the confidentiality agreement nor to continue to pursue a transaction with Harris Teeter.

A financial advisor to Party L contacted J.P. Morgan on February 26, 2013 to register its interest in a transaction with Harris Teeter. Representatives from Party L as well as representatives from Party L’s financial

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advisor met with Harris Teeter management in New York on March 14, 2013. After this meeting, both parties mutually decided not to engage in further discussions regarding a transaction.

J.P. Morgan contacted Party M on March 1, 2013 to determine Party M’s interest in a potential transaction with Harris Teeter. Party M decided not to pursue a transaction with Harris Teeter.

Party N contacted J.P. Morgan on March 17, 2013, but decided not to pursue a transaction with Harris Teeter.

On February 21, 2013, the Harris Teeter Board held its regular quarterly meeting. At that meeting, McGuireWoods advised the directors of their fiduciary duties in connection with a possible transaction. Mr. Dickson reported to the Harris Teeter Board that Harris Teeter had entered into an engagement letter with J.P. Morgan in accordance with the terms outlined at the November 15, 2012 meeting of the Harris Teeter Board. Mr. Dickson advised the Harris Teeter Board regarding the status of the discussions with each of the prospective buyers and of the anticipated next steps in the process. The Harris Teeter Board also discussed the potential for continuing to operate independently, and discussed ways in which Harris Teeter could continue to operate effectively if no strategic transaction occurred.

Harris Teeter entered into confidentiality agreements with three parties who had contacted J.P. Morgan following the February 13, 2013 announcement — Party O, Party P and Kroger. Information regarding Harris Teeter was distributed to each of these three prospective buyers. Party O executed a confidentiality agreement on March 11, 2013 and received summary information regarding Harris Teeter. Party P executed a confidentiality agreement on March 7, 2013. Kroger executed a confidentiality agreement on March 12, 2013. On March 27, 2013, Party O informed J.P. Morgan that it would no longer be continuing with the process.

Following the management presentations in January and February and continuing through mid-March, discussions continued with Party C, Party D, Party E, Party H and Party I. By March 18, 2013, each of these parties had exited the process and had informed J.P. Morgan that it was unwilling to enter into a transaction at Harris Teeter’s then-current trading level, which was in the low $40s.

On April 2, 2013, Kroger informed J.P. Morgan that it had engaged Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BofA Merrill Lynch”) as its financial advisor. On April 8, 2013, Kroger submitted a preliminary nonbinding initial indication of interest. Kroger indicated that it would be prepared to purchase all of the shares of Harris Teeter common stock for between $42 and $45 per share in cash. The indication of interest was subject to several conditions, including satisfactory completion of due diligence, negotiation of a mutually satisfactory definitive agreement and regulatory approval (including antitrust regulatory approval). Following discussions with Harris Teeter, J.P. Morgan responded to Kroger on April 18, 2013, indicating that it was unlikely that Harris Teeter would entertain a transaction at the indicated range or be prepared to bear any regulatory or antitrust approval risk. J.P. Morgan suggested to Kroger that, with additional access to management and due diligence, Kroger would be able to offer a higher value. In order to facilitate Kroger’s review of Harris Teeter, Harris Teeter gave Kroger access to the virtual data room on April 12, 2013 (but precluded access to competitively sensitive information).

On April 11, 2013, J.P. Morgan received a call from a senior representative of Party P indicating that Party P was very interested in a transaction. Party P indicated that the consideration would be a mixture of cash and stock in a public entity that would be created through a combination of Party P’s supermarket portfolio company (the “Party P Portfolio Company”) and Harris Teeter. The cash portion of the consideration would be $2 billion or $40 per share. Party P offered its assistance to value the stock component given that the Party P Portfolio Company was not a public company and did not have historical audited financial statements.

On April 15, 2013, Party P submitted a preliminary nonbinding indication of interest to combine the Party P Portfolio Company with Harris Teeter in a transaction in which the Harris Teeter shareholders would receive a total cash consideration of $2 billion, or $40 per share in cash, together with what Party P described as “a significant publicly traded minority stake in the combined entity.” The indication of interest submitted by Party P was subject to negotiation of a definitive merger agreement, obtaining debt financing, the confirmation of certain material assumptions, due diligence review and regulatory approvals.

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On April 14, 2013, J.P. Morgan received a call from a representative of Party Q. Harris Teeter instructed J.P. Morgan to initiate discussions with Party Q. Harris Teeter signed a confidentiality agreement with Party Q as of April 16, 2013. By the end of April 2013, Party Q had decided not to proceed further with the process.

On April 22, 2013, a special meeting of the Harris Teeter Board was held. At the meeting, J.P. Morgan representatives provided an update on the process, including a report on the preliminary nonbinding indications of interest received from Kroger and Party P, which were the only two parties actively engaged in the process at that time. J.P. Morgan indicated the key next steps for each party in the event that the Harris Teeter Board decided to continue with that party in the process. For Party P, J.P. Morgan indicated that the next steps in the process included completion of business due diligence, commencement of Harris Teeter reverse due diligence on the Party P Portfolio Company, conducting a detailed review of the synergy opportunity, obtaining a revised indication of value with clarification and quantification of the percentage ownership and implied immediate trading value of the “significant publicly traded minority stake in the combined entity”, and developing a refined view of the pro forma capital structure. For Kroger, J.P. Morgan indicated that the next steps included completion of business due diligence, confirmation that Kroger was willing to bear antitrust and regulatory risk and obtaining a revised indication of value. The Harris Teeter Board authorized J.P. Morgan to contact each party.

On April 23, 2013, J.P. Morgan spoke with Party P’s financial advisor and BofA Merrill Lynch to discuss the next steps in the process.

On April 25, 2013, Party R called J.P. Morgan and said a combination with Harris Teeter made strategic sense and expressed its interest in joining the process. Party R subsequently did not execute a confidentiality agreement.

During the months of April and May 2013, Kroger and Party P conducted extensive due diligence on Harris Teeter, and Harris Teeter conducted extensive reverse due diligence on the Party P Portfolio Company. Party P was given access to Harris Teeter’s virtual data room on May 1, 2013.

On May 2, 2013, following the closing of the market, Harris Teeter announced its earnings for the second quarter of the 2013 fiscal year, and the closing price on the day following the announcement was $44.10, an increase of 8.0%.

On May 3, 2013, Harris Teeter entered into a mutual confidentiality agreement with Party P and the Party P Portfolio Company, in order to provide for reverse due diligence by Harris Teeter on the Party P Portfolio Company. This mutual confidentiality agreement replaced the confidentiality agreement entered into between Harris Teeter and Party P on March 7, 2013.

On May 6 and 7, 2013, members of Harris Teeter management met with, made presentations to and participated in meetings with representatives of Kroger and BofA Merrill Lynch regarding Harris Teeter’s business operations.

On May 9, 2013, Kroger conducted additional site visits of Harris Teeter locations.

On four separate days in May 2013, senior members of Harris Teeter visited stores of the Party P Portfolio Company.

On May 14, 2013, J.P. Morgan spoke with Party P’s financial advisor to confirm its continued interest in Harris Teeter and its preliminary nonbinding indication of interest.

On May 16, 2013, a regular quarterly meeting of the Harris Teeter Board was held, during which representatives from J.P. Morgan and McGuireWoods were present. J.P. Morgan updated the Harris Teeter Board on the diligence progress of Kroger and Party P. J.P. Morgan informed the Harris Teeter Board that Party P believed that the consideration that it offered ($2 billion or $40 per share plus “a significant publicly traded minority stake in the combined entity”) had the potential to offer a value in excess of $50 per share. Party P stated that this valuation was based on a number of important assumptions, including anticipated levels of combined EBITDA, significant potential synergies, prevailing public market multiples and substantial debt reduction over a five-year time period. The Harris Teeter Board authorized J.P. Morgan to deliver feedback to each of Kroger and Party P.

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On May 18, 2013, J.P. Morgan spoke to Party P to discuss next steps in the process including (a) completion of diligence of Harris Teeter, (b) ongoing reverse diligence of Harris Teeter on the Party P Portfolio Company, (c) Harris Teeter’s timeline to deliver a pro forma financial model for the combined Party P Portfolio Company/Harris Teeter public entity and (d) joint work on synergies.

On May 19, 2013, J.P. Morgan spoke to BofA Merrill Lynch, who requested additional diligence information that Kroger required before being in a position to submit a revised indication of interest. On May 20, 2013, J.P. Morgan provided the requested information to BofA Merrill Lynch.

On May 20, 2013, J.P. Morgan spoke to BofA Merrill Lynch to indicate that the three next steps in the process included completing all due diligence, facilitating a call between Harris Teeter’s and Kroger’s antitrust counsel and revising its preliminary nonbinding indication of interest.

On May 21 and 22, 2013, J.P. Morgan spoke to Party P’s financial advisor and noted the Harris Teeter Board’s concerns regarding key areas of uncertainty with Party P’s preliminary nonbinding indication of interest including the immediate trading value of the equity consideration, the nature and amount of the Party P Portfolio Company’s off-balance-sheet liabilities, the lack of audited financials and the timing for delivering them, as well as recent Party P Portfolio Company financial performance.

On June 3, 2013, J.P. Morgan had conversations with BofA Merrill Lynch, during which BofA Merrill Lynch, at Kroger’s direction, verbally gave J.P. Morgan a revised preliminary nonbinding indication of interest of $45.50 to $47.50 per share and indicated to J.P. Morgan that there was additional diligence to be completed in order to narrow the offer to a single point of value.

On June 6, 2013, Harris Teeter delivered a revised financial model to Party P and the Party P Portfolio Company. An in-person diligence session was held with Party P and the Party P Portfolio Company in New York City on June 11, 2013 to review the model again for the purpose of continuing to refine the model for a contemplated combined company. On this date, J.P. Morgan communicated to Party P the overall status of the process and anticipated timing of next steps in the process and indicated Harris Teeter’s desire for an announcement in early July 2013. J.P. Morgan informed Party P of the next Harris Teeter Board meeting on June 24, 2013. J.P. Morgan requested that Party P deliver a revised preliminary nonbinding indication of interest by June 20, 2013.

On June 13, 2013, J.P. Morgan spoke to BofA Merrill Lynch and informed them of the next Harris Teeter Board meeting on June 24, 2013. J.P. Morgan discussed the overall status of the process and anticipated timing of next steps in the process and indicated Harris Teeter’s desire for an announcement in early July 2013. J.P. Morgan requested that Kroger deliver a revised preliminary nonbinding indication of interest by June 20, 2013.

On June 18, 2013, Harris Teeter provided Kroger with a proposed merger agreement drafted for a strategic buyer and provided Party P with a proposed merger agreement drafted for a financial buyer.

On June 19, 2013, BofA Merrill Lynch informed J.P. Morgan that Kroger had revised its proposal from a range of $45.50 to $47.50 per share to a single point proposal of $47.50 per share. J.P. Morgan asked BofA Merrill Lynch to have Kroger reflect its revised proposal in writing and also indicate Kroger’s timing for completing due diligence and signing a definitive agreement. On June 21, 2013, Harris Teeter received Kroger’s revised preliminary nonbinding indication of interest. Kroger delivered a written proposal, confirming the earlier verbal proposal, of $47.50 per share in cash. The proposal anticipated the completion of due diligence and negotiation of definitive agreements within two to three weeks.

On June 20, 2013, Party P delivered a revised written preliminary nonbinding indication of interest to Harris Teeter. Under the proposal, Party P would contribute the Party P Portfolio Company into Harris Teeter and lever the combined entity to result in Harris Teeter shareholders receiving $2.08 billion in cash consideration ($52 per share in cash for 40 million (of the 49.5 million) shares of Harris Teeter common stock) with the remaining shares to be acquired in exchange for common stock in the combined entity (such that Harris Teeter shareholders would own 30% of the combined company). It was contemplated that the combined entity would be a publicly traded company on the New York Stock Exchange. The proposal contemplated that the Harris Teeter shareholders would have the ability to make a cash/stock election as to the

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consideration they received, with proration in the event cash or stock were oversubscribed (i.e., if all Harris Teeter shareholders elected cash, each would receive $42 per share in cash and the balance in stock consideration). Party P’s proposal was subject to negotiation of the definitive merger agreement, confirmation of the accuracy of significant financing assumptions, attaining financing commitments from lenders (drafts of which were provided with the preliminary nonbinding indication of interest), and the completion of confirmatory due diligence and other matters. The proposal noted that the Party P Portfolio Company did not have audited financial statements, and estimated that audited financial statements could be obtained in November 2013. On June 21, 2013, following receipt of a preliminary nonbinding indication of interest, J.P. Morgan spoke with Party P’s financial advisor to clarify Party P’s proposal.

On June 21, 2013, Harris Teeter provided Kroger and Party P with a draft of the disclosure schedules to the merger agreement.

On June 24, 2013, a special meeting of the Harris Teeter Board was held. Representatives of both McGuireWoods and J.P. Morgan attended the meeting. J.P. Morgan representatives informed the Harris Teeter Board of the extensive due diligence that had occurred since the last meeting of the Harris Teeter Board, indicating that both Kroger and Party P remained very interested in a transaction. McGuireWoods provided the Harris Teeter Board with a summary of the key terms contained in the draft merger agreements provided to Kroger and Party P.

The Harris Teeter Board instructed J.P. Morgan to focus on three issues with respect to Kroger’s proposal: a higher purchase price, assumption of the regulatory approval risk by Kroger and certainty to closure.

In addition, J.P. Morgan reviewed the proposal from Party P in detail with the Harris Teeter Board. J.P. Morgan highlighted that cash consideration had increased from $2 billion to $2.08 billion (i.e., upon 100% proration, from $40 to $42 per share in cash) and Harris Teeter’s equity participation in the combined entity had now been specified to be 30%. J.P. Morgan noted there had been significant detailed work completed by both the Party P Portfolio Company and Harris Teeter regarding the composition, quantification and timing of synergies. J.P. Morgan pointed out that the combined entity would carry leverage levels of 6.4x total debt / LTM EBITDA and 6.8x adjusted debt / LTM EBITDAR without synergies and 5.3x total debt / LTM EBITDA and 5.8x adjusted debt / LTM EBITDAR with full run-rate synergies (as estimated by Harris Teeter management and Party P Portfolio Company management) included. The terms used in this paragraph are defined as follows: (a) “LTM” means last twelve months; (b) “EBITDA” means earnings before interest, taxes, depreciation and amortization; (c) “adjusted debt” means total debt plus rent expense capitalized at 8.0x (per Moody’s methodology); (d) “EBITDAR” means earnings before interest, taxes, depreciation, amortization and rent expense and (e) “run-rate synergies” means total annual synergies expected upon completing the integration of the two entities.

J.P. Morgan summarized its views of Party P’s proposal by enumerating to the Harris Teeter Board six benefits as well as several areas of concern with the proposal. The benefits were: (a) the increase in cash consideration offered from $2 billion to $2.08 billion, (b) the election mechanism afforded to Harris Teeter shareholders by which they could choose the form of consideration they receive, (c) the significant ownership percentage of the combined entity that would be afforded to Harris Teeter shareholders (30% of the combined company), (d) the improved financing structure as well as the draft commitment papers from two global financial institutions, (e) the significant detailed synergy work that had been completed by both parties and (f) the meaningful upside opportunity coming from the underperforming Party P Portfolio Company stores.

The primary risks discussed with the Harris Teeter Board related to the speed and lack of certainty of closing and the uncertain valuation of the equity in the combined company. J.P. Morgan discussed with the Harris Teeter Board the following factors as, collectively, creating the risk of delay and also significant risk to shareholders of a transaction with Party P ultimately failing to close: (a) the lack of historical audited financial statements of the Party P Portfolio Company and the substantial length of time that it would take to prepare appropriate financial statements and have them audited, (b) the financing contingency associated with the proposal and (c) the general lack of readiness of the Party P Portfolio Company to be a public company or part of a public company. J.P. Morgan also discussed with the Harris Teeter Board the following factors as risks relating to the value of the stock of the combined entity: (a) certain significant contingent liabilities

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affecting the Party P Portfolio Company, (b) the negative comparative same store sales experienced by the Party P Portfolio Company in recent periods, (c) the need for significant capital expenditures to modernize the stores operated by the Party P Portfolio Company, (d) the execution risk of the combined company’s performance against plan, (e) operating a business with such high leverage, (f) pension plan matters, (g) ongoing negotiations with the unions representing employees at the Party P Portfolio Company and (h) the expectation that it would take a period of years for the synergies to be realized and uncertainty as to the ultimate stock value to be achieved.

The Harris Teeter Board instructed J.P. Morgan to highlight these areas of concern to Party P and to encourage Party P to propose to Harris Teeter ways to minimize these risks.

On June 25, 2013, J.P. Morgan called Party P and delivered a message consistent with the benefits and considerations noted above. J.P. Morgan communicated that Harris Teeter now had a better understanding of the upside and downside of the proposal and that the timing of the availability of a quality of earnings report and audited financials was a concern.

On June 25, 2013, J.P. Morgan also called BofA Merrill Lynch, during which J.P. Morgan communicated that Kroger was behind a competing bidder on value and J.P. Morgan believed it was unlikely that the Harris Teeter Board would approve the transaction at the value indicated by Kroger’s most recent proposal. J.P. Morgan encouraged Kroger to address any antitrust or regulatory approval risk, to complete all of its due diligence and to provide a markup of the merger agreement as soon as possible.

On June 26, 2013, J.P. Morgan and the financial advisors to Party P discussed outstanding diligence items over the phone. The financial advisors to Party P provided a timeline to the announcement of a potential transaction in the beginning of September 2013. Also, in order to facilitate the rapid completion of diligence in the interim, J.P. Morgan and Party P agreed to schedule an in-person meeting with Harris Teeter management as well as Party P Portfolio Company management in Charlotte for late in the week of July 15, 2013.

On June 27, 2013, J.P. Morgan and the advisors to Party P spoke over the phone regarding diligence matters.


On July 1, 2013, J.P. Morgan spoke over the phone with Party P and Party P indicated that it did not intend to submit an offer of higher value.

On July 2, 2013, J.P. Morgan, Kroger and BofA Merrill Lynch had a call in which Kroger stated that it was not prepared to change its offer price and would be submitting a revised draft of the merger agreement, which BofA Merrill Lynch did submit to J.P. Morgan later that day. In Harris Teeter’s view, the most significant changes proposed by Kroger were the following: (a) revising the covenants that required Kroger to use its “best efforts” to avoid or eliminate every impediment under any antitrust law in order to enable the closing to occur as soon as possible to a “reasonable best efforts” standard, (b) the removal of the regulatory termination fee that required Kroger to pay Harris Teeter if clearance under the HSR Act had not occurred or any other injunction or order relating to antitrust laws prevented the closing, (c) the increase in the termination fee payable by Harris Teeter upon the occurrence of certain events from 2% of the deal value to $100,000,000 (approximately 4.3% of the deal value at the then-current offer price of $47.50 per share) and (d) the elimination of a “go-shop” provision permitting Harris Teeter to continue to seek other prospective buyers during a 60 day period after the signing of the merger agreement.

On July 2, 2013, J.P. Morgan and a member of Harris Teeter’s management team spoke over the phone with members of Party P and the financial advisors to Party P regarding outstanding diligence items.

On July 3, 2013, McGuireWoods revised the merger agreement and J.P. Morgan sent it to BofA Merrill Lynch. The revised draft reinstated the “best efforts” language regarding regulatory matters, reinstated the regulatory termination fee provision and rejected Kroger’s proposed increase in the termination fee. For reasons discussed below, the “go-shop” provision was not reinserted. Subsequent to that, Harris Teeter and Kroger negotiated and exchanged several drafts of the draft merger agreement and disclosure schedules.

On July 5, 2013, Kroger submitted a revised offer of $48.75 per share. J.P. Morgan again indicated that, at that price, J.P. Morgan believed that it was unlikely that Harris Teeter would enter into a transaction.

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Over the course of July 5 to July 7, 2013, Harris Teeter, J.P. Morgan, McGuireWoods, Kroger, BofA Merrill Lynch and Arnold & Porter LLP, Kroger’s external legal counsel, engaged in extensive negotiations over the terms of the merger agreement. During the course of the negotiations, Harris Teeter and Kroger reached agreement regarding the best efforts language related to regulatory matters, the regulatory break-up fee was agreed to be $200,000,000 and the termination fee was set at $75,000,000. Harris Teeter posted additional information to the virtual data room in conjunction with changes to the draft merger agreement and disclosure schedules.

On July 7, 2013, Kroger submitted a revised offer of $49.38 per share. At Kroger’s direction, BofA Merrill Lynch expressed that this offer was contingent on it being accepted and the merger agreement being adopted by the Harris Teeter Board at its meeting scheduled for July 8, 2013. On the evening of July 7, 2013, Kroger’s Chairman and CEO, Mr. Dillon, and Mr. Dickson spoke by telephone, and they agreed that all major issues had been resolved.

On July 8, 2013, the Harris Teeter Board held a special meeting at the Charlotte offices of McGuireWoods. Members of Harris Teeter’s senior management, as well as representatives of J.P. Morgan and McGuireWoods, attended the meeting. Representatives of J.P. Morgan informed the Harris Teeter Board that the Kroger Board of Directors was meeting simultaneously, and was expected to approve a merger agreement that would result in the holders of Harris Teeter common stock receiving $49.38 per share in cash. During the course of the meeting, J.P. Morgan reported that a call had been received from BofA Merrill Lynch, who reported that the Kroger Board of Directors had approved the merger agreement pursuant to which the holders of Harris Teeter common stock would receive $49.38 per share in cash. Representatives of J.P. Morgan reviewed the history of the transaction, discussed with the Harris Teeter Board its financial analysis of the offer made by Kroger and answered all of the Harris Teeter Board’s questions. J.P. Morgan representatives also reviewed the Party P proposal, the details of which remained the same as those presented at the June 24, 2013 Harris Teeter Board meeting. The Harris Teeter Board expressed the same concerns regarding the Party P proposal that had been discussed at the June 24, 2013 meeting, summarized as the uncertain value of the equity component of the proposal, significant execution risks and a lengthy period to execute. McGuireWoods made a presentation to the Harris Teeter Board concerning the material terms and conditions of the final merger agreement and discussed the final terms of the merger agreement that had been negotiated with Kroger and its counsel. In connection with a discussion by McGuireWoods of fiduciary duties of the Harris Teeter Board as it evaluated the transaction, the Harris Teeter Board discussed the removal of the “go-shop” provision, and concluded that the inclusion of a “go-shop” provision was not necessary since the transaction had received broad publicity and neither Harris Teeter nor J.P. Morgan could identify any likely buyers that had not either participated in the process, been contacted about the process or indicated a lack of interest in the process. In light of Kroger’s insistence that the “go-shop” provision be removed as a condition of moving forward, and in consideration of Kroger’s cash offer price, Kroger’s acceptance of regulatory risk, Harris Teeter’s ability to pursue a potential superior proposal if one were to emerge and the high probability of closing the transaction, the Harris Teeter Board determined that it was in the best interest of the shareholders to proceed without a “go-shop” provision.

J.P. Morgan then delivered its oral opinion to the Harris Teeter Board, which opinion was confirmed in writing, to the effect that, as of July 8, 2013, and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the consideration to be paid by Kroger to holders of Harris Teeter common stock pursuant to the merger agreement was fair, from a financial point of view, to such shareholders. The Harris Teeter Board then adopted the merger agreement, and authorized the officers of Harris Teeter to sign the merger agreement.

Recommendation of the Harris Teeter Board and Reasons for the Merger

The Harris Teeter Board recommends that you vote “FOR” the merger proposal.

At a meeting of the Harris Teeter Board held on July 8, 2013, the Harris Teeter Board unanimously determined the merger agreement to be fair, advisable and in the best interests of Harris Teeter and its shareholders.

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In the course of reaching its decision, the Harris Teeter Board consulted with our senior management, financial advisors and Harris Teeter’s outside legal counsel. In addition, the Harris Teeter Board reviewed a significant amount of information and considered a number of substantive factors, including, among others, the following:

•    
  Premium to the trading price of Harris Teeter common stock. The Harris Teeter Board considered the fact that the $49.38 per share in cash to be paid as merger consideration represents a premium of approximately 33.7% to the closing price of $36.94 on January 18, 2013, the day of the first media report, after market close, that Harris Teeter was evaluating strategic alternatives.

•    
  Merger consideration. The Harris Teeter Board considered the $49.38 per share in cash to be paid as merger consideration in relation to the historic trading ranges of Harris Teeter common stock and the potential trading range of Harris Teeter common stock absent takeover speculation, and the possibility that absent such speculation it could take a considerable period of time before the trading price of Harris Teeter common stock would trade at a level in excess of the per share merger consideration of $49.38 on a present value basis.

•    
  Negotiations with Kroger. The Harris Teeter Board considered the benefits that we and our advisors were able to obtain during our extensive negotiations with Kroger, including a significant increase in Kroger’s offer price per share from the beginning of the process to the end of the negotiations. The Harris Teeter Board concluded that we had obtained the highest price per share that Kroger was willing to agree to pay, considering the extensive negotiations between the parties.

•    
  Cash consideration. The Harris Teeter Board considered the fact that the merger consideration would be paid solely in cash, which, compared to noncash consideration, provides certainty and immediate liquidity and value to our shareholders.

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  Other proposed transaction. The Harris Teeter Board, based on its review and the process conducted, believed that the merger consideration of $49.38 in cash per share was the best price attainable for Harris Teeter’s shareholders; and while a proposal for a transaction containing cash and stock consideration reflecting a higher nominal value than Kroger’s proposal was reviewed by the Harris Teeter Board, following consideration and review, the Harris Teeter Board did not believe such proposal was in the best interest of shareholders in light of its uncertain ultimate value, significant execution risks and lengthy period to execute.

•    
  Thorough process. The Harris Teeter Board considered that Harris Teeter, with the assistance of J.P. Morgan, conducted a lengthy and thorough process that was the subject of multiple public reports, during which representatives of Harris Teeter contacted multiple potential bidders who were both financial sponsors and strategic entities.

•    
  Fairness opinion. The Harris Teeter Board considered the financial analyses presented by J.P. Morgan, as well as the opinion of J.P. Morgan, dated July 8, 2013, to the Harris Teeter Board to the effect that, as of such date and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth in such opinion, the $49.38 cash per share merger consideration to be paid to holders of Harris Teeter common stock pursuant to the proposed merger agreement was fair, from a financial point of view, to such shareholders. The J.P. Morgan opinion is more fully described in the subsection titled “ — Opinion of J.P. Morgan” beginning on page 38 and the full text of the opinion is attached to this proxy statement as Annex B.

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  Harris Teeter’s current condition. The Harris Teeter Board considered information with respect to our financial condition, results of operations, business, competitive position and business strategy, on both an historical and prospective basis, as well as current industry, economic and market conditions and trends.

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  Harris Teeter’s future prospects. The Harris Teeter Board considered Harris Teeter’s future prospects if we were to remain independent, including the increasingly competitive landscape and the business, financial and execution risks, our relationships with customers and suppliers and the risks associated with continued independence discussed below.

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•    
  Risks associated with continued independence. The Harris Teeter Board considered the risks associated with going forward as an independent company, including the potential market and execution risks associated with Harris Teeter’s business including the need for financial investment to continue to compete with significantly larger competitors that, as a result of scale, have better purchasing power, and an enhanced ability to lower expenses and leverage technology costs. The Harris Teeter Board also considered the risk that, if we did not enter into the merger agreement with Kroger, the price that might be received by Harris Teeter’s shareholders selling shares in the open market, both in the short term and the long term, could be less than the merger consideration. The Harris Teeter Board concluded that the merger consideration enabled shareholders to realize a substantial portion of Harris Teeter’s potential future value without the market or execution risks associated with continued independence.

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  Strategic alternatives. The Harris Teeter Board considered the risks and uncertainties facing Harris Teeter’s shareholders associated with possible strategic alternatives to the merger (including potential alternative acquisition proposals and the possibility of remaining independent), and the timing and likelihood of accomplishing such alternatives.

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  Economic conditions. The Harris Teeter Board considered the current state of the economy and general uncertainty surrounding forecasted economic conditions both in the near term and the long term, generally and within our industry.

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  Arms-length negotiations. The Harris Teeter Board considered that the merger agreement was the product of arms-length negotiations and contained customary terms and conditions.

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  Merger agreement. The Harris Teeter Board considered the terms of the merger agreement, including:

•    
  the representations, warranties and covenants of the parties, the conditions to the parties’ obligations to complete the merger and their ability to terminate the merger agreement;

•    
  Kroger’s undertakings to use reasonable best efforts to obtain required regulatory approvals and to avoid or eliminate each and every impediment under any antitrust law so as to enable the consummation to occur as soon as possible. For purposes of this requirement, “reasonable best efforts” shall include Kroger proposing, negotiating, committing to and effecting the sale, divestiture or disposition of assets and otherwise taking or committing to take actions that after the closing would limit Kroger’s freedom of action with respect to, or its ability to operate or retain, assets of Kroger or Harris Teeter; provided, that Kroger will not be required to take any action that would result in a material reduction in the reasonably anticipated economic benefits to it contemplated by the merger agreement measured over a commercially reasonable period;

•    
  the absence of a financing condition in the merger agreement;

•    
  the obligation of Kroger under certain circumstances to pay us a reverse termination fee of $200,000,000, if there has been a failure to obtain required antitrust approvals or if any decree, judgment, injunction or other order relating to antitrust laws preventing, prohibiting or delaying the consummation of the merger exists or is in effect;

•    
  the right of Harris Teeter and the Harris Teeter Board to respond to a competing proposal from other bidders, subject to certain restrictions and the requirement that we pay Kroger the applicable termination fee if we terminate the merger agreement to accept a superior proposal;

•    
  the belief of the Harris Teeter Board that, although the termination fee provisions might have the effect of discouraging competing third-party proposals or reducing the price of such proposals, such provisions are customary for transactions of this size and type, and its belief that the $75,000,000 termination fee, representing approximately 3.1% of the equity value of the transaction, was reasonable in the context of comparable transactions, particularly given the lengthy and thorough process described above and, specifically, discussions with certain other bidders that we held in advance of the execution of the merger agreement;

•    
  the Harris Teeter Board’s right to change its recommendation, subject to certain restrictions, in connection with a superior proposal; and

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•    
  the fact that the end date under the merger agreement (which may be extended under certain circumstances) allows for sufficient time to consummate the transaction.

•    
  Kroger’s reputation. The Harris Teeter Board considered the business reputation and capabilities of Kroger and its management.

•    
  Kroger’s resources. The Harris Teeter Board concluded that Kroger had the resources needed to complete the merger.

•    
  Likelihood of consummation. The Harris Teeter Board considered the likelihood that the merger would be completed, in light of, among other things, the conditions to the merger and the absence of a financing condition, the relative likelihood of obtaining required regulatory approvals, Kroger’s representation that it will have sufficient financial resources to pay the merger consideration and consummate the merger, and the remedies available to us under the merger agreement in the event of various breaches by Kroger.

•    
  Possibility of more favorable bid. The Harris Teeter Board considered the possibility that a third party with the financial means could submit an unsolicited offer that could result in a superior proposal which would permit Harris Teeter to terminate the merger agreement and accept if Kroger were unwilling to match such proposal, as more fully described in “ — Background of the Merger” beginning on page 25.

•    
  Shareholders’ ability to reject the merger. The Harris Teeter Board considered the fact that the merger is subject to approval by Harris Teeter’s shareholders, who would be free to reject the merger.

Certain of the financial analyses presented by J.P Morgan to the Harris Teeter Board were based upon financial projections prepared by our management based on various assumptions about the future performance of our business. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in such projections. See “ — Certain Financial Projections” beginning on page 44.

In the course of reaching its decision, the Harris Teeter Board also considered a number of potentially negative factors including, among others, the following:

•    
  Participation in future gains. The Harris Teeter Board considered the fact that we will no longer exist as an independent public company and Harris Teeter’s shareholders will forgo any future increase in Harris Teeter’s value that might result from our earnings or possible growth as an independent company. The Harris Teeter Board concluded that the premium reflected in the merger consideration constituted fair compensation for the loss of the potential shareholder benefits that could be realized by our strategic plan and related sensitivity analyses on a risk-adjusted basis.

•    
  Premium to trading price. The Harris Teeter Board considered that the merger consideration of $49.38 per share represented a premium of approximately 1.7% to the closing price of Harris Teeter common stock on July 8, 2013, the last trading day prior to the execution of the merger agreement; although the Harris Teeter Board believed that the trading price of Harris Teeter common stock on such date reflected a takeover premium as a result of multiple media reports regarding a potential takeover (including speculation of a transaction with a price of $50.00 per share or more).

•    
  Risks associated with announcement and pendency of the merger. The Harris Teeter Board considered the risk that the announcement and pendency of the merger may cause substantial harm to relationships with our employees, vendors, customers and partners and may divert management and employee attention away from the day-to-day operation of our business.

•    
  Risks associated with a failure to consummate the merger. The Harris Teeter Board considered the fact that there can be no assurance that all conditions to the parties’ obligations to consummate the merger will be satisfied and, as a result, the possibility that the merger might not be completed. The Harris Teeter Board noted that, if the merger were not completed, (i) we will have incurred significant risk and transaction and opportunity costs, including the possibility of disruption to our operations,

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  diversion of management and employee attention, employee attrition and a potentially negative effect on our business and customer relationships, (ii) depending on the circumstances that caused the merger not to be completed, it is likely that the price of Harris Teeter’s common stock will decline significantly and (iii) the market’s perception of our prospects could be adversely affected.

•    
  Regulatory risk. The Harris Teeter Board considered the risk that necessary regulatory approvals may be delayed, conditioned or denied.

•    
  Financing risk. The Harris Teeter Board considered the risk that, while the merger agreement is not by its terms subject to a financing condition, if Kroger fails to obtain sufficient financing, the merger may not be consummated and Harris Teeter’s remedies in such event may not be sufficient to compensate us for potential losses we may incur under such circumstances.

•    
  Strategic alternatives. The Harris Teeter Board considered the possible strategic alternatives to the merger (including potential alternative acquisition proposals and the possibility of remaining independent), the potential values and benefits facing Harris Teeter’s shareholders associated with such alternatives and the timing and likelihood of accomplishing such alternatives.

•    
  Restrictions on the operation of our business. The Harris Teeter Board considered the restrictions on the conduct of our business prior to the completion of the merger, which could delay or prevent us from realizing certain business opportunities or taking certain actions with respect to our operations we would otherwise take absent the pending merger.

•    
  Nonsolicitation provision. The Harris Teeter Board considered the fact that the merger agreement precludes us from actively soliciting alternative proposals.

•    
  Termination fees. The Harris Teeter Board considered the possibility that the termination fee payable to Kroger if the merger agreement is terminated under certain circumstances might have the effect of discouraging alternative acquisition proposals or reducing the price of such proposals.

•    
  Tax treatment. The Harris Teeter Board considered the fact that an all cash transaction would be taxable to Harris Teeter shareholders that are U.S. holders for U.S. federal income tax purposes.

•    
  Interests of officers and directors. The Harris Teeter Board considered the fact that our executive officers and directors may have interests in the transaction that are different from, or in addition to, those of our shareholders. These interests are more fully described in the subsection titled “ — Interests of Harris Teeter Directors and Executive Officers in the Merger” beginning on page 46.

•    
  Risk factors. The Harris Teeter Board considered other risks and uncertainties as described above under “Cautionary Statement Regarding Forward-Looking Statements.”

While the Harris Teeter Board considered potentially positive and potentially negative factors, the Harris Teeter Board concluded that, overall, the potentially positive factors outweighed the potentially negative factors. Accordingly, the Harris Teeter Board unanimously determined the merger agreement to be fair, advisable and in the best interests of Harris Teeter and the shareholders.

The foregoing discussion is not intended to be an exhaustive list of the information and factors considered by the Harris Teeter Board in its consideration of the merger, but is merely a summary of the material positive factors and material negative factors considered by the Harris Teeter Board in that regard. In view of the number and variety of factors and the amount of information considered, the Harris Teeter Board did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, the Harris Teeter Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of the Harris Teeter Board may have given different weights to different factors. Based on the totality of the information presented, the Harris Teeter Board collectively reached the unanimous decision to adopt, approve and authorize the execution and delivery of the merger agreement and the consummation of the merger and other transactions contemplated thereby in light of the factors described above and other factors that the members of the Harris Teeter Board felt were appropriate.

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This explanation of Harris Teeter’s reasons for the merger and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the section titled “Cautionary Statement Regarding Forward-Looking Statements.”

Opinion of J.P. Morgan

Pursuant to an engagement letter dated November 16, 2012, Harris Teeter retained J.P. Morgan as its financial advisor in connection with a possible merger or sale.

At the meeting of the Harris Teeter Board on July 8, 2013, J.P. Morgan rendered its oral opinion, subsequently confirmed in writing on the same day, to the Harris Teeter Board that, as of such date and based upon and subject to the factors, procedures, qualifications, limitations and assumptions set forth in its opinion, the consideration to be paid by Kroger to holders of Harris Teeter common stock pursuant to the merger agreement was fair, from a financial point of view, to such shareholders. No limitations were imposed by the Harris Teeter Board upon J.P. Morgan with respect to the investigations made or procedures followed by it in rendering its opinion.

The full text of the written opinion of J.P. Morgan, dated July 8, 2013, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken in rendering its opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference. Harris Teeter’s shareholders are urged to read the opinion in its entirety. J.P. Morgan provided its opinion to the Harris Teeter Board (in its capacity as such) in connection with, and for the purposes of, its evaluation of the transaction contemplated by the merger agreement. J.P. Morgan’s written opinion is addressed to the Harris Teeter Board, is directed only to the consideration to be paid to the holders of shares of Harris Teeter common stock pursuant to the merger agreement, and does not address any other matter. The issuance of J.P. Morgan’s opinion was approved by a fairness opinion committee of J.P. Morgan. J.P. Morgan’s opinion does not constitute a recommendation to any holder of shares of Harris Teeter common stock as to how such shareholder should vote with respect to the transaction contemplated by the merger agreement or any other matter at the special meeting. The merger consideration to be paid to the holders of shares of Harris Teeter common stock was determined in negotiations between Kroger and Harris Teeter, and the decision to approve and recommend the transaction contemplated by the merger agreement was made independently by the Harris Teeter Board. J.P. Morgan’s opinion and financial analyses were among the many factors considered by the Harris Teeter Board in its evaluation of the transaction contemplated by the merger agreement and should not be viewed as determinative of the views of the Harris Teeter Board or management with respect to the merger consideration or the transaction contemplated by the merger agreement. The summary of J.P. Morgan’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion attached as Annex B.

In arriving at its opinion, J.P. Morgan, among other things:

•    
  reviewed a draft dated July 8, 2013 of the merger agreement;

•    
  reviewed certain publicly available business and financial information concerning Harris Teeter and the industries in which it operates;

•    
  compared the financial and operating performance of Harris Teeter with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of Harris Teeter common stock and certain publicly traded securities of such other companies;

•    
  compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration paid for such companies;

•    
  reviewed certain internal financial analyses and forecasts prepared by, or at the direction of, the management of Harris Teeter relating to its business; and

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•    
  performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

J.P. Morgan also held discussions with certain members of the management of Harris Teeter with respect to certain aspects of the merger, the past and current business operations of Harris Teeter, the financial condition and future prospects and operations of Harris Teeter and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by Harris Teeter and Kroger or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (nor has J.P. Morgan assumed responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of Harris Teeter or Kroger under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to it or derived therefrom, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of Harris Teeter to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts or the assumptions on which they were based. In addition, J.P. Morgan assumed that the merger will have the tax consequences described in this proxy statement and in discussions with, and materials furnished to J.P. Morgan by, representatives of Harris Teeter, and that it will be consummated as described in the merger agreement, and that the definitive merger agreement did not differ in any material respects from such draft furnished to it. J.P. Morgan also assumed that the representations and warranties made by Harris Teeter, Kroger and Merger Sub in the merger agreement and the related agreements are true and correct in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to Harris Teeter with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on Harris Teeter or on the contemplated benefits of the merger.

J.P. Morgan’s opinion is based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of such opinion. Subsequent developments may affect J.P. Morgan’s opinion, and J.P. Morgan does not have any obligation to update, revise or reaffirm such opinion. J.P. Morgan’s opinion is limited to the fairness, from a financial point of view, of the consideration to be paid to the holders of shares of Harris Teeter common stock in the proposed merger, and J.P. Morgan has expressed no opinion as to the fairness of any consideration paid in connection therewith to the holders of any other class of securities, creditors or other constituencies of Harris Teeter or as to the underlying decision by Harris Teeter to engage in the merger. J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors or employees of any party to the merger, or any class of such persons relative to the merger consideration to be paid to the holders of shares of Harris Teeter common stock in the merger or with respect to the fairness of any such compensation.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with providing its opinion to the Harris Teeter Board at its meeting on July 8, 2013. The financial analyses summarized below include information presented in tabular format. In order to fully understand J.P. Morgan’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s financial analyses.

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Public Trading Multiples

Using publicly available information calendarized based on Harris Teeter’s fiscal year end of October 1, 2013 (which we refer to in this section as FY13) and Harris Teeter’s fiscal year end of September 30, 2014 (which we refer to in this section as FY14), J.P. Morgan compared selected financial and operating data of Harris Teeter with similar data for 11 publicly traded companies involving businesses that may generally be considered similar to Harris Teeter’s business. The companies selected by J.P. Morgan were:

Large/national peers:
    
•    Kroger
•    Safeway
•    SuperValu

Multi-National peers:
    
•    Ahold
•    Delhaize

Regional peers:
    
•    Ingles Markets
•    Roundy’s
•    Weis Markets

Natural/high growth peers:
    
•    Fairway
•    The Fresh Market
•    Whole Foods

These companies were selected by J.P. Morgan, based on its experience and familiarity with Harris Teeter’s industry, because of similarities to Harris Teeter in one or more of their business or regional characteristics and, in certain cases, similarities to Harris Teeter based on certain operational characteristics and/or certain financial metrics. However, none of the companies selected is identical or directly comparable to Harris Teeter, and certain of the companies may have characteristics that are materially different from those of Harris Teeter. Accordingly, a complete analysis of the results of the following calculations cannot be limited to a quantitative review of such results and involves complex considerations and judgments concerning the differences in the financial and operating characteristics of the selected companies compared to Harris Teeter and other factors that could affect the public trading value of the selected companies and Harris Teeter.

J.P. Morgan calculated the multiple of firm value (that is, market value, plus total debt, preferred stock and minority interest, less cash and cash equivalents), which we refer to in this section as FV, for each of the selected companies divided by earnings before interest, taxes, depreciation and amortization, or EBITDA, which is referred to as the FV/EBITDA multiple. J.P. Morgan also calculated the same multiples for Harris Teeter.

J.P. Morgan’s analysis resulted in the following mean FV/EBITDA multiples for the selected companies for each of FY13 and FY14:

        FY13 FV/EBITDA
    FY14 FV/EBITDA
Large/national
                 5.9 x            5.2 x  
Multi-National
                 5.1 x            4.9 x  
Regional
                 6.1 x            5.9 x  
Natural/high growth
                 15.2 x            12.3 x  
 

Based on the results of this analysis, J.P. Morgan selected a FV/EBITDA multiple reference range of (1) 5.0x to 6.5x for FY13 and (2) 4.5x to 6.0x for FY14 and applied such multiple reference ranges to EBITDA estimates of Harris Teeter for FY13 and FY14 provided by Harris Teeter’s management and, in each case, obtained the following ranges of implied per share equity values for the Harris Teeter, rounded to the nearest $0.25:

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Public Trading Multiples Implied Per Share Equity Values for Harris Teeter

        Low
    High
FY13E FV/EBITDA
              $ 35.25          $ 46.00   
FY14E FV/EBITDA
              $ 34.50          $ 46.25   
 

The ranges of implied per share equity values for Harris Teeter were compared to (1) the closing price of Harris Teeter common stock of $36.94 on January 18, 2013 (the “Unaffected Price”), the day on which Mergermarket reported after market close that Harris Teeter was conducting a strategic review, causing the price of Harris Teeter common stock to rise 6.4% the following day, (2) the adjusted unaffected price of Harris Teeter common stock of $39.67, based on the Unaffected Price adjusted by Harris Teeter’s stock price outperformance relative to the S&P 500 of 7.4% in the five trading days following Harris Teeter’s earnings release for the second quarter of 2013 (the “Adjusted Unaffected Price”) and (3) the merger consideration of $49.38 per share.

Selected Transactions Analysis

Using publicly available information, J.P. Morgan reviewed selected transactions involving acquired businesses that, for purposes of J.P. Morgan’s analyses, may generally be considered similar to Harris Teeter’s business. For the selected transactions, J.P. Morgan calculated FV as a multiple of the target company’s EBITDA for the twelve months prior to the announcement date of the transaction, or LTM EBITDA, which is referred to as the FV/LTM EBITDA multiple. J.P. Morgan selected the following transactions for its analysis:

Target
        Acquiror
    Announcement Date
SuperValu (30% stake)
           
Cerberus
   
January 2013
SuperValu/New Albertson’s Inc.
           
Cerberus
   
January 2013
Winn-Dixie
           
BI-LO
   
December 2011
BJ’s Wholesale
           
Leonard Green/CVC Capital
   
June 2011
A&P Pathmark (37% stake)
           
Yucaipa
   
July 2009
Whole Foods (17% stake)
           
Leonard Green
   
November 2008
Pathmark
           
A&P
   
March 2007
Wild Oats
           
Whole Foods
   
February 2007
Smart & Final
           
Apollo
   
February 2007
Marsh Supermarkets
           
Sun Capital
   
April 2006
Foodarama
           
Management
   
February 2006
Albertsons Core
           
SuperValu
   
January 2006
Piggly Wiggly Midwest
           
Certified Grocers Midwest
   
December 2005
Pathmark (40% stake)
           
Yucaipa
   
March 2005
BI-LO/Bruno’s
           
Lone Star Funds
   
December 2004
Shaw’s & Star Markets
           
Albertsons
   
March 2004
Roundy’s
           
Willis Stein
   
April 2002
Copps
           
Roundy’s
   
May 2001
Dick’s Supermarket
           
Piggly Wiggly Midwest
   
April 2001
 

J.P. Morgan’s analysis resulted in a median FV/LTM EBITDA multiple for the selected transactions of 6.1x, a mean FV/LTM EBITDA multiple for the selected transactions of 6.9x, and a range of 3.9x to 13.5x for the selected transactions.

Based on the results of this analysis, J.P. Morgan selected a FV/LTM EBITDA multiple reference range of 6.0x to 7.0x and applied such multiple reference range to Harris Teeter’s LTM EBITDA as of April 2, 2013, as provided to J.P. Morgan by Harris Teeter’s management. This analysis resulted in the following range of implied per share equity value for Harris Teeter, rounded to the nearest $0.25:

Selected Transactions Analysis Implied Per Share Equity Values for Harris Teeter

Low
        High
$37.25
           
$43.50
 

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The ranges of implied equity values for Harris Teeter were compared to (1) the Unaffected Price, (2) the Adjusted Unaffected Price and (3) the merger consideration of $49.38 per share.

Discounted Cash Flow Analysis

J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining the fully diluted implied equity value per share for Harris Teeter. A discounted cash flow analysis is a method of valuing an asset using estimates of the future unlevered after-tax free cash flows generated by this asset and taking into consideration the time value of money with respect to those future cash flows by calculating their “present value.” The “unlevered after-tax free cash flows” refers to a calculation of the future cash flows of an asset without including in such calculation any debt servicing costs. “Present value” refers to the current value of one or more future cash payments from the asset, which is referred to as that asset’s cash flows, and is obtained by discounting those cash flows back to the present. “Terminal value” refers to the capitalized value of all cash flows from an asset for periods beyond the final forecast period.

In performing this analysis, J.P. Morgan calculated the present value of the unlevered after-tax free cash flows that Harris Teeter is expected to generate during fiscal years 2013 through 2022 based upon (1) Harris Teeter forecasts (see “The Merger Proposal (Proposal 1) — Certain Financial Projections” beginning on page 44), and (2) forecasts extrapolated by J.P. Morgan from Harris Teeter forecasts for fiscal years 2018 through 2022, which management subsequently reviewed and approved for J.P. Morgan’s use. J.P. Morgan also calculated a range of terminal values for Harris Teeter at the end of the ten-year period ending 2022 by applying a perpetual growth rate ranging from 1.0% to 2.0% to the unlevered after-tax free cash flows of Harris Teeter during the final year of the ten-year period. The unlevered after-tax free cash flows and the range of terminal values were then discounted to present values using a range of discount rates from 7.5% to 9.5%, which were chosen by J.P. Morgan based upon an analysis of the estimated weighted average cost of capital of Harris Teeter, which included, among other things, an analysis of the selected companies under the “Public Trading Multiples” described above. The discounted cash flow analysis resulted in the following range of implied per share equity values for Harris Teeter on a standalone basis (without transaction synergies), rounded to the nearest $0.25:

DCF Implied Per Share Equity Values for Harris Teeter

Low
        High
$32.50
           
$46.00
 

The range of implied per share equity value for Harris Teeter was compared to (1) the Unaffected Price, (2) the Adjusted Unaffected Price and (3) the merger consideration of $49.38 per share.

Historical Trading Range

For reference purposes only and not as a component of its fairness analysis, J.P. Morgan presented to the Harris Teeter Board (1) the 52-week trading range of Harris Teeter common stock ending January 18, 2013, which was $35.72 per share to $44.40 per share and (2) the trading range of Harris Teeter common stock from January 18, 2013, which was the day on which Mergermarket reported after market close that Harris Teeter was conducting a strategic review, causing the price of Harris Teeter common stock to rise 6.4% the following day, to July 5, 2013, which was the next to last trading day prior to the announcement of the merger, which was $36.16 per share to $48.96 per share, and compared that to (a) the Unaffected Price, (b) the Adjusted Unaffected Price and (c) the merger consideration of $49.38 per share.

Analyst Price Targets

For reference purposes only and not as a component of its fairness analysis, J.P. Morgan also reviewed with the Harris Teeter Board certain 12-month price targets of three public analysts for Harris Teeter and noted that the range of such price targets was $44.00 to $48.00, and compared that to (1) the Unaffected Price, (2) the Adjusted Unaffected Price and (3) the merger consideration of $49.38 per share.

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a

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complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies reviewed as described in the above summary is identical to Harris Teeter, and none of the selected transactions reviewed was identical to the merger. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of Harris Teeter. The transactions selected were similarly chosen because their participants, size and other factors, for purposes of J.P. Morgan’s analysis, may be considered similar to the merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to Harris Teeter and the transactions compared to the merger.

The opinion of J.P. Morgan was one of the many factors taken into consideration by the Harris Teeter Board in making their determination to approve the merger. The analyses of J.P. Morgan as summarized above should not be viewed as determinative of the opinion of the Harris Teeter Board with respect to the value of Harris Teeter, or of whether the Harris Teeter Board would have been willing to agree to different or other forms of consideration.

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. J.P. Morgan was selected on the basis of such experience and its familiarity with Harris Teeter to advise Harris Teeter in connection with the transactions contemplated by the merger agreement and to deliver a fairness opinion to the Harris Teeter Board with respect to the merger.

For services rendered in connection with the transactions contemplated by the merger agreement (including the delivery of its opinion), Harris Teeter has agreed to pay J.P. Morgan a fee for its services based on a percentage formula of the total transaction value which will be determined upon consummation of the transactions contemplated by the merger agreement, but which is expected to be approximately $20 million. In the event that the merger is not consummated and Harris Teeter receives any payment pursuant to the termination, abandonment or failure to occur of the proposed merger, Harris Teeter will pay J.P. Morgan a fee equal to 25% of any such payment, but in no event will the payment to J.P. Morgan exceed the fee that would have been paid if the transaction had been consummated. In addition, Harris Teeter has agreed to reimburse J.P. Morgan for its reasonable expenses incurred in connection with its services, including the reasonable fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the Federal securities laws.

During the two years preceding the date of the delivery of its opinion, neither J.P. Morgan nor any of its affiliates have had any other material financial advisory or other material commercial or investment banking relationships with Harris Teeter or Kroger. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of Harris Teeter or Kroger for their own accounts or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities.

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Certain Financial Projections

We do not as a matter of course make public projections as to future performance, earnings or other results. However, we provided certain nonpublic financial information to J. P. Morgan in its capacity as our financial advisor, including projections by management of Harris Teeter’s standalone financial performance for fiscal years 2013 through 2017. These financial projections included forecasts of revenue, gross profit, EBITDA and EBIT. These financial projections were used by J.P. Morgan in performing the discounted cash flow analysis described in the section titled “ — Opinion of J.P. Morgan” on page 38. These financial projections were also provided to Kroger. A summary of these financial projections is set forth below.

The financial projections included in this proxy statement have been prepared by, and are the responsibility of, Harris Teeter’s management. The financial projections summarized in this section were prepared solely for internal use by us and not with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial data, published guidelines of the SEC regarding forward-looking statements, or accounting principles generally accepted in the U.S. (“GAAP”). The financial projections are forward-looking statements.

Our management believes the forecasts were prepared in good faith and on a reasonable basis based on the best information available to our management at the time of their preparation. The financial projections, however, are not actual results and should not be relied upon as being indicative of actual future results, and readers of this proxy statement are cautioned not to place undue reliance on this information. KPMG LLP, our independent registered public accounting firm, has not examined, compiled or performed any procedures with respect to these financial projections and does not express an opinion or any other form of assurance with respect thereto. The summary of these financial projections is not being included in this proxy statement to influence a Harris Teeter shareholder’s decision whether to vote in favor of the proposal to approve the merger proposal, but because portions of the financial projections were provided to Kroger in connection with Kroger’s due diligence of Harris Teeter, and represent an assessment by our management of the future cash flows that were used in J.P. Morgan’s financial analysis and on which the Harris Teeter Board relied in making its recommendation to Harris Teeter’s shareholders.

Because these financial projections were developed for Harris Teeter on a standalone basis without giving effect to the merger, the financial projections do not give effect to the merger or any changes to our operations or strategy that may be implemented after the consummation of the merger, including any potential cost synergies realized as a result of the merger, or to any costs related to or that may arise in connection with the merger.

The financial projections reflect various estimates and assumptions made by Harris Teeter, all of which are difficult to predict and many of which are beyond Harris Teeter’s control, including among others, the following assumptions:

•    
  Store count of 220, 228, 236, 245 and 255 for fiscal years 2013, 2014, 2015, 2016 and 2017, respectively;

•    
  Comparable store sales growth of 2.6% for fiscal 2013 and 3% thereafter;

•    
  Gross margins to improve by 15 basis points from fiscal 2013 to fiscal 2014 and thereafter remain relatively flat;

•    
  Increased sales, general and administrative (“SG&A”) expenses leverage such that SG&A expenses, including fixed costs, will increase more slowly than the increase in revenue; and

•    
  Capital expenditure plus purchases of other investments (primarily land for future development) was offset by proceeds from the sale of property, plant and equipment and other investments and ranged from $171 million to $208 million per year between fiscal 2014 and 2017.

The inclusion of the financial projections in this proxy statement should not be regarded as an indication that we or any of our affiliates, advisors, representatives or Kroger or any other recipient of this information considered or consider the financial projections to be predictive of actual future events, and the financial

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projections should not be relied upon as such. Neither we nor any of our affiliates, advisors, officers, directors or representatives can give any assurance that actual results will not differ from these financial projections. While the financial projections were prepared in good faith and Harris Teeter’s management believes the assumptions on which the financial forecasts were based were reasonable when made, no assurance can be made regarding future events. Because the financial projections cover multiple years, such information by its nature becomes less reliable with each successive year. While presented with numeric specificity, the assumptions upon which the financial projections were based necessarily involve judgments with respect to, among other things, future economic and competitive conditions, which are difficult to predict accurately and many of which are beyond our control. Important factors that may affect actual results include, but are not limited to, the items described in the section titled “Cautionary Statements Regarding Forward-Looking Statements.”

None of Harris Teeter or any of its affiliates, advisors or representatives undertakes any obligation to update or otherwise revise or reconcile the financial projections to reflect circumstances existing after the date such financial projections were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the financial projections are shown to be in error. We do not intend to make publicly available any update or other revision to the financial projections, except as required by law. None of Harris Teeter or any of its affiliates, advisors, officers, directors or representatives has made or makes any representation to any shareholder or other person regarding the ultimate performance of Harris Teeter compared to the information contained in the financial projections or that forecasted results will be achieved. Harris Teeter made no representation to Kroger, in the merger agreement or otherwise, concerning the financial projections.

The inclusion of the financial projections in this proxy statement should not be regarded as an indication that Harris Teeter, Kroger or J.P. Morgan or anyone who received the financial projections then considered, or now considers, the financial projections to be material information of Harris Teeter or a reliable prediction of future events, and the financial projections should not be relied upon as such. Harris Teeter views the financial projections as nonmaterial because of the inherent risks and uncertainties associated with such long-range financial forecasts. Harris Teeter shareholders are cautioned not to place undue reliance on the financial projections included in this proxy statement.

Financial Projections

($ in millions)
                       
        Projected Fiscal Year(1)    
        2013E
    2014E
    2015E
    2016E
    2017E
Total Revenue
              $ 4,713          $ 5,166          $ 5,513          $ 5,838          $ 6,281   
Gross Profit
              $ 1,414          $ 1,557          $ 1,663          $ 1,762          $ 1,898   
EBITDA(2)(3)
              $ 349           $ 412           $ 441           $ 466           $ 509    
EBIT(3)(4)
              $ 198           $ 240           $ 264           $ 285           $ 317    
 


(1)
  Harris Teeter’s fiscal year consists of 52 or 53 weeks and ends on the Tuesday nearest to September 30.

(2)
  EBITDA represents earnings before interest, taxes, depreciation and amortization.

(3)
  EBITDA and EBIT are non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP.

(4)
  EBIT represents earnings before interest and taxes.

HARRIS TEETER DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS ARE NO LONGER APPROPRIATE.

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Interests of Harris Teeter Directors and Executive Officers in the Merger

In considering the recommendation of the Harris Teeter Board that you vote to approve the merger proposal, you should be aware that, aside from their interests as Harris Teeter shareholders, Harris Teeter’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of Harris Teeter shareholders generally.

With regard to our directors serving on the Harris Teeter Board (other than Mr. Dickson, whose interests are as an executive officer), areas where their interests may differ from those of other Harris Teeter shareholders relate to the impact of the transaction on the directors’ outstanding equity awards, deferred fee arrangements and the provision of indemnification and insurance arrangements pursuant to the merger agreement and Harris Teeter’s articles of incorporation and bylaws, which reflect the fact that such directors may be subject to claims arising from their service on the Harris Teeter Board.

Our executive officers, Thomas W. Dickson, Frederick J. Morganthall, II, John B. Woodlief and Rodney C. Antolock, may have interests that differ from or are in addition to those of our shareholders due to their potential receipt of the following payments and benefits that may be triggered by or otherwise relate to the merger:

•    
  cash payment of incentive bonuses at the effective time of the merger;

•    
  accelerated vesting of the restricted shares and performance shares held by the executive officers;

•    
  possible cash payments and other perquisites under the change-in-control and severance agreements between each executive officer and Harris Teeter;

•    
  payment of previously accrued benefits under a supplemental pension plan;

•    
  contingent equity awards shortly after the closing of the merger; and

•    
  the right to continued indemnification and insurance coverage pursuant to the merger agreement.

These interests are described in more detail below, and certain of them are quantified in the tables below in accordance with applicable SEC rules.

Incentive Bonus Payments

On July 8, 2013, in order to provide an incentive for the executive officers to successfully close the merger, the Compensation Committee of the Harris Teeter Board and the Harris Teeter Board approved potential incentive bonuses (the “incentive bonus”) for Harris Teeter’s executive officers under the Executive Officer Incentive Bonus Plan. The incentive bonus will be paid to the executive officers of Harris Teeter on the closing date of the merger.

The incentive bonuses will be paid in a single lump sum cash payment on the date of the closing of the merger, contingent on the executive officer remaining continuously employed with Harris Teeter, or any affiliate or subsidiary, through the effective time of the merger. Each executive officer’s incentive bonus as set forth in the merger agreement equals 35% of his respective fiscal 2013 base salary and is shown below:

Incentive Bonuses for Executive Officers

Executive Officer
        Incentive Bonus
($)
Thomas W. Dickson
                 262,500   
Frederick J. Morganthall, II
                 188,125   
John B. Woodlief
                 175,000   
Rodney C. Antolock
                 156,625   
Total
                 782,250   
 

Treatment of Executive Officer and Director Common Stock

As is the case for every holder of Harris Teeter common stock, Harris Teeter’s directors and executive officers will receive $49.38 in cash, without interest and less any applicable withholding taxes, for each share

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of Harris Teeter common stock that they own at the effective time of the merger. For information regarding beneficial ownership of Harris Teeter common stock by each of Harris Teeter’s current directors and executive officers and all directors and executive officers as a group, see Security Ownership of Certain Beneficial Owners and Management” beginning on page 73.

Treatment of Executive Officer and Director Equity and Equity-Based Awards

As described under “The Merger Agreement — Treatment of Harris Teeter Equity Awards” beginning on page 58, each option to purchase shares of Harris Teeter common stock, each outstanding share of Harris Teeter’s common stock subject to time-based, performance or other vesting or lapse restrictions and all stock units held by nonemployee directors will be treated as set forth below.

Treatment of Stock Options

The merger agreement provides that at the effective time of the merger, each option to purchase shares of Harris Teeter common stock, whether vested or unvested, that is outstanding and unexercised as of the effective time will be canceled and the holder thereof will be entitled to receive an amount in cash, without interest and less any applicable withholding taxes, equal to (i) the number of shares subject to such option, multiplied by (ii) the excess, if any, of $49.38 over the exercise price of the option. Payments with respect to options to purchase shares of Harris Teeter common stock canceled under the merger agreement will be made as soon as reasonably practicable following the effective time. None of our executive officers currently holds any outstanding stock options. The number of outstanding stock options, as of August 19, 2013, held by our directors is shown in the table below:

Outstanding Stock Options Held by Directors

Director
        Stock Options
John R. Belk
                    
John P. Derham Cato
                    
James E. S. Hynes
                    
Anna Spangler Nelson
                    
Mark S. Ordan
                 10,000   
Bailey W. Patrick
                    
Robert H. Spilman, Jr.
                 2,000   
Harold C. Stowe
                    
Isaiah Tidwell
                    
William C. Warden, Jr.
                 10,000   
Total
                 22,000   
 

Treatment of Restricted Stock and Performance Shares

The merger agreement provides that immediately before the effective time each outstanding share of Harris Teeter common stock subject to time-based vesting conditions (“restricted stock”) under any stock or incentive plan of Harris Teeter will fully vest such that each holder of shares of restricted stock will become 100% vested in all such shares and will receive the merger consideration of $49.38 for each share of previously restricted stock.

Harris Teeter has previously granted to certain of its employees performance shares (“performance shares”), which generally entitle each recipient to receive shares of restricted stock upon the achievement of certain performance objectives. The merger agreement provides that immediately before the effective time, the performance criteria for each performance share will be deemed to have been satisfied in full. Thus, each performance share will settle by issuance of a share of restricted stock, and the holder of such restricted stock will immediately become 100% vested and entitled to the merger consideration as described in the paragraph above.

Our directors do not hold any shares of restricted stock or performance shares. Each of our executive officers, as of August 19, 2013, holds shares of restricted stock and performance shares, as shown in the table below:

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Restricted Stock and Performance Shares Held by Executive Officers

Executive Officer
        Shares of
Restricted Stock
    Performance
Shares
Thomas W. Dickson
                 96,440             22,500   
Frederick J. Morganthall, II
                 50,751             12,500   
John B. Woodlief
                 39,408             7,500   
Rodney C. Antolock
                 30,800             8,750   
Total
                 217,399             51,250   
 

Treatment of Stock Units under the Director Deferral Plan

Nonemployee directors of Harris Teeter may generally defer the payment of their annual fees and/or board and committee meeting fees under the Harris Teeter Supermarkets, Inc. Director Deferral Plan (the “Deferral Plan”). The fees deferred by a director are converted into stock units and credited to the director’s account as of the date such fees would otherwise have been paid to the directors. Harris Teeter uses a nonqualified trust to purchase and hold a number of shares of Harris Teeter common stock that approximates its obligation under the Deferral Plan. At the effective time of the merger, each of our current directors will have terminated service as a member of the Harris Teeter Board. Accordingly, at that time, all shares of Harris Teeter common stock held by the trust will be canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes. Each director will receive an amount in cash equal to the number of stock units in his or her account multiplied by $49.38. Such amount will be paid to the director on the 90th day following the effective date of the merger. The number of stock units held in each director’s account as of August 19, 2013 is shown below:

Deferred Stock Units Credited to Directors

Director
        Stock Units
John R. Belk
                 23,591   
John P. Derham Cato
                 19,724   
James E. S. Hynes
                 10,208   
Anna Spangler Nelson
                 28,612   
Mark S. Ordan
                 958    
Bailey W. Patrick
                 19,737   
Robert H. Spilman, Jr.
                 14,388   
Harold C. Stowe
                 25,741   
Isaiah Tidwell
                 19,019   
William C. Warden, Jr.
                 7,162   
Total
                 169,140   
 

Change-in-Control and Severance Agreements

Harris Teeter previously entered into Change-in-Control and Severance Agreements with the executive officers (as amended, the “Change-in-Control and Severance Agreements”). In general, the Change-in-Control and Severance Agreements provide that an executive officer is entitled to severance payments and benefits upon certain qualifying terminations of employment. The amount of the payments and benefits depends upon whether such termination occurs during the 24-month period following a change in control (the “CIC Protection Period”) or before or after such CIC Protection Period. For purposes of the Change-in-Control and Severance Agreements, the merger will constitute a change in control.

Our executive officers are entitled to receive the following payments and benefits immediately upon incurring a qualifying termination or resignation within the CIC Protection Period:

•    
  For Messrs. Dickson and Woodlief, (i) if terminated by Harris Teeter other than for cause (as defined below), death or disability, or by the executive officer for good reason (as defined below), a single lump sum payment in an amount equal to 2.99 times the sum of his annual base salary plus the greater of (a) his CIC accrued bonus (as defined below) or (b) his CIC average prior bonus payments (as defined below), and (ii) if terminated by Harris Teeter other than for cause, or by the executive

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  officer for good reason the prorated portion of his CIC prorated bonus (as defined below). This prorated portion of his CIC prorated bonus payment shall be in addition to any prorated bonus to which such executive officer may be entitled, during the period following a change in control transaction through the termination of his employment.

•    
  For Mr. Morganthall, (i) if terminated by Harris Teeter other than for cause, death, or disability, or by Mr. Morganthall for good reason, a single lump sum payment in an amount equal to 2.50 times the sum of his annual base salary plus the greater of (a) his CIC accrued bonus or (b) his CIC average prior bonus payments and (ii) if terminated by Harris Teeter other than for cause, or by Mr. Morganthall for good reason, a prorated portion of his CIC prorated bonus. This prorated portion of his CIC prorated bonus payment shall be in addition to any prorated bonus to which Mr. Morganthall may be entitled, during the period following a change in control transaction through the termination of his employment.

•    
  For Mr. Antolock, (i) if terminated by Harris Teeter other than for cause, death, or disability, or by Mr. Antolock for good reason, a single lump sum payment in an amount equal to 2.00 times the sum of his annual base salary plus the greater of (a) his CIC accrued bonus or (b) his CIC average prior bonus payments and (ii) if terminated by Harris Teeter other than for cause, or by Mr. Antolock for good reason, a prorated portion of his CIC prorated bonus. This prorated portion of his CIC prorated bonus payment shall be in addition to any prorated bonus to which Mr. Antolock may be entitled, during the period following a change in control transaction through the termination of his employment.

“Cause” means (a) fraud; (b) embezzlement; (c) conviction or other final adjudication of guilt of the executive officer for any felony; (d) a material breach of, or the willful failure to perform and discharge such executive officer’s duties, responsibilities and obligations under their Change-in-Control and Severance Agreement; (e) any act of moral turpitude or willful misconduct intended to result in personal enrichment of the executive officer at the expense of Harris Teeter, or any of its affiliates or which has a material adverse impact on the business or reputation of Harris Teeter or any of its affiliates; (f) intentional material damage to the property or business of Harris Teeter; or (g) gross negligence. The determination of “cause” under clauses (d), (e), (f) and (g) in the preceding sentence shall be made by the Harris Teeter Board in its reasonable judgment.

“Good reason” means (a) a material diminution of responsibilities, or working conditions, or duties, or including in the case of Messrs. Dickson and Woodlief, ceasing to be the Chief Executive Officer or Chief Financial Officer, respectively, of a publicly traded company; (b) a material diminution in base salary or potential incentive compensation; (c) a material negative change in the terms or status of the Change-in-Control and Severance Agreement; or (d) a forced relocation of the executive officer outside of a 30 mile radius of the intersection of Trade Street and Tryon Street in Charlotte, North Carolina.

The “CIC accrued bonus” means the greater of the amount determined under Harris Teeter’s annual bonus plan as of the most recent fiscal quarter ending on or before the executive officer’s termination or date of the change in control. The “CIC average prior bonus payments” equal the greater of the average of an executive officer’s total bonus payments for the prior three full fiscal years ending either on or before such executive officer’s termination or on or before the change in control transaction. The “CIC prorated bonus” equals a bonus payment calculated based on the actual annualized results for the portion of the fiscal year period to date as of the most recent fiscal quarter ending on or before the change in control transaction.

Each executive officer is entitled to certain continued employee benefits, including medical/dental, disability and life insurance coverage (including additional life insurance under the Executive Bonus Insurance Program (“EBIP”) and related tax gross-ups for certain of these benefits), for a period of time if such executive officer is terminated by Harris Teeter either before or after a change in control transaction other than for “cause”, death or disability, or by the executive officer for good reason. The following is a summary of the period of time that each executive officer is entitled to continue receiving the benefits under the Change-in-Control and Severance Agreements:

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•    
  For Messrs. Dickson and Woodlief, (i) if terminated within 24 months following a change in control transaction, 36 months of continued benefits or (ii) if terminated prior to a change in control transaction or more than 24 months after a change in control transaction, 24 months of continued benefits.

•    
  For Mr. Morganthall, (i) if terminated within 24 months following a change in control transaction, 30 months of continued benefits or (ii) if terminated prior to a change in control transaction or more than 24 months after a change in control transaction, 18 months of continued benefits.

•    
  For Mr. Antolock, (i) if terminated within 24 months following a change in control transaction, 24 months of continued benefits or (ii) if terminated prior to a change in control transaction or more than 24 months after a change in control transaction, 12 months of continued benefits.

As noted above, Harris Teeter provides executive officers additional life insurance through the EBIP. The EBIP generally requires Harris Teeter to continue premium payments on behalf of participants until age 65 if their employment is terminated within two years following a change in control, but these provisions are coordinated with the Change-in-Control and Severance Agreements such that, in the case of a change in control, Harris Teeter is obligated to continue EBIP premium payments for a current executive officer until the later of the end of the continuation period provided under the EBIP or the Change-in-Control and Severance Agreements.

An executive officer may elect to waive these benefits and, in lieu thereof, receive a single lump sum payment, equal to Harris Teeter’s costs in providing such benefits, including any related tax gross-up, if applicable.

An executive officer may be entitled to receive an additional payment or “gross up” to ensure that payments and benefits under the Change-in-Control and Severance Agreements are kept whole if the executive is subject to the 20% excise tax imposed under Section 4999 of the Internal Revenue Code (the “Section 4999 excise tax”). In general, the Section 4999 excise tax applies to an executive if certain change-in-control-related payments made to the executive exceed a threshold imposed under Section 280G of the Code (the “280G threshold”). The following is a summary of the tax reimbursements that each executive officer may be entitled to receive if it is determined that any payment or benefit will be subject to the Section 4999 excise tax:

•    
  For Messrs. Dickson and Woodlief, there is an unconditional gross-up to cover any Section 4999 excise taxes, but not ordinary tax obligations.

•    
  For Messrs. Morganthall and Antolock, there is a conditional gross-up to cover any Section 4999 excise taxes, but not ordinary tax obligations. The change in control payments and benefit for Messrs. Morganthall and Antolock are capped at the 280G threshold (which is generally 2.99 times their five-year average aggregate compensation) if the threshold is exceeded by 10% or less.

Supplemental Executive Retirement Plan

Harris Teeter maintains a nonqualified supplemental pension plan (the “SERP”). The executive officers participate in the SERP, and at the effective time of the merger, each executive officer will become 100% vested in his SERP benefit provided he is employed by Harris Teeter or any affiliate at the effective time of the merger. At the effective time of the merger, the vested SERP benefits are eligible for payment prior to normal retirement without being subject to any early payment reduction.

If the executive officer’s employment with Harris Teeter and its affiliates is terminated, other than for cause, death or disability, or by the executive officer for good reason, the executive officer will be entitled to an enhanced SERP benefit because the merger will constitute a change in control under the SERP. In general, retirement benefits under the SERP are equal to between 55% and 60% of the participant’s final average earnings times the participant’s accrual fraction (which generally is the quotient of the participant’s credited service divided by 20) and reduced by the participant’s (1) assumed pension plan retirement benefit, (2) assumed social security benefit and (3) assumed profit sharing plan retirement benefit, if any.

If the executive officer is terminated by Harris Teeter or any of its affiliates other than for cause, death or disability, or by the executive officer for good reason, within 24 months following a change in control transaction, his benefit percentage will be increased by a percentage equal to the change in control benefit multiple described in his Change-in-Control and Severance Agreement. Upon such termination, the executive

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officer’s accrual fraction will also be increased as a result of being credited with additional years of credited service equal to the change in control benefit multiple described in his Change-in-Control and Severance Agreement. The change in control multiple for each of the executive officers is 2.99 for Messrs. Dickson and Woodlief, 2.5 for Mr. Morganthall and 2.0 for Mr. Antolock. Mr. Morganthall’s SERP benefit will not be adjusted because he has already maximized his benefit under the plan’s current formula.

SERP benefits are generally paid in an annuity for the remainder of the executive officer’s life following his termination of employment, with a reduced survivor benefit payable to his spouse, if applicable. It is not contemplated that the merger will accelerate any payments under the SERP.

Flexible Deferral Plan

Each of the executive officers is eligible to participate, and directors were eligible to participate until the 2011 calendar year, in an excess benefit nonqualified retirement plan called the Harris Teeter Supermarkets, Inc. Flexible Deferral Plan (the “Flexible Deferral Plan”), which permits participants to defer compensation. The executive officers are eligible to receive a company matching contributions and other contributions. Currently, each of our executive officers participates in the Flexible Deferral Plan and Mr. Tidwell continues to maintain an account under the plan. These matching contributions are generally subject to the same vesting requirements as found in the Harris Teeter Supermarkets, Inc. Retirement and Savings Plan, which vest upon attainment of three years of service.

Because the merger constitutes a change in control under the Flexible Deferral Plan, the executive officers become vested in any unvested amounts in their accounts as of the effective time of the merger; however, all of the executive officers vested in these contributions prior to the merger. The executive officers and directors will be entitled to receive distributions of their vested accounts in accordance with the terms of the Flexible Deferral Plan. In accordance with the Flexible Deferral Plan, if an executive officer or director has a separation from service, he or she will be entitled to a distribution. In general, distributions are made in the form of a single cash lump sum payment, unless the executive officer or director elected to receive installment or partial lump sum payments. It is not contemplated that the merger will accelerate any payments under the Flexible Deferral Plan.

Director Deferred Compensation Plan

Nonemployee directors of Harris Teeter were eligible to defer the payment of their fees under the Deferred Compensation Plan for Directors of Harris Teeter Supermarkets, Inc. (the “Director Deferred Compensation Plan”) until the plan became frozen as to new deferrals and new participants. This plan is a separate deferral arrangement from the Deferral Plan. Only one current director is a participant in this plan. In general, upon retirement, a participant is entitled to receive an annuitized retirement benefit. The annuitized benefit that a director is eligible to receive depends on a number of factors, including the amount of the deferral and the length of the time between the time of the deferral and the annuity starting date.

Upon termination of service as a director, a participating director is entitled to any retirement benefit under the Director Deferred Compensation Plan. He or she may receive an annuity at deferred retirement or normal or early retirement age. Alternatively, he or she may request payment of his or her benefit in a lump sum or installment form in an amount equal to his or her gross deferrals plus interest, compounded at 9% annually each year until the date of his or her termination.

Contingent Equity Awards

Pursuant to the merger agreement, the Compensation Committee of the Harris Teeter Board will determine, according to its customary procedures, whether to designate employees (including our executive officers) for a contingent grant of time-vesting awards and performance-vesting equity awards. These contingent awards represent restricted stock and performance share awards that would have been granted to Harris Teeter employees, including the executive officers, for the 2014 fiscal year, absent the merger and the merger agreement’s general prohibition on new awards to employees other than to newly-hired employees. The total number of these contingent awards may not exceed 245,000 shares of Harris Teeter’s common stock in the aggregate and must be distributed among the different levels of Harris Teeter employees in approximately the same proportions as during the last three fiscal years.

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Shortly after the effective time of the merger, Kroger will grant a corresponding number of shares of restricted Kroger stock to Harris Teeter employees designated for the contingent awards, which will be adjusted to reflect the stock prices of Harris Teeter and Kroger. These restricted stock awards will vest based on the recipient’s continued service, over a period commensurate with similarly-situated Kroger employees. However, the service-based vesting conditions may not be less favorable than equal annual installment vesting beginning on the first anniversary of the grant date over a maximum period of five years. The restricted stock awards will also be subject to the same terms and conditions as applicable to other Kroger restricted stock awards.

Indemnification and Insurance

After the effective time of the merger, Harris Teeter will indemnify our and our subsidiaries’ present and former directors and officers for any claims arising out of the fact that such individuals served in such capacities or the merger agreement at or before the effective time of the merger, to the fullest extent permitted by law. In addition, following the effective time of the merger, the surviving corporation will maintain in effect provisions providing rights to indemnification, exculpation from liability and advancement of expenses to such individuals in the surviving corporation’s organizational documents and not amend or repeal such terms in any manner that would adversely affect the rights of the individuals covered by such provisions.

For six years following the effective time of the merger, Kroger will cause the present directors and executive officers be covered under Harris Teeter’s existing directors’ and officers’ liability insurance policies, or other coverage that is no less favorable, covering any claims arising with respect to acts or omissions occurring before the effective time of the merger. The merger agreement also provides that, at or prior to the effective time, we may purchase a directors’ and officers’ liability “tail” insurance policy on the same terms and conditions as the existing directors’ and officers’ liability (and fiduciary) insurance maintained by us, in an amount not to exceed 300% of the annual premiums of the current policies maintained by us. If purchased, Kroger must cause Harris Teeter to maintain and honor such policy for its full term.

No Employment Agreements with Executive Officers or Directors

As of the date of this proxy statement, other than the arrangements previously discussed, none of our executive officers or directors has entered into any agreement, arrangement or understanding with Harris Teeter or its subsidiaries or with Kroger or their respective affiliates specifically regarding employment with, or the right to participate in the equity of, Harris Teeter or Kroger on a going-forward basis following the completion of the merger, and no member of the Harris Teeter Board has entered into any agreement, arrangement or understanding with Kroger or its affiliates regarding the right to participate in the equity of Kroger following the completion of the merger. However, Kroger has publicly stated that it expects Harris Teeter to be operated as a subsidiary of Kroger following the merger and to continue to be led by key members of Harris Teeter’s senior management team. None of the Harris Teeter Board members will remain on the Harris Teeter Board or become members of the Kroger Board of Directors.

Quantification of Payments and Benefits to Executive Officers

Messrs. Dickson, Morganthall, Woodlief and Antolock, the named executive officers of Harris Teeter, are entitled to receive certain compensation from Harris Teeter as a result of the merger, consisting of incentive bonuses paid as an incentive to successfully close the merger and accelerated vesting of restricted stock and performance shares. The named executive officers may also be entitled to additional compensation due to termination of employment under certain circumstances in connection with the merger consisting of cash severance, continuation of benefits, nonqualified deferred compensation enhancements and tax reimbursements. These two types of compensation are referred to as “potential merger-related payments.” The potential merger-related payments payable by Harris Teeter to Messrs. Dickson, Morganthall, Woodlief and Antolock are subject to a nonbinding, advisory vote of the Harris Teeter shareholders, as described under “Advisory Vote on Named Executive Officer Merger-Related Compensation Arrangements (Proposal 2)” on page 70.

The following table and related footnotes present information about the potential merger-related payments payable to Harris Teeter’s named executive officers in connection with the merger, after giving effect to the

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merger assuming it took place on December 31, 2013 and assuming all other conditions to the payments of such amounts were satisfied. Certain payments, such as the payment of cash in respect of restricted stock and performance shares subject to accelerated vesting, are payable at the effective time of the merger, while other payments, such as the severance payments and benefits, are only payable, as permitted under the rules of Internal Revenue Code Section 409A, upon the executive officer’s qualifying termination of employment in connection with the merger. This table does not include the value of benefits which the named executive officers already have a vested right to receive without regard to the occurrence of the merger:

Golden Parachute Compensation

Named Executive Officer
        Cash(1)
    Equity(2)
    Pension/
NQDC(3)
    Perquisites/
Benefits(4)
    Tax
Reimbursements(5)
    Other
    Total
Thomas W. Dickson
              $ 5,686,054          $ 4,305,442          $ 1,315,000          $ 485,507          $ 4,438,102                       $ 16,230,105   
Frederick J. Morganthall, II
              $ 3,151,606          $ 2,305,453                       $ 229,717          $ 118,554                       $ 5,805,330   
John B. Woodlief
              $ 3,445,973          $ 1,638,873          $ 1,830,000          $ 350,199          $ 3,171,393                       $ 10,436,438   
Rodney C. Antolock
              $ 2,154,248          $ 1,444,365          $ 2,307,000          $ 466,700          $ 3,274,900                       $ 9,647,213   
 


(1)
  Consists of:

(a)    
  an incentive bonus in the amount of $262,500 for Mr. Dickson, $188,125 for Mr. Morganthall, $175,000 for Mr. Woodlief and $156,625 for Mr. Antolock to be paid in a single lump sum cash payment on the date of the closing of the merger contingent on the executive officer remaining continuously employed with Harris Teeter, or any affiliate or subsidiary, through the effective time of the merger;

(b)    
  an estimated cash severance payment in the amount of $5,184,158 for Mr. Dickson, $2,820,508 for Mr. Morganthall, $3,137,975 for Mr. Woodlief and $1,878,590 for Mr. Antolock, which will be paid in a lump sum if the officer’s employment is terminated (other than for cause, death or disability), or he resigns for good reason, within 24 months after the date of the merger; and

(c)    
  an estimated prorated portion of his CIC prorated bonus (calculated as though the merger closes and the executive’s employment terminates on December 31, 2013) in the amount of $239,396 for Mr. Dickson, $142,973 for Mr. Morganthall, $132,998 for Mr. Woodlief and $119,033 for Mr. Antolock, which will be paid in a lump sum if the officer’s employment is terminated other than for cause, or he resigns for good reason, within 24 months after the date of the merger.

(2)
  Consists of:

(a)    
  with respect to Mr. Dickson, a lump sum payment for 87,190 unvested shares of restricted stock valued at closing at $4,305,442 (based on the merger consideration price of $49.38 per share), as to which vesting will accelerate at closing. The total number of unvested shares of restricted stock assumes that all 22,500 currently-held unearned performance shares will be earned prior to December 31, 2013 and be converted into a corresponding number of shares of restricted stock;

(b)    
  with respect to Mr. Morganthall, a lump sum payment for 46,688 unvested shares of restricted stock valued at closing at $2,305,453 (based on the merger consideration price of $49.38 per share), as to which vesting will accelerate at closing. The total number of unvested shares of restricted stock assumes that all 12,500 currently-held unearned performance shares will be earned prior to December 31, 2013 and be converted into a corresponding number of shares of restricted stock;

(c)    
  with respect to Mr. Woodlief, a lump sum payment for 33,189 unvested shares of restricted stock valued at closing at $1,638,873 (based on the merger consideration price of $49.38 per share), as to which vesting will accelerate at closing. The total number of unvested shares of restricted stock assumes that all 7,500 currently-held unearned performance shares will be earned prior to December 31, 2013 and be converted into a corresponding number of shares of restricted stock; and

(d)    
  with respect to Mr. Antolock, a lump sum payment for 29,250 unvested shares of restricted stock valued at closing at $1,444,365 (based on the merger consideration price of $49.38 per share), as to which vesting will accelerate at closing. The total number of unvested shares of restricted stock assumes that all 8,750 currently-held unearned performance shares will be earned prior to December 31, 2013 and be converted into a corresponding number of shares of restricted stock.

  This column does not include amounts attributable to the contingent equity awards Harris Teeter will designate for its 2014 fiscal year, because (a) the designating of the contingent equity awards will be

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  made by the Compensation Committee of the Harris Teeter Board in accordance with customary procedures used for actual equity awards, which procedures will not be altered as result of the merger (except that the grants of the actual awards will not be made at the time of designation), (b) the granting of actual equity awards will not occur until after the closing of the merger and (c) none of the actual equity awards will vest as a result of the closing of the merger, but will instead vest over a period of years following the merger. See “Interests of Harris Teeter’s Directors and Executive Officers in the Merger — Treatment of Executive Officer and Director Equity Awards — Contingent Equity Awards” beginning on page 51).

(3)
  This amount represents an estimated benefit enhancement Messrs. Dickson, Woodlief and Antolock would receive under the SERP upon their termination other than for cause, death or disability or due to their resignation for good reason within 24 months following the change in control of Harris Teeter. The SERP benefits are enhanced by adding each officer’s Change-in-Control and Severance Agreement multiple to both his benefit percentage and accrual fraction (in the form of additional years of service). Mr. Morganthall has already maximized his SERP benefit under the plan’s formula and, therefore, will not receive any enhancement. It is not contemplated that the merger will accelerate any payments under the SERP. SERP benefits are generally paid in an annuity for the remainder of the executive officer’s life following his termination of employment, with a reduced survivor benefit payable to his spouse, if applicable.

(4)
  Consists of:

(a)
  with respect to Messrs. Dickson and Woodlief, the estimated value of the following benefits: continuation for 36 months of the officer’s Harris Teeter-paid benefits under the medical, dental, disability and life insurance coverage currently provided to each executive officer, which benefits are payable if the officer’s employment is terminated (other than for cause, death or disability), or he resigns for good reason, assuming the effective date of the merger is December 31, 2013, their employment terminates on the date of the merger and they elect to receive the benefit in the form of a single lump sum payment. Pursuant to the Change-in-Control and Severance Agreements, the lump sum payment is equal to the cost of the waived benefits and any related tax gross-up;

(b)
  with respect to Mr. Morganthall, the estimated value of the following benefits: continuation for 30 months of the officer’s Harris Teeter-paid benefits under the medical, dental, disability and life insurance coverage currently provided to each executive officer, which benefits are payable if the officer’s employment is terminated (other than for cause, death or disability), or he resigns for good reason, assuming the effective date of the merger is December 31, 2013, his employment terminates on the date of the merger and he elects to receive the benefit in the form of a single lump sum payment. Pursuant to the Change-in-Control and Severance Agreements, the lump sum payment is equal to the cost of the waived benefits and any related tax gross-up; and

(c)
  with respect to Mr. Antolock, the estimated value of the following benefits: continuation for 24 months of the officer’s Harris Teeter-paid benefits under the medical, dental, disability and life insurance coverage currently provided to each executive officer, which benefits are payable if the officer’s employment is terminated (other than for cause, death or disability), or he resigns for good reason, assuming the effective date of the merger is December 31, 2013, his employment terminates on the date of the merger and he elects to receive the benefit in the form of a single lump sum payment. Pursuant to the Change-in-Control and Severance Agreements, the lump sum payment is to equal the cost of the waived benefits and any related tax gross-up.

(5)
  Consists of:

(a)
  the estimated change-in-control gross-up payment payable to the named executive officers pursuant to the Change-in-Control and Severance Agreements. The tax gross-up payments, like the payments under the Change-in-Control and Severance Agreements, are only triggered upon a termination (other than for cause, death or disability) or resignation for good reason. Messrs. Dickson and Woodlief are entitled to an unconditional tax gross-up to cover 280G excise taxes, which would be triggered based on the assumed payments. Based on the assumed amounts payable, Mr. Antolock would be entitled to a tax gross-up to cover 280G excise taxes because the assumed payment exceeds the 280G threshold by more than 10%; Mr. Morganthall’s assumed payments do not exceed the 280G threshold, so no gross-up would be applicable. The gross-up payments will be made in the

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  form of a single lump sum, and the amount of each gross-up payment is estimated to be $4,152,791 for Mr. Dickson, $2,978,784 for Mr. Woodlief and $2,948,263 for Mr. Antolock; and

(b)
  the estimated tax gross-up payment on the continuation benefits payable to the named executive officers pursuant to the Change-in-Control Severance Agreements if they each elect to receive their continuation benefits in the form of a single lump sum payment. The tax gross-up payments, like the continuation of benefits payments under the Change-in-Control and Severance Agreements, are only triggered upon a termination (other than for cause, death or disability) or resignation for good reason. These gross-up payments are assumed to be made in the form of a single lump sum and the amount of each gross-up payment is estimated to be $285,311 for Mr. Dickson, $118,554 for Mr. Morganthall, $192,609 for Mr. Woodlief and $326,637 for Mr. Antolock.

Financing of the Merger

There is no financing condition to the merger. Kroger intends to use cash on hand and the proceeds of debt financing to pay the merger consideration and merger-related costs.

Under the merger agreement, Harris Teeter must use reasonable efforts to cooperate with Kroger and Merger Sub in connection with obtaining financing, so long as such cooperation does not unreasonably interfere with Harris Teeter’s ongoing operations. See “The Merger Agreement — Financing” beginning on page 66.

Regulatory Clearances and Approvals Required for the Merger

The merger is subject to review under the HSR Act and cannot be completed until the applicable waiting period has expired or has been terminated. Harris Teeter and Kroger have initiated discussions relating to the merger with the FTC staff and thereafter will file the requisite premerger notification and report form under the HSR Act.

We have no reason to believe it will not be possible to obtain regulatory approvals in a timely manner or without the imposition of burdensome conditions. Kroger and Harris Teeter expect to close the transaction during the fourth quarter of 2013. There is no certainty, however, that these approvals will be obtained within the period of time contemplated by the merger agreement, that any such approvals would not be conditioned upon actions that would be materially adverse to us or Kroger, or that a regulatory challenge to the merger will not be made. If a challenge is made, we cannot predict the result. For example, at any time before or after completion of the merger, the Federal Trade Commission or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the merger or seeking divestiture of substantial assets of Harris Teeter or Kroger. Private parties may also bring actions under the antitrust laws under certain circumstances.

The approval of any regulatory application or completion of regulatory review merely implies the satisfaction of certain regulatory criteria, which do not include review of the merger from the standpoint of the adequacy of the consideration to be received by the Harris Teeter shareholders. Further, regulatory approvals or reviews do not constitute an endorsement or recommendation of the merger.

Under the merger agreement, we and Kroger are each required to use reasonable best efforts to (i) take all actions reasonably necessary to obtain all necessary waivers, consents, approvals or expirations or terminations of waiting periods as may be required by law or any governmental entity and (ii) facilitate the obtaining of any necessary final order from any governmental entity approving the merger and/or to remove any impediment to the consummation of the merger. We and Kroger are each required to use reasonable best efforts to avoid the entry of, or to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order by any governmental entity that would restrain, prevent or delay consummation of the merger. Kroger is also required to use its reasonable best efforts to avoid or eliminate any impediments under any antitrust laws, including by effecting, by consent decree, hold separate order or otherwise, the sale, divestiture or disposition of assets of Kroger or Harris Teeter, or otherwise committing to take actions after the effective time that would limit Kroger’s freedom of action with respect to, or its ability to operate or retain, certain assets of Kroger or Harris Teeter, provided that Kroger will not be required to take any action

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that would result in a material reduction in the reasonably anticipated economic benefits to it contemplated by the merger agreement measured over a commercially reasonable period.

Kroger has agreed to pay us a termination fee of $200,000,000 if the merger agreement is terminated under certain circumstances in which there has been a failure to obtain required antitrust approvals or any decree, judgment, injunction or other order relating to antitrust laws preventing, prohibiting or delaying the consummation of the merger exists or is in effect, the Harris Teeter shareholders have adopted and approved the merger agreement, our representations and warranties are true and correct, we have performed all obligations required of us under the merger agreement and no Harris Teeter material adverse effect has occurred, as described in greater detail below under “The Merger Agreement — Termination Fees and Expenses” beginning on page 68.

Delisting and Deregistration of Harris Teeter Common Stock

If the merger is completed, the Harris Teeter common stock currently listed on the NYSE will cease to be listed on the NYSE and will be deregistered under the Exchange Act.

Appraisal Rights

In accordance with Section 55-13-02 of the North Carolina Business Corporation Act, no appraisal rights will be available to the holders of Harris Teeter common stock in connection with the merger or the other transactions contemplated by the merger agreement.

Litigation Relating to the Merger

Several purported class action complaints relating to the merger have been filed in the General Court of Justice, Superior Court Division, Mecklenburg County, North Carolina on behalf of putative classes of Harris Teeter’s public shareholders (the “state cases”). The complaints name as defendants the members of the Harris Teeter Board, Harris Teeter, Kroger and Merger Sub. The state cases generally allege that members of the Harris Teeter Board breached their fiduciary duties to Harris Teeter’s shareholders with respect to the merger agreement and by omitting information material to shareholders from the preliminary proxy statement and that the other defendants aided and abetted that breach. Two of the cases also purport to assert derivative claims on behalf of Harris Teeter. The cases are: Priscilla Gerlach v. Thomas W. Dickson, et. al. (Case No. 13-CVS-12579), filed July 16, 2013; Westmoreland County Employees Retirement Fund v. John R. Belk, et. al. (Case No. 13-CVS-513852), filed August 1, 2013; and Tabitha Hamrick v. Harris Teeter Supermarkets, Inc. (Case No. 13-CVS-14264), filed August 12, 2013. A purported class action complaint relating to the merger has been filed in the United States District Court for the Western District of North Carolina naming as defendants Harris Teeter and the members of the Harris Teeter Board (the “federal case”). The federal case makes allegations similar to those in the state cases and in addition purports to assert claims for, among other things, violations of the federal securities laws and fraud related to the preliminary proxy statement. The case is Joel Krieger v. Harris Teeter Supermarkets, Inc. (Case No. 3:13-cv-453), filed August 9, 2013.


Each of the state cases and the federal case seek, among other things, injunctive relief preventing the consummation of the merger, damages and an award of plaintiff’s expenses and attorneys’ fees. The outcome of these lawsuits is uncertain. Harris Teeter and the Harris Teeter Board believe that the claims asserted in each suit are without merit and intend to defend themselves vigorously against the claims.

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THE MERGER AGREEMENT

The following discussion sets forth the principal terms of the merger agreement, a copy of which is attached as Annex A to this proxy statement and is incorporated by reference herein. The rights and obligations of the parties are governed by the express terms and conditions of the merger agreement and not by this discussion, which is summary by nature. This discussion is not complete and is qualified in its entirety by reference to the complete text of the merger agreement. You are encouraged to read the merger agreement carefully in its entirety, as well as this proxy statement and any documents incorporated by reference herein, before making any decisions regarding the merger.

The merger agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about Harris Teeter. The representations and warranties in the merger agreement were made only for the purposes of the merger agreement as of the specific dates therein, and were solely for the benefit of the parties to the merger agreement. The representations and warranties contained in the merger agreement may be subject to limitations agreed upon by the parties to the merger agreement and are qualified by information in confidential disclosure schedules provided in connection with the signing of the merger agreement. These confidential disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the merger agreement. Moreover, certain representations and warranties in the merger agreement may be subject to a standard of materiality provided for in the merger agreement and have been used for the purpose of allocating risk among the parties, rather than establishing matters of fact. You should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of Harris Teeter or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in Harris Teeter’s public disclosures. You should read the representations and warranties in the merger agreement and their description in this proxy statement in conjunction with the other information contained in the reports, statements and filings we publicly file with the SEC.

The Merger

Subject to the terms and conditions of the merger agreement and in accordance with the North Carolina Business Corporation Act, at the effective time, Merger Sub, a wholly owned subsidiary of Kroger created solely for the purpose of engaging in the transactions contemplated by the merger agreement, will merge with and into Harris Teeter and Harris Teeter will survive the merger as a wholly owned subsidiary of Kroger.

Closing and Effectiveness of the Merger

The closing of the merger will take place no later than two business days after the date on which the conditions to its completion have been satisfied or waived (other than those conditions that by their nature are to be satisfied or waived at the closing). The parties will file articles of merger with the North Carolina Secretary of State and the merger will become effective upon such filing (or at such later time as may be agreed to by the parties and specified in the articles of merger).

We expect to complete the merger during the fourth quarter of calendar year 2013. However, Harris Teeter cannot predict the actual date on which the merger will be completed, if at all, because completion is subject to conditions beyond Harris Teeter’s control. There may be a substantial amount of time between the special meeting and the completion of the merger. We expect to complete the merger promptly following the receipt of all required clearances and approvals and the satisfaction or, to the extent permitted, waiver of the other conditions to the consummation of the merger. See the sections titled “The Merger Proposal (Proposal 1) — Regulatory Clearances and Approvals Required for the Merger” beginning on page 55 and “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 67.

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Articles of Incorporation and Bylaws

The articles of incorporation and bylaws of the surviving corporation will be amended and restated in their entirety at the effective time in the form agreed to by Harris Teeter, Kroger and Merger Sub until thereafter amended in accordance with the provisions thereof and as provided by law.

Directors and Officers of the Surviving Corporation

The directors and officers of Merger Sub immediately before the effective time will be the initial directors and officers of the surviving corporation, respectively. The directors and officers will serve in accordance with the articles of incorporation and bylaws of the surviving corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified.

Merger Consideration

At the effective time, each outstanding share of Harris Teeter common stock (other than Harris Teeter common stock held by Kroger or Merger Sub) will be converted into the right to receive $49.38 in cash, without interest and less any applicable withholding taxes. After the merger is completed, current holders of Harris Teeter common stock will have only the right to receive the merger consideration, and will no longer have any rights as holders of Harris Teeter common stock, including voting or other rights, and Kroger will own 100% of Harris Teeter’s common stock. Shares of Harris Teeter common stock held by Kroger or Merger Sub will be canceled at the effective time.

Exchange Procedures

At or before the effective time, Kroger will deposit in trust to a paying agent an amount in cash sufficient to pay the merger consideration to each holder of Harris Teeter common stock. Within three business days after the effect time, Kroger will instruct the paying agent to mail a letter of transmittal and instructions to each holder of record of Harris Teeter common stock. The letter of transmittal and instructions will tell Harris Teeter shareholders how to surrender their common stock certificates or shares that may be represented by book entry in exchange for payment of the merger consideration.

You should not return your share certificates with the enclosed proxy card, and you should not forward your share certificates to the paying agent without a letter of transmittal.

Registered shareholders will not receive the merger consideration until they surrender their book-entry shares or share certificates to the paying agent, together with a properly completed and signed letter of transmittal and any other documents as may be required by the letter of transmittal or accompanying instructions. The merger consideration will be provided only in accordance with the procedures set forth in the letter of transmittal.

At the effective time of the merger, our stock transfer books will be closed, and there will be no further registration of transfers of outstanding shares of Harris Teeter common stock.

Treatment of Harris Teeter Equity Awards

Stock Options. At the effective time, Harris Teeter will cause each outstanding option to purchase shares of Harris Teeter’s stock, whether vested or unvested, to represent the right to receive a payment in cash, without interest and less any applicable withholding taxes, equal to the product of the excess, if any, of the merger consideration of $49.38 over the exercise price of the option, multiplied by the number of shares subject to such option.

Restricted Shares and Performance Shares. At the effective time, each performance share and outstanding share of Harris Teeter common stock subject to time-based, performance or other vesting or lapse restrictions under any stock or incentive plan of Harris Teeter will fully vest such that each holder thereof will be entitled to 100% of the shares of Harris Teeter common stock underlying such awards and the holder thereof will receive the merger consideration of $49.38 for each such share.

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Representations and Warranties

The merger agreement contains representations and warranties made by each of the parties regarding aspects of their respective businesses, financial condition and structure, as well as other facts pertinent to the merger.

Our representations and warranties relate to, among other things:

•    
  our and our subsidiaries’ organization, existence, good standing, qualification to do business and similar corporate matters;

•    
  our and our subsidiaries’ capitalization and capital structure;

•    
  our joint ventures;

•    
  our corporate power and authority to enter into and perform our obligations under the merger agreement and complete the merger, and the enforceability and due execution and delivery of the merger agreement;

•    
  the absence of conflicts with our organizational documents, applicable law or certain contracts as a result of the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby;

•    
  the absence of defaults or accelerations of obligations under certain contracts, or creation of liens on our assets, in each case, resulting from our entry into the merger agreement or the completion of the merger;

•    
  consents, approvals, filings and registrations required from governmental entities to enter into the merger agreement and complete the merger;

•    
  financial statements and SEC filings, internal reporting controls and the Sarbanes-Oxley Act of 2002, off-balance-sheet arrangements and undisclosed liabilities;

•    
  the absence since October 2, 2012 of any events that have had or would reasonably be expected to have a material adverse effect on Harris Teeter, or certain actions by Harris Teeter not taken in the ordinary course of business consistent with past practice;

•    
  the absence of proceedings, claims, actions or governmental or regulatory investigations or other proceedings pending or threatened against us and the absence of certain orders against us;

•    
  our and our subsidiaries’ compliance with applicable law;

•    
  our and our subsidiaries’ compliance with tax laws and other tax matters;

•    
  employment, labor and employee-benefit matters affecting us or our subsidiaries;

•    
  our and our subsidiaries’ material contracts;

•    
  owned and leased real estate;

•    
  intellectual property;

•    
  environmental matters;

•    
  our insurance policies;

•    
  the applicability of, and Harris Teeter’s compliance with, certain state takeover statutes;

•    
  the absence of any rights agreement, “poison pill” or similar agreements and plans;

•    
  brokers and financial advisors;

•    
  our receipt of an opinion from J.P. Morgan regarding the fairness, from a financial point of view, of the consideration to be received by holders of Harris Teeter common stock;

•    
  compliance with applicable anticorruption laws; and

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•    
  compliance with applicable healthcare and privacy laws, including the Health Insurance Portability and Accountability Act of 1996.

Some of our representations and warranties are qualified as to materiality or by exceptions related to the absence of a Harris Teeter material adverse effect. Under the merger agreement, “Harris Teeter material adverse effect” with respect to Harris Teeter means any event, change, circumstance, occurrence, effect or state of facts that (i) is materially adverse to the business, assets, condition or results of operation of Harris Teeter and its subsidiaries, taken as a whole, or (ii) materially impairs or prevents or materially delays the ability of Harris Teeter to consummate the merger; provided, that none of the following events, changes, circumstances, occurrences, effects or states of fact will constitute a material adverse effect under clause (i):

•    
  those generally affecting the industry of Harris Teeter or the economy or financial or securities markets of the United States, including effects resulting from any regulatory or political conditions or developments in general (unless such events, changes, circumstances, occurrences, effects and states of fact have a disproportionate impact on Harris Teeter and its subsidiaries, taken as a whole);

•    
  any outbreak or escalation of hostilities or declared or undeclared acts of war or terrorism;

•    
  any changes or proposed changes in law or GAAP (unless such changes or proposed changes have a disproportionate impact on Harris Teeter and its subsidiaries, taken as a whole);

•    
  any change in the market price or trading volume of any securities of Harris Teeter, or any change of or failure to meet, in and of itself, any internal or public projections, forecasts, budgets or estimates of or relating to Harris Teeter or any of its subsidiaries for any period;

•    
  any hurricane, tropical storm, flood, forest fire, earthquake or any similar natural disaster;

•    
  the execution, announcement, performance and existence of the merger agreement;

•    
  any action taken or not taken by Harris Teeter at the written request of Kroger; and

•    
  any action taken by Kroger, Merger Sub or any of their affiliates.

Kroger and Merger Sub also make a number of representations and warranties to us regarding various matters pertinent to the merger. The topics covered by these representations and warranties include the following:

•    
  organization, existence, good standing, qualification to do business and similar corporate matters;

•    
  corporate power and authority to enter into and perform their obligations under the merger agreement and complete the merger, and the enforceability and due execution and delivery of the merger agreement;

•    
  the absence of conflicts with their respective organizational documents, applicable law or certain contracts as a result of the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby;

•    
  consents, approvals, filings and registrations required from governmental entities to enter into the merger agreement and complete the merger;

•    
  the absence of any approval needed by holders of Kroger’s outstanding securities;

•    
  the absence of proceedings, claims, actions or governmental or regulatory investigations or other proceedings pending or threatened against Kroger and the absence of certain orders against Kroger;

•    
  the accuracy of the information supplied by Kroger or any of its affiliates in connection with this proxy statement;

•    
  the purposes of the formation of Merger Sub and the absence of any business activities conducted by it;

•    
  the availability and sufficiency of funds to pay the merger consideration and merger-related costs;

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•    
  the absence of any agreement, arrangement or understanding among Kroger, Merger Sub or any of their affiliates, on the one hand, and any holder of Harris Teeter securities or any officer, director or employee of Harris Teeter, on the other hand;

•    
  ownership by Kroger of Harris Teeter common stock or other securities of Harris Teeter;

•    
  brokers and financial advisors; and

•    
  access to information about Harris Teeter provided to Kroger and Merger Sub.

Some of Kroger’s and Merger Sub’s representations and warranties are qualified as to materiality or by exceptions related to the absence of a Kroger material adverse effect. Under the merger agreement, “Kroger material adverse effect” with respect to Kroger and Merger Sub means any change, effect, event, fact, development or occurrence that, individually or in the aggregate, is materially adverse with respect to, or would reasonably be expected to have a material adverse effect on, the ability of Kroger or Merger Sub to timely consummate the merger.

The representations and warranties of each of the parties to the merger agreement will expire upon the completion of the merger or the termination of the merger agreement.

Conduct of Business Pending the Merger

We have agreed to restrictions on the operation of our business until the earlier of the effective time or the termination of the merger agreement. In general, except as may be required by law, consented to in writing by Kroger, permitted by the merger agreement or as permitted by disclosure in our confidential disclosure schedules, we have agreed to conduct our business consistent with past practice and will use all commercially reasonable efforts to keep available the services of our key employees, maintain satisfactory relations with our lenders and material suppliers and other persons with whom we have material business relationships and maintain in effect material insurance policies. In addition, we have agreed that, subject to specified exceptions, neither we nor our subsidiaries will, without the prior written consent of Kroger:

•    
  authorize or pay any dividend or other distribution with respect to our outstanding capital stock, other than (i) regular quarterly cash dividends or distributions authorized by the Harris Teeter Board before the date of the merger agreement or in the ordinary course of business consistent with past practice, not exceeding $0.15 per share, or (ii) dividends and distributions paid by our subsidiaries to us or any of our other subsidiaries;

•    
  split, combine or reclassify any of our capital stock or issue any securities in respect of, in lieu of or in substitution for shares of our capital stock;

•    
  except as permitted by law, existing agreements or our existing benefit plans or as provided in our confidential disclosure schedules to the merger agreement, materially increase the compensation or other benefits payable or provided to our employees or directors, enter into any change-of-control or severance agreement with employees or other service providers, adopt any new or amended plan for the benefit of any current or former directors, officers or employees;

•    
  enter into or make any loans, advances or capital contributions to any other person or make any change in our existing borrowing, lending or investment arrangements;

•    
  change our material financial accounting policies or procedures or any methods of reporting income, deductions or other items for financial accounting purposes, except as required by GAAP or applicable law;

•    
  amend our articles of incorporation or bylaws or permit any of our subsidiaries to amend their articles of incorporation, bylaws or similar organizational documents in a manner adverse to Kroger or Merger Sub or as would reasonably be expected to have a Harris Teeter material adverse effect;

•    
  issue, sell, pledge, dispose of or encumber any shares of our capital stock or other securities, take any action to cause any of our stock options currently unexercisable to become exercisable or make any

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  changes in our capital structure, other than issuances of shares of Harris Teeter common stock upon the exercise of previously granted stock options or equity grants to newly hired employees;

•    
  purchase, redeem or otherwise acquire any shares of our stock or other securities, other than in connection with transactions among us and any of our subsidiaries or in satisfaction of withholding obligations in connection with the exercise of stock options or the vesting of restricted shares;

•    
  incur, assume, guarantee, prepay or become liable for any indebtedness for borrowed money, except for indebtedness among us and any of our subsidiaries, guarantees by us of indebtedness of any of our subsidiaries and indebtedness under our existing credit facilities;

•    
  sell, lease, license, transfer, exchange or encumber any portion of our tangible properties or assets having a value in excess of $5,000,000, individually or in the aggregate, except (i) under existing agreements in effect before the execution of the merger agreement, (ii) the sale of inventory in the ordinary course of business consistent with past practice, (iii) with respect to a small number of stores that we are permitted to divest or close and (iv) with respect to certain matters described in our confidential disclosure schedules;

•    
  enter into any new material contracts or change the terms of any current material contracts, other than renewals or replacements of existing material contracts that are on similar terms or in connection with the making of certain capital expenditures permitted under the merger agreement;

•    
  enter into any contract that materially restricts us or any of our subsidiaries from engaging or competing in any line of business or in any geographic area or any contract that would be breached by the merger, or require the consent of a third party to continue such contract as a result of the merger;

•    
  acquire by merger, consolidation or purchase of stock or assets any entity, store, business or assets that constitute a business or a division of any other company;

•    
  make any capital expenditure in excess of certain amounts set forth in our confidential disclosure schedules;

•    
  adopt or enter into any plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization;

•    
  enter into any new line of business outside of the businesses currently undertaken by us;

•    
  settle any material litigation, investigation, arbitration, proceeding or other claim involving us, any shareholder litigation or dispute against us or any of our officers or directors or any litigation, arbitration, proceeding or dispute relating to the merger;

•    
  make or change any material tax election or tax or accounting method, file any amended tax returns or enter into any agreement or settlement of tax claims, audits or assessments, except as may be required by law, where adequate reserves have been made or as would not reasonably be expected to materially increase any tax liability or materially decrease any tax asset; or

•    
  agree to take any of the foregoing actions.

Special Meeting and Proxy Statement

Harris Teeter has agreed to call a meeting of its shareholders to be held as soon as reasonably practicable after the mailing of this proxy statement for the purpose of obtaining the approval of the merger agreement by Harris Teeter’s shareholders and to use its reasonable best efforts to obtain such approval, including by recommending that the Harris Teeter shareholders vote in favor of the merger proposal. In connection with the special meeting, Harris Teeter has also agreed to prepare and file with the SEC a proxy statement as promptly as practicable after the execution of the merger agreement.

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Restrictions on Solicitation of Acquisition Proposals

From the date of the merger agreement until the earlier of the effective time or the termination of the merger agreement, Harris Teeter is required to immediately cease any solicitations, discussions or negotiations that may be ongoing with respect to an acquisition proposal with any person. Harris Teeter is generally not permitted to:

•    
  initiate, solicit or knowingly encourage, facilitate or assist the making of a competing acquisition proposal;

•    
  engage in, continue or participate in any discussions or negotiations with any person regarding any competing acquisition proposal;

•    
  furnish to any person any nonpublic information or afford access to the business, properties, assets or personnel of Harris Teeter to facilitate the making of a competing acquisition proposal; or

•    
  enter into any acquisition agreement, merger agreement or other contract contemplating a competing acquisition proposal.

If, however, before the Harris Teeter shareholders approve the merger agreement, Harris Teeter receives from a third party a bona fide written acquisition proposal that the Harris Teeter Board determines in good faith, after consultation with its financial advisors and outside legal counsel, constitutes a superior proposal or would reasonably be expected to result in a superior proposal, Harris Teeter may:

•    
  furnish to such third party access and nonpublic information with regard to Harris Teeter and its subsidiaries under a confidentiality agreement;

•    
  engage or participate in any discussions with such person; and

•    
  withhold, withdraw or change its recommendation to Harris Teeter’s shareholders regarding the transaction with Kroger following receipt of a superior proposal, subject to complying with certain notice and other specified conditions, including giving Kroger the opportunity to propose changes to the merger agreement in response to such superior proposal.

For purposes of the merger agreement, a “superior proposal” is a bona fide written acquisition proposal the terms of which the Harris Teeter Board has determined in good faith, after consultation with its financial advisors and outside legal counsel, and taking into consideration all relevant factors, among other things, all of the terms and conditions of such acquisition proposal and the merger agreement (in each case taking into account any changes to the merger agreement or the transactions contemplated thereby (or any other proposals) made or proposed in writing by Kroger before the time of determination), including financing, regulatory approvals, break-up fee, expense reimbursement provisions, conditions to consummation and financing terms, (A) is reasonably likely to be consummated in accordance with its terms and (B) if consummated, would result in a transaction more favorable to the Harris Teeter shareholders from a financial point of view than the transactions contemplated by the merger agreement (after taking into account the expected timing and risk and likelihood of consummation and including taking into account any adjustment to the terms and conditions proposed by Kroger in response to such proposal).

For purposes of the merger agreement, an “acquisition proposal” is any bona fide proposal or offer relating to (A) a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, share exchange, business combination or similar transaction involving Harris Teeter (or any subsidiary or subsidiaries of Harris Teeter whose business constitutes 25% or more of the net revenues, net income or assets (based on fair market value) of Harris Teeter and its subsidiaries, taken as a whole), (B) the acquisition of 25% or more of the outstanding shares of any class of capital stock of Harris Teeter or 25% or more of the voting power represented by the outstanding voting securities of Harris Teeter, (C) a tender offer or exchange offer or other transaction which, if consummated, would result in a direct or indirect acquisition of 25% or more of the total voting power of the capital stock of Harris Teeter or 25% or more of the voting power represented by the outstanding voting securities of Harris Teeter, (D) the acquisition in any manner, directly or indirectly, of 25% or more of the consolidated total assets (based on fair market value) of Harris Teeter and its subsidiaries (or to which 25% or more of Harris Teeter’s revenues or earnings

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on a consolidated basis are attributable) including, for this purpose, the outstanding assets and equity interests of the subsidiaries of Harris Teeter, (E) any transaction that would result in person obtaining the ability to elect a majority of the Harris Teeter Board or (F) any other transaction having a similar effect to those described in clauses (A) through (E), and in each case other than the transactions between Kroger, Merger Sub and Harris Teeter contemplated by the merger agreement.

In engaging in such permitted discussions or negotiations regarding an acquisition proposal, we must comply with the following procedures:

•    
  promptly orally (and in writing within 48 hours) notify Kroger that we have received a request for discussions or negotiations, for access to properties or books and records or for information relating to us, in each case in connection with an acquisition proposal;

•    
  promptly orally (and in writing within 48 hours) keep Kroger reasonably informed on a current basis of the status of any material developments, discussions or negotiations regarding any acquisition proposal or any change to the financial or material terms of any acquisition proposal;

•    
  unless such person is bound by a preexisting confidentiality agreement, enter into an acceptable confidentiality agreement (which is not materially less favorable in the aggregate to us than our confidentiality agreement with Kroger (except with regard to standstill provisions)); and

•    
  promptly orally (and in writing within 48 hours) make available to Kroger any nonpublic information that we provide to any person given such access that was not previously made available to Kroger.

Harris Teeter Board Recommendation

Under the terms of the merger agreement, subject to the exceptions described below, the Harris Teeter Board has agreed to recommend that the Harris Teeter shareholders vote in favor of the merger proposal and has agreed that it will not:

•    
  withhold, withdraw, qualify, change amend or modify in a manner adverse to Kroger the recommendation of the Harris Teeter Board with respect to the merger;

•    
  make any public statement in connection with such recommendation or in reference to an acquisition proposal that is inconsistent with such recommendation and adverse to Kroger;

•    
  fail to include such recommendation in the proxy statement;

•    
  adopt, approve, recommend or otherwise declare advisable any acquisition proposal or enter into any alternative acquisition agreement; or

•    
  fail to make or reaffirm the recommendation that the Harris Teeter shareholders vote in favor of the merger proposal within five business days of Kroger’s request to do so following Harris Teeter’s receipt of an acquisition proposal.

Any of the foregoing actions would constitute a change in the recommendation of the Harris Teeter Board that the Harris Teeter shareholders vote in favor of the merger proposal.

Notwithstanding the foregoing restrictions, at any time prior to the receipt of Harris Teeter shareholder approval of the merger proposal, the Harris Teeter Board may change its recommendation and terminate the merger agreement and enter into an alternative acquisition agreement with respect to a superior proposal if:

•    
  the Harris Teeter Board determines in good faith, after consultation with its financial advisors and outside legal counsel, that failure to take such action would be inconsistent with its fiduciary obligations;

•    
  Harris Teeter provides written notice to Kroger five business days in advance of taking such action, advising Kroger of its intention and including the basis for its change in recommendation or termination, the identity of the party making the superior proposal and the material terms of the superior proposal;

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•    
  during the five-business-day period following such notice, Harris Teeter has negotiated with Kroger and Merger Sub in good faith to make any changes to the terms and conditions of the merger agreement; and

•    
  the Harris Teeter Board considers in good faith any changes to the merger agreement offered by Kroger and determines in good faith after consultation with Harris Teeter’s financial advisors and outside legal counsel, that the acquisition proposal received continues to be a superior proposal, even if the changes proposed by Kroger were given effect.

If Harris Teeter receives any material amendments or revisions to such acquisition proposal that the Harris Teeter Board determines is a superior proposal, Harris Teeter must deliver a new written notice to Kroger and comply with the requirements set forth in the bullet points above with respect to such new written notice.

Notwithstanding our nonsolicitation and related obligations in the merger agreement, we may make (i) any disclosure to our shareholders of positions required by Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A under the Exchange Act or other applicable law or (ii) any “stop-look-and-listen” communication pursuant to Section 14d-9(f) under the Exchange Act. Any such disclosure that has the substantive effect of withholding, withdrawing, modifying or qualifying in a manner adverse to our recommendation that the Harris Teeter shareholders approve the merger shall be deemed a change in recommendation unless the Harris Teeter Board expressly publicly reaffirms the recommendation with three business days following a request by Kroger.

Efforts to Complete the Merger

Each of the parties is required to use its reasonable best efforts to (i) take all actions reasonably necessary to obtain all necessary waivers, consents, approvals or expirations or terminations of waiting periods as may be required by law or any governmental entity and (ii) facilitate the obtaining of any necessary final order from any governmental entity approving the merger and/or to remove any impediment to the consummation of the merger. Each of Kroger and Harris Teeter is required to use its reasonable best efforts to avoid the entry of, or to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order by any governmental entity that would restrain, prevent or delay consummation of the merger. Kroger is also required to use its reasonable best efforts to avoid or eliminate any impediments under any antitrust laws, including by effecting, by consent decree, hold separate order or otherwise, the sale, divestiture or disposition of assets of Kroger or Harris Teeter, or otherwise committing to take actions after the effective time that would limit Kroger’s freedom of action with respect to, or its ability to operate or retain, certain assets of Kroger or Harris Teeter, provided that Kroger will not be required to take any action that would result in a material reduction in the reasonably anticipated economic benefits to it contemplated by the merger agreement measured over a commercially reasonable period.

Employee Benefits

Under the merger agreement, Kroger and Merger Sub have agreed that for a period of 18 months from the effective time, continuing employees will:

•    
  each receive no less than the same base salary or hourly wage rate provided to such employee immediately before the effective time;

•    
  each receive no less than the same annual or more frequent bonus or commission opportunity provided to such employee immediately before the effective time; and

•    
  receive other compensation and benefits (other than equity and equity-based awards) that are no less favorable for all continuing employees in the aggregate than those provided under the compensation and benefit plans, programs, policies, agreements and arrangements of Harris Teeter in effect immediately before the effective time.

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Notwithstanding the foregoing, nothing will prevent the surviving corporation or any of its subsidiaries from terminating the employment of any continuing employee. Additional agreements by Kroger and Merger Sub with respect to employee benefits are described in more detail in the merger agreement.

Directors’ and Officers’ Indemnification and Insurance

The merger agreement provides for certain indemnification and insurance rights in favor of our and our subsidiaries’ current and former directors and officers. Following the effective time, Kroger will cause the surviving corporation to indemnify our and our subsidiaries’ present and former directors and executive officers in connection with claims, liabilities or judgments arising out of the fact that such person is or was one of our or our subsidiaries’ officers or directors, and pertaining to any matter, act or omission existing or occurring at or before the effective time. In addition, following the effective time, the surviving corporation will maintain in effect provisions providing rights to indemnification, exculpation from liability and advancement of expenses to such individuals in the surviving corporation’s organizational documents and not amend or repeal such terms in any manner that would adversely affect the rights of the individuals covered by such provisions.

For six years following the effective time of the merger, Kroger will cause the present directors and executive officers be covered under Harris Teeter’s existing directors’ and officers’ liability insurance policies, or other coverage that is no less favorable, covering any claims arising with respect to acts or omissions occurring before the effective time of the merger. The merger agreement also provides that, at or prior to the effective time, we may purchase a directors’ and officers’ liability “tail” insurance policy on the same terms and conditions as the existing directors’ and officers’ liability (and fiduciary) insurance maintained by us, in an amount not to exceed 300% of the annual premiums of the current policies maintained by us. If purchased, Kroger must cause Harris Teeter to maintain and honor such policy for its full term.

The indemnification and insurance provisions of the merger agreement are intended to benefit, and are enforceable by, the indemnified persons and their respective heirs or legal representatives.

Financing

There is no financing condition to the merger, however, under the merger agreement, we have agreed to use reasonable efforts to cooperate with Kroger and Merger Sub, at the sole expense of Kroger and at the request of Kroger, to the extent necessary in connection with obtaining financing for the merger, so long as such cooperation does not unreasonably interfere with Harris Teeter’s ongoing operations. Such cooperation may include:

•    
  furnishing Kroger and Merger Sub financial or other information regarding Harris Teeter as may be reasonably requested by Kroger;

•    
  participating in a reasonable number of meetings, due diligence sessions, drafting sessions and sessions with ratings agencies;

•    
  assisting Kroger in the preparation of customary offering memoranda, bank information memoranda, authorization letters, confirmations and undertakings and presentations to ratings agencies and lenders;

•    
  providing and executing customary documents reasonably requested by Kroger;

•    
  using reasonable efforts to satisfy the conditions precedent in any documentation relating to financing in connection with the merger to the extent the satisfaction of such conditions requires our cooperation or is within our control;

•    
  using reasonable efforts to cooperate with any due diligence investigation of any financing sources, to the extent customary and reasonable and without interfering in our business; and

•    
  using commercially reasonable efforts to obtain accountant’s comfort letters and legal opinion letters reasonably requested by Kroger and customary for such financings.

Under the merger agreement, our cooperation will not require us to pay any fees, enter into any definitive agreements or have any liability or obligation under any document related to the financing or incur any

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expenses (other than those for which we will be promptly reimbursed), nor will our officers or directors have to take any action in their capacity as officers or directors in connection with the financing. Kroger has also agreed to indemnify us for all costs incurred by us in connection with our cooperation and for any damages, losses, costs, liabilities or expenses suffered by us or our directors and officers in connection with the arrangement of Kroger’s financing.

Conditions to the Closing of the Merger

Each party’s obligation to effect the merger is subject to the satisfaction of various conditions, which include the following:

•    
  the merger agreement is approved by Harris Teeter’s shareholders at the special meeting;

•    
  no order, injunction or decree issued by any court or agency of competent jurisdiction is in effect or statute, rule, regulation, order injunction or decree enacted, entered or enforced by any governmental entity that prohibits or makes illegal the consummation of the merger or any other transactions contemplated by the merger agreement; and

•    
  the applicable waiting period under the HSR Act has expired or been terminated and all other authorizations, consents, orders or approvals of or declarations or filings with, or expirations of waiting periods imposed by, any governmental entity, have been filed, obtained or occurred.

Kroger and Merger Sub will not be obligated to effect the merger unless the following conditions are satisfied or waived by Kroger and Merger Sub:

•    
  our representations and warranties are true and correct as of the closing date of the merger subject to the materiality standards set forth in the merger agreement;

•    
  we have performed in all material respects all of our obligations under the merger agreement at or prior to the closing of the merger;

•    
  Kroger has received a certificate executed by our chief executive officer or chief financial officer confirming that these conditions have been satisfied; and

•    
  since the date of the merger agreement, there has not been a Harris Teeter material adverse effect.

We will not be obligated to effect the merger unless the following conditions are satisfied or waived by Harris Teeter:

•    
  the representations and warranties of Kroger and Merger Sub are true and correct as of the closing date of the merger subject to the materiality standards set forth in the merger agreement;

•    
  Kroger and Merger Sub have performed in all material respects with each of their obligations under the merger agreement at or prior to the closing of the merger; and

•    
  we have received a certificate executed by the chief executive officer or chief financial officer of Kroger confirming that these conditions have been satisfied.

Termination of the Merger Agreement

Harris Teeter and Kroger can terminate the merger agreement under certain circumstances, including:

•    
  by mutual written consent;

•    
  if the merger has not occurred on or before March 31, 2014, subject to one automatic three-month extension and one subsequent three-month extension at the election of either Kroger or Harris Teeter, in the case of each such extension, if substantially all conditions to closing have been satisfied or are capable of being satisfied at closing other than the receipt of required regulatory approvals, including the expiration or termination of any applicable waiting period under the HSR Act, and the absence of any order, injunction or decree preventing the completion of the merger;

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•    
  if a governmental authority has issued a final and nonappealable order having the effect of permanently restraining, enjoining or otherwise prohibiting the consummation of the merger, provided that the right to terminate the merger agreement under this circumstance will not be available to any party whose failure to perform its obligations under the merger agreement has been a principal cause of or resulted in such order; or

•    
  if approval of the merger proposal by the Harris Teeter shareholders has not been obtained at the special meeting or at any adjournment or postponement thereof at which a vote on the approval of the merger proposal was taken.

Harris Teeter can terminate the merger agreement:

•    
  upon a breach or inaccuracy in any of Kroger’s or Merger Sub’s representations or warranties or the failure by Kroger or Merger Sub to perform any of its obligations under the merger agreement, which in any case would result in the failure of any condition to our obligation to close the merger to be satisfied and which breach, inaccuracy or failure is not capable of being cured before the earlier of (i) 20 days following receipt by Kroger of written notice of such breach, inaccuracy or failure to perform and (ii) March 31, 2014 (subject to certain extensions);

•    
  if Harris Teeter has received a superior proposal from a third party and the Harris Teeter Board has made a determination to accept such proposal; or

•    
  if the mutual conditions to the parties’ obligations to consummate the merger and the conditions to the obligations of Kroger and Merger Sub to consummate the merger are satisfied (other than those conditions that by their terms are to be satisfied by actions taken at the closing of the merger), Harris Teeter has notified Kroger that it is ready and willing to close and Kroger has failed to consummate the merger within three business days of receiving such notice.

Kroger can terminate the merger agreement:

•    
  upon a breach or inaccuracy in any of Harris Teeter’s representations or warranties or Harris Teeter’s failure to perform any of its obligations under the merger agreement, which in any case would result in the failure of any condition to Kroger’s obligation to close the merger to be satisfied and which breach, inaccuracy or failure is not capable of being cured before the earlier of (i) 20 days following receipt by Harris Teeter of written notice of such breach, inaccuracy or failure to perform and (ii) March 31, 2014 (subject to certain extensions); or

•    
  if (i) the Harris Teeter Board has failed to recommend the merger to the Harris Teeter shareholders, has withdrawn, modified or qualified such recommendation in a manner adverse to Kroger or has taken public action, or made public comment, inconsistent with such recommendation or (ii) the Harris Teeter Board has failed to reaffirm publicly its recommendation that the Harris Teeter shareholders approve the merger agreement within five business days after Kroger’s request to do so following Harris Teeter’s receipt of an acquisition proposal.

Termination Fees and Expenses

Harris Teeter has agreed to pay Kroger a termination fee of $75,000,000 under any of the following circumstances:

•    
  (i) the merger agreement is terminated in connection with the failure of the merger to close by March 31, 2014 (subject to one automatic three-month extension and one subsequent three-month extension at the election of either Kroger or Harris Teeter), the failure of the Harris Teeter shareholders to approve the merger or a breach of the merger agreement by Harris Teeter and (ii) within 12 months of the termination of the merger agreement, Harris Teeter enters into an alternative acquisition agreement in respect of a superior proposal made prior to the termination of the merger agreement;

•    
  if the merger agreement is terminated by Harris Teeter in connection with its acceptance of a superior proposal; or

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•    
  if the merger agreement is terminated by Kroger in connection with the Harris Teeter Board failing to recommend the merger to the Harris Teeter shareholders, or otherwise withdrawing, modifying or failing to reaffirm such recommendation within five business days after Kroger’s request to do so following receipt by Harris Teeter of an alternative acquisition proposal.

The merger agreement also provides that Kroger will be required to pay Harris Teeter a reverse termination fee of $200,000,000 if the merger agreement is terminated under certain circumstances in which there has been a failure to obtain required antitrust approvals or any decree, judgment, injunction or other order relating to antitrust laws preventing, prohibiting or delaying the consummation of the merger exists or is in effect, the Harris Teeter shareholders have adopted and approved the merger agreement, the representations and warranties of Harris Teeter are true and correct, Harris Teeter has performed all obligations required of it under the merger agreement and no Harris Teeter material adverse effect has occurred.

Except for the termination fee payable by either party under certain circumstances in a termination of the merger agreement (as described above) and subject to certain other exceptions, whether or not the merger is completed, we and Kroger are each responsible for all respective costs and expenses incurred in connection with the merger and the other transactions contemplated by the merger agreement. Neither party is required to pay more than one termination fee or to pay any applicable termination fee on more than one occasion.

If we receive payment of Kroger’s termination fee, such fee, together with any indemnification or reimbursement owed in connection with enforcing the termination fee provisions of the merger agreement, will constitute liquidated damages and our sole and exclusive remedy against Kroger, Merger Sub and any related party, subject to certain exceptions including with respect to our right to seek specific performance of Kroger’s obligations under the merger agreement. If Kroger receives payment of our termination fee, such fee, together with any indemnification or reimbursement owed in connection with enforcing the termination fee provisions of the merger agreement, will constitute the sole and exclusive remedy of Kroger and Merger Sub against us and any related party, subject to certain exceptions including with respect to Kroger’s right to seek specific performance of our obligations under the merger agreement.

Except in connection with the payment of any termination fees, each party will pay the fees or expenses incurred by such party, whether or not the merger is consummated.

Amendment and Waiver of the Merger Agreement

The merger agreement may be amended by the parties at any time prior to the effective time, provided that after Harris Teeter’s shareholders approve the merger agreement, the parties are prohibited from making any amendment that changes the amount or form of the merger consideration, changes any term of the articles of incorporation of the surviving corporation, changes any terms and conditions of the merger agreement if such change would adversely affect the holders of any security of Harris Teeter or any change that, by applicable law or otherwise, requires further approval of Harris Teeter’s shareholders. The merger agreement may only be amended by an instrument in writing signed by the parties.

At any time prior to the effective time, each party may waive the other party’s compliance with certain provisions of the merger agreement.

Specific Performance; Remedies

Kroger, Merger Sub and we have agreed that irreparable damage would occur in the event that any of the provisions of the merger agreement are not performed or are otherwise breached. The parties will be entitled to seek equitable relief, without posting a bond or undertaking, including injunctive relief and specific performance, to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement.

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ADVISORY VOTE ON NAMED EXECUTIVE OFFICER MERGER-RELATED
COMPENSATION PROPOSAL
(PROPOSAL 2)

In accordance with Section 14A of the Exchange Act, Harris Teeter is providing its shareholders with the opportunity to cast a nonbinding, advisory vote on the compensation that will be paid or may become payable to the named executive officers of Harris Teeter in connection with the merger, the value of which is set forth in the table titled “Golden Parachute Compensation” on page 53. This proposal, commonly known as “say-on-golden parachutes,” is referred to in this proxy statement as the named executive officer merger-related compensation proposal. As required by Section 14A of the Exchange Act, Harris Teeter is asking its shareholders to vote on the adoption of the following resolution:

        “RESOLVED, that the compensation that may be paid or become payable to Harris Teeter’s named executive officers in connection with the merger, as disclosed under “The Merger Proposal — Interests of Harris Teeter Directors and Executive Officers in the Merger — Quantification of Payments and Benefits,” including the table, associated footnotes and narrative discussion related thereto, is hereby APPROVED.”

The vote on the named executive officer merger-related compensation proposal is a vote separate and apart from the vote on the merger proposal. Accordingly, you may vote to approve the merger proposal and vote not to approve the named executive officer merger-related compensation proposal, and vice versa. Because the vote to approve the named executive officer merger-related compensation proposal is only advisory in nature, it will not be binding on Harris Teeter, Kroger or the surviving corporation. Because Harris Teeter is contractually obligated to make the potential merger-related payments to the executive officers, the compensation will be payable, subject only to the conditions applicable thereto, if the merger proposal is approved and regardless of the outcome of the advisory vote.

Approval of the named executive officer merger-related compensation proposal requires the affirmative vote of the holders of a majority of the votes cast with respect to this matter in person or represented by proxy at the special meeting and entitled to vote thereon (provided a quorum is present in person or by proxy). Abstentions and the failure to vote your shares will have no effect on the outcome of the proposal. Similarly, broker non-votes will have no effect on the outcome of the proposal.

The Harris Teeter Board unanimously recommends that the Harris Teeter shareholders vote “FOR” the named executive officer merger-related compensation proposal.

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ADJOURNMENT PROPOSAL
(PROPOSAL 3)

Harris Teeter shareholders are being asked to approve a proposal that will give us authority to adjourn the special meeting for the purpose of soliciting additional proxies in favor of the merger proposal if there are not sufficient votes at the time of the special meeting to approve the merger proposal. If a quorum does not exist, the special meeting may be adjourned to another place, date or time if approved by the holders of a majority of the votes cast with respect to the motion to adjourn in person or represented by proxy. If the adjournment proposal is approved, the special meeting could be adjourned by the Harris Teeter Board. In addition, the Harris Teeter Board, as permitted under the terms of the merger agreement, could postpone the special meeting before it commences, whether for the purpose of soliciting additional proxies or for other reasons. If the special meeting is adjourned or postponed for the purpose of soliciting additional proxies, shareholders who have already submitted their proxies will be able to revoke them at any time prior to their use. If you sign and return a proxy and do not indicate how you wish to vote on any proposal, your shares will be voted in favor of the adjournment proposal. Harris Teeter does not intend to call a vote on this proposal if the merger proposal has been approved at the special meeting.

The Harris Teeter Board unanimously recommends that the Harris Teeter shareholders vote “FOR” the adjournment proposal.

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HISTORICAL MARKET PRICES OF HARRIS TEETER COMMON STOCK AND DIVIDEND INFORMATION

Harris Teeter common stock trades on the NYSE under the symbol “HTSI.” The following table shows, for the periods indicated, the high and low closing sales price of Harris Teeter common stock as reported by the NYSE and the dividends declared per share of Harris Teeter common stock.

Fiscal Quarter
        High
    Low
    Dividend
Per Share
 
Fiscal 2013
                                                    
First Quarter ended January 1, 2013
              $ 39.42          $ 35.72          $ 0.65 *  
Second Quarter ended April 2, 2013
              $ 44.03          $ 36.16          $ 0.15   
Third Quarter ended July 2, 2013
              $ 48.44          $ 39.94          $ 0.15   
Fourth Quarter (through August 22, 2013)
                 $49.75             $48.23             $0.15   
 
Fiscal 2012
                                                    
First Quarter ended January 1, 2012
              $ 44.96          $ 38.12          $ 0.13   
Second Quarter ended April 1, 2012
              $ 44.40          $ 39.65          $ 0.14   
Third Quarter ended July 1, 2012
              $ 40.99          $ 37.23          $ 0.14   
Fourth Quarter ended October 2, 2012
              $ 42.59          $ 37.88          $ 0.14   
 
Fiscal 2011
                                                    
First Quarter ended January 2, 2011
              $ 39.74          $ 34.30          $ 0.13   
Second Quarter ended April 3, 2011
              $ 38.91          $ 33.58          $ 0.13   
Third Quarter ended July 3, 2011
              $ 44.40          $ 38.90          $ 0.13   
Fourth Quarter ended October 2, 2011
              $ 45.57          $ 37.21          $ 0.13   
 


*
  Includes a special dividend of $0.50 per share paid on December 31, 2012, in addition to the quarterly dividend of $0.15 per share paid on January 1, 2013.

The closing sales price of Harris Teeter common stock on the NYSE on August 22, 2013, the latest practicable date before the printing of this proxy statement, was $49.22 per share. The closing sales price of Harris Teeter common stock on the NYSE on January 18, 2013, the day of the first media report after market close that Harris Teeter was evaluating strategic alternatives, was $36.94 per share. You are urged to obtain current market quotations for Harris Teeter common stock when considering whether to approve the merger proposal.


As of August 21, 2013, there were approximately 3,200 record holders of Harris Teeter common stock. Following the merger, there will be no further market for Harris Teeter common stock.


The payment of dividends is at the discretion of the Harris Teeter Board and subject to legal and contractual requirements. The terms of our credit facility restricts our ability to pay dividends and make certain other restricted payments if, after giving effect to such restricted payment an event of default under the amended credit agreement would exist or Harris Teeter would not be in compliance with certain specified financial covenants. In addition, under the merger agreement, as described in “The Merger Agreement — Conduct of Business Pending the Merger” beginning on page 61, we are prohibited from paying any dividend or other distribution on Harris Teeter common stock prior to the completion of the merger, other than (i) regular quarterly cash dividends or distributions authorized by the Harris Teeter Board before the date of the merger agreement or in the ordinary course of business consistent with past practice, not exceeding $0.15 per share or (ii) dividends and distributions paid by our subsidiaries to us or any of our other subsidiaries.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables set forth information concerning the beneficial ownership, within the meaning of applicable securities regulations, of Harris Teeter common stock by (i) each person known to us to be the beneficial owner of 5% or more of the outstanding shares of Harris Teeter common stock; (ii) each director of Harris Teeter; (iii) each named executive officer of Harris Teeter; and (iv) all current directors and executive officers of Harris Teeter as a group. The information below is provided as of August 19, 2013 (except as noted below) and the information for Neuberger Berman Group LLC, BlackRock, Inc. and The Vanguard Group is based solely on the latest Schedule 13G reports each entity had filed with the SEC as of such date. The nature of beneficial ownership of the shares included is presented in the notes following the table.

Name and Address of Beneficial Owner
        Number of Shares
Beneficially Owned(1)
    Percent of Class
Neuberger Berman Group LLC(2)
605 Third Avenue
New York, NY 10158
                 6,024,558             12.18 %  
 
BlackRock, Inc.(3)
40 East 52nd Street
New York, NY 10022
                 3,375,604             6.83 %  
 
Fiduciary Counselors Inc.(4)
700 12th Street NW, Suite 700
Washington, D.C. 20005
                 2,836,159             5.73 %  
 
The Vanguard Group(5)
100 Vanguard Blvd.
Malvern, PA 19355
                 2,522,205             5.10 %  
 


(1)
  “Beneficial Ownership” for purposes of the table, is determined according to the meaning of applicable securities regulations and based on a review of reports filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Exchange Act.

(2)
  Neuberger Berman Group LLC (“NBG”) reported in its Schedule 13G/A filed with the SEC on February 14, 2013 that it had beneficial ownership of 6,024,558 shares, together with its affiliates Neuberger Berman LLC, Neuberger Berman Management LLC and Neuberger Berman Equity Funds. NBG had shared power to vote over 5,884,413 shares and shared power to dispose 6,024,558 shares. Neuberger Berman LLC, an affiliate of NBG, had shared power to vote over 5,884,413 shares and shared power to dispose over 6,024,558 shares. Neuberger Berman Management LLC, an affiliate of NBG, had shared power to vote over 5,318,194 shares and shared power to dispose over 5,318,194 shares. Neuberger Berman Equity Funds, an affiliate of NBG, had shared power to vote over 4,668,667 shares and shared power to dispose over 4,668,667 shares.

(3)
  BlackRock, Inc. (“BlackRock”) reported in its Schedule 13G/A filed with the SEC on February 6, 2013 that it had sole power to vote and sole power to dispose over 3,375,604 shares. Each of the following subsidiaries of BlackRock are identified as having acquired the shares that are being reported therein by BlackRock: BlackRock Advisors, LLC, BlackRock Investment Management, LLC, BlackRock Asset Management Australia Limited, BlackRock Asset Management Canada Limited, BlackRock Advisors (UK) Limited, BlackRock Fund Advisors, BlackRock International Limited, BlackRock Institutional Trust Company, N.A., BlackRock Japan Co. Ltd. and BlackRock Investment Management (UK) Limited.

(4)
  Fiduciary Counselors Inc. (“Fiduciary Counselors”) was engaged as independent fiduciary with respect to the Harris Teeter common stock held by the Harris Teeter Supermarkets, Inc. Retirement and Savings Plan (the “Retirement and Savings Plan”) in order to, among other things, monitor Harris Teeter’s financial condition to determine, in Fiduciary Counselors’ sole discretion, whether holding Harris Teeter common stock by the Retirement and Savings Plan is no longer consistent with the Employee Retirement Income Security Act of 1974, as amended, and if it were to become no longer consistent, to determine when and in what manner to liquidate the shares. As such, Fiduciary Counselors filed a Schedule 13G/A with the SEC on February 12, 2013 claiming shared dispositive power over the shares held by the

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  Retirement and Savings Plan. T. Rowe Price Trust Company, in its capacity as directed trustee, votes Harris Teeter common stock held by Retirement and Savings Plan that have been allocated to individual accounts in accordance with the participants’ instructions and does not vote allocated Harris Teeter common stock as to which no instructions are received. In the above referenced Schedule 13G/A, Fiduciary Counselors disclaimed beneficial ownership of such shares.

(5)
  The Vanguard Group (“Vanguard”) reported in its Schedule 13G filed with the SEC on February 12, 2013 that it had beneficial ownership of 2,522,205 shares, together with its affiliates Vanguard Fiduciary Trust Company and Vanguard Investments Australia, Ltd. Vanguard had sole power to vote over 70,275 shares, sole power to dispose over 2,454,030 shares and shared power to dispose over 68,175 shares.

Except as otherwise indicated, the persons named in the table below have sole voting and investment power over the shares included in the table.

Name of Beneficial Owner
        Shares of Common
Stock Beneficially
Owned(1)(2)
    Percent of Class
Rodney C. Antolock
                 53,894 (3)            *    
John R. Belk
                 8,522             *    
John P. Derham Cato
                 12,000             *    
Thomas W. Dickson
                 285,614(4)             *    
James E.S. Hynes
                 6,780             *    
Frederick J. Morganthall, II
                 74,872 (5)            *    
Anna Spangler Nelson
                 31,000 (6)            *    
Mark S. Ordan
                 10,000 (7)            *    
Bailey W. Patrick
                 0              *    
Robert H. Spilman, Jr.
                 5,040 (8)            *    
Harold C. Stowe
                 1,000             *    
Isaiah Tidwell
                 2,353             *    
William C. Warden, Jr.
                 15,000 (9)            *    
John B. Woodlief
                 79,181 (10)            *    
All current directors and executive officers as a group
                 585,256(11)             1.2 %  
 


*
  Less than 1%

(1)
  The table includes shares allocated under the Retirement and Savings Plan to individual accounts of those named persons and group members who participate in the plan, the voting of which is directed by such named persons or group members, as appropriate.

(2)
  In accordance with Rule 13d-3 promulgated under the Exchange Act, the table does not include shares of Harris Teeter common stock that are deliverable in connection with the Deferral Plan. Pursuant to the Deferral Plan, distributions under the Deferral Plan are paid in the form of Harris Teeter common stock ninety days following the date of termination of service as a director. As of August 19, 2013, Harris Teeter was authorized to deliver up to 500,000 shares of Harris Teeter common stock pursuant to the Deferral Plan and has delivered 20,986 shares to the participating nonemployee directors who have left the Harris Teeter Board. Additionally there were 169,146 stock units reserved under the Deferral Plan for delivery to the current participating nonemployee directors. This total differs from the total line in the table below due to rounding of fractional stock units. The number of stock units that have been credited to each of the participating nonemployee directors as of August 19, 2013 is set forth herein:

Director
        Stock Units Credited
Under Deferral Plan
   
John R. Belk
                 23,591                   
John P. Derham Cato
                 19,724                   
James E. S. Hynes
                 10,208                   
Anna Spangler Nelson
                 28,612                   
Mark S. Ordan
                 958                    
Bailey W. Patrick
                 19,737       

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Director
        Stock Units Credited
Under Deferral Plan
               
Robert H. Spilman, Jr.
                 14,388                   
Harold C. Stowe
                 25,741                   
Isaiah Tidwell
                 19,019                   
William C. Warden, Jr.
                 7,162                   
Total
                 169,140                   
 
(3)
  Includes 21,397 shares beneficially owned by Mr. Antolock, as to which he has sole voting and investment power; 30,800 shares of restricted stock, as to which he has sole voting power, but no investment power; and 1,697 shares allocated to his Retirement and Savings Plan account, as to which he has sole voting power, but no investment power except to the extent diversification of such shares is permitted by the plan.

(4)
  Includes 177,767 shares beneficially owned by Mr. Dickson, as to which he has sole voting and investment power; 96,440 shares of restricted stock, as to which he has sole voting power, but no investment power; and 11,407 shares allocated to his Retirement and Savings Plan account, as to which he has sole voting power, but no investment power except to the extent diversification of such shares is permitted by the plan.

(5)
  Includes 24,121 shares beneficially owned by Mr. Morganthall, as to which he has sole voting and investment power; and 50,751 shares of restricted stock, as to which he has sole voting power, but no investment power.

(6)
  Includes 19,000 shares beneficially owned by Ms. Nelson as to which she has sole voting and investment power; and 12,000 shares owned by a corporation with respect to which she has shared voting and investment power and is deemed the beneficial owner.

(7)
  Includes 10,000 shares that may be acquired upon the exercise of stock options that are currently exercisable, as to which Mr. Ordan would have sole voting and investment power upon acquisition.

(8)
  Includes 3,040 shares beneficially owned by Mr. Spilman as to which he has sole voting and investment power; and 2,000 shares that may be acquired upon the exercise of stock options that are currently exercisable, as to which he would have sole voting and investment power upon acquisition.

(9)
  Includes 5,000 shares beneficially owned by Mr. Warden, as to which he has sole voting and investment power; and 10,000 shares that may be acquired upon the exercise of stock options that are currently exercisable, as to which he would have sole voting and investment power upon acquisition.

(10)
  Includes 37,852 shares beneficially owned by Mr. Woodlief, as to which he has sole voting and investment power; 39,408 shares of restricted stock, as to which he has sole voting power, but no investment power; and 1,921 shares allocated to his Retirement and Savings Plan account, as to which he has sole voting power, but no investment power except to the extent diversification of such shares is permitted by the plan.

(11)
  Includes (i) 318,832 shares beneficially owned as to which such persons have sole voting and investment power; (ii) 22,000 shares that may be acquired by such persons upon the exercise of stock options that are currently exercisable or become exercisable within sixty days of August 19, 2013, as to which such persons would have sole voting and investment power upon acquisition; (iii) 12,000 shares as to which such persons have shared voting and investment power; (iv) 217,399 shares of restricted stock, as to which such persons have sole voting power, but no investment power; and (v) 15,025 shares allocated to their respective Retirement and Savings Plan accounts, as to which they have sole voting power, but no investment power except to the extent diversification of such shares is permitted by the plan.

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following are the material U.S. federal income tax consequences of the merger to “U.S. holders” and “non-U.S. holders” (in each case, as defined below) of Harris Teeter common stock whose shares of common stock are converted into the right to receive cash in the merger. This discussion is based on the current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable U.S. Treasury regulations promulgated thereunder, judicial authority and administrative rulings in effect as of the date of this proxy statement, all of which are subject to change, possibly with retroactive effect. Any such change could alter the tax consequences to the holders as described herein. No ruling from the Internal Revenue Service (“IRS”) has been or will be sought with respect to any aspect of the merger.

This discussion does not purport to be a complete analysis of all potential tax effects of the merger. For example, it does not consider the effect of any applicable state, local or foreign income tax laws, or of any non-income tax laws. In addition, this discussion does not address the tax consequences of transactions effectuated prior to or after the completion of the merger (whether or not such transactions occur in connection with the merger), including, without limitation, the acquisition or disposition of shares of common stock other than pursuant to the merger, or the tax consequences to holders of stock options issued by Harris Teeter which are canceled or converted, as the case may be, in connection with the merger. Furthermore, this discussion applies only to holders that hold their Harris Teeter common stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). In addition, this discussion does not address all aspects of U.S. federal income tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject to special rules, such as:

•    
  dealers or traders subject to a mark-to-market method of tax accounting with respect to Harris Teeter common stock;

•    
  persons holding Harris Teeter common stock as part of a straddle, hedging transaction, conversion transaction, integrated transaction or constructive sale transaction;

•    
  holders whose functional currency is not the U.S. dollar;

•    
  persons who acquired Harris Teeter common stock through the exercise of employee stock options or otherwise as compensation;

•    
  banks and certain other financial institutions;

•    
  insurance companies;

•    
  regulated investment companies;

•    
  real estate investment trusts;

•    
  partnerships, S corporations or other pass-through entities;

•    
  controlled foreign corporations and passive foreign investment companies;

•    
  certain former citizens or residents of the United States;

•    
  tax-exempt organizations;

•    
  tax-qualified retirement plans; or

•    
  persons subject to the United States alternative minimum tax.

If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) holds Harris Teeter common stock, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding Harris Teeter common stock and partners in such partnerships should consult their tax advisors as to the particular U.S. federal income tax consequences of the merger to them.

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U.S. Holders

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Harris Teeter common stock that is:

•    
  a citizen or resident of the United States;

•    
  a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof or the District of Columbia;

•    
  an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

•    
  a trust if (i) a court within the United States can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

The conversion of the Harris Teeter common stock into the right to receive cash in the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder whose shares of Harris Teeter common stock are converted into the right to receive cash in the merger will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the U.S. holder’s adjusted tax basis in such shares. Gain or loss will be determined separately for each block of shares of Harris Teeter common stock (i.e., shares of Harris Teeter common stock acquired at the same cost in a single transaction). Such gain or loss generally will be treated as long-term capital gain or loss if the U.S. holder’s holding period in the shares of Harris Teeter common stock exceeds one year at the time of the completion of the merger. Long-term capital gains of noncorporate U.S. holders generally are subject to U.S. federal income tax at preferential rates. The deductibility of capital losses is subject to limitations. Certain U.S. holders that are individuals, trusts or estates are subject to a 3.8% U.S. federal tax on certain investment income, including gain from the conversion the Harris Teeter common stock into the right to receive cash in the merger.

Non-U.S. Holders

A “non-U.S. holder” is a beneficial owner of Harris Teeter common stock that is not a U.S. holder or a partnership (or any other entity classified as a partnership for U.S. federal income tax purposes). Payments made to a non-U.S. holder upon the conversion of the Harris Teeter common stock into the right to receive cash in the merger generally will not be subject to U.S. federal income tax unless:

•    
  the gain, if any, on such shares is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to the non-U.S. holder’s permanent establishment in the United States);

•    
  the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the exchange of shares of Harris Teeter common stock for cash pursuant to the merger and certain other conditions are met; or

•    
  the non-U.S. holder owned, directly or under certain constructive ownership rules of the Code, more than 5% of the Harris Teeter common stock at any time during the five-year period preceding the merger, and Harris Teeter is or has been a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Code for U.S. federal income tax purposes at any time during the shorter of the five-year period preceding the merger or the period that the non-U.S. holder held Harris Teeter common stock.

A non-U.S. holder described in the first bullet point immediately above will be subject to regular U.S. federal income tax on any gain from the conversion of shares of Harris Teeter common stock into the right to receive cash in the merger as if the non-U.S. holder were a U.S. holder, subject to an applicable income tax treaty providing otherwise. If such non-U.S. holder is a foreign corporation, it may also be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits (or a lower treaty rate). A non-U.S. holder described in the second bullet point immediately above will be subject to tax at a rate of 30% (or a

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lower treaty rate) on any gain realized, which may be offset by U.S.-source capital losses recognized in the same taxable year, even though the individual is not considered a resident of the United States.

Harris Teeter has not undertaken the analysis necessary to determine whether or not it is or has been at any time during the five-year period preceding the effective time of the merger a “United States real property holding corporation” for U.S. federal income tax purposes.

Information Reporting and Backup Withholding

Payments made in exchange for shares of Harris Teeter common stock generally will be subject to information reporting unless the holder is an “exempt recipient” and may also be subject to backup withholding at a rate of 28%. To avoid backup withholding, U.S. holders that do not otherwise establish an exemption should complete and return Internal Revenue Service Form W-9, certifying that such U.S. holder is a U.S. person, the taxpayer identification number provided is correct and such U.S. holder is not subject to backup withholding. A non-U.S. holder that provides the applicable withholding agent with an Internal Revenue Service Form W-8BEN (or other applicable IRS Form W-8) will generally establish an exemption from backup withholding.

Amounts withheld under the backup withholding rules are not additional taxes and may be refunded or credited against a holder’s U.S. federal income tax liability, provided the relevant information is timely furnished to the Internal Revenue Service.

THIS DISCUSSION OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. WE URGE YOU TO CONSULT WITH YOUR OWN TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES OF THE MERGER ARISING UNDER THE FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

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FUTURE HARRIS TEETER SHAREHOLDER PROPOSALS

Harris Teeter does not expect to hold its 2014 annual meeting of shareholders unless the merger is not completed. If the merger is not completed, Harris Teeter’s shareholders as of the applicable record date will continue to be entitled to attend and participate in Harris Teeter’s annual meeting of shareholders. If Harris Teeter holds its 2014 annual meeting of shareholders, shareholder proposals intended to be presented for inclusion in Harris Teeter’s proxy statement and form of proxy pursuant to Rule 14a-8 of the Exchange Act for such meeting must have been received at Harris Teeter’s principal executive offices by Douglas J. Yacenda, our Secretary, at the address listed below, on or before Friday, September 6, 2013 and must have met the requirements of Rule 14a-8 under the Exchange Act.

Any shareholder proposal to be submitted at the 2014 annual meeting of shareholders (but not required to be included in Harris Teeter’s proxy statement), including nominations for election to the Harris Teeter Board, must also comply with Article III, Section 12 of Harris Teeter’s Bylaws, which requires that a shareholder give written notice to Harris Teeter not later than the 45th day prior to the first anniversary of the date Harris Teeter first mailed its proxy materials for the preceding year’s annual meeting of shareholders. Shareholder proposals submitted at the 2014 annual meeting of shareholders (but not required to be included in Harris Teeter’s proxy statement) will not be considered timely unless the notice required by the Bylaws is delivered to Harris Teeter’s Secretary not later than Wednesday, November 20, 2013. Such director nominations or proposals should have been submitted to the following address: Douglas J. Yacenda, Secretary, Harris Teeter Supermarkets, Inc., 701 Crestdale Road, Matthews, North Carolina 28105. The above deadlines would change if Harris Teeter holds its 2014 annual meeting of shareholders on a date that differs by more than 30 days from the anniversary of the date of its 2013 annual meeting of shareholders.

MULTIPLE SHAREHOLDERS SHARING ONE ADDRESS

The SEC rules permit registrants to send a single notice to any household at which two or more shareholders reside if the registrant believes they are members of the same family. This procedure, referred to as householding, reduces the volume of duplicate information shareholders receive and reduces the expense to the registrant. Harris Teeter has not implemented these householding rules with respect to its record holders; however, a number of brokerage firms have instituted householding which may impact certain beneficial owners of Harris Teeter common stock. If your family has multiple accounts by which you hold Harris Teeter common stock, you may have previously received a householding notification from your broker. Please contact your broker directly if you have any questions, require additional copies of the proxy statement, or wish to revoke your decision to household, and thereby receive multiple proxy statements. Those options are available to you at any time.

WHERE YOU CAN FIND MORE INFORMATION

Harris Teeter is subject to the reporting requirements of the Exchange Act. Accordingly Harris Teeter files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document that we file with the SEC at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, Harris Teeter’s SEC filings also are available to the public at the internet website maintained by the SEC at www.sec.gov. Harris Teeter also makes available free of charge through its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, its definitive proxy statements and Section 16 reports on Forms 3, 4 and 5, as soon as reasonably practicable after it electronically files such reports or amendments with, or furnishes them to, the SEC. Harris Teeter’s internet website address is www.harristeeter.com. The information located on, or hyperlinked or otherwise connected to, Harris Teeter’s website is not, and shall not be deemed to be, a part of this proxy statement or incorporated into any other filings that we make with the SEC.

The SEC allows us to “incorporate by reference” the information we file with the SEC into this proxy statement, which means that we can disclose important information to you by referring you to other documents filed separately with the SEC. The information incorporated by reference is deemed to be part of

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this proxy statement, except that information that we file later with the SEC will automatically update and supersede this information. This proxy statement incorporates by reference the documents listed below that have been previously filed with the SEC (other than, in each case, documents or information deemed to have been furnished and not filed in accordance with SEC rules):

•    
  Harris Teeter’s Annual Report on Form 10-K for the fiscal year ended October 2, 2012, filed November 21, 2012;

•    
  Harris Teeter’s Quarterly Reports on Form 10-Q for the period ended January 1, 2013 filed on February 7, 2013, for the period ended April 2, 2013 filed May 8, 2012 and for the period ended July 2, 2013 filed on August 8, 2013; and

•    
  Harris Teeter’s Current Reports on Form 8-K filed with the SEC on February 1, 2013, February 14, 2013, February 25, 2013, May 3, 2012, July 9, 2013 and August 2, 2013.

We also incorporate by reference into this proxy statement additional documents that Harris Teeter may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, from the date of this proxy statement until the date of the special meeting; provided, however, that we are not incorporating by reference any additional documents or information furnished and not filed with the SEC.

You may request a copy of documents incorporated by reference at no cost, by writing Douglas J. Yacenda, Secretary, Harris Teeter Supermarkets, Inc., 701 Crestdale Road, Matthews, North Carolina 28105, or by calling 704-844-3100.

THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED AUGUST 27, 2013. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO SHAREHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

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ANNEX A

AGREEMENT AND PLAN OF MERGER

BY AND BETWEEN

THE KROGER CO.,

HORNET ACQUISITION, INC.

AND

HARRIS TEETER SUPERMARKETS, INC.

DATED AS OF JULY 8, 2013



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TABLE OF CONTENTS

            Page
ARTICLE I
           
THE MERGER
         1    
 
1.1
           
The Merger
         1    
1.2
           
Closing
         1    
1.3
           
Effective Time
         2    
1.4
           
Effects of the Merger
         2    
1.5
           
Articles of Incorporation; Bylaws
         2    
1.6
           
Directors and Officers of the Surviving Corporation
         2    
 
ARTICLE II
           
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
         2    
 
2.1
           
Effect on Capital Stock
         2    
2.2
           
Exchange of Certificates
         3    
2.3
           
Company Stock Plans
         5    
 
ARTICLE III
           
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
         6    
 
3.1
           
Organization; Standing; Power
         7    
3.2
           
Capitalization
         8    
3.3
           
Subsidiaries
         9    
3.4
           
Authority; No Violation
         10    
3.5
           
Consents and Approvals
         11    
3.6
           
SEC Filings; Financial Statements; Information Provided
         11    
3.7
           
No Undisclosed Liabilities
         13    
3.8
           
Absence of Certain Changes or Events
         13    
3.9
           
Legal Proceedings
         13    
3.10
           
Compliance with Laws
         13    
3.11
           
Tax Matters
         14    
3.12
           
Employee Benefit Matters
         15    
3.13
           
Labor Matters
         18    
3.14
           
Contracts
         19    
3.15
           
Real Property
         20    
3.16
           
Intellectual Property
         21    
3.17
           
Environmental Matters
         22    
3.18
           
Insurance
         22    
3.19
           
State Takeover Laws; No Rights Plan
         23    
3.20
           
Broker’s Fees
         23    
3.21
           
Opinion of Financial Advisor
         23    
3.22
           
Certain Business Practices
         23    
3.23
           
HIPAA
         23    
3.24
           
Compliance with Healthcare Laws
         24    
3.25
           
No Other Representations or Warranties
         26    
 
ARTICLE IV
           
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
         26    
 
4.1
           
Corporate Organization, Qualification, Subsidiaries, Etc
         26    

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TABLE OF CONTENTS
(continued)

            Page
4.2
           
Authority; No Violation
         27    
4.3
           
Legal Proceedings
         28    
4.4
           
Proxy Statement; Other Information
         28    
4.5
           
Operations of Merger Sub
         28    
4.6
           
Available Funds
         28    
4.7
           
Agreements with Company Shareholders, Directors, Officers and Employees
         29    
4.8
           
Parent Ownership of Company Securities
         29    
4.9
           
Broker’s Fees
         29    
4.10
           
Access to Information; Disclaimer
         29    
 
ARTICLE V
           
COVENANTS AND AGREEMENTS
         30    
 
5.1
           
Conduct of the Company’s Business Before the Effective Time
         30    
5.2
           
Conduct of Business of Parent and Merger Sub
         34    
5.3
           
Proxy Statement
         34    
5.4
           
Shareholder Approval
         35    
5.5
           
Access to Information; Confidentiality
         35    
5.6
           
Non-Solicitation
         36    
5.7
           
Efforts
         40    
5.8
           
Public Disclosure
         42    
5.9
           
Employees; Benefit Plans
         42    
5.10
           
Indemnification; Directors’ and Officers’ Insurance
         45    
5.11
           
Notice of Certain Events
         47    
5.12
           
Stock Exchange Delisting; Exchange Act Deregistration
         48    
5.13
           
Control of Operations
         48    
5.14
           
Section 16 Matters
         48    
5.15
           
Financing Cooperation
         48    
 
ARTICLE VI
           
CONDITIONS PRECEDENT
         49    
 
6.1
           
Conditions to Each Party’s Obligation To Effect the Merger
         49    
6.2
           
Conditions to Obligations of Parent and Merger Sub
         50    
6.3
           
Conditions to Obligations of the Company
         51    
6.4
           
Frustration of Closing Conditions
         51    
 
ARTICLE VII
           
TERMINATION AND AMENDMENT
         51    
 
7.1
           
Termination
         51    
7.2
           
Effect of Termination
         53    
7.3
           
Fees and Expenses
         53    
7.4
           
Amendment
         56    
7.5
           
Extension; Waiver
         56    
 
ARTICLE VIII
           
GENERAL PROVISIONS
         57    
8.1
           
Nonsurvival of Representations, Warranties and Agreements
         57    

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TABLE OF CONTENTS
(continued)

            Page
8.2
           
Notices
         57    
8.3
           
Interpretation
         58    
8.4
           
Certain Definitions
         58    
8.5
           
Counterparts
         58    
8.6
           
Entire Agreement
         59    
8.7
           
Governing Law; Jurisdiction
         59    
8.8
           
WAIVER OF JURY TRIAL
         59    
8.9
           
Assignment; Third-Party Beneficiaries
         60    
8.10
           
Enforcement
         61    
8.11
           
Disclosure Schedules
         61    
 

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Schedule of Defined Terms

Defined Term
        Section
Acceptable Confidentiality Agreement
                 5.6(g)   
Acquisition Proposal
                 5.6(g)   
Additional Privacy Requirements
                 3.23   
Affiliate
                 3.6(c)   
Agreement
                 Preamble    
Alternative Acquisition Agreement
                 5.6(a)   
Antitrust Division
                 5.7(b)   
Articles of Merger
                 1.3   
Bankruptcy and Equity Exception
                 3.4(a)   
Benefit Plan
                 8.9(d)   
Book-Entry Shares
                 2.2(a)   
Business Day
                 8.4(a)   
Cancelled Shares
                 2.1(b)   
Certificates
                 2.2(a)   
Change of Recommendation
                 5.6(c)   
Claim
                 5.10(a)   
Closing
                 1.2   
Closing Date
                 1.2   
COBRA
                 3.12(c)   
Code
                 2.2(b)   
Company
                 Preamble    
Company Articles
                 3.2(a)   
Company Balance Sheet
                 3.6(b)   
Company Benefit Plan
                 3.12(a)   
Company Board
                 Recitals    
Company Bylaws
                 3.2(d)   
Company Common Stock
                 2.1(a)   
Company Contingent Award
                 5.9(g)(i)   
Company Disclosure Schedule
                 Article III    
Company Intellectual Property
                 3.16   
Company Material Adverse Effect
                 3.1   
Company Material Contracts
                 3.14(a)   
Company Permits
                 3.10(b)   
Company Preferred Stock
                 3.2(a)   
Company Recommendation
                 5.6(c)   
Company Registered IP
                 3.16   
Company Related Parties
                 7.3(b)   
Company SEC Reports
                 3.6(a)   
Company Severance Plan
                 5.9(b)   
Company Shareholder Meeting
                 5.4   
Company Stock Options
                 2.3(b)   
Company Stock Plans
                 2.3(b)   

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Defined Term
        Section
Company Termination Fee
                 7.3(b)   
Confidentiality Agreement
                 5.5(b)   
Continuation Period
                 5.9(a)   
Covered Employee
                 5.9(a)   
Effective Time
                 1.3   
End Date
                 7.1(b)   
ERISA
                 3.12(a)   
ERISA Affiliate
                 3.12(a)   
Exchange Act
                 3.5   
Exchange Fund
                 2.2(a)   
Existing Credit Facilities
                 8.4(b)   
Filed SEC Documents
                 Article III    
Financing Source
                 8.9(d)   
FTC
                 5.7(b)   
GAAP
                 3.6(b)   
Government Programs
                 3.24(a)   
Governmental Entity
                 3.5   
Healthcare Government Entity
                 3.23   
Healthcare Laws
                 3.24(a)   
Healthcare Permit
                 3.24(c)   
HIPAA Commitments
                 3.23   
HSR Act
                 3.5   
HSR Clearance
                 5.7(b)   
Indemnified Parties
                 5.10(a)   
Injunction
                 6.1(b)   
Insurance Amount
                 5.10(c)   
IRS
                 3.11(c)   
Key Employees
                 3.13(c)   
knowledge
                 8.4(c)   
Laws
                 3.10(a)   
Leased Real Property
                 3.15(b)   
Liens
                 3.15(a)   
Material Adverse Effect on the Transaction
                 5.7(f)   
Merger
                 Recitals    
Merger Consideration
                 2.1(a)   
Merger Sub
                 Preamble    
Merger Sub Shareholder Approval
                 4.2(a)   
NCBCA
                 1.1   
Negotiation Period
                 5.6(c)   
New Plans
                 5.9(c)   
OIG
                 3.24(b)   
Old Plans
                 5.9(c)   
Option Consideration
                 2.3(c)   
Owned Real Property
                 3.15(b)   

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Defined Term
        Section
Parent
                 Preamble    
Parent Award
                 5.9(g)(ii)   
Parent Disclosure Schedule
                 Article IV    
Parent Material Adverse Effect
                 4.1   
Parent Related Party
                 7.3(c)   
Party
                 Preamble    
Paying Agent
                 2.2(a)   
Permitted Liens
                 3.15(a)   
person
                 8.4(d)   
Proxy Statement
                 3.6(c)   
reasonable best efforts
                 5.7(f)   
Regulation S-K
                 3.14(a)   
Regulatory Termination Fee
                 7.3(c)   
Representatives
                 5.6(a)   
Requisite Shareholder Approval
                 3.4(a)   
Restricted Share
                 2.3(a)   
SEC
                 3.6(a)   
Securities Act
                 3.5   
Share
                 2.1(a)   
Subsidiary
                 3.3(a)   
Superior Proposal
                 5.6(g)   
Surviving Corporation
                 1.1   
Takeover Statutes
                 3.19(a)   
Tax(es)
                 3.11(e)   
Tax Return
                 3.11(f)   
Transaction Documents
                 8.7(a)   
Vacation Policy
                 5.9(d)   
 

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER is dated as of July 8, 2013 (this “Agreement”), by and between The Kroger Co., an Ohio corporation (“Parent”), Hornet Acquisition, Inc., a North Carolina corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and Harris Teeter Supermarkets, Inc., a North Carolina corporation (the “Company”). Each of Parent, Merger Sub and the Company are referred to herein as a “Party” and, together, as the “Parties.”

W I T N E S S E T H:

WHEREAS, the Parties intend that Merger Sub be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent;

WHEREAS, the Board of Directors of the Company (the “Company Board”) unanimously has (i) determined that it is in the best interests of the Company and its shareholders, and declared it advisable, to enter into this Agreement, (ii) adopted this Agreement, (iii) approved the execution, delivery and performance of this Agreement and the transactions contemplated hereby and (iv) resolved to recommend adoption of this Agreement by the shareholders of the Company;

WHEREAS, the boards of directors of Parent and Merger Sub have adopted and approved this Agreement and declared it advisable for Parent and Merger Sub, respectively, to enter into this Agreement; and

WHEREAS, the Parties desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe certain conditions to the Merger;

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows:

ARTICLE I
THE MERGER

1.1  The Merger. Subject to the terms and conditions of this Agreement, in accordance with the North Carolina Business Corporation Act (the “NCBCA”), at the Effective Time Merger Sub shall merge with and into the Company. The Company shall be the surviving corporation in the Merger (the “Surviving Corporation”) and shall continue its corporate existence under the Laws of the State of North Carolina. As of the Effective Time, the separate corporate existence of Merger Sub shall cease.

1.2  Closing. The closing of the Merger (the “Closing”) shall take place at 10:00 a.m., Eastern time, on a date to be specified by Parent and the Company (the “Closing Date”), which shall be no later than the second Business Day after satisfaction or waiver of the conditions set forth in Article VI (other than the delivery of items to be delivered at the Closing and other than satisfaction of those conditions that by their nature are to be satisfied at the Closing, it being



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understood that the occurrence of the Closing shall remain subject to the delivery of such items and the satisfaction or waiver of such conditions at the Closing), at the offices of McGuireWoods LLP, 201 N. Tryon Street, Charlotte, North Carolina 28202, unless another date, place or time is agreed to in writing by Parent and the Company.

1.3  Effective Time. The Merger shall become effective as set forth in the articles of merger that shall be filed with the North Carolina Secretary of State (the “Articles of Merger”) as promptly as practicable on the Closing Date. The Merger shall become effective upon the filing of the Articles of Merger with the North Carolina Secretary of State or at such later time as is agreed to by Parent and the Company and set forth in the Articles of Merger (the “Effective Time”).

1.4  Effects of the Merger. At and after the Effective Time, the Merger shall have the effects set forth in this Agreement, the Articles of Merger and Section 55-11-06 of the NCBCA.

1.5  Articles of Incorporation; Bylaws.

(a)    At the Effective Time, the Company Articles shall be amended so that they read in their entirety as set forth in Exhibit A, and, as so amended, shall be the articles of incorporation of the Surviving Corporation until thereafter amended.

(b)    At the Effective Time, and without any further action on the part of the Company and Merger Sub, the Company Bylaws shall be amended so that they read in their entirety as set forth in Exhibit B, and, as so amended, shall be the bylaws of the Surviving Corporation until thereafter amended.

1.6  Directors and Officers of the Surviving Corporation.

(a)    Each of the Parties shall take all necessary action to cause the directors of Merger Sub immediately before the Effective Time to be the directors of the Surviving Corporation immediately following the Effective Time, until their respective successors are duly elected or appointed and qualified or their earlier death, resignation or removal in accordance with the articles of incorporation and bylaws of the Surviving Corporation.

(b)    The officers of Merger Sub immediately before the Effective Time shall be the officers of the Surviving Corporation until their respective successors are duly appointed and qualified or their earlier death, resignation or removal in accordance with the articles of incorporation and bylaws of the Surviving Corporation.

ARTICLE II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES

2.1  Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holder of any of the following securities:

(a)    Conversion of Common Stock. Each share of common stock, no par value per share, of the Company issued and outstanding immediately before the Effective Time

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(collectively, the “Company Common Stock” and, each, a “Share”), including all Restricted Shares, but excluding Shares to be cancelled pursuant to Section 2.1(b), shall be converted automatically into the right to receive $49.38 per Share in cash (the “Merger Consideration”), without interest. All Shares that have been converted into the right to receive the Merger Consideration as provided in this Section 2.1(a) shall be automatically cancelled upon the conversion thereof and shall cease to exist, and the holders of certificates that immediately before the Effective Time represented such Shares shall cease to have any rights with respect to such Shares other than the right to receive the Merger Consideration pursuant to this Section 2.1(a) upon the surrender of such certificates in accordance with Section 2.2, without interest.

(b)    Parent- and Merger-Sub-Owned Shares. Each Share that is owned directly by Parent or Merger Sub immediately before the Effective Time (the “Cancelled Shares”) shall be cancelled and shall cease to exist, and no consideration shall be delivered in exchange for such cancellation.

(c)    Conversion of Merger Sub Common Stock. Each share of common stock, no par value, of Merger Sub issued and outstanding immediately before the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock, no par value per share, of the Surviving Corporation. From and after the Effective Time, all certificates representing the common stock of Merger Sub shall be deemed for all purposes to represent the number of shares of common stock of the Surviving Corporation into which they were converted in accordance with the immediately preceding sentence.

(d)    Adjustments to Merger Consideration. The Merger Consideration shall be adjusted to reflect fully the effect of any reclassification, stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Company Common Stock), reorganization, recapitalization or other like change with respect to Company Common Stock occurring (or for which a record date is established) after the date hereof and before the Effective Time.

2.2  Exchange of Certificates.

(a)    Paying Agent. At or before the Effective Time, Parent shall deposit, or shall cause to be deposited, with American Stock Transfer & Trust Company, LLC (or, if American Stock Transfer & Trust Company, LLC is unavailable, with a U.S. bank or trust company that shall be appointed by Parent (and reasonably satisfactory to the Company) to act as a paying agent hereunder) (the “Paying Agent”), in trust for the benefit of holders of the Shares, cash in U.S. dollars sufficient to pay the aggregate Merger Consideration in exchange for all of the Shares outstanding immediately before the Effective Time (other than the Cancelled Shares), payable upon due surrender of the certificates that immediately before the Effective Time represented Shares (“Certificates”) (or effective affidavits of loss in lieu thereof) or noncertificated Shares represented by book-entry (“Book-Entry Shares”) pursuant to the provisions of this Article II (such cash being hereinafter referred to as the “Exchange Fund”).

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(b)    Payment Procedures.

(i)    As soon as reasonably practicable after the Effective Time and in any event not later than the third Business Day following the Closing Date, the Surviving Corporation shall instruct the Paying Agent to mail to each holder of record of Shares whose Shares were converted into the Merger Consideration pursuant to Section 2.1, (A) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to Certificates shall pass, only upon delivery of Certificates (or effective affidavits of loss in lieu thereof) or Book-Entry Shares to the Paying Agent and shall be in such form and have such other provisions as Parent and the Company may mutually agree) and (B) instructions for use in effecting the surrender of Certificates (or effective affidavits of loss in lieu thereof) or Book-Entry Shares in exchange for the Merger Consideration.

(ii)    Upon surrender of Certificates (or effective affidavits of loss in lieu thereof) or Book-Entry Shares to the Paying Agent together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be reasonably required by the Paying Agent, the holder of such Certificates (or effective affidavits of loss in lieu thereof) or Book-Entry Shares shall be entitled to receive from the Exchange Fund in exchange therefor an amount in cash equal to the product of (x) the number of Shares represented by such holder’s properly surrendered Certificates (or effective affidavits of loss in lieu thereof) or Book-Entry Shares and (y) the Merger Consideration. No interest will be paid or accrued on any amount payable upon due surrender of Certificates (or effective affidavits of loss in lieu thereof) or Book-Entry Shares. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, payment upon due surrender of the Certificate may be paid to such a transferee if the Certificate formerly representing such Shares is presented to the Paying Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer Taxes have been paid or are not applicable. The Merger Consideration, paid in full with respect to any Share in accordance with the terms hereof, shall be deemed to have been paid in full satisfaction of all rights pertaining to such Share.

(iii)    Each of the Paying Agent, the Company, Parent, Merger Sub and their respective Subsidiaries or agents, as applicable, shall be entitled to deduct and withhold from any amounts otherwise payable under this Agreement such amounts as it is required to deduct and withhold under the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder, or any provision of state, local or foreign Tax Law with respect to the making of such payment. To the extent that amounts are so deducted or withheld, such deducted or withheld amounts (A) shall be remitted by the applicable entity to the appropriate Governmental Entity within the period required under applicable Law and (B) shall be treated for all purposes of this Agreement as having been paid to the person in respect of which such deduction or withholding was made.

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(c)    Closing of Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Shares that were outstanding immediately before the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or Parent for transfer, the holder of Certificates shall be given a copy of the letter of transmittal referred to in Section 2.2(b) and instructed to comply with the instructions in that letter of transmittal in order to receive the cash to which such holder is entitled pursuant to this Article II.

(d)    Termination of Exchange Fund. Any portion of the Exchange Fund (including the proceeds of any investments thereof) that remains undistributed to the former holders of Shares for six months after the Effective Time shall be delivered to the Surviving Corporation upon demand, and any former holders of Shares who have not surrendered their Shares in accordance with this Section 2.2 shall thereafter look only to the Surviving Corporation for payment of their claim for the Merger Consideration, without any interest thereon, upon due surrender of their Shares.

(e)    No Liability. Anything herein to the contrary notwithstanding, none of the Company, Parent, Merger Sub, the Surviving Corporation, the Paying Agent or any other person shall be liable to any former holder of Shares for any amount properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

(f)    Investment of Exchange Fund. The Paying Agent shall invest all cash included in the Exchange Fund as reasonably directed by Parent; provided, however, that any investment of such cash shall be limited to direct short-term obligations of, or short-term obligations fully guaranteed as to principal and interest by, the U.S. government. Any interest and other income resulting from such investments shall be paid to the Surviving Corporation pursuant to Section 2.2(d).

(g)    Lost Certificates. In the case of any Certificate that has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Paying Agent or Parent, the posting by such person of a bond in customary amount as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent will issue in exchange for such lost, stolen or destroyed Certificate a check in the amount of the number of Shares represented by such lost, stolen or destroyed Certificate multiplied by the Merger Consideration, without any interest thereon.

2.3  Company Stock Plans.

(a)    Immediately before the Effective Time, each share of Company Common Stock granted subject to time-based, performance or other vesting or lapse restrictions pursuant to any Company Stock Plan (as defined in Section 2.3(b)) (each, a “Restricted Share”), that is outstanding and subject to such restrictions immediately before the Effective Time shall automatically vest and any performance conditions shall be deemed to have been satisfied in full such that the recipient shall be entitled to 100% of the shares of Company Common Stock subject to such performance share award, and the Company’s reacquisition right with respect to

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each Restricted Share shall lapse, and the holder thereof shall, subject to this Article II, be entitled to receive the Merger Consideration with respect to each such Restricted Share.

(b)    
  The Company shall take such action as shall be required:

(i)    to cause the vesting of any unvested options to purchase Company Common Stock (“Company Stock Options”) granted under any stock option plans or other equity-related plans of the Company (the “Company Stock Plans”) to be accelerated in full effective immediately before the Effective Time; and

(ii)    to cause each outstanding Company Stock Option to represent as of the Effective Time solely the right to receive, in accordance with this Section 2.3 and subject to Section 2.2(b)(iii), a lump sum cash payment in the amount of the Option Consideration (as defined below), if any, with respect to such Company Stock Option and to no longer represent the right to purchase Company Common Stock or any other equity security of the Company, Parent, the Surviving Corporation or any other person or any other consideration.

(c)    Each holder of a Company Stock Option cancelled pursuant to Section 2.3(b)(ii) shall receive from Parent or the Surviving Corporation, in respect and in consideration of each such Company Stock Option, as soon as practicable following the Effective Time (but in any event not later than three Business Days), an amount (net of applicable Taxes) equal to the product of (i) the excess, if any, of (A) the Merger Consideration per Share over (B) the exercise price per share of Company Common Stock subject to such Company Stock Option, multiplied by (ii) the total number of Shares subject to such Company Stock Option (whether or not then vested or exercisable), without any interest thereon (the “Option Consideration”). In the event that the exercise price of any Company Stock Option is equal to or greater than the Merger Consideration, such Company Stock Option shall be cancelled, without any consideration being payable in respect thereof, and have no further force or effect.

(d)    Following the execution of this Agreement, (i) if and as required by the Company Stock Plans, the Company shall mail to each person who is a holder of Company Stock Options a letter describing the treatment of and payment for such Company Stock Options pursuant to this Section 2.3 and providing instructions for use in obtaining payment for such Company Stock Options and (ii) the Company shall take all actions necessary or appropriate to terminate the Company Stock Plans as of the Effective Time (including any necessary or appropriate action of the Company Board). Parent shall, or shall cause the Surviving Corporation to, at all times from and after the Effective Time maintain sufficient liquid funds to satisfy its obligations to holders of Company Stock Options pursuant to this Section 2.3.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Parent and Merger Sub that, except as (A) set forth in the disclosure schedule delivered by the Company to Parent and Merger Sub on the date of this Agreement (the “Company Disclosure Schedule”) (it being understood that any

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information set forth on one section or subsection of the Company Disclosure Schedule shall be deemed to apply and qualify the section or subsection of this Agreement to which it corresponds in number and each other section or subsection of this Agreement to the extent that it is reasonably apparent that such information is relevant to such other section or subsection) or (B) disclosed in any Company SEC Report (as hereinafter defined) filed with, or furnished to, the SEC on or after December 1, 2010 and before the date hereof (the “Filed SEC Documents”), other than disclosures in such Filed SEC Documents contained in the “Risk Factors” and “Forward-Looking Statements” sections thereof or any other disclosures in the Filed SEC Documents that are forward-looking in nature:

3.1  Organization; Standing; Power. The Company is a corporation duly organized and validly existing under the Laws of the State of North Carolina, has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted and is duly qualified to do business and is in good standing (where applicable as a legal concept) as a foreign corporation in each jurisdiction in which the character of the properties it owns, operates or leases or the nature of its activities makes such qualification necessary, except for such failures to be so organized, qualified or in good standing that would not be reasonably expected to have a Company Material Adverse Effect. For purposes of this Agreement, “Company Material Adverse Effect” means any event, change, circumstance, occurrence, effect or state of facts that (a) is materially adverse to the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, or (b) materially impairs, or prevents or materially delays, the ability of the Company to consummate the Merger or any of the other transactions contemplated by this Agreement; provided, however, that in the case of clause (a) only, the determination of a Company Material Adverse Effect shall exclude the following events, changes, circumstances, occurrences, effects and states of fact: (i) those generally affecting the industry of the Company, or the economy or the financial or securities markets of the United States, including effects on such industry, economy or markets resulting from any regulatory and political conditions or developments in general (provided, that such events, changes, circumstances, occurrences, effects and states of fact do not have a substantially disproportionate impact on the Company and its Subsidiaries, taken as a whole); (ii) any outbreak or escalation of hostilities or declared or undeclared acts of war or terrorism; (iii) changes or proposed changes in Law or GAAP, (provided, that such changes or proposed changes do not have a substantially disproportionate impact on the Company and its Subsidiaries, taken as a whole); (iv) any change, in and of itself, in the market price or trading volume of any securities of the Company, or any change of or failure to meet, in and of itself, any internal or public projections, forecasts, budgets or estimates of or relating to the Company or any of its Subsidiaries for any period (it being understood that the underlying causes of such change or failure may, if they are not otherwise excluded from the definition of Company Material Adverse Effect, be taken into account in determining whether a Company Material Adverse Effect has occurred); (v) any hurricane, tropical storm, flood, forest fire, earthquake or other similar natural disaster; (vi) the execution, announcement, performance and existence of this Agreement, including any actual or potential loss or impairment after the date hereof of any Contract as a result thereof; (vii) any action taken or not taken by the Company at the written request of Parent; and (viii) any action taken by Parent, Merger Sub or any of their Affiliates.

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3.2  Capitalization.

(a)    The authorized capital stock of the Company consists of 80,000,000 shares, consisting of 75,000,000 shares of Company Common Stock and the following series of preferred stock (“Company Preferred Stock”), 4,000,000 shares of Non-cumulative, Voting $0.56 Convertible Preference Stock, no par value per share, and 1,000,000 shares of additional preferred stock, no par value per share, of which 600,000 shares have been designated as Series A Junior Participating Additional Preferred Stock. The rights and privileges of each class of the Company’s capital stock are as set forth in the Company’s Restated Articles of Incorporation dated as of December 14, 2000 (the “Company Articles”). As of the close of business on the date hereof, (i) 49,457,357 shares of Company Common Stock were issued and outstanding and (ii) no shares of Company Preferred Stock were issued or outstanding.

(b)    Section 3.2(b) of the Company Disclosure Schedule sets forth a complete and accurate list, as of the close of business on the date hereof, of (i) all outstanding Company Stock Options, indicating with respect to each such Company Stock Option the name of the holder thereof, the number of shares of Company Common Stock subject to such Company Stock Option, the exercise price and the date of grant and (ii) all outstanding Restricted Shares, indicating with respect to such Restricted Shares the name of the holder thereof and the number of Restricted Shares held thereby. The Company has made available to Parent complete and accurate copies of all Company Stock Plans, the forms of all stock option agreements evidencing Company Stock Options and the forms of all agreements pursuant to which the currently outstanding Restricted Shares were awarded.

(c)    Except (i) as set forth in this Section 3.2 and (ii) as reserved for future grants under Company Stock Plans, as of the date of this Agreement, (A) there are no equity securities of any class of, or other voting interests in, the Company or any security exchangeable into or exercisable for such equity securities issued, reserved for issuance or outstanding and (B) there are no options, warrants, equity securities, calls, rights, commitments or agreements of any character to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound obligating the Company or any of its Subsidiaries to issue, exchange, transfer, deliver or sell, or cause to be issued, exchanged, transferred, delivered or sold, shares of capital stock or other equity interests of, or voting interests in, the Company or any security or rights convertible into or exchangeable or exercisable for any such shares or other equity interests or voting rights, or obligating the Company or any of its Subsidiaries to grant, extend, accelerate the vesting of, otherwise modify or amend or enter into any such option, warrant, equity security, call, right, commitment or agreement. The Company does not have any other outstanding equity compensation arrangements relating to the capital stock of the Company. Neither the Company nor any of its Subsidiaries is a party to or is bound by any agreements or understandings with respect to the voting (including voting trusts and proxies) or sale or transfer (including agreements imposing transfer restrictions) of any shares of capital stock or other equity interests of the Company.

(d)    All outstanding shares of Company Common Stock are, and all shares of Company Common Stock subject to issuance as specified in Section 3.2(b), upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in

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violation of any purc hase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the NCBCA, the Company Articles or the Company’s Amended and Restated Bylaws dated August 16, 2012 (the “Company Bylaws”) or any agreement to which the Company is a party or is otherwise bound.

(e)    There are no obligations, contingent or otherwise, of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of Company Common Stock or the capital stock of the Company or any of its Subsidiaries or to provide funds to the Company or any Subsidiary of the Company for any such purpose other than as provided in award agreements relating to Company Stock Options or Restricted Shares as they relate to using shares of Company Common Stock to pay withholding of income Taxes at the minimum statutory levels.

(f)    As of the date of this Agreement, there was no outstanding indebtedness for borrowed money of the Company or its Subsidiaries other than as reflected in the Company Balance Sheet or incurred in the ordinary course of business consistent in all material respects with past practice after the date of the Company Balance Sheet.

3.3  Subsidiaries.

(a)    Section 3.3(a) of the Company Disclosure Schedule sets forth, as of the date of this Agreement, the name and jurisdiction of organization of each Subsidiary of the Company. For purposes of this Agreement, the term “Subsidiary” means, with respect to any Party, any corporation, partnership, trust, limited liability company or other noncorporate business enterprise in which such Party (or another Subsidiary of such Party) holds stock or other ownership interests representing more than 50% of the voting power of all outstanding stock or ownership interests of such entity.

(b)    Each Subsidiary of the Company is duly organized, validly existing and in good standing (where applicable as a legal concept) under the Laws of the jurisdiction of its organization, has all requisite company power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted, and is duly qualified to do business and is in good standing (where applicable as a legal concept) as a foreign company in each jurisdiction where the character of its properties owned, operated or leased or the nature of its activities makes such qualification necessary, except for such failures to be so organized, qualified or in good standing that would not be reasonably expected to have a Company Material Adverse Effect. All of the outstanding shares of capital stock and other equity securities or interests of each Subsidiary of the Company are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights and all such shares are owned, of record and beneficially, by the Company or another of its Subsidiaries free and clear of all security interests, liens, claims, pledges, agreements, limitations in the Company’s voting rights, charges or other encumbrances. Except as set forth on Section 3.3(b) of the Company Disclosure Schedule, there are no outstanding or authorized options, warrants, rights, agreements or commitments to which the Company or any of its Subsidiaries is a party or which are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of any Subsidiary of the Company. There is no outstanding equity compensation with respect to any Subsidiary of the

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Company. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary of the Company.

(c)    The Company does not control, directly or indirectly, or have any material direct or indirect equity participation or similar interest in any corporation, partnership, limited liability company, joint venture, trust or other business association or entity that is not a Subsidiary of the Company, other than as set forth on Section 3.3(c) of the Company Disclosure Schedule. Neither the Company nor any of its Subsidiaries has any funding commitment with respect to any of the entities or investments described in Section 3.3(c) of the Company Disclosure Schedule except as set forth in the governing documents for such entities or investments, all of which have been made available to Parent.

3.4  Authority; No Violation.

(a)    The Company has all requisite corporate power and authority to execute and deliver this Agreement and, subject to the approval of this Agreement by the affirmative vote of the holders of the majority of the outstanding shares of Company Common Stock entitled to vote at such meeting (the “Requisite Shareholder Approval”), to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly, validly and unanimously adopted by the Company Board. The Company Board has determined that this Agreement and the transactions contemplated hereby are advisable and in the best interests of the Company and its shareholders, has passed resolutions adopting this Agreement and the transactions contemplated hereby, has directed that the Agreement be submitted to the Company’s shareholders for consideration at a duly held meeting of such shareholders and has recommended that the Company’s shareholders vote in favor of the approval of this Agreement and the transactions contemplated hereby. Except for the Requisite Shareholder Approval, no other corporate proceedings on the part of the Company are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and (assuming due authorization, execution and delivery by Parent and Merger Sub) constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar Laws affecting the rights of creditors generally and subject to general principles of equity whether applied in a court of law or a court of equity (the “Bankruptcy and Equity Exception”)).

(b)    Neither the execution and delivery of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby, nor compliance by the Company with any of the terms or provisions of this Agreement, will (i) violate any provision of the Company Articles or the Company Bylaws or (ii) assuming that the Requisite Shareholder Approval and the consents, approvals and filings referred to in Section 3.5 are duly obtained and/or made, (A) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or Injunction applicable to the Company, any of its Subsidiaries or any of their respective properties or assets or (B) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event that, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the

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creation of any Lien upon any of the respective properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any Company Material Contract, except, in the case of clause (B) of this Section 3.4(b), as set forth on Section 3.4(b) of the Company Disclosure Schedule and except for any such conflicts or violations that would not be reasonably expected to have a Company Material Adverse Effect. Section 3.4(b) of the Company Disclosure Schedule identifies all leases for real property to which the Company or any of its Subsidiaries is a party for which consent of the landlord is required in connection with the Merger and that are material to the Company’s business.

3.5  Consents and Approvals. No consents or approvals of or filings or registrations with any federal, state or foreign court, arbitrational tribunal, administrative agency or commission or other governmental authority or instrumentality or self-regulatory organization (each, a “Governmental Entity”) are necessary in connection with the execution and delivery of this Agreement or the consummation by the Company of the Merger and the other transactions contemplated by this Agreement, except for (a) notices or filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), or any other antitrust Law, (b) the filing of the Articles of Merger with the North Carolina Secretary of State pursuant to the NCBCA, (c) filings required under, and compliance with the requirements of, the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”) and the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”), (d) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable state securities Laws or the rules and regulations of the New York Stock Exchange and (e) such other consents, approvals, licenses, permits, orders, authorizations, registrations, declarations, notices and filings that, if not obtained or made, would not be reasonably expected to have a Company Material Adverse Effect.

3.6  SEC Filings; Financial Statements; Information Provided.

(a)    The Company has filed all registration statements, forms, reports and other documents required to be filed by the Company with the Securities and Exchange Commission (the “SEC”) since November 30, 2010. All such registration statements, forms, reports and other documents filed after such date (including those that the Company may file after the date hereof until the Closing) are referred to herein as the “Company SEC Reports.” The Company SEC Reports (i) were or will be filed on a timely basis, (ii) at the time filed, complied, or will comply when filed, as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Company SEC Reports and (iii) did not or will not at the time they were or are filed contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Company SEC Reports or necessary in order to make the statements in such Company SEC Reports, in the light of the circumstances under which they were made, not misleading. As of the date of this Agreement, there are no outstanding or unresolved comments in comment letters received from the SEC or its staff. There has been no material correspondence between the SEC and the Company since November 30, 2010 that is not available on the SEC’s Electronic Data Gathering and Retrieval database. No Subsidiary of the Company is subject to the reporting requirements of Section 13(a) or Section 15(d) of the Exchange Act.

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(b)    Each of the consolidated financial statements (including, in each case, any related notes and schedules) contained or incorporated by reference or to be contained or incorporated by reference in the Company SEC Reports at the time filed (i) complied or will comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, (ii) were or will be prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim financial statements, as permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly presented or will fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the dates indicated and the consolidated results of their operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments. The consolidated, audited balance sheet of the Company as of October 2, 2012 is referred to herein as the “Company Balance Sheet.”

(c)    The information to be supplied by or on behalf of the Company for inclusion in the proxy statement to be sent to the shareholders of the Company in connection with the Company Shareholder Meeting (as amended or supplemented from time to time and including any document incorporated by reference therein, the “Proxy Statement”) shall not, on the date the Proxy Statement is first mailed to shareholders of the Company or on any other date of filing with the SEC, or at the time of the Company Shareholder Meeting, contain any statement that, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made therein not false or misleading in light of the circumstances under which they were or shall be made; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Company Shareholder Meeting that has become false or misleading. The Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act. If at any time before the Company Shareholder Meeting any fact or event relating to the Company or any of its Affiliates that should be set forth in an amendment or supplement to the Proxy Statement should be discovered by the Company or should, to the Company’s knowledge, occur, the Company shall, promptly after becoming aware thereof, inform Parent of such fact or event. For purposes of this Agreement, the term “Affiliate” when used with respect to any party means any person who is an “affiliate” of that party within the meaning of Rule 405 promulgated under the Securities Act.

(d)    The Company maintains disclosure controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act. Such disclosure controls and procedures are effective to ensure that all information required to be disclosed by the Company, including its Subsidiaries, in the reports that it files or submits under the Exchange Act, is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Since November 30, 2011, subject to any applicable grace periods, the Company and each of its officers and directors have been in compliance in all material respects with (i) the applicable listing and other rules and regulations of the New York Stock Exchange and (ii) the applicable provisions of Sarbanes-Oxley Act of 2002, as amended and including the rules and regulations promulgated thereunder.

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3.7  No Undisclosed Liabilities. Except (a) as reflected or reserved against in the Company’s financial statements as of and for the period ended October 2, 2012 (as amended or restated, if applicable) or the notes thereto included in the Company’s annual report on Form 10-K filed with the SEC on November 21, 2012, (b) as reflected or reserved against in the Company’s financial statements (as amended or restated, if applicable) as of and for the period ended January 1, 2013 or the notes thereto included in the Company’s quarterly report on Form 10-Q filed with the SEC on February 7, 2013 or as of and for the period ended April 2, 2013 or the notes thereto included in the Company’s quarterly report on Form 10-Q filed with the SEC on May 8, 2013, (c) for liabilities or obligations incurred in the ordinary course of business consistent with past practice since the date of such financial statements, (d) for liabilities incurred on behalf of the Company or any Subsidiary in connection with this Agreement and (e) for liabilities or obligations that have been discharged or paid in full, neither the Company nor any of its Subsidiaries has any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, and whether due or to become due, that would be required by GAAP to be reflected or reserved against on a consolidated balance sheet (or the notes thereto) of the Company and its Subsidiaries, other than those which would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

3.8  Absence of Certain Changes or Events.

(a)    Except as set forth in the Company SEC Reports, since October 2, 2012, no event has occurred that has had or is reasonably expected to have, either individually or in the aggregate with all other events, a Company Material Adverse Effect.

(b)    Since October 2, 2012 through and including the date of this Agreement, the Company and its Subsidiaries have carried on their respective businesses in all material respects in the ordinary course of business consistent with their past practice.

3.9  Legal Proceedings.

(a)    Neither the Company nor any of its Subsidiaries is a party to any, and there are no pending or, to the Company’s knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against the Company or any of its Subsidiaries that would reasonably be expected to have a Company Material Adverse Effect, or, as of the date hereof, that would prevent or materially delay the consummation of the transactions contemplated by this Agreement.

(b)    There is no Injunction, judgment or regulatory restriction (other than those of general application that apply to similarly situated companies or their Subsidiaries) imposed upon the Company, any of its Subsidiaries or the assets of the Company or any of its Subsidiaries that would be reasonably expected to have a Company Material Adverse Effect.

3.10  Compliance with Laws.

(a)    The Company and each of its Subsidiaries are, and have been since November 30, 2010, in compliance with, not in violation of, and have not received any written notice alleging any violation with respect to, any state or federal statutes, laws, common laws, ordinances, codes, rules, orders, judgments, Injunctions, rulings, opinions, writs, decrees,

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decisions, determinations, directives, regulations, governmental guidelines or interpretations having the force of law, permits, licenses, franchises, regulations, decrees and orders of Governmental Entities (collectively, “Laws”) with respect to the conduct of its business, or the ownership or operation of its properties or assets, except for failures to comply or violations that would (i) not reasonably be expected to have a Company Material Adverse Effect or (ii) as of the date hereof, prevent or materially impair or delay the consummation of the Merger.

(b)    Each of the Company and its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, registrations, easements, variances, exceptions, consents, certificates, approvals and orders necessary for the Company or any of its Subsidiaries to own, lease and operate the properties of the Company and its Subsidiaries or to carry on its business as it is now being conducted (the “Company Permits”), and no suspension or cancellation of any of the Company Permits is pending, except where the failure to have, or the suspension or cancellation of, any of the Company Permits would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

3.11  Tax Matters.

(a)    Each of the Company and its Subsidiaries (i) has duly and timely filed (including all applicable extensions) all income Tax Returns and all other material Tax Returns required to be filed by it on or before the date of this Agreement (all such returns being accurate and complete in all material respects), (ii) has paid or caused to be paid all Taxes shown thereon as arising and due and (iii) has duly paid or made provision in accordance with GAAP for the payment of all material Taxes that have been incurred or are due or claimed to be due from it by federal, state, foreign or local taxing authorities (including, if and to the extent applicable, those due in respect of its properties, income, business, capital stock, deposits, franchises, licenses, sales and payrolls) other than Taxes that are not yet delinquent, that have not been finally determined or that are being contested in good faith and for which no provision or reserve is required in accordance with GAAP.

(b)    The Company and its Subsidiaries have given or otherwise made available to Parent true, correct and complete copies of all material income Tax Returns for the Company’s fiscal years ended September 27, 2009, October 3, 2010 and October 2, 2011 and a true, correct and complete copy of the U.S. federal income Tax Return for the Company’s fiscal year ended October 2, 2012. The Company and its Subsidiaries have complied in all material respects with all applicable information reporting and withholding requirements with respect to Taxes (including withholding of Taxes in connection with material amounts paid or owing to any employee, former employee or independent contractor).

(c)    Except as disclosed on Section 3.11(c) of the Company Disclosure Schedule, (i) the Company and its Subsidiaries are not currently under examination or audit by the Internal Revenue Service (“IRS”), (ii) there are no material disputes pending, or claims asserted, for Taxes or assessments upon the Company or any of its Subsidiaries for which the Company does not have reserves that are adequate under GAAP, (iii) there is no currently effective agreement or other document extending, or having the effect of extending, the period of assessment or collection of any material Taxes, and (iv) neither the Company nor any of its Subsidiaries is a party to or is bound by any Tax-sharing, -allocation or -indemnification

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agreement or arrangement, excluding any such agreement or arrangement (x) exclusively between or among the Company and its Subsidiaries, (y) entered into in the ordinary course of business and the principal subject of which is not Taxes or liability for Taxes or (z) where the inclusion of a Tax indemnification or allocation provision is customary or incidental to an agreement the primary nature of which is not Tax sharing or indemnification.

(d)    Except for Permitted Liens, there are no Liens for Taxes upon the assets or properties of the Company or any of its Subsidiaries. Within the past five years, neither the Company nor any of its Subsidiaries has been a “distributing corporation” or a “controlled corporation” in a distribution intended to qualify under Section 355(a) of the Code. Except as disclosed on Section 3.11(d) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is required to include in income for a taxable period beginning after the Closing Date any adjustment pursuant to Section 481(a) of the Code, no such adjustment has been proposed by the IRS with respect to taxable periods beginning after the Closing Date, and no pending request for permission to change any accounting method has been submitted to the IRS by the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has participated in a “listed transaction” as defined in Treasury Regulation Section 1.6011-4(b)(2).

(e)    As used in this Agreement, the term “Tax” or “Taxes” means (i) all federal, state, local and foreign income, estimated, excise, gross receipts, gross income, ad valorem, profits, gains, property, capital, sales, transfer, use, payroll, employment, severance, withholding, duties, intangibles, franchise, backup-withholding, value-added and other taxes, charges, levies or like assessments together with all penalties and additions to tax and interest thereon, (ii) any liability for Taxes described in clause (i) above under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law) and (iii) any and all liability for the payment of any amounts as a result of any express or implied obligation to indemnify any other person, or any successor or transferee liability, in respect of any items described in clause (i) or (ii) above.

(f)    As used in this Agreement, the term “Tax Return” means a report, return or other information (including any amendments) required to be supplied to a Governmental Entity with respect to Taxes including, where permitted or required, combined or consolidated returns for any group of entities that includes the Company or any of its Subsidiaries.

3.12  Employee Benefit Matters.

(a)    Section 3.12(a) (Company Benefit Plans) of the Company Disclosure Schedule sets forth a true, complete and correct list of each “employee benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended and including the regulations promulgated thereunder (“ERISA”), as well as each employee or director benefit or compensation plan, arrangement or agreement and each employment, consulting, bonus, incentive or deferred compensation, vacation, equity-based, severance, termination, retention, change-in-control, profit-sharing, material fringe benefit, health, welfare, death or disability benefit plan, program, agreement or arrangement for the benefit of any current, former or retired employee, service provider or director of the Company or any of its Subsidiaries entered into, maintained or contributed to by the Company or any of its Subsidiaries

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or to which the Company or any of its Subsidiaries is obligated to contribute or has any liability (such plans, programs, agreements, arrangements and commitments, collectively, the “Company Benefit Plans”). Other than the Company’s Subsidiaries, there are no other entities that together with the Company would be treated as a single employer under Section 414(b), (c), (m) or (o) of the Code (each such entity, an “ERISA Affiliate”).

(b)    With respect to each Company Benefit Plan, the Company has made available to Parent and Merger Sub true, complete and correct copies of the following (as applicable): (i) the written document evidencing such Company Benefit Plan; (ii) any summary plan description and summaries of material modification; (iii) any related trust agreements, insurance contracts or documents of any other funding arrangements; (iv) all amendments, modifications or supplements to any such document; (v) the most recent actuarial report and financial statements, if any are required by applicable Law; (vi) with respect to any Company Benefit Plan intended to be “qualified” under Section 401(a) of the Code, the most recent determination letter from the IRS; (vii) the most recent Form 5500 required to have been filed with the IRS, including all schedules thereto; and (viii) any notices to or from the IRS or any office or representative of the Department of Labor or any other Governmental Entity relating to any compliance issues in respect of any such Company Benefit Plan.

(c)    With respect to each Company Benefit Plan, except as would not be reasonably expected to have a Company Material Adverse Effect and except as set forth on Section 3.12(c) of the Company Disclosure Schedule:

(i)    each Company Benefit Plan is being and has been administered in all material respects in accordance with ERISA, the Code and all other applicable Laws and in all material respects in accordance with its governing documents;

(ii)    no claim, lawsuit, arbitration or other action has been threatened, asserted, instituted or, to the Company’s knowledge, is anticipated against any of the Company Benefit Plans (other than routine claims for benefits and appeals of such claims), any trustee or fiduciaries thereof, the Company (including any Subsidiary thereof), any director, officer or employee thereof, or any of the assets of any trust of any of the Company Benefit Plans;

(iii)    all contributions, premiums and other payments required to be made with respect to any Company Benefit Plan have been made on or before their due dates under applicable Law and the terms of such Company Benefit Plan; and

(iv)    all obligations of the Company, each Subsidiary and ERISA Affiliate and each fiduciary under each Company Benefit Plan, whether arising by operation of law or by contract, required to be performed under Section 4980B of the Code, as amended, and Sections 601 through 609 of ERISA, or similar state Law (“COBRA”), including such obligations that may arise by virtue of the transactions contemplated by this Agreement, have been or will be timely performed in all material respects.

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(d)    Each Company Benefit Plan that is intended to be “qualified” under Section 401(a) of the Code has received a favorable determination letter from the IRS to such effect and to the knowledge of the Company no condition exists that could reas