AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 1998
REGISTRATION NO. 333-[ ]
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------------------------------------
ALBERTSON'S, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 5411 82-0184434
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
------------------------------------------------------------
250 PARKCENTER BOULEVARD
P.O. BOX 20
BOISE, IDAHO 83726
(208) 395-6200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------------------------------------
THOMAS R. SALDIN, ESQ.
EXECUTIVE VICE PRESIDENT, ADMINISTRATION AND GENERAL COUNSEL
ALBERTSON'S, INC.
250 PARKCENTER BOULEVARD
P.O. BOX 20
BOISE, IDAHO 83726
(208) 395-6200
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------------------------------------
COPIES TO:
SANFORD KRIEGER, ESQ. KATHLEEN E. MCDERMOTT, RICHARD D. KATCHER,
FRIED, FRANK, HARRIS, ESQ. ESQ.
SHRIVER & JACOBSON CHIEF LEGAL OFFICER WACHTELL, LIPTON, ROSEN
ONE NEW YORK PLAZA AMERICAN STORES COMPANY & KATZ
NEW YORK, NEW YORK 299 SOUTH MAIN STREET 51 WEST 52ND STREET
10004 SALT LAKE CITY, UTAH NEW YORK, NEW YORK 10019
(212) 820-8000 84111 (212) 403-1000
(801) 539-0112
------------------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |-|
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED PROPOSED AMOUNT OF
OF SECURITIES AMOUNT TO BE MAXIMUM MAXIMUM REGISTRATION
TO BE REGISTERED REGISTERED OFFERING PRICE AGGREGATE FEE
PER UNIT OFFERING PRICE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stock, 184,500,000(1) Not Applicable Not Applicable $2,537,790.17(2)
$1.00 par value
per share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred Stock 184,500,000 Not Applicable Not Applicable Not Applicable
Purchase Rights(3)
- --------------------------------------------------------------------------------
(1) Based on the maximum number of shares of common stock of American
Stores Company ("ASC") that may be outstanding immediately prior to
the Merger described herein, assuming conversion of all outstanding
options. (292,857,142 shares)
(2) Pursuant to Rule 457(f)(1) and (c), the registration fee has been
calculated based on a price of $29.375 per share of ASC common stock
(the average of the high and low price per share of ASC common stock
as reported on the New York Stock Exchange, Inc. Composite Tape on
September 1, 1998), and the maximum number of shares of such stock
that may be outstanding immediately prior to the Merger as set forth
in footnote 1 above.
(3) Associated with Albertson's, Inc. common stock are rights to purchase
Series A Junior Participating Preferred Stock that will not be
exercisable or evidenced separately from such common stock prior to
the occurrence of certain events.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND
EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
PRELIMINARY COPY, SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 1998
ALBERTSON'S, INC.
250 Parkcenter Boulevard
P.O. Box 20
Boise, Idaho 83726
Telephone (208) 395-6200
[ ], 1998
To the Stockholders of Albertson's, Inc.:
Enclosed are a Notice of a Special Meeting of Stockholders, a Joint
Proxy Statement and Prospectus, and a Proxy for a Special Meeting of
Stockholders of Albertson's, Inc. to be held on [ ], 1998, at [10:00] a.m.,
Boise, Idaho time, at [ ].
At the Albertson's Special Meeting, you will be asked to consider and
vote on the issuance of shares of Albertson's common stock in connection
with an Agreement and Plan of Merger pursuant to which American Stores
Company, a retail food and drug store chain with over 1,500 stores in 26
states operating under such names as "Acme Markets," "Jewel Food Stores,"
"Lucky Stores," "Osco Drug" and "Sav-on", will become a subsidiary of
Albertson's. The strategic combination with American Stores will make
Albertson's the largest retail food and drug store chain in the United
States, with more than 2,470 stores in 37 states. The Board of Directors of
Albertson's believes the transaction will strengthen Albertson's presence
in certain existing markets, provide Albertson's with greater geographic
diversity through the addition of stores in new markets, and enable
Albertson's to enter the stand-alone retail drug store business. The
combined company will also be positioned to achieve significant synergies
and economies of scale, including purchasing and distribution efficiencies.
Moreover, the transaction will enhance Albertson's ability to generate
value for stockholders, as the merger is expected to be accretive to
Albertson's earnings in 1999 (excluding merger related costs) and provide
for future earnings growth in subsequent years.
Under the terms of the Merger Agreement, each outstanding share of
American Stores common stock will be converted into 0.63 shares of
Albertson's common stock. As a result of the proposed Merger, former
stockholders of American Stores will hold approximately [41.3]% of the
outstanding Albertson's common stock (based upon the number of shares of
Albertson's common stock and American Stores common stock outstanding on
the record dates for the Albertson's Special Meeting and the American
Stores Special Meeting, respectively). Details of the proposed transaction
are set forth in the accompanying Joint Proxy Statement and Prospectus,
which you should read carefully.
At the Albertson's Special Meeting, you will also be asked to consider
and vote on a proposal to amend Albertson's 1995 Stock-Based Incentive Plan
to, among other things, increase the number of shares of Albertson's common
stock available for issuance under that plan.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF ALBERTSON'S HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT WITH AMERICAN STORES AND
UNANIMOUSLY RECOMMENDS THAT ALL STOCKHOLDERS VOTE FOR THE ISSUANCE OF
SHARES OF ALBERTSON'S COMMON STOCK IN CONNECTION WITH THE MERGER AND FOR
THE AMENDMENTS TO THE 1995 STOCK-BASED INCENTIVE PLAN.
All stockholders are invited to attend the Albertson's Special Meeting
in person. The affirmative of a majority of votes cast at the Albertson's
Special Meeting will be necessary to approve these proposals (provided that
a majority of the total shares of Albertson's common stock entitled to vote
are present in person or by proxy and are voted with respect to each
proposal).
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE ALBERTSON'S
SPECIAL MEETING, YOU ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO
ATTEND THE ALBERTSON'S SPECIAL MEETING. If you attend the Albertson's
Special Meeting in person you may, if you wish, vote personally even if you
have previously returned your Proxy.
Sincerely,
Gary G. Michael
Chairman of the Board and
Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
PRELIMINARY COPY, SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 1998
ALBERTSON'S, INC.
250 Parkcenter Boulevard
P.O. Box 20
Boise, Idaho 83726
Telephone (208) 395-6200
NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ], 1998
To the Stockholders of Albertson's, Inc.:
Notice is hereby given that a Special Meeting of Stockholders (the
"Albertson's Special Meeting") of Albertson's, Inc. ("Albertson's") will be
held on [ ], 1998, at [10:00] a.m., Boise, Idaho time, at [ ] for the
following purposes:
1. To consider and vote upon a proposal to approve the issuance
of shares (the "Stock Issuance") of Albertson's common
stock, par value $1.00 per share (the "Albertson's Common
Stock"), pursuant to the Agreement and Plan of Merger, dated
as of August 2, 1998 (the "Agreement"), among Albertson's,
American Stores Company, a Delaware corporation ("ASC"), and
Abacus Holdings, Inc., a Delaware corporation and a wholly
owned subsidiary of Albertson's ("Merger Sub"), at an
exchange ratio of 0.63 shares of Albertson's Common Stock
for each outstanding share of common stock, par value $1.00
per share, of ASC, with cash paid in lieu of any fractional
shares. The Agreement provides, among other things, for the
merger (the "Merger") of Merger Sub with and into ASC, with
ASC being the corporation surviving the Merger and becoming
a wholly owned subsidiary of Albertson's.
2. To consider and vote upon a proposal to amend (the
"Albertson's Plan Amendments") the Albertson's 1995
Stock-Based Incentive Plan (the "Albertson's Plan") to,
among other things, increase the number of shares of
Albertson's Common Stock available for issuance under the
Albertson's Plan.
Consummation of the Merger is not conditioned upon stockholder
approval of the Albertson's Plan Amendments; although the Albertson's Plan
Amendments will not become effective unless the Merger is consummated.
Notwithstanding stockholder approval of the foregoing proposals,
Albertson's reserves the right to abandon the Stock Issuance at any time
prior to the consummation of the Merger upon the terms and subject to the
conditions of the Agreement.
The Board of Directors of Albertson's has fixed the close of business
on [ ], 1998, as the record date for the determination of stockholders
entitled to notice of and to vote at the Albertson's Special Meeting, and
only stockholders of record at such time will be entitled to notice of and
to vote at the Albertson's Special Meeting. A list of Albertson's
stockholders entitled to vote at the Albertson's Special Meeting will be
available for examination, during ordinary business hours, at the principal
offices of Albertson's, 250 Parkcenter Boulevard, Boise, Idaho, for ten
days prior to the Albertson's Special Meeting.
A form of Proxy and a Joint Proxy Statement and Prospectus containing
more detailed information with respect to the matters to be considered at
the Albertson's Special Meeting accompany this notice.
You are cordially invited and urged to attend the Albertson's Special
Meeting in person, but if you are unable to do so, please complete, sign,
date and promptly return the enclosed Proxy in the enclosed,
self-addressed, stamped envelope. If you attend the Albertson's Special
Meeting and desire to revoke your Proxy and vote in person you may do so.
In any event, a Proxy may be revoked at any time before it is voted.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR
OF THE STOCK ISSUANCE AND THE ALBERTSON'S PLAN AMENDMENTS.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ALBERTSON'S SPECIAL
MEETING, PLEASE COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY,
WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS, WHETHER OR NOT YOU PLAN
TO ATTEND THE ALBERTSON'S SPECIAL MEETING. AN ADDRESSED RETURN ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES IS ENCLOSED FOR
THAT PURPOSE.
By Order of the Board of Directors,
Kaye L. O'Riordan
Vice President and Corporate Secretary
Boise, Idaho
[ ], 1998
PRELIMINARY COPY, SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 1998
AMERICAN STORES COMPANY
299 South Main Street
Salt Lake City, Utah 84111
[ ], 1998
To the Stockholders of American Stores Company:
Enclosed are a Notice of Special Meeting of Stockholders, a Joint
Proxy Statement and Prospectus, and a Proxy for a Special Meeting of
Stockholders of American Stores Company to be held on [ ], 1998, at [10:00]
a.m., Salt Lake City, Utah time, at [ ].
At the American Stores Special Meeting, you will be asked to consider
and vote on a proposal to approve and adopt an Agreement and Plan of Merger
pursuant to which a wholly owned subsidiary of Albertson's, a leading
retail food and drug store chain with over 916 retail stores in 23 western,
midwestern and southern states, will merge into American Stores and
American Stores will become a wholly owned subsidiary of Albertson's. Each
outstanding share of American Stores will be converted into 0.63 shares of
Albertson's common stock. As a result of the Merger, former stockholders of
American Stores will hold approximately [41.3]% of the outstanding
Albertson's common stock (based upon the number of shares of Albertson's
common stock and American Stores common stock outstanding on the record
dates for the Albertson's Special Meeting and the American Stores Special
Meeting, respectively). Details of the proposed transaction are set forth
in the accompanying Joint Proxy Statement and Prospectus, which you should
read carefully.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF AMERICAN STORES
HAS UNANIMOUSLY APPROVED THE MERGER AND UNANIMOUSLY RECOMMENDS THAT ALL
STOCKHOLDERS VOTE TO APPROVE THE MERGER AND THE RELATED MERGER AGREEMENT.
All stockholders are invited to attend the American Stores Special
Meeting in person. The affirmative vote of the holders of a majority of the
outstanding shares of American Stores common stock will be necessary for
the approval and adoption of the Merger Agreement and approval of the
proposed Merger.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE AMERICAN STORES
SPECIAL MEETING, YOU ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO
ATTEND THE AMERICAN STORES SPECIAL MEETING. If you attend the American
Stores Special Meeting in person you may, if you wish, vote personally even
if you have previously returned your Proxy.
I thank you for your continued support.
Sincerely,
Victor L. Lund
Chairman of the Board
and Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
PRELIMINARY COPY, SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 1998
AMERICAN STORES COMPANY
299 South Main Street
Salt Lake City, Utah 84111
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ], 1998
To the Stockholders of American Stores Company:
Notice is hereby given that a Special Meeting of Stockholders (the
"ASC Special Meeting") of American Stores Company ("ASC") will be held on [
], 1998, at [10:00] a.m., Salt Lake City, Utah time, at [ ] for the
following purpose:
To consider and vote on a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of August 2, 1998
(the "Agreement"), among Albertson's, Inc. ("Albertson's"),
Abacus Holdings, Inc., a Delaware corporation and a wholly
owned subsidiary of Albertson's ("Merger Sub"), and ASC, and
approve the merger related thereto, pursuant to which Merger
Sub will merge with and into ASC (the "Merger"), and each
share of common stock of ASC, par value $1.00 per share,
issued and outstanding immediately prior to the Merger will
be converted into the right to receive 0.63 shares of common
stock, par value $1.00 per share, of Albertson's, with cash
paid in lieu of any fractional shares.
Notwithstanding stockholder approval of the foregoing proposal, ASC
reserves the right to abandon the Merger at any time prior to the
consummation of the Merger upon the terms and subject to the conditions of
the Agreement.
The Board of Directors of ASC has fixed the close of business on [ ],
1998, as the record date for the determination of stockholders entitled to
notice of and to vote at the ASC Special Meeting, and only stockholders of
record at such time will be entitled to notice of and to vote at the ASC
Special Meeting. A list of ASC stockholders entitled to vote at the ASC
Special Meeting will be available for examination, during ordinary business
hours, at the principal offices of ASC, 299 South Main Street, Salt Lake
City, Utah 84111, for ten days prior to the ASC Special Meeting.
A form of Proxy and a Joint Proxy Statement and Prospectus containing
more detailed information with respect to the matter to be considered at
the ASC Special Meeting accompany this notice.
You are cordially invited and urged to attend the ASC Special Meeting
in person, but if you are unable to do so, please complete, sign, date and
promptly return the enclosed Proxy in the enclosed, self-addressed, stamped
envelope. If you attend the ASC Special Meeting and desire to revoke your
Proxy and vote in person you may do so. In any event, a Proxy may be
revoked at any time before it is voted.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR
OF THE APPROVAL AND ADOPTION OF THE AGREEMENT AND THE APPROVAL OF THE
MERGER.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ASC SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS
BEING SOLICITED BY THE BOARD OF DIRECTORS, WHETHER OR NOT YOU PLAN TO
ATTEND THE ASC SPECIAL MEETING. AN ADDRESSED RETURN ENVELOPE WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
By Order of the Board of Directors,
Mary V. Sloan
Vice President and Corporate Secretary
Salt Lake City, Utah
[ ], 1998
INFORMATION CONTAINED IN THIS PROSPECTUS IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[RED HERRING]
PRELIMINARY COPY, SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 1998
Albertson's, Inc. American Stores Company
250 Parkcenter Boulevard 299 South Main Street
Boise, Idaho 83726 Salt Lake City, Utah 84111
- --------------------------------------------------------------------------------
JOINT PROXY STATEMENT AND PROSPECTUS
- --------------------------------------------------------------------------------
GENERAL INFORMATION
This Joint Proxy Statement and Prospectus (the "Proxy
Statement/Prospectus") is furnished in connection with the solicitation of
proxies by the Board of Directors of Albertson's, Inc., a Delaware
corporation ("Albertson's"), and the Board of Directors of American Stores
Company, a Delaware corporation ("ASC"), for use in connection with a
Special Meeting of Stockholders of Albertson's (the "Albertson's Special
Meeting") and a Special Meeting of Stockholders of ASC (the "ASC Special
Meeting"), respectively, or any adjournment(s) or postponement(s) thereof.
Each meeting is scheduled to be held at 10:00 a.m. (local time) on [ ],
1998. At the ASC Special Meeting, the stockholders of ASC will consider and
vote upon a proposal to approve and adopt an Agreement and Plan of Merger,
dated as of August 2, 1998 (the "Agreement"), among Albertson's, Abacus
Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of
Albertson's ("Merger Sub"), and ASC pursuant to which Merger Sub would be
merged with and into ASC (the "Merger") and ASC would become a wholly owned
subsidiary of Albertson's. As a result of the Merger, each of the then
outstanding shares of common stock, $1.00 par value per share, of ASC (the
"ASC Common Stock") would be converted into the right to receive 0.63
shares (the "Exchange Ratio") of common stock, $1.00 par value per share,
of Albertson's (the "Albertson's Common Stock"), with cash paid in lieu of
any fractional shares (the "Consideration"). At the Albertson's Special
Meeting, the stockholders of Albertson's will consider and vote upon a
proposal to approve the issuance of shares of Albertson's Common Stock in
connection with the Merger (the "Stock Issuance") and a proposal to approve
amendments to the Albertson's 1995 Stock-Based Incentive Plan (the
"Albertson's Plan") to, among other things, increase the number of shares
of Albertson's Common Stock available for issuance under the Albertson's
Plan (the "Albertson's Plan Amendments").
On July 31, 1998, the last trading day prior to the public
announcement of the execution of the Agreement, the closing prices of
Albertson's Common Stock and ASC Common Stock on the New York Stock
Exchange, Inc. ("NYSE") Composite Tape were $48.00 and $23.19,
respectively. Based upon such closing prices and the Exchange Ratio, the
Consideration had a value of $30.24 (which represented a 30.4% premium over
the pre-announcement closing price of ASC Common Stock). Based upon the $
closing price of Albertson's Common Stock on the NYSE Composite Tape on ,
1998, the last trading day prior to the date of this Proxy
Statement/Prospectus, the Consideration had a value of $ . At the effective
time of the Merger (the "Effective Time"), the Consideration may have a
market value that is greater or lesser than these amounts depending on the
market price of Albertson's Common Stock at that time. As a result of the
Merger, former stockholders of ASC will hold approximately [41.3]% of the
outstanding Albertson's Common Stock (based upon the number of shares of
Albertson's Common Stock and ASC Common Stock outstanding on the record
dates for the Albertson's Special Meeting and the ASC Special Meeting,
respectively).
This Proxy Statement/Prospectus also constitutes a prospectus of
Albertson's with respect to up to 184.5 million shares of Albertson's
Common Stock to be issued in connection with the Merger. The term
"Albertson's Common Stock" includes the associated preferred stock purchase
rights (the "Rights") issued pursuant to the Rights Agreement, dated as of
December 9, 1996 (the "Rights Agreement"), as amended on August 2, 1998,
between Albertson's and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE
MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 16.
This Proxy Statement/Prospectus is first being mailed to the
stockholders of Albertson's and the stockholders of ASC on or about [ ],
1998.
- -------------------------------------------------------------------------------
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS [ ], 1998
AVAILABLE INFORMATION
Albertson's and ASC are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information are available for
inspection and copying at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the regional offices of the Commission
located at 7 World Trade Center, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60601. Copies of such
materials can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549 at prescribed rates. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. Albertson's and ASC are electronic filers with the
Commission, which maintains a website containing reports, proxy and other
information statements at the following location: http://www.sec.gov. The
shares of Albertson's Common Stock are listed on the NYSE and the Pacific
Exchange, Inc. (the "PE"). Accordingly, the periodic reports, proxy
statements and other information filed by Albertson's with the Commission
can also be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005 and the PE, 301 Pine Street, San Francisco, California
94104. The shares of ASC Common Stock are listed on the NYSE, the PE, as
well as on the Chicago Stock Exchange, Inc. and the Philadelphia Stock
Exchange, Inc. Accordingly, the periodic reports, proxy statements and
other information filed by ASC with the Commission can also be inspected at
the offices of the NYSE and the PE as described above as well as at the
Chicago Stock Exchange, Inc., 440 South La Salle Street, Chicago, Illinois
60605, and the Philadelphia Stock Exchange, Inc., 1900 Market Street,
Philadelphia, Pennsylvania 19103.
Albertson's has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the shares of
Albertson's Common Stock to be issued in connection with the Merger. This
Proxy Statement/Prospectus also constitutes the Prospectus of Albertson's
filed as part of the Registration Statement. This Proxy
Statement/Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. The
Registration Statement and any amendments thereto, including exhibits filed
as a part thereof, are available for inspection and copying as set forth
above.
DOCUMENTS INCORPORATED BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
RELATING TO ALBERTSON'S AND ASC WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. DOCUMENTS RELATING TO ALBERTSON'S (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST,
WITHOUT CHARGE, FROM ALBERTSON'S, 250 PARKCENTER BOULEVARD, BOISE, IDAHO
83726, ATTENTION: KAYE L. O'RIORDAN, VICE PRESIDENT AND CORPORATE
SECRETARY, TELEPHONE: (208) 395-6200. DOCUMENTS RELATING TO ASC (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, WITHOUT CHARGE, FROM ASC, 299 SOUTH MAIN STREET,
SALT LAKE CITY, UTAH 84111, ATTENTION: MARY V. SLOAN, VICE PRESIDENT AND
CORPORATE SECRETARY, TELEPHONE: (801) 539-0112. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY [ ], 1998.
COPIES OF DOCUMENTS SO REQUESTED WILL BE SENT BY FIRST CLASS MAIL, POSTAGE
PAID WITHIN ONE BUSINESS DAY OF THE RECEIPT OF SUCH REQUEST.
The following Albertson's documents are incorporated by reference
herein:
1. Annual Report on Form 10-K for the fiscal year ended January
29, 1998 (the "1997 Albertson's Form 10-K").
2. The portions of the Proxy Statement for the Annual Meeting
of Stockholders held May 22, 1998 that have been
incorporated by reference in the 1997 Albertson's Form 10-K.
-ii-
<PAGE>
3. Quarterly Reports on Form 10-Q for the period ended April
30, 1998 and for the period ended July 30, 1998 (the
"Albertson's 1998 Second Quarter Form 10-Q").
4. Current Report on Form 8-K dated August 5, 1998.
5. The description of the Rights contained in Albertson's
Registration Statement on Form 8-A dated March 4, 1997, as
amended by Amendment No. 1 on Form 8-A dated August 6, 1998.
6. The description of the Albertson's Common Stock contained in
Albertson's Registration Statement on Form 8-A dated January
29, 1976, and any amendment or report filed for the purpose
of updating such description.
The following ASC documents are incorporated by reference herein:
1. Annual Report on Form 10-K for the fiscal year ended January
31, 1998 (the "1997 ASC Form 10-K").
2. The portions of the Proxy Statement for the Annual Meeting
of Stockholders held June 17, 1998 that have been
incorporated by reference in the 1997 ASC Form 10-K (the
"ASC Proxy Statement").
3. Quarterly Reports on Form 10-Q for the period ended May 2,
1998 and for the period ended August 1, 1998 (the "ASC 1998
Second Quarter Form 10-Q").
4. Current Reports on Form 8-K dated March 6, 1998 and August
4, 1998.
All documents filed by Albertson's or ASC with the Commission pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date
hereof and prior to the date of the Albertson's Special Meeting and the ASC
Special Meeting shall be deemed to be incorporated by reference herein and
shall be a part hereof from the date of filing of such documents. Any
statements contained in a document incorporated by reference herein or
contained in this Proxy Statement/Prospectus shall be deemed to be modified
or superseded for purposes hereof to the extent that a statement contained
herein (or in any other subsequently filed document which also is
incorporated by reference herein) modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed to constitute a
part hereof except as so modified or superseded.
----------------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY ALBERTSON'S, ASC OR ANY OTHER PERSON. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY FROM ANY PERSON, IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION
OF AN OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES MADE UNDER THIS
PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ALBERTSON'S OR
ASC SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
-iii-
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION..........................................................i
AVAILABLE INFORMATION.......................................................ii
DOCUMENTS INCORPORATED BY REFERENCE.........................................ii
QUESTIONS AND ANSWERS ABOUT THE MERGER.......................................1
WHO CAN HELP ANSWER YOUR QUESTIONS...........................................3
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS....................4
SUMMARY......................................................................5
Albertson's...............................................................5
ASC.......................................................................5
Reasons For the Merger....................................................5
Opinions of Financial Advisors............................................6
The Meetings..............................................................6
Matters to be Considered at the Meetings..................................6
Votes Required............................................................6
Record Date; Shares Entitled to Vote; Quorum..............................6
The Merger................................................................7
The Stock Option Agreements..............................................10
The Albertson's Plan Amendments..........................................10
Selected Historical Consolidated Financial Data of Albertson's...........11
Selected Historical Consolidated Financial Data of ASC...................12
Selected Unaudited Pro Forma Combined Financial Data.....................13
Comparative Per Share Data of Albertson's and ASC........................14
Market Prices and Dividends..............................................15
RISK FACTORS................................................................16
Fixed Exchange Ratio Despite Change in Relative Stock Price..............16
Uncertainties in Integrating ASC.........................................16
Risks Generally Associated with Acquisitions.............................16
Increased Leverage.......................................................16
Regulatory Matters.......................................................17
Computer Technologies; Year 2000.........................................17
Certain Anti-Takeover Provisions.........................................17
Dependence on Key Personnel..............................................17
THE MEETINGS................................................................18
Matters to be Considered at the Meetings.................................18
Votes Required...........................................................18
Voting of Proxies........................................................18
Revocability of Proxies..................................................19
Record Date; Shares Entitled To Vote; Quorum.............................19
Solicitation of Proxies..................................................19
THE COMPANIES...............................................................20
Albertson's..............................................................20
ASC......................................................................20
THE MERGER..................................................................21
General..................................................................21
Background of the Merger.................................................21
Reasons for the Merger; Recommendations of the Boards of Directors.......23
Opinions of Financial Advisors...........................................27
Interests of Certain Persons in the Merger...............................34
-iv-
<PAGE>
Accounting Treatment.....................................................37
Certain U.S. Federal Income Tax Consequences.............................37
Regulatory Matters.......................................................38
No Appraisal Rights......................................................39
Resale Restrictions......................................................39
THE AGREEMENT...............................................................40
The Merger...............................................................40
The Effective Time.......................................................40
Exchange Procedures......................................................40
Representations and Warranties...........................................41
Certain Covenants........................................................42
No Solicitation of Transactions..........................................43
Best Efforts.............................................................44
Benefit Plans............................................................44
Governance...............................................................45
Indemnification and Insurance............................................45
Conditions...............................................................45
Termination..............................................................46
Termination Fees; Expense Reimbursement..................................47
Expenses.................................................................47
Amendment and Waiver.....................................................48
THE STOCK OPTION AGREEMENTS.................................................49
The ASC Stock Option Agreement...........................................49
The Albertson's Stock Option Agreement...................................51
MANAGEMENT AND OPERATIONS AFTER THE MERGER..................................53
THE ALBERTSON'S PLAN AMENDMENTS.............................................55
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION..........................59
DESCRIPTION OF ALBERTSON'S CAPITAL STOCK....................................66
Authorized Capital Stock.................................................66
Albertson's Common Stock.................................................66
Albertson's Preferred Stock..............................................66
Preferred Stock Purchase Rights..........................................66
COMPARATIVE RIGHTS OF STOCKHOLDERS..........................................69
General..................................................................69
Classified Board of Directors............................................69
Stockholder Rights Plan..................................................69
Number of Directors; Removal; Filling Vacancies..........................69
Special Meetings; Stockholder Action by Written Consent..................70
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals................................................................71
Amendment of the Certificate of Incorporation and Bylaws.................72
Business Combinations....................................................74
Transactions with Interested Stockholders; Related Parties...............75
Consideration of Other Constituencies....................................77
Limitation of Liability of Directors.....................................77
Indemnification of Directors and Officers................................77
LEGAL MATTERS...............................................................78
EXPERTS.....................................................................78
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETINGS..............................78
-v-
<PAGE>
APPENDIX A -- THE AGREEMENT AND PLAN OF MERGER...........................A-1
APPENDIX B -- THE ASC STOCK OPTION AGREEMENT.............................B-1
APPENDIX C -- THE ALBERTSON'S STOCK OPTION AGREEMENT.....................C-1
APPENDIX D -- OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED.........................D-1
APPENDIX E -- OPINION OF THE BLACKSTONE GROUP L.P........................E-1
APPENDIX F -- ALBERTSON'S AMENDED AND RESTATED
1995 STOCK-BASED INCENTIVE PLAN.............................F-1
-vi-
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHY IS ALBERTSON'S BOARD OF DIRECTORS RECOMMENDING THE TRANSACTION?
A: The Albertson's Board of Directors is recommending approval of the
issuance of shares of Albertson's Common Stock in the Merger based on
a wide variety of factors, including:
the terms and conditions of the Agreement and related
agreements;
its belief that the Merger strengthens Albertson's presence
in certain existing markets, provides Albertson's with
stores in new markets, enables Albertson's to enter the
stand-alone retail drug business and presents significant
opportunities for profitability growth due to increased
purchasing power, cost savings and other synergies;
the anticipated tax and accounting treatment of the Merger;
and
the fairness opinion of Albertson's financial advisor,
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
See "THE MERGER - Reasons for the Merger; Recommendations of the
Boards of Directors--Albertson's."
Q: WHY IS ASC'S BOARD OF DIRECTORS RECOMMENDING THE TRANSACTION?
A: The ASC Board of Directors is recommending approval of the Agreement
and the Merger based on a wide variety of factors, including:
the substantial premium that ASC stockholders will receive,
based on prevailing market prices at the time of the ASC
Board's approval of the Agreement;
its belief that the Merger provides ASC stockholders with an
opportunity to participate in a company with strong
prospects for enhanced stockholder value in the future
through enhanced revenue growth and accelerated earnings
growth;
the reputation of Albertson's as one of the most admired and
best managed companies in the retail food and drug industry;
the anticipated tax and accounting treatment of the Merger;
and
the fairness opinion of ASC's financial advisor, The
Blackstone Group L.P.
See "THE MERGER - Reasons for the Merger; Recommendations of the
Boards of Directors--ASC."
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this Proxy Statement/Prospectus, just
indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed prepaid return envelope as soon as possible, so that
your shares of Albertson's Common Stock or ASC Common Stock may be
represented at the applicable stockholders meeting. The Albertson's
Special Meeting will take place on [ ], 1998 at [10:00] a.m., local
time, at [Location]. The ASC Special Meeting will take place on [ ],
1998 at [10:00] a.m., local time, at [Location].
The Albertson's Board of Directors unanimously recommends that
Albertson's stockholders vote FOR the issuance of shares of
Albertson's Common Stock in the Merger and the amendments to the
Albertson's 1995 Stock-Based Incentive Plan. The ASC Board unanimously
recommends that ASC stockholders vote FOR the approval and adoption of
the Agreement and the approval of the Merger.
Q: IF MY SHARES OF ALBERTSON'S COMMON STOCK OR ASC COMMON STOCK ARE HELD
IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your shares for you only if you provide
instructions on how to vote. You should follow the directions provided
by your broker regarding how to instruct your broker to vote your
shares. Without your instructions, your shares will not be voted.
Failure of ASC stockholders to give instructions will have the same
effect as voting against the Agreement and the Merger. Failure of
Albertson's stockholders to give instructions could result in the
absence of a quorum which would prevent a vote from being taken with
respect to the proposed stock issuance in connection with the Merger
and the proposed amendments to the Albertson's 1995 Stock-Based
Incentive Plan.
-1-
<PAGE>
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted.
You can do this in one of three ways. First, you can send a written
notice stating that you would like to revoke your proxy. Second, you
can complete and submit a new proxy card. If you choose either of
these two methods, you must submit your notice of revocation or your
new proxy card to Albertson's or ASC, as applicable, at the address on
page 3. Third, you can attend the Albertson's Special Meeting or the
ASC Special Meeting, as applicable, and vote in person. Simply
attending the Albertson's Special Meeting or ASC Special Meeting,
however, will not revoke your proxy. If you have instructed a broker
to vote your shares, you must follow directions received from your
broker to change your vote.
Q: SHOULD I SEND IN MY ASC STOCK CERTIFICATES AT THIS TIME?
A: No. ASC stockholders should not send in the stock certificates for
their ASC Common Stock until they receive transmittal materials from
the Exchange Agent. This will occur promptly following consummation of
the Merger.
Q: WHAT WILL HOLDERS OF ASC COMMON STOCK RECEIVE IN THE MERGER?
A: Each outstanding share of ASC Common Stock will be converted into the
right to receive 0.63 shares of Albertson's Common Stock, with cash
paid in lieu of any fractional shares. For example, a holder of 101
shares of ASC Common Stock would receive 63 shares of Albertson's
Common Stock for 100 of the shares of ASC Common Stock, plus a cash
payment in lieu of 0.63 shares of Albertson's Common Stock for the
remaining 1 share of ASC Common Stock. The amount of the cash payment
will be based on the market value of Albertson's Common Stock on the
trading day prior to the completion of the Merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the Merger as quickly as possible. In
addition to the approvals of the Albertson's stockholders and the ASC
stockholders, we must also obtain certain regulatory clearances,
including under the federal antitrust laws. We expect to complete the
Merger in early 1999, although there can be no assurance as to when,
or if, all of the conditions to completion of the Merger will be
satisfied or waived.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER?
A: In connection with the Merger, the following U.S. federal income tax
consequences will result: (i) no gain or loss will be recognized by
Albertson's, ASC or Merger Sub as a result of the Merger, (ii) no gain
or loss will generally be recognized by any ASC stockholder (except in
connection with the receipt of cash in lieu of any fractional share
interest in Albertson's Common Stock) upon the exchange of ASC Common
Stock solely for Albertson's Common Stock in the Merger and (iii) the
tax basis of the Albertson's Common Stock received by an ASC
stockholder who exchanges ASC Common Stock for Albertson's Common
Stock will be the same as the tax basis of the ASC Common Stock
surrendered in exchange therefor (reduced by any amount allocable to
any fractional share interest for which cash is received). To review
the tax consequences to stockholders in greater detail, see page 37.
Q: ARE THERE ANY RISKS ASSOCIATED WITH THE MERGER?
A: The Merger does involve risks. For a discussion of certain risk
factors that should be considered in evaluating the Merger, see "RISK
FACTORS," beginning on page 16.
-2-
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
ASC stockholders having more questions about the Merger or desiring
additional copies of this Proxy Statement/Prospectus should contact:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 269-5550
All Others Call Toll-Free: (800) 290-6430
or
American Stores Company
299 South Main Street
Salt Lake City, Utah 84111
Attention: Mary V. Sloan, Vice President and Corporate Secretary
Telephone Number: (801) 539-0112
<PAGE>
Albertson's stockholders having more questions about the Merger or the
Albertson's Plan Amendments or desiring additional copies of this Proxy
Statement/Prospectus should contact:
Georgeson & Company Inc.
Wall Street Plaza, 30th Floor
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll-Free: (800) 223-2064
or
Albertson's, Inc.
P.O. Box 20
250 Parkcenter Boulevard
Boise, Idaho 83726
Attention: Corporate Secretary's Office
Telephone Number: (208) 395-6200
-3-
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
The following are or may constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995:
(i) certain statements, including possible or assumed future results
of operations of Albertson's and ASC contained in "THE MERGER--Background
of the Merger," "THE MERGER--Reasons for the Merger; Recommendations of the
Boards of Directors," "THE MERGER--Opinions of Financial Advisors" and
"MANAGEMENT AND OPERATIONS AFTER THE MERGER," and any forecasts,
projections and descriptions of anticipated cost savings or other synergies
referred to therein, and certain statements incorporated by reference from
documents filed with the Commission by Albertson's and ASC, including any
statements contained herein or therein regarding the development of
possible or assumed future results of operations of Albertson's or ASC's
businesses, the markets for Albertson's and ASC's products, anticipated
capital expenditures, regulatory developments, competition or the effects
of the Merger;
(ii) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends," "will likely result,"
"estimates," "projects," or similar expressions contained in the sections
of this Proxy Statement/Prospectus cited above or incorporated herein; and
(iii) other forward-looking statements contained or incorporated by
reference herein regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Important assumptions and other important
factors that could cause actual results to differ materially from those set
forth in the forward-looking statements include changes in the general
economy, changes in consumer spending, competitive factors and other
factors affecting Albertson's or ASC's business in or beyond Albertson's or
ASC's control. These factors include changes in the rate of inflation,
changes in state or federal legislation or regulation, adverse
determinations with respect to litigation or other claims (including
environmental matters), labor negotiations, adverse effects of failure to
achieve Year 2000 compliance, Albertson's and ASC's ability to recruit and
develop employees, their ability to develop new stores or complete
remodeling projects as rapidly as planned, their ability to successfully
implement new technology, stability of product costs, the ability of
Albertson's to integrate the operations of ASC, the ability of ASC (as a
stand-alone entity) to implement any re-engineering initiatives in
accordance with the currently contemplated schedule and budget and the
ability of ASC (as a stand-alone entity) to access the public debt and
equity markets to refinance indebtedness and fund capital expenditure
programs on satisfactory terms. For more examples of such risks and
uncertainties, see "RISK FACTORS." Stockholders of Albertson's and ASC are
cautioned not to place undue reliance on such statements, which speak only
as of the date hereof or, in the case of any documents incorporated by
reference, the date of such document.
Other factors and assumptions not identified above could also cause
the actual results to differ materially from those set forth in the
forward-looking information. Neither Albertson's nor ASC undertakes any
obligation to update the forward-looking statements contained herein or
elsewhere to reflect actual results, changes in assumptions or changes in
other factors affecting such forward-looking statements.
-4-
<PAGE>
SUMMARY
This summary highlights certain information contained in this Proxy
Statement/Prospectus, is qualified by reference thereto and may not contain
all of the information that is important to you. To understand the Merger
more fully and for a more complete description of the terms and conditions
of the Merger, you should read carefully this entire document, the
documents referred to in the "DOCUMENTS INCORPORATED BY REFERENCE" section
at the beginning of this document and the Appendices hereto. This summary
does not contain a complete statement of material information relating to
the Agreement, the Merger, the Albertson's Plan Amendment, or other
matters discussed in this document.
ALBERTSON'S
Albertson's is incorporated under the laws of the State of Delaware
and is the successor to a business founded by J.A. Albertson in 1939.
Albertson's is one of the largest retail food-drug chains in the United
States. As of July 30, 1998, Albertson's operated 916 stores in 23 western,
midwestern and southern states. These stores consisted of 811 combination
food-drug stores, 71 conventional supermarkets and 34 warehouse stores.
Retail operations are supported by 11 company-owned distribution centers.
Albertson's principal executive offices are located at 250 Parkcenter
Boulevard, Boise, Idaho 83706, and its telephone number is (208) 395-6200.
See "THE COMPANIES--Albertson's."
ASC
ASC traces its roots to 1939 with the purchase of four drug stores in
Utah, Idaho and Montana and was incorporated in Delaware in 1965 under the
name of Skaggs Drug Centers, Inc. ASC's stores operate principally under
the names of Acme Markets, Jewel Food Stores, Lucky Stores, Osco Drug and
Sav-on. ASC is one of the nation's leading food and drug retailers,
operating supermarkets, stand-alone drug stores and combination food-drug
store units. As of August 1, 1998, ASC operated 1,558 stores in 26 states,
including 269 food and drug combination stores, 535 supermarkets and 754
stand-alone drug stores. ASC's principal executive offices are located at
299 South Main Street, Salt Lake City, Utah 84111, and its telephone number
is (801) 539-0112. See "THE COMPANIES--ASC."
REASONS FOR THE MERGER
Albertson's. The Albertson's Board of Directors believes that the
terms of the Agreement are fair to and in the best interests of Albertson's
and its stockholders. Accordingly, Albertson's Board of Directors has
unanimously approved the Agreement and recommends that stockholders of
Albertson's vote to approve the Stock Issuance. In particular, the Board of
Directors of Albertson's believes that the Merger strengthens Albertson's
presence in certain existing markets. The transaction also provides
Albertson's with stores in new markets, enables Albertson's to enter the
stand-alone retail drug store business, and presents significant
opportunities for profitability growth due to increased purchasing power,
cost savings and other synergies. In reaching its determination, the
Albertson's Board of Directors consulted with Albertson's management, as
well as its financial and legal advisors, and considered a number of
factors. For a more detailed discussion of the Albertson's Board's
considerations, see "THE MERGER-Reasons for the Merger; Recommendations of
the Boards of Directors."
ASC. The ASC Board has unanimously determined that the Merger is
advisable, fair to and in the best interests of ASC and its stockholders.
Accordingly, the ASC Board of Directors has unanimously approved the
Agreement and recommends that stockholders of ASC vote to approve and adopt
the Agreement and approve the Merger. In particular, the ASC Board of
Directors believes that the Merger provides ASC stockholders with an
opportunity to receive a substantial premium for their shares of ASC Common
Stock (based on prevailing market prices at the time of the action by the
ASC Board of Directors' approval of the Agreement) and values that are in
excess of what a stand-alone strategy could reasonably be expected to
produce in the near term. In addition, the ASC Board of Directors believes
that the Merger provides ASC stockholders an opportunity to participate, as
holders of Albertson's Common Stock, in a company with strong prospects for
enhanced stockholder value in the future through enhanced revenue growth
and accelerated earnings growth. In reaching its determination, the ASC
Board of Directors consulted with ASC's management, as well as its
financial and legal advisors, and considered a number of factors. For a
more detailed discussion of the ASC Board's considerations, see "THE
MERGER-Reasons for the Merger; Recommendations of the Boards of Directors."
-5-
<PAGE>
OPINIONS OF FINANCIAL ADVISORS
Opinion of Albertson's Financial Advisor. At a meeting of the
Albertson's Board of Directors held on August 2, 1998, at which the
Albertson's Board of Directors considered the Merger and approved the
Agreement and the Merger, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Albertson's financial advisor, rendered its
oral opinion (which was subsequently confirmed in writing) that, as of such
date and based upon and subject to the matters reviewed with the
Albertson's Board of Directors, the Exchange Ratio was fair from a
financial point of view to Albertson's (the "Merrill Lynch Opinion"). The
full text of the Merrill Lynch Opinion is attached hereto as Appendix D and
is incorporated herein by reference. The description of the Merrill Lynch
Opinion set forth herein is qualified in its entirety by reference to the
full text thereof. Albertson's stockholders are urged to read the Merrill
Lynch Opinion in its entirety for a description of the procedures followed,
assumptions made, matters considered and qualifications and limitations on
the review undertaken by Merrill Lynch in connection therewith. See "THE
MERGER-Opinions of Financial Advisors -- Albertson's."
Opinion of ASC's Financial Advisor. At a meeting of ASC's Board of
Directors held on August 2, 1998, at which time ASC's Board of Directors
approved the Agreement and the Merger, The Blackstone Group L.P.
("Blackstone"), ASC's financial advisor, rendered its opinion that, as of
such date and subject to the various considerations set forth therein, the
Exchange Ratio is fair to the holders of shares of ASC Common Stock from a
financial point of view (the "Blackstone Opinion"). The full text of the
Blackstone Opinion is attached hereto as Appendix E and is incorporated
herein by reference. ASC stockholders are urged to read the Blackstone
Opinion in its entirety for a description of the procedures followed,
assumptions made, matters considered, and qualifications and limitations on
the review undertaken by Blackstone in connection therewith. See "THE
MERGER-Opinions of Financial Advisors -- ASC."
THE MEETINGS
The Albertson's Special Meeting will be held on [ ], 1998 at [10:00]
a.m., Boise, Idaho time at [ ]. The ASC Special Meeting will be held on [
], 1998 at [10:00] a.m., Salt Lake City, Utah time at [ ].
MATTERS TO BE CONSIDERED AT THE MEETINGS
Albertson's. At the Albertson's Special Meeting, holders of
Albertson's Common Stock will consider and vote upon proposals to approve
the Stock Issuance and the Albertson's Plan Amendments. THE ALBERTSON'S
BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE STOCK ISSUANCE AND THE
ALBERTSON'S PLAN AMENDMENTS AND UNANIMOUSLY RECOMMENDS THAT ALBERTSON'S
STOCKHOLDERS VOTE FOR APPROVAL OF THE STOCK ISSUANCE AND THE ALBERTSON'S
PLAN AMENDMENTS.
ASC. At the ASC Special Meeting, holders of ASC Common Stock will
consider and vote upon a proposal to approve and adopt the Agreement and
approve the Merger. THE ASC BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT ASC STOCKHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE AGREEMENT AND APPROVAL OF THE MERGER.
VOTES REQUIRED
Albertson's. The affirmative vote of a majority of the votes cast at
the Albertson's Special Meeting is required to approve the Stock Issuance
and the Albertson's Plan Amendments (provided that a majority of the total
shares of Albertson's Common Stock entitled to vote are present in person
or by proxy and are voted with respect to each proposal). Each share of
Albertson's Common Stock is entitled to one vote on each proposal.
ASC. The affirmative vote of the holders of a majority of the
outstanding shares of ASC Common Stock is required to approve and adopt the
Agreement and approve the Merger. Each share of ASC Common Stock is
entitled to one vote.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Albertson's. Only holders of record of Albertson's Common Stock at the
close of business on [ ], 1998 (the "Albertson's Record Date") will be
entitled to receive notice of and to vote at the Albertson's Special
Meeting. At the Albertson's Record Date, there were [ ] shares of
Albertson's Common Stock outstanding. A majority of the outstanding shares
of Albertson's Common Stock entitled to vote, present in person or
represented by proxy, will constitute a quorum for the transaction of
business at the Albertson's Special Meeting.
-6-
<PAGE>
ASC. Only holders of record of ASC's Common Stock at the close of
business on [ ], 1998 (the "ASC Record Date") will be entitled to receive
notice of and to vote at the ASC Special Meeting. At the ASC Record Date,
there were [ ] shares of ASC Common Stock outstanding. A majority of the
outstanding shares of ASC Common Stock entitled to vote, present in person
or represented by proxy, will constitute a quorum for the transaction of
business at the ASC Special Meeting.
THE MERGER
General. The Agreement provides for a business combination between
Albertson's and ASC in which Merger Sub, a wholly owned subsidiary of
Albertson's, would be merged with and into ASC, with ASC becoming a wholly
owned subsidiary of Albertson's. The holders of ASC Common Stock would be
issued 0.63 shares of Albertson's Common Stock in exchange for each share
of ASC Common Stock, with cash paid in lieu of any fractional shares. The
transaction is intended to qualify as a pooling of interests for accounting
purposes and as a tax-free reorganization for U.S. federal income tax
purposes. On July 31, 1998, the last trading day prior to the public
announcement of the execution of the Agreement, the closing prices of
Albertson's Common Stock and ASC Common Stock on the NYSE Composite Tape
were $48.00 and $23.19, respectively. Based upon such closing prices and
the Exchange Ratio, the Consideration had a value of $30.24 which
represented a 30.4% premium over the pre-announcement closing price of ASC
Common Stock. On [ ], 1998, the last trading day prior to the date of this
Proxy Statement/Prospectus, based upon the closing price of Albertson's
Common Stock on the NYSE Composite Tape of $[ ] and the Exchange Ratio, the
Consideration had a value of $[ ]. At the Effective Time, the Consideration
may have a market value that is greater or lesser than these amounts
depending on the market price of Albertson's Common Stock at that time. As
a result of the Merger, former stockholders of ASC will hold approximately
[41.3]% of the outstanding Albertson's Common Stock (based upon the number
of shares of Albertson's Common Stock and ASC Common Stock outstanding on
the Albertson's Record Date and the ASC Record Date, respectively).
The discussion in this Proxy Statement/Prospectus of the Merger and
the description of the principal terms and conditions of the Agreement and
the Merger are subject to and qualified in their entirety by reference to
the Agreement, a copy of which is attached to this Proxy
Statement/Prospectus as Appendix A and which is incorporated herein by
reference. See "THE MERGER" and "THE AGREEMENT."
Accounting Treatment. Albertson's and ASC believe that the Merger will
qualify as a pooling of interests for accounting and financial reporting
purposes. Under this method of accounting, the assets and liabilities of
Albertson's and ASC will be combined based on the respective carrying
values of the accounts in the historical financial statements of each
entity. Results of operations of the combined company will include income
of Albertson's and ASC for the entire fiscal period in which the
combination occurs, and the historical results of operations of the
separate companies for fiscal years prior to the Merger will be combined
and reported as the results of operations of the combined company.
Albertson's [has] received a letter from ASC's independent public
accountants, dated as of the date the Registration Statement became
effective, stating that such accountants are not aware of any conditions
that exist that would preclude ASC's ability to be a party to a business
combination to be accounted for as a pooling of interests, and ASC [has]
received a letter from Albertson's independent public accountants, dated as
of the date the Registration Statement became effective, stating that
accounting for the Merger as a pooling of interests under Opinion 16 of the
Accounting Principles Board and applicable Commission rules and regulations
is appropriate if the Merger is closed and consummated as contemplated by
the Agreement, subject to the consummation of the sale of Albertson's
Common Stock (if necessary) referred to in the next paragraph. Each of the
accountants' letters [is] based on representations of management and [does]
not address any matters occurring subsequent to the date of such letters.
Consummation of the Merger is conditioned upon the receipt by each of
Albertson's and ASC of a second letter from the other company's independent
public accountants, dated as of the closing date of the Merger (the
"Closing Date"), reaffirming the statements made in the letters issued as of
the effective date of the Registration Statement. See "THE
AGREEMENT--Conditions" and "UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION." Certain events, including certain transactions with respect
to ASC Common Stock or Albertson's Common Stock by affiliates of ASC or
Albertson's, respectively, may prevent the Merger from qualifying as a
pooling of interests. See "THE MERGER--Resale Restrictions."
Albertson's intends, if required in order to permit the Merger to
qualify as a pooling of interests, to sell up to [300,000] shares of
Albertson's Common Stock prior to the Effective Time.
-7-
<PAGE>
Regulatory Matters. Under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and the rules promulgated
thereunder by the Federal Trade Commission (the "FTC"), the Merger cannot
be consummated until notifications have been given and certain information
has been furnished to the FTC and the Antitrust Division of the Department
of Justice (the "Antitrust Division") and specified waiting period
requirements have been satisfied. ASC and Albertson's filed notification
and report forms under the HSR Act with the FTC and the Antitrust Division
on August 31, 1998 and September 1, 1998, respectively. Unless additional
information and documentary material is requested by the FTC or the
Antitrust Division, the waiting period will expire on October 1, 1998.
However, if a request from the FTC or the Antitrust Division for additional
information and documentary material is received on or prior to that date,
the waiting period will not terminate until 20 days after Albertson's and
ASC have "substantially complied" (as such term is defined under the HSR
Act) with each such request unless the FTC or the Antitrust Division
terminates the waiting period earlier. Consequently, there can be no
assurance that the consummation of the Merger will not be delayed by reason
of the HSR Act. At any time before or after consummation of the Merger, the
Antitrust Division, the FTC, a state governmental authority or a private
person or entity could seek under the antitrust laws, among other things,
to enjoin the Merger or to cause Albertson's to divest, in whole or in
part, any of its assets or businesses (including assets and businesses of
ASC). There can be no assurance that a challenge to the Merger will not be
made or that, if such a challenge is made, Albertson's will prevail. The
obligations of Albertson's and ASC to consummate the Merger are subject to
the condition that there be no order, decree or injunction of any court of
competent jurisdiction that prohibits the consummation of the Merger.
Clearance under applicable antitrust laws may occur after the ASC Special
Meeting and the Albertson's Special Meeting. Any commitments required to
obtain such clearance may result in a combined company with fewer assets
and lower revenues and net income than would be the case if such
divestitures were not effected. See "THE AGREEMENT--Best Efforts" for a
description of the obligations of Albertson's and ASC to seek regulatory
approvals.
Certain U.S. Federal Tax Consequences. For U.S. federal income tax
purposes, no gain or loss will generally be recognized by the stockholders
of ASC who exchange their ASC Common Stock solely for Albertson's Common
Stock pursuant to the Merger (except with respect to cash received in lieu
of any fractional share interest in Albertson's Common Stock). Each ASC
stockholder is advised to consult such stockholder's own tax advisors as to
the specific tax consequences to such stockholder of the Merger, including
tax return reporting requirements, the applicability of federal, state,
local and foreign tax laws and the effect of any proposed change in tax
laws. It is a condition to the Merger that Albertson's and ASC each receive
a tax opinion that the Merger qualifies as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). See "THE MERGER--Certain U.S. Federal Income Tax
Consequences."
No Dissenters' Rights. No holder of Albertson's Common Stock or ASC
Common Stock will have any dissenters' rights in connection with, or as a
result of, the matters to be acted upon at the Albertson's Special Meeting
or ASC Special Meeting, respectively.
Interest of Certain Persons in the Merger. In considering the
recommendations of the Albertson's Board of Directors and the ASC Board of
Directors with respect to the Merger, the stockholders of Albertson's and
ASC should be aware that certain directors and executive officers of
Albertson's and ASC may be deemed to have conflicts of interest with
respect to the Merger in that, among other things, (i) five directors of
ASC will become directors of Albertson's at the Effective Time, (ii) Victor
L. Lund, Chairman and Chief Executive Officer of ASC, has (x) an employment
agreement, (y) a change-of-control employment agreement which provides for
specified severance payments upon a change of control and (z) entered into
a Termination and Consulting Agreement with ASC and Albertson's which
provides that following consummation of the Merger Mr. Lund will serve as
Vice Chairman of the Board of Directors of Albertson's and sets forth,
among other things, the terms and conditions upon which Mr. Lund will
provide consulting services to Albertson's following consummation of the
Merger, (iii) the executive officers of ASC (including Mr. Lund) have
-8-
<PAGE>
change of control agreements that provide for specified severance payments
upon termination of their service with ASC in anticipation of or following
consummation of the Merger, (iv) certain participants in ASC's Supplemental
Executive Retirement Plan will receive their vested account balances in a
lump sum payout within thirty (30) days of the consummation of the Merger,
(v) the exercisability of certain options to purchase shares of Albertson's
Common Stock and ASC Common Stock will accelerate in connection with the
Merger, (vi) options to purchase shares of ASC Common Stock will be
converted into options to purchase shares of Albertson's Common Stock,
(vii) certain restricted shares of ASC Common Stock will become vested in
connection with the Merger, and (viii) amounts deferred under certain of
Albertson's deferred compensation plans will accrue interest at a
guaranteed interest rate. See "THE MERGER--Interests of Certain Persons in
the Merger."
Resale Restrictions. All shares of Albertson's Common Stock received
by ASC stockholders in the Merger will be freely transferable, except that
shares of Albertson's Common Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of ASC at
the time of the ASC Special Meeting may be resold by them only in certain
permitted circumstances. In order for the Merger to qualify for pooling of
interests treatment, an affiliate of either Albertson's or ASC may not sell
(subject to certain de minimis exceptions), or in any other way reduce said
affiliate's risk relative to, shares of Albertson's Common Stock and shares
of ASC Common Stock (as the case may be) during the period beginning 30
days prior to the Effective Time and ending at such time as Albertson's
publishes results covering at least 30 days of combined operations of
Albertson's and ASC. See "THE MERGER-Resale Restrictions."
Conditions. The respective obligations of ASC and Albertson's to
consummate the Merger are subject to the fulfillment of each of the
following conditions, among others: (i) the Agreement will have been
approved by the holders of a majority of the issued and outstanding shares
of ASC Common Stock entitled to vote thereon and the Stock Issuance will
have been approved by a majority of the votes cast at the Albertson's
Special Meeting (provided that a majority of the total shares of
Albertson's Common Stock entitled to vote are present in person or by proxy
and are voted); (ii) the waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated; (iii)
none of the parties to the Agreement shall be subject to any order, decree
or injunction prohibiting the consummation of the Merger; (iv) the
Registration Statement shall have become effective under the Securities Act
and no stop order with respect thereto shall be in effect; and (v) the
shares of Albertson's Common Stock to be issued pursuant to the Merger
shall have been approved for listing on the NYSE, subject to official
notice of issuance.
The consummation of the Merger also depends on the satisfaction or
waiver of a number of additional conditions, including the following: (i)
the continued accuracy of each party's representations and warranties
contained in the Agreement; (ii) the performance in all material respects
by each party of its obligations under the Agreement; (iii) receipt of
other required regulatory approvals; (iv) receipt by Albertson's of letters
from ASC's independent public accountants as to the ability of ASC to enter
into a merger to be accounted for as a pooling of interests and receipt by
ASC of letters from Albertson's independent public accountants as to the
appropriateness of accounting for the Merger as a pooling of interests; (v)
receipt by each party from the other party's independent public accountants
of customary "comfort letters" with respect to the Registration Statement;
and (vi) receipt of legal opinions as to the tax-free nature of the Merger.
See "THE AGREEMENT--Conditions."
Termination. The Agreement may be terminated by either Albertson's or
ASC and the Merger may be abandoned at any time prior to the Effective
Time: if (i) the Merger is not consummated by June 30, 1999, so long as the
delay is not caused by a failure on the part of the party seeking
termination to comply with its obligations under the Agreement; (ii) after
taking a vote, the required approval of the other party's stockholders is
not received; (iii) a court or other governmental authority permanently
prohibits the consummation of the Merger, so long as the party seeking to
terminate has used its reasonable best efforts to have the action lifted or
vacated, (iv) the other party's board of directors withdraws or adversely
modifies its approval or recommendation to stockholders in favor of the
Merger, fails to reaffirm within fifteen days of the other party's request
its recommendation after a third party has made public a competing
proposal, or approves or recommends a competing transaction, (v) prior to
such party's stockholder meeting in connection with the Merger, in order to
concurrently enter into a financially superior transaction, its board of
directors determines that its fiduciary duties require it to do so and such
party has given the non-terminating party two days' notice; or (vi) an
uncured or uncurable material breach by the other party of its
representations and warranties or covenants under the Agreement would cause
any of the conditions to the terminating party's obligations to consummate
the Merger to be unsatisfied. See "THE AGREEMENT -- Termination."
-9-
<PAGE>
Termination Fee. Either ASC or Albertson's will be required to pay the
other party a termination fee under the following circumstances: (i) it
terminates the Agreement to enter into a financially superior transaction;
(ii) it fails to obtain stockholder approval of the Merger as a result of
which the other party terminates the Agreement and (a) a competing business
combination proposal from a third party had been made prior to its special
meeting of stockholders and (b) it accepts a competing proposal with any
third party within six months following the termination of the Agreement;
(iii) the other party terminates the Agreement by reason of the first
party's board of directors (a) withdrawing or adversely modifying its
approval or recommendation, (b) failing to reaffirm its recommendation
after a third party has made public a competing proposal or (c) approving
or recommending a competing transaction; or (iv) it receives a competing
business combination proposal and (a) the other party subsequently
terminates the Agreement as a result of the first party's having
intentionally breached its representations, warranties or covenants and (b)
it accepts a competing proposal with any third party within six months
following the termination of the Agreement. The termination fee to be paid
by ASC to Albertson's, if required, would be $177,000,000 and the
termination fee to be paid by Albertson's to ASC, if required, would be
$240,000,000, in each case net of any fees and expenses previously
reimbursed to the other party. See "THE AGREEMENT -- Termination" and
"--Termination Fees; Expense Reimbursement."
Effective Time. It is expected that the Merger will be consummated in
early 1999, although there can be no assurance as to when, or if, all the
conditions to consummation of the Merger will be satisfied or waived.
THE STOCK OPTION AGREEMENTS
Concurrently with the execution of the Agreement, Albertson's and ASC
entered into a Stock Option Agreement (the "ASC Stock Option Agreement"),
pursuant to which ASC granted Albertson's an option (the "ASC Option") to
purchase, pursuant to the terms and conditions thereof, up to 54,500,000
shares of ASC Common Stock at a price of $30.24 per share (subject to
adjustment as provided in the ASC Stock Option Agreement). The ASC Stock
Option Agreement provides that Albertson's may exercise the ASC Option, in
whole or in part, at any time or from time to time following the occurrence
of a Triggering Event (as defined below) and prior to the expiration of the
ASC Option (which is generally 120 days after the Triggering Event). For
purposes of the ASC Stock Option Agreement, a "Triggering Event" will have
occurred at such time at which Albertson's becomes entitled to receive a
termination fee from ASC. See "THE STOCK OPTION AGREEMENTS--The ASC Stock
Option Agreement."
Albertson's and ASC also entered into a Stock Option Agreement (the
"Albertson's Stock Option Agreement," and together with the ASC Stock
Option Agreement, the "Stock Option Agreements"), pursuant to which
Albertson's granted ASC an option (the "Albertson's Option") to purchase,
pursuant to the terms and subject to the conditions thereof, up to
48,800,000 shares of Albertson's Common Stock at a price of $48.00 per
share (subject to adjustment upon certain events as provided in the
Albertson's Stock Option Agreement). The Albertson's Stock Option
Agreement provides that ASC may exercise the Albertson's Option, in whole
or in part, at any time or from time to time following the occurrence of a
Triggering Event (as defined below) and prior to the expiration of the
Albertson's Option (which is generally 120 days after the Triggering
Event). For purposes of the Albertson's Stock Option Agreement, a
"Triggering Event" will have occurred at such time at which ASC becomes
entitled to receive a termination fee from Albertson's. See "THE STOCK
OPTION AGREEMENTS--The Albertson's Stock Option Agreement."
THE ALBERTSON'S PLAN AMENDMENTS
On August 31, 1998, the Albertson's Board of Directors approved
amendments to the Albertson's Plan to (i) increase the number of shares of
Albertson's Common Stock reserved for issuance pursuant thereto from
10,000,000 to 30,000,000, (ii) permit non-employee directors to participate
in the Albertson's Plan, (iii) prohibit the repricing of awards granted
under the Albertson's Plan, (iv) provide the Compensation Committee of the
Albertson's Board of Directors the flexibility to determine the
exercisability of options following termination of employment or service as
a director, (v) provide for the limited transferability of awards to a
participant's immediate family members or to certain entities maintained
solely for their benefit, (vi) provide that shares of Albertson's Common
Stock tendered as full or partial payment of the exercise price of an
option may be available for future grants, and (vii) set forth the
performance goals to which the vesting of restricted stock awards or
deferred stock awards may be subject. Consummation of the Merger is not
conditioned upon stockholder approval of the Albertson's Plan Amendments;
although the Albertson's Plan Amendments will not become effective unless
the Merger is consummated.
-10-
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ALBERTSON'S
The following table sets forth selected historical consolidated
financial data for Albertson's for the 26 week periods ended July 30, 1998,
and July 31, 1997 and the fiscal years ended January 29, 1998, January 30,
1997, February 1, 1996, February 2, 1995, and February 3, 1994. Such data
have been derived from, and should be read in conjunction with, the audited
consolidated financial statements and other financial information contained
in Albertson's 1997 Form 10-K, and the unaudited consolidated interim
financial information contained in Albertson's 1998 Second Quarter Form
10-Q, including the notes thereto, incorporated by reference in this Proxy
Statement/Prospectus. See "AVAILABLE INFORMATION" and "DOCUMENTS
INCORPORATED BY REFERENCE."
Albertson's fiscal year ends on the Thursday nearest to January 31 of
each year. All fiscal years presented are 52 weeks except fiscal year 1993
which is a 53 week fiscal year. Unless the context otherwise indicates, a
reference to a fiscal year of Albertson's refers to the calendar year in
which such fiscal year commences.
<TABLE>
<CAPTION>
26 Weeks 26 Weeks Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
July 30, 1998 (1) July 31, 1997 1997 1996 1995 1994 (2) 1993 (2)
---------------- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollar amounts
in thousands
except per share
data)
Statement of
Earnings Data:
Sales................. $7,843,305 $7,288,050 $14,689,511 $13,776,678 $12,585,034 $11,894,621 $11,283,678
Earnings before
cumulative
effects of
accounting
changes............. 239,019 218,706 516,814 493,779 464,961 417,371 339,681
Net earnings.......... 239,019 218,706 516,814 493,779 464,961 400,365 339,681
Earnings per
share before
cumulative
effects of
accounting
changes:
Basic.............. 0.97 0.88 2.09 1.96 1.84 1.65 1.34
Diluted............ 0.97 0.87 2.08 1.95 1.83 1.64 1.33
Earnings per
share:
Basic.............. 0.97 0.88 2.09 1.96 1.84 1.58 1.34
Diluted............ 0.97 0.87 2.08 1.95 1.83 1.57 1.33
Cash dividends
per share............. 0.34 0.32 0.64 0.60 0.52 0.44 0.36
Balance Sheet
Data:
(as of the end
of the period)
Total assets......... $5,553,042 $4,746,187 $5,218,590 $4,714,633 $4,135,911 $3,621,729 $3,294,895
Long-term debt
and
capitalized
lease
obligations........ 1,410,761 1,015,286 1,130,607 1,051,754 732,258 512,348 665,011
Number of stores..... 916 847 878 826 764 720 676
<FN>
- --------------------
(1) Includes a pre-tax $29.4 million charge (impairment-store closures)
recorded in the first quarter of 1998 related to management's decision
to close 16 under-performing stores during the fiscal year.
(2) In fiscal year 1994, Albertson's adopted the provisions of Statement
of Financial Accounting standards No. 112, "Employers' Accounting for
Postemployment Benefits." The total cumulative effect of this
accounting change decreased net earnings by $17.0 million (net of
$10.6 million in tax benefits), or $0.07 per basic and diluted share.
(3) In fiscal year 1993, (i) a $29.9 million pre-tax non-recurring charge
was recorded to cover the settlement of a lawsuit and (ii) pre-tax
interest expense included a reduction of $9.7 million due to the
successful resolution of a tax issue for which interest expense had
previously been accrued.
</FN>
</TABLE>
-11-
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ASC
The following table sets forth selected historical consolidated
financial data for ASC for the 26 week periods ended August 1, 1998, and
August 2, 1997 and the fiscal years ended January 31, 1998, February 1,
1997, February 3, 1996, January 28, 1995, and January 29, 1994. Such data
have been derived from, and should be read in conjunction with, the audited
consolidated financial statements and other financial information contained
in the ASC 1997 Form 10-K, and the unaudited consolidated interim financial
information contained in the ASC 1998 Second Quarter Form 10-Q, including
the notes thereto, incorporated by reference or appearing elsewhere in this
Proxy Statement/Prospectus. See "AVAILABLE INFORMATION" and "DOCUMENTS
INCORPORATED BY REFERENCE."
Comparison of operating results between fiscal years 1993 to 1997 are
affected by ASC's disposition of stores. These include the disposition of
45 Acme Markets stores in the fourth quarter of 1994 and the 33-store Star
Market food division in the third quarter of 1994. These disposed of stores
generated sales in the amounts of $0.8 billion and $1.2 billion in 1994 and
1993, respectively. ASC's fiscal year ends on the Saturday nearest to
January 31 of each year. All fiscal years presented are 52 weeks except
fiscal year 1995 which is a 53 week fiscal year. Unless the context
otherwise indicates, a reference to a fiscal year of ASC refers to the
calendar year in which such fiscal year commences.
<TABLE>
<CAPTION>
26 Weeks 26 Weeks
August 1, August 2, Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
1998 1997(1) 1997 (1) 1996 (2) 1995 1994 (3) 1993 (4)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Dollar amounts in
thousands except per
share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Sales ....................... $ 9,822,702 $ 9,510,818 $19,138,880 $18,678,129 $18,308,894 $18,355,126 $18,763,439
Earnings before
extraordinary item ........ 154,021 124,182 280,620 287,221 316,809 345,184 262,090
Net earnings ................ 154,021 124,182 280,620 287,221 316,809 345,184 247,090
Earnings per share before
extraordinary item:
Basic ................... 0.56 0.44 1.02 0.98 1.08 1.21 0.92
Diluted ................. 0.56 0.44 1.01 0.98 1.08 1.17 0.90
Earnings per share:
Basic ................... 0.56 0.44 1.02 0.98 1.08 1.21 0.87
Diluted ................. 0.56 0.44 1.01 0.98 1.08 1.17 0.85
Cash dividends per share..... 0.18 0.17 0.35 0.32 0.28 0.24 0.20
Balance Sheet Data:
(as of the end of the period)
Total assets ................ $ 8,419,403 $ 7,927,924 $ 8,536,015 $ 7,881,405 $ 7,362,964 $ 7,031,566 $ 6,927,434
Long-term debt and
capitalized lease
obligations ............... 3,261,042 2,988,888 3,201,970 2,613,144 2,105,016 2,064,077 2,091,461
Number of stores ............ 1,558 1,520 1,557 1,529 1,497 1,448 1,547
<FN>
- --------------------
(1) Includes non-recurring items related to the repurchase of a major
stockholder's stock and the sale of a division of ASC's communications
subsidiary totaling $0.14 per share of expense.
(2) Includes special charges totaling $0.21 per share of expense related
primarily to reengineering initiatives.
(3) Includes non-recurring items totaling $0.19 per share of income
related primarily to the sale of a division.
(4) Includes $0.05 per share extraordinary item charge related to early
retirement of debt.
</FN>
</TABLE>
-12-
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth selected unaudited pro forma combined
financial data for Albertson's for the 26 week periods ended July 30, 1998
and July 31, 1997 and the fiscal years 1997, 1996, and 1995. These periods
are presented to reflect the estimated impact of the Merger on the
historical consolidated financial statements of Albertson's. It is
anticipated that the Merger will be accounted for as a pooling of
interests. The statement of earnings data assume that the Merger had been
consummated at the beginning of the earliest period presented, and the
balance sheet data assume that the Merger had been consummated as of July
30, 1998. The unaudited pro forma combined statement of earnings data do
not reflect any cost savings and other synergies nor Merger related
expenses anticipated by Albertson's management as a result of the Merger
and are not necessarily indicative of the results of operations or the
financial position which would have occurred had the Merger been
consummated at the beginning of the earliest period presented, nor are they
necessarily indicative of Albertson's future results of operations or
financial position. The unaudited pro forma combined balance sheet data
reflect anticipated direct transaction costs of approximately $65 million.
The unaudited pro forma combined financial data should be read in
conjunction with the historical consolidated financial statements of
Albertson's and ASC and the Unaudited Pro Forma Combined Financial
Information, including the notes thereto, incorporated by reference or
appearing elsewhere in this Proxy Statement/Prospectus. See "AVAILABLE
INFORMATION," "DOCUMENTS INCORPORATED BY REFERENCE" and "UNAUDITED PRO
FORMA COMBINED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
26 Weeks 26 Weeks
July 30, July 31, Fiscal Year Fiscal Year Fiscal Year
1998(1) 1997(1) 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Sales ......................... $ 17,666,007 $ 16,798,868 $ 33,828,391 $ 32,454,807 $ 30,893,928
Cost of sales ................. 12,986,681 12,400,948 24,846,950 23,924,499 22,930,426
------------ ------------ ------------ ------------ ------------
Gross profit .................. 4,679,326 4,397,920 8,981,441 8,530,308 7,963,502
Selling, general and
administrative expenses ..... 3,844,132 3,622,235 7,307,748 6,935,963 6,454,572
Impairment and
restructuring ............... 29,423 13,400 13,400 77,151 --
------------ ------------ ------------ ------------ ------------
Operating profit .............. 805,771 762,285 1,660,293 1,517,194 1,508,930
Other (expenses) income:
Interest, net ............... (168,379) (143,507) (293,626) (227,657) (206,431)
Shareholder related expense . -- (33,913) (33,913) -- --
Other, net .................. 14,777 9,045 17,814 9,862 6,918
------------ ------------ ------------ ------------ ------------
Earnings before income
taxes ....................... 652,169 593,910 1,350,568 1,299,399 1,309,417
Income taxes .................. 259,129 251,022 553,134 518,399 527,647
------------ ------------ ------------ ------------ ------------
Net earnings .................. $ 393,040 $ 342,888 $ 797,434 $ 781,000 $ 781,770
============ ============ ============ ============ ============
Earnings per share:
Basic ....................... $ 0.94 $ 0.81 $ 1.89 $ 1.79 $ 1.78
Diluted ..................... 0.93 0.80 1.88 1.79 1.78
Cash dividends per share ...... 0.34 0.32 0.64 0.60 0.52
Balance Sheet Data:
(As of July 30, 1998)
Total assets .................. $ 13,922,981
Total liabilities ............. 8,979,018
Long-term debt and
capitalized lease obligation 4,671,803
Stockholders' equity .......... 4,943,963
- -------------------
<FN>
(1) For presentation purposes, the dates of Albertson's 26 week period
ends are utilized above to represent the combined company's 26 week
period ends.
</FN>
</TABLE>
-13-
<PAGE>
COMPARATIVE PER SHARE DATA OF ALBERTSON'S AND ASC
The following unaudited table sets forth certain earnings, dividend
and book value per share data for Albertson's and ASC on historical and
unaudited pro forma bases. The pro forma earnings per share data are
derived from the Unaudited Pro Forma Combined Statement of Earnings
appearing elsewhere herein, which give effect to the Merger as a pooling of
interests as if the Merger had been consummated at the beginning of the
earliest period presented. The pro forma dividend data assume dividend
payments consistent with Albertson's historical payments. Book value and
earnings per share data for all pro forma presentations are based upon the
number of outstanding shares of Albertson's Common Stock, adjusted to
include the additional shares of Albertson's Common Stock that would be
outstanding based upon the ASC Common Stock outstanding for each period
multiplied by the Exchange Ratio. The ASC Equivalent data are derived by
multiplying the corresponding Albertson's Unaudited Pro Forma amounts by
the Exchange Ratio. Earnings per share data presented below do not take
into account the sale by Albertson's of additional shares of Albertson's
Common Stock described in "The Merger -- Accounting Treatment." The pro
forma earnings per share data do not reflect any cost savings and other
synergies nor Merger related expenses anticipated by Albertson's management
as a result of the Merger. Pro forma book value per share data reflect the
effect of anticipated direct transaction costs and takes into account the
sale of additional shares in order to meet pooling-of-interests
requirements. The information set forth below should be read in conjunction
with the historical consolidated financial statements of Albertson's and of
ASC and the Unaudited Pro Forma Combined Financial Information, including
the notes thereto, incorporated by reference or appearing elsewhere in this
Proxy Statement/Prospectus. See "AVAILABLE INFORMATION," "DOCUMENTS
INCORPORATED BY REFERENCE" and "UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION."
<TABLE>
<CAPTION>
26 Weeks 26 Weeks Fiscal Fiscal Fiscal
July 30, 1998(3)(4) July 31, 1997(3)(5) Year 1997(5) Year 1996(6) Year 1995
---------------- ------------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
ALBERTSON'S HISTORICAL
Earnings per share:(1)
Basic ......................... $0.97 $0.88 $2.09 $1.96 $1.84
Diluted ....................... 0.97 0.87 2.08 1.95 1.83
Cash dividends declared per share 0.34 0.32 0.64 0.60 0.52
Book value per share(2) ......... 10.43 -- -- -- --
ASC HISTORICAL
Earnings per share:(1)
Basic ......................... $0.56 $0.44 $1.02 $0.98 $1.08
Diluted ....................... 0.56 0.44 1.01 0.98 1.08
Cash dividends declared per share 0.18 0.17 0.35 0.32 0.28
Book value per share(2) ......... 8.86 -- -- -- --
ALBERTSON'S UNAUDITED PRO FORMA
Earnings per share:(1)
Basic ......................... $0.94 $0.81 $1.89 $1.79 $1.78
Diluted ....................... 0.93 0.80 1.88 1.79 1.78
Cash dividends declared per share 0.34 0.32 0.64 0.60 0.52
Book value per share(2) ......... 11.81 -- -- -- --
ASC EQUIVALENT PRO FORMA
Earnings per share:(1)
Basic ......................... $0.59 $0.51 $1.19 $1.13 $1.12
Diluted ....................... 0.59 0.50 1.18 1.13 1.12
Cash dividends declared per share 0.21 0.20 0.40 0.38 0.33
Book value per share(2) ......... 7.44 -- -- -- --
- ---------------------
<FN>
(1) Earnings per share data are based upon the weighted average number of
shares outstanding during the related period.
(2) Book value per share data are based upon the number of outstanding
shares at the end of the related period.
(3) For presentation purposes, the dates of Albertson's 26 week period
ends are utilized above to represent the combined company's 26 week
period ends.
(4) Includes a pre-tax $29.4 million charge (impairment store
closures) related to management of Albertson's decision to close 16
underperforming stores during the fiscal year.
(5) Includes non-recurring items related to the repurchase of a major
stockholder's stock and the sale of a division of ASC's communications
subsidiary totaling $0.14 per share of expense.
(6) Includes special charges totaling $0.21 per share of expense related
primarily to ASC's re-engineering initiatives.
(7) Includes non-recurring items related to the repurchase of a major
stockholder's stock and the sale of a division of ASC's communications
subsidiary totaling $0.14 per share of expense.
</FN>
</TABLE>
-14-
<PAGE>
MARKET PRICES AND DIVIDENDS
Albertson's Common Stock is listed for trading on the NYSE and the PE
under the trading symbol "ABS." ASC Common Stock is listed for trading on
the NYSE, the PE and the Philadelphia and Chicago stock exchanges under the
trading symbol "ASC." The following table sets forth, for the periods
indicated, the range of the high and low sale prices of Albertson's Common
Stock and ASC Common Stock, as reported on the NYSE Composite Transactions
Tape, and the dividends declared per share of Albertson's Common Stock and
dividends declared per share of ASC Common Stock. All information gives
effect to the ASC two-for-one stock split effected in July 1997.
ALBERTSON'S ASC
COMMON STOCK COMMON STOCK
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
FISCAL YEAR 1995
First Quarter $32.500 $29.875 $0.13 $13.063 $11.625 $0.07
Second Quarter 31.625 27.250 0.13 14.875 12.375 0.07
Third Quarter 34.625 28.625 0.13 15.375 14.063 0.07
Fourth Quarter 35.625 30.375 0.13 15.375 12.438 0.07
FISCAL YEAR 1996
First Quarter $39.375 $33.750 $0.15 $17.125 $12.688 $0.08
Second Quarter 42.750 36.125 0.15 20.625 16.000 0.08
Third Quarter 43.750 33.750 0.15 21.375 18.750 0.08
Fourth Quarter 38.000 33.750 0.15 22.688 19.188 0.08
FISCAL YEAR 1997
First Quarter $37.000 $30.500 $0.16 $23.188 $20.813 $0.08
Second Quarter 38.688 31.875 0.16 27.313 22.000 0.09
Third Quarter 37.750 32.750 0.16 26.000 23.000 0.09
Fourth Quarter 48.625 36.313 0.16 28.000 19.375 0.09
FISCAL YEAR 1998
First Quarter $54.938 $46.313 $0.17 $26.250 $21.813 $0.09
Second Quarter 54.500 44.000 0.17 26.875 22.750 0.09
Third Quarter [ ][ ] 0.17 [ ][ ] [ ]
(through )
Set forth below are the last reported sale prices of Albertson's
Common Stock and ASC Common Stock on July 31, 1998, the last trading day
prior to the public announcement of the execution of the Agreement, and on
[ ], 1998, the last trading day prior to the date of this Proxy
Statement/Prospectus, as well as the equivalent pro forma sale prices of
ASC Common Stock on such dates (as determined by multiplying the applicable
last reported sale price of Albertson's Common Stock by the Exchange
Ratio). Because the Exchange Ratio is fixed and because the market price of
Albertson's Common Stock is subject to fluctuation, the market value of the
shares of Albertson's Common Stock that holders of ASC Common Stock will
receive in the Merger may increase or decrease prior to and following the
Effective Time. Stockholders are urged to obtain current market quotations
for Albertson's Common Stock and ASC Common Stock.
ALBERTSON'S ASC ASC
COMMON STOCK COMMON STOCK EQUIVALENT PRO FORMA
------------ ------------ --------------------
July 31, 1998 $48.000 $23.188 $30.240
[ ], 1998
Following the consummation of the Merger, holders of Albertson's
Common Stock will be entitled to receive dividends from funds legally
available therefor when, as and if declared by the Board of Directors of
Albertson's. The future payment of dividends by Albertson's will depend
upon several factors, including Albertson's profitability, capital
requirements, financial condition, growth, business opportunities, tax
considerations, industry standards, economic conditions, and other factors
that the Albertson's Board of Directors may deem relevant, including
restrictions in any then-existing credit agreements.
-15-
<PAGE>
RISK FACTORS
In considering whether to vote in favor of the Stock Issuance or the
Agreement and the Merger, as the case may be, the stockholders of
Albertson's and ASC should consider, in conjunction with the other
information included in this Proxy Statement/Prospectus, the following
matters.
FIXED EXCHANGE RATIO DESPITE CHANGE IN RELATIVE STOCK PRICE
The Exchange Ratio is a fixed ratio and will not be adjusted in the
event of any increase or decrease in the price of either Albertson's Common
Stock or ASC Common Stock. The price of Albertson's Common Stock at the
Effective Time may be higher or lower than its price at the date the
parties executed the Agreement, the date of this Proxy Statement/Prospectus
or the date of the ASC Special Meeting and the Albertson's Special Meeting.
Such variations may be the result of changes in the business, operations or
prospects of Albertson's or ASC, market assessments of the likelihood that
the Merger will be consummated and the timing thereof, regulatory
considerations, general market and economic conditions or other factors.
Because the Effective Time will occur on a date later than the Albertson's
Special Meeting or the ASC Special Meeting, there can be no assurance that
the price of Albertson's Common Stock on the date of the Albertson's
Special Meeting and the ASC Special Meeting will be indicative of its price
at the Effective Time. The Effective Time will occur as soon as practicable
following the Albertson's Special Meeting and the ASC Special Meeting and
the satisfaction or waiver (where permissible) of the other conditions set
forth in the Agreement. It is expected that the Merger will be consummated
in early 1999 although there can be no assurance as to when, or if, all the
conditions to consummation of the Merger will be satisfied or waived.
Stockholders of Albertson's and ASC are urged to obtain current market
quotations for Albertson's Common Stock and ASC Common Stock. See "THE
AGREEMENT--Conditions."
UNCERTAINTIES IN INTEGRATING ASC
In determining that the Merger is in the best interests of Albertson's
or ASC, as the case may be, each of the Albertson's Board of Directors and
the ASC Board of Directors considered the potential complementary effects
of combining the respective companies' assets, personnel and operational
expertise. The integration of businesses, however, involves a number of
special risks, including the diversion of management's attention to the
assimilation of the operations from other business concerns, difficulties
in the integration of operations and systems, the assimilation and
retention of employees, challenges in retaining customers and potential
adverse short-term effects on operating results. There can be no assurance
that unforeseen difficulties or expenses will not occur in connection with
Albertson's integration of ASC's operations following the Merger or that
anticipated synergies from the Merger will be realized. If such
difficulties or expenses are encountered or if such synergies are not
realized, a material adverse effect on Albertson's revenues and results of
operations could result.
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
An element of Albertson's growth strategy is the pursuit of strategic
acquisitions that either expand or complement its business, and Albertson's
routinely reviews such potential acquisition opportunities. Acquisitions
involve a number of special risks, including the risks pertaining to
integration of the business acquired that are noted above under
"-- Uncertainties in Integrating ASC." In addition, Albertson's may incur
debt to finance future acquisitions, and Albertson's may issue securities
in connection with future acquisitions which may have a dilutive effect on
its stockholders. The inability of Albertson's to successfully complete and
integrate strategic acquisitions in a timely manner could have a material
adverse effect on Albertson's revenues, results of operations and growth
strategy.
INCREASED LEVERAGE
Upon consummation of the Merger, Albertson's will have consolidated
indebtedness that will be substantially greater than its pre-Merger
indebtedness. The increased indebtedness and higher debt-to-equity ratio of
Albertson's in comparison to that of Albertson's on a historical basis may
have the effect, among other things, of reducing the flexibility of
Albertson's to respond to changing business and economic conditions and
increasing borrowing costs. On a pro forma basis giving effect to the
Merger, Albertson's ratio of earnings to fixed charges would have been
approximately 3.8 for the fiscal year ended January 29, 1998, and
approximately 3.1 for the 26 weeks ended July 30, 1998, as compared to
approximately 7.0 and 5.9, respectively, for the same periods on a
historical basis.
-16-
<PAGE>
REGULATORY MATTERS
Albertson's and ASC have each agreed (except as set forth below) to
take any and all steps necessary to avoid or eliminate each and every
impediment under any antitrust, competition or trade regulation law that
may be asserted by any governmental entity with respect to the Merger so as
to enable the Merger to occur as soon as reasonably possible (and in any
event no later than June 30, 1999), including, without limitation,
proposing, negotiating, committing to and effecting, by consent decree,
hold separate order, or otherwise, the sale, divestiture or disposition of
such assets or businesses of Albertson's or ASC (or any of their respective
subsidiaries), or otherwise take or commit to take any actions that limit
its freedom of action with respect to, or its ability to retain, any of the
businesses, product lines or assets of Albertson's, ASC or their respective
subsidiaries, as may be required in order to avoid the entry of, or to
effect the dissolution of, any injunction, temporary restraining order, or
other order in any suit or proceeding, which would otherwise have the
effect of preventing or delaying the closing of the Merger. The Agreement
does not require Albertson's to agree to the sale, transfer, divestiture or
other disposition of stores of Albertson's, ASC or any of their
subsidiaries having aggregate gross annual sales for the fiscal year ended
in January 1998 in excess of 6% of the combined gross annual sales of ASC,
Albertson's and their respective subsidiaries taken as a whole for such
period. There can be no assurance that one or more governmental entities
will not require such actions. Under the Agreement, Albertson's has
reserved the right in its sole discretion to agree to divestitures in
excess of the 6% limitation described above if it determines that it is in
its best interest to do so in order to consummate the Merger. Clearance
under applicable antitrust laws may occur after the ASC Special Meeting and
the Albertson's Special Meeting. Any commitments required to obtain such
clearance may result in a combined company with fewer assets and lower
revenues and net income than would be the case if such divestitures were
not effected. See "THE MERGER - Regulatory Matters."
COMPUTER TECHNOLOGIES; YEAR 2000
Both Albertson's and ASC utilize computer technologies essential to
their operations that use two digits rather than four digits to specify the
year which could result in a date recognition problem with the transition
to the year 2000. Each of the companies has conducted an assessment of its
computer systems to identify and address all changes necessary to make its
systems Year 2000 compliant. Each of the companies believes that with
modifications to or replacements of existing systems, Year 2000 issues will
not pose significant operational problems in meeting internal needs or the
needs of customers. Albertson's and ASC both believe that their efforts
will result in Year 2000 compliance. Amounts expensed by each company for
Year 2000 projects have not been, and neither company anticipates that such
costs will be, significant to either company's results of operations.
However, the impact on business operations of failure by Albertson's and
ASC to achieve compliance or any such failure by external entities (such as
vendors) which Albertson's and ASC cannot control, could be material to the
combined company's results of operations.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Restated Certificate of Incorporation of
Albertson's (the "Albertson's Certificate") and the Bylaws of Albertson's
(the "Albertson's Bylaws") may make an unsolicited acquisition of control
of Albertson's more difficult or expensive. Furthermore, Albertson's has
adopted a stockholder rights plan which may also make an unsolicited
acquisition of Albertson's more difficult or expensive. See "COMPARATIVE
RIGHTS OF STOCKHOLDERS" and "DESCRIPTION OF ALBERTSON'S CAPITAL
STOCK--Preferred Stock Purchase Rights."
DEPENDENCE ON KEY PERSONNEL
Albertson's is dependent upon the continued services and management
experience of Gary G. Michael and Albertson's other executive officers. If
Mr. Michael or any of such other executive officers were to leave
Albertson's, Albertson's operating results could be adversely affected. In
addition, Albertson's growth depends on its ability to attract and retain
skilled employees and on the ability of its officers and key employees to
manage growth. See "THE MERGER--Interests of Certain Persons in the Merger"
and "MANAGEMENT AND OPERATIONS AFTER THE MERGER."
-17-
<PAGE>
THE MEETINGS
MATTERS TO BE CONSIDERED AT THE MEETINGS
Albertson's. At the Albertson's Special Meeting, holders of
Albertson's Common Stock will consider and vote upon proposals to approve
the Stock Issuance and the Albertson's Plan Amendments.
THE ALBERTSON'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE STOCK
ISSUANCE AND THE ALBERTSON'S PLAN AMENDMENTS AND UNANIMOUSLY RECOMMENDS
THAT THE STOCKHOLDERS OF ALBERTSON'S VOTE FOR THE STOCK ISSUANCE AND THE
ALBERTSON'S PLAN AMENDMENTS. CONSUMMATION OF THE MERGER IS NOT CONDITIONED
UPON STOCKHOLDER APPROVAL OF THE ALBERTSON'S PLAN AMENDMENTS; ALTHOUGH THE
ALBERTSON'S PLAN AMENDMENTS WILL NOT BECOME EFFECTIVE UNLESS THE MERGER IS
CONSUMMATED.
ASC. At the ASC Special Meeting, holders of ASC Common Stock will
consider and vote upon a proposal to approve and adopt the Agreement and
approve the Merger.
THE ASC BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AGREEMENT AND
THE MERGER AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF ASC VOTE FOR
APPROVAL AND ADOPTION OF THE AGREEMENT AND APPROVAL OF THE MERGER.
VOTES REQUIRED
Albertson's. The affirmative vote of a majority of the votes cast at
the Albertson's Special Meeting is required to approve the Stock Issuance
and Albertson's Plan Amendments (provided that a majority of the total
shares of Albertson's Common Stock are present in person or by proxy and
are voted with respect to each proposal). Each share of Albertson's Common
Stock is entitled to one vote on each proposal.
At the Albertson's Record Date, Albertson's directors and executive
officers and their affiliates may be deemed to beneficially own [9,217,593]
shares of Albertson's Common Stock (excluding shares which may be acquired
upon exercise of options) or approximately [3.75%] of the then outstanding
shares of Albertson's Common Stock. Each of the directors and executive
officers of Albertson's has indicated that he or she intends to vote for
the Stock Issuance and the Albertson's Plan Amendments.
ASC. The affirmative vote of the holders of a majority of the
outstanding shares of ASC Common Stock is required to approve and adopt the
Agreement and approve the Merger. Each share of ASC Common Stock is
entitled to one vote.
At the ASC Record Date, ASC's directors and executive officers and
their affiliates may be deemed to beneficially own [3,913,690] shares of
ASC Common Stock (excluding shares which may be acquired upon exercise of
options) or approximately [1.4%] of the then outstanding shares of ASC
Common Stock. Each of the directors and executive officers of ASC has
indicated that he or she intends to vote for approval and adoption of the
Agreement and approval of the Merger.
VOTING OF PROXIES
Shares of Albertson's Common Stock or ASC Common Stock, as the case
may be, represented by properly executed proxies received at or prior to
the Albertson's Special Meeting and ASC Special Meeting, as the case may
be, will be voted at the appropriate meeting in the manner specified by the
holders of such shares. Properly executed proxies that do not contain
voting instructions will be voted for approval of the Stock Issuance and
the Albertson's Plan Amendments (in the case of proxies for Albertson's
Common Stock) or for approval and adoption of the Agreement and approval of
the Merger (in the case of proxies for ASC Common Stock). For participants
in American Stores Retirement Estates ("ASRE"), the participant's
proportionate interest in the shares of ASC Common Stock held under such
plan will be voted by the Trustee of ASRE in accordance with the
instructions provided by such participant to the Trustee or, if no
instructions are provided, in the same proportion as the interests for
which such Trustee has received voting instructions with respect to other
participants' ASC Common Stock accounts held under such plan.
A properly executed proxy marked "ABSTAIN," although counted for
purposes of determining whether there is a quorum and for purposes of
determining the aggregate voting power and number of shares represented and
entitled to vote at the Albertson's Special Meeting or the ASC Special
Meeting, will not be voted. Accordingly, since the affirmative vote of the
holders of a majority of the votes cast at the Albertson's Special Meeting
(provided
-18-
<PAGE>
that a majority of the total shares of Albertson's Common Stock are present
in person or by proxy and are voted with respect to each proposal) is
required to approve the Stock Issuance and the Albertson's Plan Amendments
at the Albertson's Special Meeting, a proxy marked "ABSTAIN" will have the
effect of a vote against the Stock Issuance or the Albertson's Plan
Amendments. Similarly, since the affirmative vote of a majority of the
votes entitled to be cast by all holders of ASC Common Stock is required
for approval and adoption of the Agreement and approval of the Merger by
the ASC stockholders, a proxy marked "ABSTAIN" will have the effect of a
vote against the approval of the Agreement and the Merger.
In accordance with NYSE rules, brokers and nominees who hold shares of
stock in their names but are not the beneficial owners of such shares are
precluded from exercising their voting discretion with respect to such
shares. Thus, brokers and nominees are not empowered to vote shares of
Albertson's Common Stock or ASC Common Stock held by them, absent specific
instructions from the beneficial owners of such shares. Because shares
represented by "brokers non-votes" will be counted for purposes of
determining the existence of a quorum at a stockholders' meeting but will
not be included in vote totals, they will have no effect on the outcome of
the votes on the Stock Issuance and the Albertson's Plan Amendments at the
Albertson's Special Meeting but will have the effect of a vote against the
Agreement and the Merger at the ASC Special Meeting.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed Albertson's or ASC form of proxy
does not preclude a stockholder from voting in person or otherwise revoking
a proxy. Attendance at the relevant meeting will not in and of itself
constitute revocation of a proxy. A stockholder may revoke a proxy at any
time prior to its exercise by delivering a duly executed revocation or a
proxy bearing a later date to Kaye L. O'Riordan, Vice President and
Corporate Secretary of Albertson's, 250 Parkcenter Boulevard, P.O. Box 20,
Boise, Idaho 83726 (in the case of an Albertson's stockholder) or Mary V.
Sloan, Vice President and Corporate Secretary of ASC, 299 South Main
Street, Salt Lake City, Utah 84111 (in the case of an ASC stockholder). In
addition, a proxy will be considered revoked if the stockholder votes such
shares in person at the appropriate meeting.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Albertson's. Only holders of record of Albertson's Common Stock at the
close of business on the Albertson's Record Date will be entitled to
receive notice of and to vote at the Albertson's Special Meeting. As of the
Albertson's Record Date, there were [ ] shares of Albertson's Common Stock
outstanding. A majority of the outstanding shares of Albertson's Common
Stock entitled to vote, present in person or represented by proxy, will
constitute a quorum for the transaction of business at the Albertson's
Special Meeting.
ASC. Only holders of record of ASC's Common Stock at the close of
business on the ASC Record Date will be entitled to receive notice of and
to vote at the ASC Special Meeting. As of the ASC Record Date, there were
[ ] shares of ASC Common Stock outstanding. A majority of the
outstanding shares of ASC Common Stock entitled to vote, present in person
or represented by proxy, will constitute a quorum for the transaction of
business at the ASC Special Meeting.
SOLICITATION OF PROXIES
Each of Albertson's and ASC will bear the cost of the solicitation of
proxies from its own stockholders, except that Albertson's and ASC will
share equally the cost of printing and mailing this Proxy
Statement/Prospectus. In addition to solicitation by mail, the directors,
officers and employees of each company and their respective subsidiaries
may solicit proxies from stockholders of such company by telephone or
telegram or in person. Such persons will not receive additional
compensation, but will be reimbursed for reasonable out-of-pocket expenses
incurred in connection with such solicitation. Arrangements will also be
made with brokerage firms, nominees, fiduciaries and other custodians for
the forwarding of solicitation materials to the beneficial owners of shares
held of record by such persons, and Albertson's and ASC will reimburse such
persons for their reasonable out-of-pocket expenses in connection
therewith. Georgeson & Company Inc. will assist in the solicitation of
proxies by Albertson's for a fee of $25,000 plus reimbursement of
reasonable out-of-pocket expenses. D.F. King & Co., Inc. will assist in the
solicitation of proxies by ASC for a fee of $12,500 plus reimbursement of
reasonable out-of-pocket expenses. In each case, the proxy solicitor will
be indemnified against certain liabilities and expenses, including
liabilities and expenses under the federal securities laws.
-19-
<PAGE>
THE COMPANIES
ALBERTSON'S
General. Albertson's is incorporated under the laws of the State of
Delaware and is the successor to a business founded by J.A. Albertson in
1939. Albertson's is one of the largest retail food-drug chains in the
United States. As of July 30, 1998, Albertson's operated 916 stores in 23
western, midwestern and southern states. These stores consisted of 811
combination food-drug stores, 71 conventional supermarkets and 34 warehouse
stores. Retail operations are supported by 11 company-owned distribution
centers. Albertson's principal executive offices are located at 250
Parkcenter Boulevard, Boise, Idaho 83706, and its telephone number is (208)
395-6200.
Albertson's combination food-drug stores are super grocery/super
drugstores under one roof and range in size from 35,000 to 82,000 square
feet. Most of these stores offer prescription drugs and an expanded section
of cosmetics and nonfoods in addition to specialty departments such as
service seafood and meat, bakery, lobby/video, service delicatessen, liquor
and floral. Some also offer meal centers, party pavilions, coffee bars and
destination departments for beverages, snacks, pet care, paper products and
baby care. Food and nonfood shopping areas are served by a common set of
checkstands.
Albertson's conventional supermarkets range in size from 15,000 to
35,000 square feet. These stores offer a full selection in the basic
departments of grocery, meat, produce, dairy and limited non-food lines.
Many locations have an in-store bakery and a service delicatessen.
Albertson's warehouse stores are operated primarily under the name
"Max Food and Drug." These no-frills stores range in size from 17,000 to
73,000 square feet and offer significant savings with special emphasis on
discounted meat and produce.
In fiscal 1997, Albertson's opened its first fuel center. Albertson's
plans to continue to add fuel centers in the parking lots of existing
stores. These centers feature three to six fuel pumps and a small building,
ranging in size from a pay-only kiosk to a small convenience store
featuring such items as candy, soft drinks and snack foods.
ASC
General. ASC traces its roots to 1939 with the purchase of four drug
stores in Utah, Idaho and Montana and was incorporated in Delaware in 1965
under the name of Skaggs Drug Centers, Inc. ASC grew initially through the
acquisition of additional drug stores and through a partnership, from 1969
until 1977, with Albertson's that developed food and drug combination
stores. In 1979, in order to enhance its food retailing capabilities, ASC
acquired American Stores Company, including Acme Markets, and adopted the
American Stores Company name. In 1984 Jewel Companies, Inc. was acquired by
ASC, adding Jewel Food Stores and the Osco and Sav-on drug stores. In 1988
ASC acquired Lucky Stores, Inc., which currently operates stores in
California, Nevada, New Mexico and Utah. ASC's principal executive offices
are located at 299 South Main Street, Salt Lake City, Utah 84111, and its
telephone number is (801) 539-0112.
ASC is principally engaged in a single industry sector, the retail
sale of food and drug merchandise. ASC's stores operate principally under
the names of Acme Markets, Jewel Food Stores, Lucky Stores, Osco Drug and
Sav-on.
ASC is one of the nation's leading food and drug retailers, operating
supermarkets, stand-alone drug stores and combination food/drug store
units. As of August 1, 1998, ASC operated 1,558 stores in 26 states,
including 269 food and drug combination stores, 535 supermarkets and 754
stand-alone drug stores.
-20-
<PAGE>
THE MERGER
GENERAL
The Agreement provides for a business combination between Albertson's
and ASC in which Merger Sub, a wholly owned subsidiary of Albertson's,
would be merged with and into ASC, with ASC becoming a wholly owned
subsidiary of Albertson's. Each share of ASC Common Stock would be
converted into the right to receive 0.63 shares of Albertson's Common
Stock, with cash paid in lieu of any fractional shares. The transaction is
intended to qualify as a pooling of interests for accounting purposes and
as a tax-free reorganization for U.S. federal income tax purposes. On July
31, 1998, the last trading day prior to the public announcement of the
execution of the Agreement, the closing prices of Albertson's Common Stock
and ASC Common Stock on the NYSE Composite Tape were $48.00 and $23.19,
respectively. Based upon such closing prices and the Exchange Ratio, the
Consideration had a value of $30.24 which represented a 30.4% premium over
the pre-announcement closing price of ASC Common Stock. On [ ], 1998, the
last trading day prior to the date of this Proxy Statement/Prospectus,
based upon the closing price of Albertson's Common Stock on the NYSE
Composite Tape of $[ ] and the Exchange Ratio, the Consideration had a
value of $[ ]. At the Effective Time, the Consideration may have a market
value that is greater or lesser than these amounts depending on the market
price of Albertson's Common Stock at that time. As a result of the Merger,
former stockholders of ASC will hold approximately [41.3]% of the
outstanding Albertson's Common Stock ((based upon the number of shares of
Albertson's Common Stock and ASC Common Stock outstanding on the
Albertson's Record Date and the ASC Record Date, respectively).
The discussion in this Proxy Statement/Prospectus of the Merger and
the description of the principal terms and conditions of the Agreement and
the Merger are subject to and qualified in their entirety by reference to
the Agreement, a copy of which is attached to this Proxy
Statement/Prospectus as Appendix A and which is incorporated herein by
reference. See "THE MERGER" and "THE AGREEMENT."
BACKGROUND OF THE MERGER
Retail supermarket chains and retail drug store chains have undergone
increasing consolidation over the last several years. A number of
competitive factors have contributed to this trend. These include benefits
achieved through buying and distribution efficiencies, the advantages of
geographic diversity, as well as the intense and increasing pressures from
new market entrants, such as membership clubs and mass merchandisers. Drug
retailers are also under increasing pressure from third-party payors to
lower costs.
In an effort to serve the consumer more competitively and efficiently,
Albertson's has sought ways to grow and, in addition to continuing to build
stores, has made several recent acquisitions, including Smitty's Super
Markets, Inc. and Seessel's Holdings, Inc. and 15 stores from Bruno's,
Inc., as well as the pending acquisition of Buttrey Food and Drug Stores
Company.
In light of the increasing consolidation of retail supermarket chains
and retail drug store chains over the last several years, ASC has from time
to time explored the possibility of a strategic business combination in
connection with its ongoing evaluation of strategic alternatives. ASC has
held preliminary discussions with several parties concerning such matters.
The ASC Board of Directors was periodically updated regarding these
discussions. In April 1998, ASC retained Blackstone to advise ASC in its
ongoing evaluation of its strategic alternatives.
In early June 1998, the Chief Executive Officer of a large retail
company contacted Gary G. Michael, Chairman of the Board and Chief
Executive Officer of Albertson's, regarding a potential three-way business
combination transaction among Albertson's, ASC and such third party.
Subsequently, Mr. Michael contacted Victor L. Lund, ASC's Chairman and
Chief Executive Officer, to explore ASC's interest in the possibility of
such a transaction, which was proposed to be structured on a basis that did
not involve any premium to market. The senior managements and advisors of
the three companies engaged in discussions over the next several weeks
regarding such a possible business combination transaction and shared
certain business and financial information. The Boards of Directors of
Albertson's and ASC were periodically updated regarding these discussions,
which were abandoned.
Shortly thereafter, Mr. Michael contacted Mr. Lund to indicate
Albertson's interest in exploring a possible business combination
transaction solely between Albertson's and ASC and Mr. Lund agreed to
explore such a transaction.
-21-
<PAGE>
At a meeting on July 13, 1998, Albertson's management discussed with
the Albertson's Board of Directors, following discussions with Merrill
Lynch, a proposal by Albertson's management to pursue a possible
stock-for-stock merger with ASC. Over the course of the next three weeks,
the senior managements of Albertson's and ASC and their respective
financial advisors met on several occasions to discuss the financial and
other terms of a possible transaction, to quantify the level of cost
savings and other benefits that might be achievable through a merger of the
two companies, and to perform financial and legal due diligence
investigations. During the initial discussions between the parties,
Albertson's indicated an exchange ratio of 0.60. Following further
discussions and negotiations, Albertson's indicated that it was prepared to
enter into a transaction at an exchange ratio of 0.62.
The Board of Directors of Albertson's met on July 28, 1998. At the
meeting, senior management of Albertson's and Merrill Lynch reviewed with
the Albertson's Board of Directors a potential transaction with ASC which
contemplated a tax-free, stock-for-stock merger at a fixed exchange ratio
of 0.62 shares of Albertson's Common Stock for each outstanding share of
ASC Common Stock, conditioned, among other things, upon the granting of an
option by ASC to Albertson's for the purchase under certain circumstances
of up to 19.9% of the outstanding shares of ASC Common Stock and certain
termination fees. Among other things, the Albertson's Board of Directors
discussed with Albertson's senior management and Albertson's advisors the
status of the consolidating retail supermarket chains and retail drug store
chains, the potential synergies of the transaction, financial aspects of
the transaction, regulatory matters and the eligibility of the proposed
transaction for pooling of interests accounting treatment. The Board of
Directors of Albertson's unanimously authorized the management of
Albertson's to proceed with the negotiation of definitive transaction
documents with ASC subject to further Board approval.
On July 28, 1998, the Board of Directors of ASC met to discuss the
possibility of a business combination with Albertson's. At the meeting,
senior management and representatives of ASC's legal and financial advisors
reviewed with the ASC Board of Directors the history of past and recent
contacts and discussions between ASC and third parties, including
Albertson's, regarding a possible business combination with ASC, and a
preliminary financial analysis of a potential business combination with
Albertson's, including the potential synergies of the transaction. Mr. Lund
described preliminary discussions regarding his role in the combined
company that he had had with Mr. Michael. After considering these
presentations, the ASC Board of Directors authorized management to pursue
negotiations with Albertson's and authorized two independent directors to
oversee such negotiations and to provide direction and guidance to
management and ASC's advisors during the course of such negotiations.
On July 28, 1998, Mr. Michael and Mr. Lund met to review the potential
synergies and overall business rationale for a combination of Albertson's
and ASC.
Over the next several days, representatives of ASC's and Albertson's
senior managements and their legal advisors met in person and by telephone
to negotiate the terms of the merger agreement and related agreements.
During the negotiations, Albertson's advised that it was unwilling to
proceed with the transaction without provisions regarding termination fees
and restrictions on the ability of ASC to solicit and engage in discussions
with third parties regarding competing transactions to the Merger (unless
required to do so in furtherance of the fiduciary duties of the ASC Board
of Directors) and that Albertson's was also unwilling to enter into a
transaction without the ASC Stock Option Agreement; however, Albertson's
advised ASC that it would be prepared to enter into a transaction with
reciprocal termination fees and restrictions on the ability to solicit and
discuss competing transactions and with a reciprocal stock option agreement
under which ASC would have the right, under certain circumstances, to
purchase up to 19.9% of the outstanding shares of Albertson's Common Stock.
Over the course of the negotiations, ASC's management and advisors
conferred on two occasions with the two independent ASC directors who had
been authorized to oversee the negotiations, and received direction on
certain terms of the proposed transaction.
On August 1, 1998, Blackstone informed Merrill Lynch that ASC had been
contacted by a third party with respect to a possible stock-for-stock
business combination with such third party at a value per share of ASC
Common Stock higher than the implied value, based on prevailing market
prices, represented by the exchange ratio of 0.62, and requested that
Albertson's consider increasing the exchange ratio and eliminating certain
of the impediments to a third party engaging in a transaction with ASC.
The Albertson's Board of Directors met on the morning of August 2,
1998. Albertson's senior management and legal counsel made presentations as
to the status of the negotiation of the Agreement and the Stock Option
Agreements. The Albertson's Board of Directors reviewed the status of the
consolidating retail supermarket chains and retail drug store chains, the
potential synergies of the transaction,
-22-
<PAGE>
financial aspects of the transaction, regulatory matters and the
eligibility of the proposed transaction for pooling of interests accounting
treatment. See "Reasons for the Merger - Recommendations of the Boards of
Directors - Albertson's." Senior management of Albertson's recommended to
the Albertson's Board of Directors that, in view of ASC's request, the
proposed exchange ratio be increased from 0.62 to 0.63. In addition,
Merrill Lynch made a presentation to the Albertson's Board of Directors
regarding the proposed transaction and Merrill Lynch's related valuation
analyses and rendered its oral opinion (which was subsequently confirmed in
writing) that, as of August 2, 1998 and subject to the matters reviewed
with the Albertson's Board of Directors, the exchange ratio of 0.63 was
fair from a financial point of view to Albertson's. See "- Opinions of
Financial Advisors - Albertson's." Legal counsel summarized the terms of
the then current drafts of the Agreement and the Stock Option Agreements.
The Albertson's Board of Directors unanimously approved the Agreement and
the Stock Option Agreements, including an exchange ratio of 0.63, and the
transactions contemplated thereby and authorized certain officers of
Albertson's to approve any final changes or additions to the documentation.
Following the meeting, representatives of Albertson's contacted ASC's
advisors and reported the determinations of the Albertson's Board of
Directors and confirmed that Albertson's was unwilling to proceed without
the ASC Stock Option Agreement and the provisions relating to termination
fees and restrictions on ASC's ability to solicit and engage in discussions
with third parties regarding competing transactions (unless required to do
so in furtherance of the fiduciary duties of the ASC Board of Directors).
The Board of Directors of ASC met on the evening of August 2, 1998 to
consider the proposed transaction. Representatives of ASC's senior
management and financial advisors reviewed with the ASC Board of Directors
the history of contacts with third parties regarding a potential business
combination with ASC and updated the ASC Board of Directors on the contacts
and discussions since the last ASC Board of Directors meeting.
Representatives of ASC's senior management and legal and financial advisors
also made presentations and reviewed, among other things, the matters set
forth under "Reasons for the Merger - Recommendations of the Boards of
Directors - ASC," including the terms of the proposed Agreement and the
Stock Option Agreements. Representatives of ASC's independent accountants
reviewed with the ASC Board of Directors the principles and rules
applicable to a transaction accounted for as a pooling-of-interests.
Blackstone made a presentation including, among other things, a financial
analysis of the proposed Merger at the exchange ratio of 0.63 and rendered
its written opinion to the ASC Board of Directors to the effect that, as of
August 2, 1998, the Exchange Ratio is fair to the holders of ASC Common
Stock from a financial point of view. See "- Opinions of Financial Advisors
- - ASC." ASC's senior management and its legal advisors reviewed certain
regulatory issues with the ASC Board. The ASC Board of Directors considered
the indications of interest that the Company had in the past received from
third parties at higher immediate implied transaction prices (based on
current stock prices) than the proposed merger with Albertson's and the
timing, regulatory and other risks associated with each potential
transaction. The ASC Board of Directors determined that the benefits of the
proposed merger with Albertson's, including the potential for long-term
stockholder value and the anticipated timing of the transaction, outweighed
the advisability of seeking an alternative transaction, the terms, timing
and consummation of which were not assured. After further discussion and
consideration, the Board of Directors of ASC unanimously determined that
the Merger is advisable, fair to and in the best interests of ASC and its
stockholders and approved the Agreement and the Stock Option Agreements and
the transactions contemplated thereby, including the Merger.
Following the ASC Board of Directors meeting, Albertson's and ASC
executed and delivered the Agreement and the Stock Option Agreements and
publicly announced the execution of the Agreement prior to the opening of
the NYSE the following morning.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Albertson's. The Albertson's Board of Directors believes that the
terms of the Agreement are fair to and in the best interests of
Albertson's. Accordingly, Albertson's Board of Directors has unanimously
approved the Agreement and the Merger and recommends approval of the Stock
Issuance by the stockholders of Albertson's. In reaching its determination,
the Albertson's Board of Directors consulted with Albertson's management,
as well as its financial and legal advisors, and considered the following
material factors:
(i) information concerning the business, earnings, operations,
financial condition and prospects of Albertson's and ASC,
both individually and on a combined basis, including, but
not limited to, information with respect to the historic
earnings performance of each of Albertson's and ASC;
(ii) the recent and historical trading prices of ASC Common Stock
and Albertson's Common Stock relative to those of other
industry participants, and the potential for appreciation in
the value of
-23-
<PAGE>
Albertson's Common Stock following the Merger resulting from
opportunities for enhanced revenue growth and accelerated
earnings growth of the combined company;
(iii) the Merger provides Albertson's the opportunity to combine
with a company which operates over 1,500 stores in the
retail food and drug store industry;
(iv) the addition of ASC stores provides Albertson's with stores
in new markets, enables Albertson's to enter the stand-alone
retail drug store business, and strengthens Albertson's
presence in certain existing markets;
(v) the opportunities for economies of scale and operating
efficiencies and opportunities for profitability growth that
should result from the Merger, particularly from the
integration of office facilities, information systems,
distribution channels, support functions and the combined
purchasing power of the two companies;
(vi) the Merger is expected to be accretive to earnings in 1999,
excluding Merger related costs;
(vii) the presentation made by Merrill Lynch at the August 2, 1998
meeting of the Albertson's Board of Directors, and the oral
opinion of Merrill Lynch (which was subsequently confirmed
in writing) that as of such date and based upon and subject
to the matters reviewed with the Albertson's Board of
Directors, the Exchange Ratio was fair from a financial
point of view to Albertson's (see "--Opinions of Financial
Advisors--Albertson's);
(viii) the terms of the Agreement, including the conditions that
the Merger be accounted for as a pooling of interests and
that the Merger will be a tax-free reorganization for
federal income tax purposes;
(ix) the Albertson's Stock Option Agreement and the proposed
termination fee to be exercisable or payable under certain
circumstances, including the effect that the Albertson's
Stock Option Agreement and the termination fee may have on
the ability of other parties to make competing business
combination proposals with respect to Albertson's;
(x) the ASC Stock Option Agreement and the proposed termination
fee to be exercisable or payable under certain
circumstances, including the effect that the ASC Stock
Option Agreement and the termination fee may have on the
ability of other parties to make competing business
combination proposals with respect to ASC;
(xi) the expertise and experience of ASC's management in the
retail food and drug store industry available to Albertson's
as a resource in conducting the integration and ongoing
operations of the two organizations;
(xii) the long-term interests of Albertson's and its stockholders,
as well as interests of Albertson's employees, customers,
creditors, suppliers and the communities in which
Albertson's operates;
(xiii) the fact that Albertson's stockholders will continue to own
approximately 59% of the combined company immediately
following the Merger (based upon the shares of Albertson's
Common Stock and ASC Common Stock outstanding as of August
2, 1998);
(xiv) the interests of certain directors and executive officers of
Albertson's and ASC in the Merger described in "THE
MERGER--Interests of Certain Persons in the Merger"; and
(xv) the ability to consummate the Merger, including, in
particular, the likelihood of obtaining regulatory approvals
and the terms of the Agreement regarding the obligations of
both companies to pursue such regulatory approvals.
In view of the wide variety of factors considered in connection with
its evaluation of the Merger, the Albertson's Board of Directors did not
find it practicable to, and did not, quantify or otherwise attempt to
assign relative weights to the specific factors considered in reaching its
determination. The determination was made after consideration of all of the
factors as a whole. In addition, individual members of the Albertson's
Board of Directors may have given different weights to different factors.
THE BOARD OF DIRECTORS OF ALBERTSON'S UNANIMOUSLY RECOMMENDS THAT
ALBERTSON'S STOCKHOLDERS VOTE TO APPROVE THE STOCK ISSUANCE.
-24-
<PAGE>
ASC. The ASC Board of Directors has unanimously determined that the
Merger is advisable, fair to and in the best interests of ASC and its
stockholders and has approved the Agreement and the transactions
contemplated thereby, including the Merger. In particular, the ASC Board of
Directors believes that the Merger provides the ASC stockholders with an
opportunity to receive a substantial premium for their shares of ASC Common
Stock (based on prevailing market prices at the time of the action by the
ASC Board of Directors approving the Agreement), and values that are in
excess of what a stand-alone strategy could reasonably be expected to
produce in the near term. In addition, the ASC Board of Directors believes
that the Merger provides ASC stockholders an opportunity to participate, as
holders of Albertson's Common Stock, in a company with strong prospects for
enhanced stockholder value in the future through enhanced revenue growth
and accelerated earnings growth.
In addition to the foregoing, in reaching its decision to approve the
Agreement and to recommend that ASC stockholders vote to approve and adopt
the Agreement and approve the Merger, the ASC Board considered the
following material factors:
(i) current industry, economic and market conditions and trends,
including that the retail drug store business has recently
undergone rapid consolidation and the likelihood of
continuing consolidation in the retail food and drug
industry arising in part from pressures from new market
entrants with lower cost structures;
(ii) the current and historical trading prices of ASC Common
Stock and Albertson's Common Stock relative to those of
other industry participants, and the potential for
appreciation in the value of Albertson's Common Stock
following the Merger resulting from opportunities for
enhanced revenue growth and accelerated earnings growth of
the combined company, and the ability for ASC stockholders
to participate in any such appreciation through the
ownership of approximately 41% of the shares of Albertson's
Common Stock (based upon the number of shares of Albertson's
Common Stock and ASC Common Stock outstanding as of August
2, 1998);
(iii) following the Merger, Albertson's will be the largest retail
food and drug store company in the United States and a
substantially larger enterprise than either Albertson's or
ASC on a stand-alone basis. As the retail food and drug
industry undergoes continued consolidation, faces competing
alternative formats on a national scale and, thus comes
under increasing pressure to enhance value to customers
through cost effective operations, the ASC Board believes
that scale will be one important contributor to overall
business success, including in the areas of enhanced
purchasing ability and greater volumes and efficiencies in
the combined company's existing markets;
(iv) the potential stockholder value that could be expected to be
generated from the various strategic alternatives available
to ASC, including the alternative of remaining independent,
as well as the results of the contacts and preliminary
discussions held by ASC's senior management from time to
time with third parties regarding possible business
combination transactions, as well as the risks and
uncertainties associated with such alternatives;
(v) the ASC Board of Directors' expectation of Albertson's
financial performance following the Merger, taking into
account, among other things:
() the business, operations, financial condition,
operating results and prospects of ASC and Albertson's,
() the potential for cost savings and other synergies that
could be created by combining the respective businesses
of ASC and Albertson's, and the potential initial costs
that could be incurred by Albertson's to achieve such
cost savings,
() Albertson's expected post-Merger capital structure,
including the expectation that Albertson's would have a
higher credit rating following the Merger than ASC on a
stand-alone basis, and its ability to finance future
growth opportunities;
(vi) the ability to consummate the Merger, including, in
particular, the likelihood of obtaining regulatory approvals
and the terms of the Agreement regarding the obligations of
both companies to pursue such regulatory approvals;
(vii) the reputation of Albertson's as one of the most admired and
best managed companies in the retail food and drug industry,
ASC management's belief that Albertson's and ASC have
compatible
-25-
<PAGE>
business philosophies and similar corporate cultures, and
the effect that these factors should have on the likelihood
of realizing the expected benefits of the Merger;
(viii) the presentation by Blackstone at the August 2, 1998 meeting
of the ASC Board of Directors and the written opinion of
Blackstone that, as of such date and subject to the various
considerations set forth in the opinion, the Exchange Ratio
is fair to the holders of ASC Common Stock from a financial
point of view (see "--Opinions of Financial Advisors--ASC");
(ix) the reciprocal expense reimbursement and termination fee
provisions of the Agreement requiring ASC or Albertson's, as
the case may be, to compensate the other party in certain
circumstances in the event the Agreement is terminated, the
no-shop provisions that restrict the ability of ASC or
Albertson's to engage in discussions with respect to
competing transactions and the terms of the Stock Option
Agreements providing each party the right, under
circumstances in which it is entitled to receive a
termination fee under the Agreement, to purchase up to 19.9%
of the other party's outstanding common stock, including the
fact that the value of the stock option and the termination
fee provisions taken as a whole are subject to a cap. The
ASC Board of Directors also considered the effect the
termination fee provisions, the no-shop provisions and Stock
Option Agreements may have on the ability of other parties
to make competing business combination proposals with
respect to Albertson's or ASC, and Albertson's unwillingness
to enter into the Agreement without such provisions;
(x) the other terms of the Agreement, including without
limitation, the following:
() the Exchange Ratio of 0.63 shares of Albertson's Common
Stock for each share of ASC Common Stock, and the fact
that the Agreement does not contain any provisions for
adjustment of the Exchange Ratio based on fluctuations
in the price of Albertson's Common Stock or ASC Common
Stock prior to the Merger,
() the required approval of the stockholders of ASC and
Albertson's, and
() the reciprocal representations, warranties and
covenants contained in the Agreement;
(xi) the social and economic effects on the employees, customers,
suppliers and other constituents of ASC and its subsidiaries
and on the communities in which they operate or are located;
(xii) the interests of ASC's officers and directors in the Merger
as described in "Interests of Certain Persons in the
Merger";
(xiii) its understanding that pooling of interests accounting under
GAAP should be available for the Merger; and
(xiv) the ability to consummate the Merger as a tax-free
reorganization under the Code.
The foregoing discussion sets forth the material information and
factors considered by the ASC Board of Directors in its consideration of
the Merger. In view of the variety of factors considered, the ASC Board of
Directors did not find it practicable to, and did not make specific
assessments of, quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. The
determination was made after consideration of all of the factors as a
whole. In addition, individual members of the ASC Board of Directors may
have given different weights to different factors.
THE BOARD OF DIRECTORS OF ASC UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
OF ASC VOTE FOR THE APPROVAL AND ADOPTION OF THE AGREEMENT AND THE APPROVAL
OF THE MERGER.
OPINIONS OF FINANCIAL ADVISORS
ALBERTSON'S
In July 1998, Albertson's engaged Merrill Lynch to act as its
exclusive financial advisor in connection with the Merger. At a meeting of
the Albertson's Board of Directors held on August 2, 1998, at which the
Albertson's Board of Directors considered the Merger and approved the
Agreement and the Merger, Merrill Lynch rendered its oral opinion (which
was subsequently confirmed in writing) that, as of such date and based upon
and subject to
-26-
<PAGE>
the matters reviewed with the Albertson's Board of Directors, the Exchange
Ratio was fair from a financial point of view to Albertson's.
The full text of the Merrill Lynch Opinion is attached hereto as
Appendix D and is incorporated herein by reference. The description of the
Merrill Lynch Opinion set forth herein is qualified in its entirety by
reference to the full text of the Merrill Lynch Opinion set forth in
Appendix D. Albertson's stockholders are urged to read the Merrill Lynch
Opinion in its entirety for a description of the procedures followed,
assumptions made, matters considered, and qualifications and limitations on
the review undertaken by Merrill Lynch in connection therewith.
THE MERRILL LYNCH OPINION IS DIRECTED TO THE ALBERTSON'S BOARD OF
DIRECTORS AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF
THE EXCHANGE RATIO TO ALBERTSON'S. IT DOES NOT ADDRESS THE MERITS OF THE
UNDERLYING DECISION BY ALBERTSON'S TO ENGAGE IN THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY ALBERTSON'S STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE ON THE MERGER AT ANY MEETING OF ALBERTSON'S
STOCKHOLDERS HELD FOR THE PURPOSE OF CONSIDERING THE MERGER.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other
things, (1) reviewed certain publicly available business and financial
information relating to ASC and Albertson's that Merrill Lynch deemed to be
relevant; (2) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of ASC and Albertson's, furnished to Merrill Lynch by ASC and
Albertson's, respectively, as well as the amount and timing of the cost
savings and related expenses and synergies expected to result from the
Merger (the "Expected Synergies") furnished to Merrill Lynch by Albertson's
following discussions with ASC; (3) conducted discussions with members of
senior management and representatives of ASC and Albertson's concerning the
matters described in clauses 1 and 2 above, as well as their respective
businesses and prospects before and after giving effect to the Merger and
the Expected Synergies; (4) reviewed the market prices and valuation
multiples for ASC Common Stock and Albertson's Common Stock and compared
them with those of certain publicly-traded companies that Merrill Lynch
deemed to be relevant; (5) reviewed the results of operations of ASC and
Albertson's and compared them with those of certain publicly-traded
companies that Merrill Lynch deemed to be relevant; (6) compared the
proposed financial terms of the Merger with the financial terms of certain
other transactions that Merrill Lynch deemed to be relevant; (7)
participated in certain discussions and negotiations among representatives
of ASC and Albertson's and their financial and legal advisors; (8) reviewed
the potential pro forma impact of the Merger; (9) reviewed a draft dated
July 31, 1998 of the Agreement; (10) reviewed drafts dated July 31, 1998 of
the Albertson's Stock Option Agreement and the ASC Stock Option Agreement;
and (11) reviewed such other financial studies and analyses and took into
account such other matters as Merrill Lynch deemed necessary, including
Merrill Lynch's assessment of general economic, market and monetary
conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and
relied upon the accuracy and completeness of all information supplied or
otherwise made available to it, discussed with or reviewed by or for it by
ASC or Albertson's, or publicly available, and Merrill Lynch did not assume
any responsibility for independently verifying such information or
undertake an independent evaluation or appraisal of any of the assets or
liabilities of ASC or Albertson's nor was it furnished any such evaluation
or appraisal. In addition, Merrill Lynch did not assume any obligation to
conduct any physical inspection of the properties or facilities of ASC or
Albertson's. With respect to the financial forecasts furnished to or
discussed with Merrill Lynch by ASC or Albertson's and the information
regarding the Expected Synergies furnished to and discussed with Merrill
Lynch by Albertson's, Merrill Lynch assumed that they had been reasonably
prepared and reflected the best currently available estimates and judgment
of the management of ASC or Albertson's, as the case may be, as to the
expected future performance of ASC or Albertson's and the Expected
Synergies. In addition, Merrill Lynch assumed that the Merger will be
accounted for as a pooling of interests under generally accepted accounting
principles and that it will qualify as a tax-free reorganization for U.S.
federal income tax purposes. Merrill Lynch also assumed that, in the course
of obtaining the necessary regulatory or other consents or approvals
(contractual or otherwise) for the Merger, no restrictions, including any
divestiture requirements or amendments or modifications, will be imposed
that will have a material adverse effect on the contemplated benefits of
the Merger. Merrill Lynch also assumed that the Agreement and the Stock
Option Agreements would be substantially similar to the last drafts of such
documents reviewed by Merrill Lynch. The Merrill Lynch opinion was
necessarily based on economic, market and other conditions as they existed
and could be evaluated on, and the information made available to Merrill
Lynch as of August 2, 1998.
-27-
<PAGE>
In connection with rendering the Merrill Lynch Opinion, Merrill Lynch
performed a variety of financial analyses. The preparation of a fairness
opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefore, such an opinion is not
readily susceptible to a partial analysis or summary description.
Accordingly, notwithstanding the separate analyses summarized below,
Merrill Lynch believes that its analyses must be considered as a whole and
that selecting portions of the analyses and factors considered by it,
without considering all such analyses and factors, or attempting to ascribe
relative weights to some or all such analyses and factors, could create an
incomplete view of the evaluation process underlying the Merrill Lynch
Opinion.
In performing its analyses, Merrill Lynch made numerous assumptions
with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of
Albertson's or ASC. The analyses performed by Merrill Lynch are not
necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such analyses.
Merrill Lynch did not assign any specific weight to any of the analyses
described below and did not draw any specific conclusions from or with
regard to any one method of analysis. With respect to the analysis of
selected comparable companies and the analysis of selected recent food
retail and drug retail merger transactions summarized below, no public
company utilized as a comparison is identical to Albertson's or ASC and no
transaction is identical to the Merger. Accordingly, an analysis of
publicly-traded comparable companies and comparable business combinations
is not mathematical; rather, it involves complex considerations and
judgments concerning the differences in financial and operating
characteristics of the companies and other factors that could affect the
public trading values or announced merger transaction values, as the case
may be, of Albertson's, ASC and the companies to which they were compared.
The analyses do not purport to be appraisals or to reflect the prices at
which ASC might actually be sold or the prices at which any securities may
trade at the present time or at any time in the future. In addition, as
described above, the Merrill Lynch Opinion was just one of many factors
taken into consideration by the Albertson's Board of Directors.
The following is a summary of the analyses presented by Merrill Lynch
to the Albertson's Board of Directors in connection with the Merrill Lynch
Opinion.
Summary of Proposal. Merrill Lynch reviewed the terms of the Merger,
including the Exchange Ratio, the offer value and the implied aggregate
transaction value. Based on the closing price of Albertson's Common Stock
on July 31, 1998, of $48.00, Merrill Lynch calculated an implied offer
price per share of ASC of $30.24, representing a 30.4% premium to the
closing price of ASC Common Stock on July 31, 1998, an implied offer value
of $8.465 billion, and an implied aggregate transaction value of
approximately $11.833 billion. Based on the implied transaction value and
implied offer value, Merrill Lynch calculated (1) the transaction value as
a multiple of (a) latest twelve months ("LTM") revenues, (b) LTM earnings
before interest, taxes, depreciation and amortization ("EBITDA"), (c) LTM
earnings before interest and taxes ("EBIT") and (d) projected 1998 EBITDA
(based on ASC management projections), and (2) the offer value as a
multiple of 1998 net income and 1999 net income (based, in each case, on
ASC management projections). This analysis yielded multiples of (1)
transaction value to (a) LTM revenues of 0.61x, (b) LTM EBITDA of 9.4x, (c)
LTM EBIT of 15.3x and (d) projected 1998 EBITDA of 8.5x, and (2) offer
value to (a) projected 1998 net income of 23.4x and (b) projected 1999 net
income of 19.7x.
Public Market Comparables-ASC/Albertson's. Merrill Lynch compared
selected operating and stock market results of ASC and Albertson's to the
publicly available corresponding data of certain other retailers that
Merrill Lynch deemed to be relevant. Such retailers comprised Food Lion
Inc., Fred Meyer Inc., Great Atlantic & Pacific Tea Co. Inc., Kroger Co.,
Safeway Inc. and Winn-Dixie Stores Inc. (the "Multi-Regional Food
Retailers") and CVS Corp., Rite Aid Corp. and Walgreen Co. (the "Large Drug
Retailers" and, together with the Multi-Regional Food Retailers, the
"Public Market Comparables"). With respect to Albertson's, ASC and each
Public Market Comparable, Merrill Lynch calculated the ratio of (1) market
capitalization (defined as market value plus the liquidation value of
preferred equity (including redeemable preferred stock) plus debt plus
minority interests less cash) to (a) LTM EBITDA and (b) 1998 estimated
EBITDA (based on Wall Street estimates), and (2) market price as of July
31, 1998 to (a) 1998 estimated earnings per share ("EPS") (based on the
most recent First Call reports) and (b) 1999 estimated EPS (based on the
most recent First Call reports). For Multi-Regional Food Retailers, the
analysis yielded multiples of (1) market capitalization to (a) LTM EBITDA
ranging from 4.9x to 13.9x and (b) 1998 estimated EBITDA ranging from 4.6x
to 12.9x, and (2) per share price as of July 31, 1998 to (a) 1998 estimated
EPS ranging from 18.1x to 29.5x and (b) 1999 estimated EPS ranging from
13.1x to 25.4x. For Drug Retailers, the analysis yielded multiples of (1)
market capitalization to (a) LTM EBITDA ranging from 13.3x to 22.5x and (b)
-28-
<PAGE>
1998 estimated EBITDA ranging from 11.5x to 21.0x, and (2) per share price
as of July 31, 1998 to (a) 1998 estimated EPS ranging from 28.0x to 41.5x
and (b) 1999 estimated EPS ranging from 23.7x to 34.6x. Merrill Lynch
applied these multiple ranges to the corresponding financial data and
estimates of future financial performance of ASC and Albertson's and, in
the case of the EBITDA calculation, subtracted net debt as of May 2, 1998
for ASC and net debt as of April 30, 1998 for Albertson's. This analysis
resulted in a valuation range, on a fully diluted basis, of (a) $30.25 to
$40.25 per share of ASC Common Stock, and (b) $44.25 to $55.75 per share of
Albertson's Common Stock.
Selected Comparable Transactions-ASC. Merrill Lynch also reviewed
certain publicly available information on transactions in the food retail
industry with a value greater than $1.5 billion, all of which were
announced between April 1996 and May 1998. Such transactions (the "Selected
Food Transactions") were the acquisition of Vons Companies Inc. by Safeway
Inc., the acquisition of Ralph's Grocery Co. by Fred Meyer Inc., the
acquisition of Stop & Shop Companies Inc. by Koninklijke Ahold NV, the
acquisition of Giant Food Inc. by Koninklijke Ahold NV, the acquisition of
Smith's Food & Drug Centers, Inc. by Fred Meyer Inc. and the acquisition of
Quality Food Centers Inc. by Fred Meyer Inc. An analysis of the ratio of
the transaction value (defined as offer value plus the liquidation value of
preferred equity (including redeemable preferred stock) plus debt less cash
and exercisable option proceeds) of the Selected Food Transactions to LTM
EBITDA, EBIT and sales yielded multiple ranges of 7.2x to 12.5x, 11.4x to
13.7x and 0.50x to 0.81x, respectively. Merrill Lynch also reviewed certain
publicly available information on certain transactions in the drug retail
industry with a value greater than $1.0 billion, all of which were
announced between November 1995 and February 1998. Such transactions (the
"Selected Drug Transactions") were the acquisition of Eckerd Corp. by J.C.
Penney & Co. Inc., the acquisition of Revco D.S., Inc. by Rite Aid Corp.,
the acquisition of Thrifty Payless Inc. by Rite Aid Corp. and the
acquisition of Arbor Drugs Inc. by CVS Corp. An analysis of the ratio of
the transaction value (defined as offer value plus preferred equity at
liquidation value (including redeemable preferred stock) plus debt less
cash and exercisable option proceeds) of the Selected Drug Transactions to
LTM EBITDA, EBIT and Sales yielded multiple ranges of 8.5x to 17.2x, 13.2x
to 22.0x and 0.48x to 1.26x, respectively. Applying the multiple ranges
from the Selected Food Transactions and the Selected Drug Transactions to
the corresponding financial data for ASC resulted in a valuation range of
$28.75 to $38.00 per share of ASC Common Stock on a fully diluted basis.
Discounted Cash Flow Analysis of ASC. Merrill Lynch performed a
discounted cash flow analysis of ASC on a stand-alone basis, based upon
estimates of projected financial performance prepared by the management of
ASC. Utilizing these projections, Merrill Lynch calculated a range of
aggregate equity values for ASC based upon the discounted present value of
the sum of (1) the projected stream of unlevered free cash flows of ASC
from 1999 through 2002 and (2) the projected terminal value of ASC in 2002
calculated utilizing a range of multiples of ASC's projected EBITDA in such
year and subtracted from such sum the projected net debt outstanding as of
January 31, 1999. Applying discount rates ranging from 8.5% to 10.5% and
terminal multiples of projected EBITDA ranging from 8.5x to 10.5x, Merrill
Lynch calculated the implied equity value per share of ASC Common Stock in
a range from $31.25 to $44.75 on a fully diluted basis.
Discounted Cash Flow Analysis of Albertson's. Merrill Lynch performed
a discounted cash flow analysis of Albertson's on a stand-alone basis,
based upon estimates of projected financial performance prepared by the
management of Albertson's. Utilizing these projections, Merrill Lynch
calculated a range of aggregate equity values for Albertson's based upon
the discounted present value of the sum of (1) the projected stream of
unlevered free cash flows of Albertson's from 999 through 2002 and (2) the
projected terminal value of Albertson's in 2002 calculated utilizing a
range of multiples of Albertson's projected EBITDA in such year and
subtracted from such sum the projected net debt outstanding as of January
31, 1999. Applying discount rates ranging from 8.5% to 10.5% and terminal
multiples of projected EBITDA ranging from 8.5x to 10.5x, Merrill Lynch
calculated the implied equity value per share of Albertson's Common Stock
in a range from $48.50 to $65.25 on a fully diluted basis.
Relative Discounted Cash Flow Analysis. Merrill Lynch utilized a
discounted cash flow methodology to calculate the implied exchange ratio
derived from the relative ranges of value for ASC and Albertson's based
upon estimates of projected financial performance prepared by the
respective managements of ASC and Albertson's. Utilizing these projections,
Merrill Lynch calculated a range of aggregate equity values for ASC and
Albertson's based upon the discounted present value of the sum of (1) the
projected stream of unlevered free cash flows of ASC and Albertson's from
1999 through 2002 and (2) the projected terminal value of ASC and
Albertson's in 2002 calculated utilizing a range of multiples of ASC's and
Albertson's projected EBITDA in such year and subtracted
-29-
<PAGE>
from such sum the projected net debt outstanding as of January 31, 1999.
Applying discount rates ranging from 8.5% to 10.5% and terminal multiples
of projected EBITDA ranging from 8.5x to 10.5x, Merrill Lynch, derived a
range of implied exchange ratios by dividing each per share value within
the range for ASC Common Stock by the corresponding per share value for
Albertson's Common Stock. This analysis yielded a range of exchange ratios
of 0.64 to 0.69.
Pro Forma Contribution Analysis. Merrill Lynch compared (1) the
relative equity ownership interest, on a fully diluted basis and based on
an Exchange Ratio of 0.63, of the stockholders of ASC and Albertson's in
the pro forma combined company of 41.7% and 58.3%, respectively, with the
relative contributions of each of ASC and Albertson's to the net income of
the pro forma combined company for 1997 and estimated net income of the pro
forma combined company for 1998 and 1999, and (2) the relative enterprise
value allocation, based on net debt as of May 2, 1998 for ASC and April 30,
1998 for Albertson's and an Exchange Ratio of 0.63, between ASC and
Albertson's in the pro forma combined company of 47.6% and 52.4%,
respectively, with the relative contributions of each of ASC and
Albertson's to (a) revenues of the pro forma combined company for 1997 and
estimated revenues of the pro forma combined company for 1998 and 1999 and
(b) EBITDA of the pro forma combined company for 1997 and estimated EBITDA
of the pro forma combined company for 1998 and 1999. The analysis was based
on estimates prepared by the managements of ASC and Albertson's and did not
reflect the impact of Expected Synergies. The analysis indicated that ASC
would have contributed approximately (a) 36.6%, 38.4% and 39.5% of net
income, (b) 56.6%, 55.6% and 53.4% of revenues, and (c) 50.0%, 49.4% and
48.7% of EBITDA, for 1997, 1998 and 1999, respectively.
Pro Forma Merger Consequences Analysis. Merrill Lynch analyzed the
impact of the Merger on the projected EPS of Albertson's for the period
from 1999 through 2001. Such analysis was based on projections provided by
the respective managements of ASC and Albertson's and an Exchange Ratio of
0.63 and assumed realization of the Expected Synergies (excluding Merger
related costs). The analysis indicated that the EPS would be accretive to
the Albertson's stockholders by 1.6%, 7.7% and 12.0% for 1999, 2000 and
2001, respectively.
Merrill Lynch is a nationally recognized investment banking firm
which, among other things, regularly engages in the valuation of businesses
and securities, including financial institutions, in connection with
mergers and acquisitions. In addition, within the past two years, Merrill
Lynch has provided financial advisory services to Albertson's and ASC and
has received customary fees for the rendering of such services. In the
ordinary course of its securities business, Merrill Lynch and its
affiliates may trade debt and/or equity securities of Albertson's or ASC
for its own account and the account of its customers, and accordingly, may
from time to time hold a long or short position in such securities.
Albertson's and Merrill Lynch entered into a letter agreement dated
July 30, 1998 (the "Engagement Letter"), relating to the services to be
provided by Merrill Lynch in connection with the Merger. Pursuant to the
Engagement Letter, Albertson's agreed to pay to Merrill Lynch (i) a fee of
$1,500,000, payable upon execution of the Agreement and (ii) a fee of
$15,000,000 less any amount paid to Merrill Lynch under clause (i) above,
payable upon consummation of the Merger. In addition, Albertson's agreed to
reimburse Merrill Lynch for its reasonable out-of-pocket expenses incurred
in connection with its advisory work, including the reasonable fees and
disbursements of its legal counsel. Albertson's also agreed to indemnify
Merrill Lynch against certain liabilities related to or arising out of the
Merger, including liabilities arising under the federal securities laws.
ASC
At a meeting of ASC's Board of Directors held on August 2, 1998,
Blackstone delivered its opinion to the ASC Board of Directors that, as of
such date and subject to the various considerations set forth in the
opinion, the Exchange Ratio is fair to the holders of ASC Common Stock from
a financial point of view.
The full text of the Blackstone Opinion is attached hereto as Annex E
and is incorporated herein by reference. Holders of shares of ASC Common
Stock are urged to, and should, read such opinion in its entirety. The
Blackstone Opinion is directed only to the fairness of the Exchange Ratio
to the holders of ASC Common Stock from a financial point of view and does
not constitute a recommendation to any holder of ASC Common Stock as to how
to vote on the Agreement and the Merger or any matter related thereto. The
summary of the Blackstone Opinion as set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full
text of such opinion.
-30-
<PAGE>
In connection with the Blackstone Opinion, Blackstone reviewed, among
other things, the Agreement and the Stock Option Agreements; Annual Reports
to stockholders and Annual Reports on Form 10-K of ASC and Albertson's for
the three fiscal years ended on or about January 31, 1998, 1997 and 1996;
Quarterly Reports on Form 10-Q of Albertson's and ASC during the three most
recent fiscal years and the current fiscal year; certain other filings with
the Commission made by Albertson's and ASC, including proxy statements and
Current Reports on Form 8-K during the years 1996, 1997 and 1998; certain
internal financial analyses and forecasts for Albertson's and ASC prepared
by their respective managements; and estimates of certain operating
efficiencies and cost savings expected to be achieved as a result of the
Merger which were prepared jointly by the managements of Albertson's and
ASC (the "Synergies"). Blackstone also held discussions with members of the
senior management of ASC regarding the historical financial performance of
ASC, prospects for the food and drug retailing industries, financial
projections and its strategic objectives and held discussions with members
of the senior management of Albertson's regarding the historical financial
performance of Albertson's and financial projections. In addition,
Blackstone reviewed the historical market prices and trading activity for
Albertson's Common Stock and ASC Common Stock, analyzed the respective
contributions of certain income statement and balance sheet items by
Albertson's and ASC to the combined company, compared certain financial and
stock market information for Albertson's and ASC with similar information
for certain other companies the securities of which are publicly-traded,
reviewed the financial terms of certain recent business combinations in the
food and drug retailing industries, reviewed the pro forma effect of the
Merger on Albertson's earnings per share and balance sheet, and performed
such other studies and analyses which were believed by Blackstone to be
relevant.
In arriving at its opinion, Blackstone relied without assuming
responsibility for independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it
that was publicly available, that was supplied or otherwise made available
to it by Albertson's and ASC or that was otherwise reviewed by it.
Blackstone further relied upon the assurances of the managements of
Albertson's and ASC that they were not aware of any facts that would make
such information provided by them inaccurate, incomplete or misleading.
Without limiting the generality of the foregoing, Blackstone assumed that
the financial forecasts prepared by Albertson's and ASC and provided to it,
including without limitation, forecasts of Synergies, were reasonably
determined on a basis reflecting the best currently available judgment and
estimates of Albertson's and ASC as to the future financial performance of
Albertson's and ASC. Blackstone expressed no view as to such financial
forecasts or the assumptions on which they were based. In addition,
Blackstone did not conduct a physical inspection of the properties and
facilities of Albertson's or ASC, nor did it make an independent evaluation
or appraisal of the assets and liabilities of Albertson's or ASC.
Blackstone assumed that the Merger contemplated by the Agreement will be
accounted for as a pooling-of-interests under generally accepted accounting
principles and that it will qualify as a tax-free reorganization for U.S.
federal income tax purposes. The Blackstone Opinion was based upon
economic, market, monetary and other conditions as they existed and could
be evaluated, and the information made available to it, as of the date
thereof. Furthermore, Blackstone expressed no opinion as to the prices at
which Albertson's Common Stock or ASC Common Stock would trade at any time.
Blackstone assumed that in the course of obtaining the necessary regulatory
or other consents or approvals (contractual or otherwise) for the Merger,
no restrictions, including any divestiture requirements or amendments or
modifications, would be imposed that would have a material adverse effect
on the contemplated benefits of the Merger.
The following is a brief summary of the analyses and examinations
performed by Blackstone that were presented to the ASC Board on August 2,
1998 and were utilized by Blackstone in preparation of the Blackstone
Opinion.
Analysis of Selected Comparable Publicly Traded Companies. Blackstone
reviewed and compared certain actual and estimated financial and stock
market information of ASC with that of a group of comparable food retailing
companies comprised of Safeway Inc., Fred Meyer Inc., Kroger Co.,
(collectively, the "Comparable Companies") as well as Albertson's.
Blackstone selected the Comparable Companies based on size characteristics,
cost position/profitability and growth prospects. This analysis indicated
that: (i) price to earnings multiples, based on Institutional Brokers
Estimate System ("IBES") mean estimates of 1998 EPS, were 18.1 and 20.4 for
ASC and Albertson's, respectively, as compared to an average for the
Comparable Companies of approximately 27.5 (with a range of 23.9 to 29.5),
(ii) price to earnings multiples based on IBES mean estimates of 1999 EPS
were 15.8 and 18.0 for ASC and Albertson's, respectively, as compared to an
average for the Comparable Companies of 22.6 (with a range of 20.9 to
25.1), (iii) price to 1998 EPS divided by IBES mean long-term growth rates
was 1.5 and 1.6 for ASC and Albertson's, respectively, as compared to an
average for the Comparable Companies of 1.7 (with a range of 1.6 to 1.9),
(iv) 1997 EBITDA margin was approximately 6.5% and 8.4% for ASC and
Albertson's, respectively,
-31-
<PAGE>
as compared to an average for the Comparable Companies of approximately
6.9% (with a range of 5.2% to 7.9%), (v) the ratio of Total Enterprise
Value ("TEV") (defined as the market value of common equity plus the
liquidation value of preferred equity, the principal amount of debt and
minority interest less cash and cash equivalents) to 1997 EBITDA was
approximately 7.8 and 10.6 for ASC and Albertson's, respectively, as
compared to an average of approximately 11.8 for the Comparable Companies
(with a range of 10.2 to 13.9), (vi) the ratio of TEV to 1997 EBIT was
approximately 12.4 and 15.5 for ASC and Albertson's, respectively, as
compared to an average for the Comparable Companies of 17.5 (with a range
of 15.6 to 18.8), (vii) the ratio of Net Debt (defined as the principal
amount of debt and minority interest less cash and cash equivalents) to
Total Capitalization (defined as Net Debt plus the book value of common
equity plus the liquidation value of preferred equity) was approximately
59.0% and 33.9% for ASC and Albertson's, respectively, as compared to an
average for the Comparable Companies of 65.7% (with a range of 59.3% to
72.0%, excluding one company with negative book equity), and (viii) the
annualized three-year return to stockholders (including reinvested
dividends) was approximately 19.2% and 22.1% for ASC and Albertson's,
respectively, as compared to an average for the Comparable Companies of
55.1% (with a range of 43.1% to 67.3%). Blackstone noted that the 5-year
projected IBES earnings growth rates of 11.9% and 12.5% for ASC and
Albertson's, respectively, were lower than the range of 5-year projected
IBES growth rates for the Comparable Companies of 15.3% to 17.0%.
Net Present Value Calculation. Based on the projections prepared by
ASC management, Blackstone calculated the price of ASC Common Stock at
December 31, 1998, 1999 and 2000 assuming various price/earnings ratios.
Assuming a constant price/earnings ratio of 18.1x (based on a July 31, 1998
share price of $23.19), the net present value of ASC's December 31, 2000
share price would be $25.76; with a price/earnings ratio of 16.7x (the
five-year industry average multiple), the net present value of ASC's
December 31, 2000 share price would be $23.77; and with a price/earnings
ratio of 25.1x (the harmonic mean of Albertson's and the Comparable
Companies current price/earning multiples), the net present value of ASC's
December 31, 2000 share price would be $35.78. Assuming ASC Common Stock is
exchanged for Albertson's Common Stock at the Exchange Ratio, the net
present value of 0.63 shares of the December 31, 2000 share price of
Albertson's Common Stock would be $33.16 with Albertson's current
price/earnings ratio, $42.99 with 6.25x price/earnings multiple expansion,
and $52.83 with 12.5x price/earnings multiple expansion.
Analysis of Selected Precedent Transactions. Blackstone reviewed and
analyzed selected financial, operating and stock market information
relating to pending or completed merger transactions since 1996 involving
food and drug retailers which were deemed by Blackstone to be comparable
and relevant. The transactions analyzed by Blackstone include the food
retailing combinations of Koninklijke Ahold NV/The Stop & Shop Companies,
Food Lion Inc./Kash n' Karry Stores Inc., Safeway Inc./Vons Companies Inc.,
Fred Meyer/Smith's Food & Drug Centers, Fred Meyer/Quality Food Centers
Inc., Fred Meyer/Ralphs Grocery Co, and Koninklijke Ahold NV/Giant Food
Inc. and the drug retailing combinations of J.C. Penney/Fay's Inc., Revco
D.S. Inc./Big B Inc., Rite Aid Corp./Thrifty Payless Holding, J.C.
Penney/Eckerd Corp., CVS Corp./Revco D.S. Inc. and CVS Corp./Arbor Drugs,
Inc. (pending) (collectively, the "Comparable Transactions"). Blackstone
compared certain financial and market statistics for the Comparable
Transactions with those for the Merger. The analysis showed that the Merger
has: (i) an offer price premium of 30.4% to 39.1% (based on ASC's closing
price on July 31, 1998 and either Albertson's closing prices on July 31,
1998 or Albertson's twenty-day average share price) that is among the
highest for the Comparable Transactions (with a range of 8.4% to 33.0%
(excluding premium of 66.3% for Big B, Inc.)); and (ii) a TEV to LTM EBITDA
multiple of 9.2 as compared to a weighted harmonic mean for the Comparable
Transactions of 9.7 (with a range of 6.0 to 19.6).
Relative Contribution Analysis. Blackstone calculated and analyzed the
relative contribution of ASC and Albertson's to the combined company with
respect to 1997 actual and 1998-2000 forecasted: (i) revenue, (ii) EBITDA,
(iii) net income and (iv) total assets. All forecasts for this analysis
were provided by the respective managements of ASC and Albertson's, and the
analysis did not take into account any potential costs or Synergies as a
result of, or any other effects from, the Merger. This analysis indicated
that ASC would contribute to the combined company approximately: (i) 55.8%
of 1998 forecasted revenue, (ii) 50.1% of 1998 forecasted EBITDA, (iii)
39.1% of 1998 forecasted net income and (iv) 59.9% of 1998 forecasted total
assets. Although Blackstone considered each of the above contribution
measures, it attributed relatively greater weight to 1998 forecasted net
income because of ASC's larger debt load, interest payments and other
non-cash charges; Albertson's greater share of owned stores as opposed to
leased stores; and Blackstone's judgment that projected net income is a
more appropriate indicator of relative contribution to market
capitalization and stockholder value. Pro forma for the Merger, ASC
stockholders would own an approximate 41.3% stake in Albertson's at the
Exchange Ratio.
-32-
<PAGE>
Blackstone also noted that, based upon the current dividend rates on ASC
Common Stock and Albertson's Common Stock, ASC stockholders would receive
approximately 19% higher dividends following the Merger.
Pro Forma Merger Analysis. Blackstone analyzed the pro forma impact of
the Merger on the earnings per share of Albertson's Common Stock for the
fiscal years 1999 (the assumed first full fiscal year following the
Merger), 2000 and 2001. Blackstone assumed the respective management
forecasts for both companies, the after-tax income statement and cash flow
statement contribution of the Synergies as previously described, that the
Merger would be accounted for as a pooling-of-interests and that the Merger
would be effected at the Exchange Ratio. The Merger is slightly accretive
in 1999 (excluding Merger related costs) and substantially accretive by
2001 with respect to Albertson's earnings per share. Furthermore, the
Merger analysis indicates that the Albertson's three-year (1998-2001) EPS
growth rates will increase significantly. Blackstone also analyzed the pro
forma impact of the Merger on the balance sheet and credit statistics of
Albertson's for the fiscal years 1999, 2000 and 2001, and determined that
pro forma Albertson's will have superior credit statistics than standalone
ASC.
Blackstone also analyzed the pro forma impacts of possible business
combination transactions (the "Possible Combinations") between ASC and
other potential strategic partners ("Third Parties"). Blackstone relied
principally upon industry sources for projections for the Third Parties'
operating performance as well as upon estimates of certain operating
efficiencies and cost savings expected to be achieved as a result of such
Possible Combinations. Blackstone also assumed that each Possible
Combination would be accounted for as a pooling-of-interests. Analyses of
the consequences of the Possible Combinations indicate that the Third
Parties' three-year (1998-2001) EPS growth rate increases will be
materially smaller than that generated by the Merger. Blackstone's analyses
of the pro forma impact of the Possible Combinations on the balance sheet
and credit statistics of the Third Parties for the fiscal years 1999, 2000
and 2001 indicates that the pro forma Third Parties' credit statistics
would be inferior to pro forma Albertson's.
Blackstone analyzed the pro forma impact of the Merger and the
Possible Combinations on the long-term potential value to holders of ASC
Common Stock. Given the aforementioned assumptions, the long-term potential
value to holders of ASC Common Stock was determined to be a product of the
assumed initial valuations of ASC Common Stock by the Third Parties and/or
Albertson's, the EPS accretion generated by the Third Parties' and/or
Albertson's, and the potential impacts on the Third Parties and/or
Albertson's long-term earnings growth rates (and the corresponding impact
on the Third Parties' and/or Albertson's price/earnings multiples). The
analysis indicated that the Merger should provide holders of ASC Common
Stock a greater long-term potential value than the Possible Combinations.
Other Analyses. In preparation of the Blackstone Opinion, Blackstone
performed various other analyses including, but not limited to, a
discounted cash flow valuation, a leveraged recapitalization analysis and a
leveraged buyout analysis. As a whole, these analyses supported
Blackstone's conclusion that the Exchange Ratio is fair to holders of ASC
Common Stock from a financial point of view.
The summary set forth above does not purport to be a complete
description of the presentation by Blackstone to the ASC Board or the
analyses performed by Blackstone in arriving at the Blackstone Opinion. The
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and,
therefore, such an opinion is not readily suited to summary description.
The preparation of a fairness opinion does not involve a mathematical
evaluation or weighing of the results of the individual analyses performed,
but requires Blackstone to exercise its professional judgment--based on its
experience and expertise--in considering a wide variety of analyses taken
as a whole. Each of the analyses conducted by Blackstone was carried out in
order to provide a different perspective on the transaction and add to the
total mix of information available. Blackstone did not form a conclusion as
to whether any individual analysis, considered in isolation, supported or
failed to support an opinion as to fairness. Rather, in reaching its
conclusion, Blackstone considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of all
analyses taken as a whole.
The analyses were prepared solely for the purpose of Blackstone
providing the Blackstone Opinion to the ASC Board as to the fairness of the
Exchange Ratio from a financial point of view to holders of ASC Common
Stock and do not purport to be appraisals or necessarily reflect the prices
at which businesses or securities actually may be sold, which are
inherently subject to uncertainty. Any estimates incorporated in the
analyses performed by Blackstone are not necessarily indicative of actual
past or future values or results, which may be significantly more or less
favorable than any such estimates. No public company utilized as a
comparison is identical to ASC or
-33-
<PAGE>
Albertson's and none of the comparable acquisition transactions or other
business combinations utilized as a comparison is identical to the Merger.
Accordingly, an analysis of comparable companies and comparable precedent
transactions is not mathematical; rather it involves complex considerations
and judgments concerning companies and other factors that could affect the
public trading value of the comparable companies or company to which they
are being compared. Similarly, analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may
be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based
upon numerous factors or events beyond the control of ASC and Albertson's
or their respective advisors, none of ASC, Albertson's, Blackstone or any
other person assumes responsibility if future results or actual values are
materially different from those forecasts or assumptions.
As described above, the Blackstone Opinion and the Blackstone
presentation to the ASC Board was only one of many factors taken into
consideration by the ASC Board in making its determination to approve the
Merger Agreement. In addition, the terms of the Agreement were determined
through negotiations between ASC and Albertson's and were approved by the
ASC Board. Although Blackstone provided advice to ASC during the course of
these negotiations, the decision to enter into the Agreement and to accept
the Exchange Ratio was solely that of the ASC Board.
ASC retained Blackstone because of its experience and expertise to act
as its financial advisor in connection with its evaluation of ASC's
strategic alternatives. Blackstone has an internationally recognized merger
and acquisition advisory business. Blackstone, as part of its investment
banking business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions. Blackstone is
familiar with ASC, having provided certain investment banking services to
ASC from time to time, and having acted as its financial advisor in
connection with, and having participated in certain of the negotiations
leading to, the Merger.
Pursuant to a letter agreement dated April 6, 1998, ASC has agreed to
pay Blackstone: (i) an engagement fee of $500,000; (ii) a success fee
payable upon consummation of a transaction in an amount equal to 0.25% of
the consideration (defined as the value of all cash, securities and other
properties received, directly or indirectly, in connection with a
transaction) involved in the transaction, against which the engagement fee
will be credited; and (iii) a termination fee of $500,000 if a transaction
is not consummated prior to the termination of Blackstone's engagement. In
addition, ASC has agreed to reimburse Blackstone for its reasonable
out-of-pocket expenses, including the fees and disbursements of its
attorneys, and to indemnify Blackstone and certain related persons against
certain liabilities, including certain liabilities under the federal
securities laws, arising out of its engagement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the respective recommendations of the Albertson's Board
of Directors and the ASC Board of Directors, the stockholders of
Albertson's and ASC should be aware that, as described below, certain
members of Albertson's and ASC's managements and Boards of Directors may
have interests in the Merger that are different from, or in addition to,
the interests of the stockholders of Albertson's and ASC generally, and
that may create potential conflicts of interest. The Albertson's Board of
Directors and the ASC Board of Directors have unanimously approved the
Agreement and the Merger. The Albertson's Board of Directors and the ASC
Board of Directors were aware of the interests of their respective
directors and officers when they approved the Merger and the Agreement.
Except as described below, such persons have, to the knowledge of
Albertson's and ASC, no material interest in the Merger apart from those of
stockholders generally.
ASC
Agreements with Victor L. Lund. Mr. Lund is a party to a
change-of-control employment agreement and an employment agreement with ASC
(collectively, the "Employment Agreements"). In addition, Mr. Lund, ASC and
Albertson's have entered into a Termination and Consulting Agreement (the
"Consulting Agreement").
The Consulting Agreement provides that Mr. Lund will be nominated to
the Board of Directors of Albertson's for a term or terms extending until
the third annual meeting of Albertson's following the Merger, and that
while he is a member of such board, he will serve as its Vice Chairman. Mr.
Lund has also agreed to provide specified consulting services of up to
1,000 hours to Albertson's and ASC for one year following the termination
of his employment, for a fee of $850,000. Similar to the Employment
Agreements, the Consulting Agreement will provide Mr. Lund and his wife
with certain lifetime health coverage benefits, with additional cash
payments if necessary to make them whole for any taxes imposed on such
benefits. Instead of providing office space and
-34-
<PAGE>
operating services through October 31, 2012, as required by the Employment
Agreements, ASC has agreed to pay Mr. Lund $39,000 per year (adjusted for
inflation) and will provide specified secretarial services through that
date, or until his earlier death. Upon termination of his employment, Mr.
Lund will receive title to his company-owned vehicle. During the one-year
consulting term, Mr. Lund will receive fringe benefits (including expense
reimbursement and transportation) consistent with the fringe benefits
provided to him immediately before the Effective Time. Upon Mr. Lund's
permanent disability or death, he or his estate, as applicable, will
receive a lump sum payment of the consulting fee for the remainder of the
one-year consulting term. Upon a termination of his consulting services for
"cause," no further payments would be made.
Mr. Lund will be subject to a noncompetition covenant while serving as
a consultant or member of the Albertson's Board of Directors, and to a
confidentiality covenant. ASC and Albertson's will indemnify Mr. Lund with
respect to his consulting services. As provided under the Employment
Agreements, Mr. Lund would be entitled to an additional payment for any
excise tax on excess parachute payments to which he may be subject.
Albertson's has agreed to guarantee all payments and benefits under the
Consulting Agreement.
The Consulting Agreement also acknowledges that the consummation of
the Merger will permit Mr. Lund to terminate his employment and receive the
severance benefits called for by the Employment Agreements. The Consulting
Agreement acknowledges that upon the termination of his employment after
the Merger, he will receive a cash lump sum payment equal to the sum of (i)
his base salary to the extent not theretofore paid; (ii) pro-rata bonuses
for the year of termination; (iii) three times his base salary and bonus
amount (approximately $4.3 million); and (iv) a lump sum payment of the
present value of his "Special Long-Range Retirement Plan" (the "SLRRP")
benefit, which will have vested in full upon consummation of the Merger
(approximately $10.7 million).
Change-of-Control Employment Agreements. The other twelve executive
officers of ASC also have change-of-control employment agreements with ASC.
Under these agreements, severance is payable upon a termination of
employment by the Company without cause or by the executive for good reason
or, in the case of ten of the executive officers, by the executive during
the 30-day window period beginning on the first anniversary of the
Effective Time. Severance consists of: (i) base salary through the date of
termination and pro rata bonuses for the year of termination; (ii) a lump
sum payment of three times (two times for two of the executive officers)
the executive's base salary and bonus amount (approximately $15.3 million
for such executive officers in the aggregate); and (iii) continued welfare
benefits (other than disability coverage) for three years (two years for
two of the executive officers). In addition, ASC is obligated to make an
additional payment, to the extent necessary, to make the executive whole
for any excise tax on excess parachute payments.
Eight of the executive officers of ASC are parties to employment
agreements in addition to their change-of-control employment agreements.
The employment agreements provide each of such executives with a SLRRP
benefit which is generally calculated as a percentage of the executive's
average base salary plus target bonuses for the two years prior to
termination of employment and which regularly vests over a ten year period
but which vests in full upon the occurrence of events that would permit the
executive to terminate his or her employment for "good reason" following a
change of control, upon a termination of employment without cause or
because of ASC's breach of a material provision of the employment
agreement. The SLRRP benefit is the only provision of the employment
agreements that is not superseded by the change-of-control employment
agreements. Upon termination of an executive's employment, his or her SLRRP
benefit will be funded through an irrevocable grantor trust. Assuming that
the employment of all eight executive officers were terminated effective
January 31, 1999, under circumstances entitling them to full vesting, they
would be entitled to receive twenty annual payments in amounts ranging from
$93,606 to $326,250, commencing when they attain age 57. The annual
payments that would be made to those executive officers of ASC who are
named in the ASC Proxy Statement as the five most-highly compensated
executive officers (other than Mr. Lund) for fiscal year 1997 ("Named
Executive Officers") are as follows: Teresa Beck ($185,625), David L. Maher
($326,250), Edward J. McManus ($0), and Martin A. Scholtens ($225,000).
ASC Supplemental Executive Retirement Plan. The ASC Supplemental
Executive Retirement Plan ("SERP") allows participants, including the
executive officers, to elect whether to receive a lump sum payout of their
vested account balances upon a change of control, or to receive payments in
accordance with the normal provisions of the SERP. Seven executive officers
of ASC have elected to receive such a lump sum payment, including two Named
Executive Officers of ASC (other than Mr. Lund) as follows: Edward J.
McManus ($220,463) and Martin A. Scholtens ($1,980,444). The account
balances as of August 26, 1998 for all seven executive officers electing
lump sum payment aggregate $3,981,594.
-35-
<PAGE>
Acceleration of Stock Options and Restricted Stock. All options and
certain shares of restricted stock with respect to ASC Common Stock granted
under ASC's 1997 Stock Option and Stock Award Plan (other than any options
as to which the optionholder has not satisfied the stock ownership
requirements under the "key executive equity program"), 1989 Stock Option
and Stock Award Plan and 1985 Stock Option and Stock Award Plan, except to
the extent otherwise specified by the Committee at the time of grant, are
automatically vested upon a change of control. As a result, all options and
restricted stock held by directors and executive officers will vest upon
stockholder approval of the Merger or, for options granted under the 1997
plan, upon the later of stockholder approval or regulatory approval of the
Merger. All such options will be converted at the Effective Time, into
options to acquire shares of Albertson's Common Stock (see "THE
AGREEMENT--The Merger"). In addition, option holders have the right (an
"LSAR"), during the 60-day period from and after the occurrence of a change
of control, to surrender all or part of their options (whether vested or
not) in exchange for stock having a value equal to the excess of the change
of control price (as defined) over the exercise price. (For these purposes,
the change of control price will be the higher of the highest reported
sales price during the 60-day period ending on the date of accelerated
vesting or the price paid to stockholders in the change of control.)
New Directors of Albertson's. Pursuant to the Agreement, five of the
current ASC directors will be appointed to the Albertson's Board of
Directors at the Effective Time. See "MANAGEMENT AND OPERATIONS AFTER THE
MERGER."
ALBERTSON'S
Albertson's Deferred Compensation Plans. Under the Albertson's
Executive Deferred Compensation Plan, the Albertson's Senior Executive
Deferred Compensation Plan, the Albertson's 1990 Deferred Compensation Plan
and the Albertson's Non-Employee Directors' Deferred Compensation Plan
(collectively, the "Albertson's Deferred Compensation Plans"), certain key
executives and non-employee directors of Albertson's may defer a portion of
their current compensation, which deferred amounts accrue interest until
distributed. Amounts deferred under the Albertson's Deferred Compensation
Plans accrue interest at the monthly Corporate Bond Yield Average with
respect to average corporations as determined from the Moody's Bond Record
published by Moody's Investor's Service, Inc. (the "Moody's Average"),
except when benefits are paid upon death, retirement (under two of the
plans), disability prior to termination of employment or termination of
employment following a change of control (collectively, "Certain Events").
In the case of such Certain Events, deferred amounts accrue interest at a
rate equal to the Moody's Average plus 3% or 4%, depending on the plan. The
consummation of the Merger constitutes a change of control pursuant to the
Albertson's Deferred Compensation Plans so that deferred amounts for
employees and non-employee directors at the Effective Time will accrue
interest at the Moody's Average plus 3% or 4% under all circumstances.
Albertson's Stock Option Plans. Upon and after consummation of a
change of control of Albertson's (which as defined would include
consummation of the Merger), all options to purchase shares of Albertson's
Common Stock granted under the Albertson's 1986 Nonqualified Stock Option
Plan after December, 1989 and all options to purchase shares of Albertson's
Common Stock granted under the Albertson's 1995 Stock-Based Incentive Plan
will become immediately exercisable.
ACCOUNTING TREATMENT
Albertson's and ASC believe that the Merger will qualify as a pooling
of interests for accounting and financial reporting purposes. Under this
method of accounting, the assets and liabilities of Albertson's and ASC
will be combined based on the respective carrying values of the accounts in
the historical financial statements of each entity. Results of operations
of the combined company will include income of Albertson's and ASC for the
entire fiscal period in which the combination occurs and the historical
results of operations of the separate companies for fiscal years prior to
the Merger will be combined and reported as the results of operations of
the combined company.
Albertson's [has] received a letter from ASC's independent public
accountants, dated as of the date the Registration Statement became
effective, stating that such accountants are not aware of any conditions
that exist that would preclude ASC's ability to be a party to a business
combination to be accounted for as a pooling of interests, and ASC [has]
received a letter from Albertson's independent public accountants, dated as
of the date the Registration Statement became effective, stating that
accounting for the Merger as a pooling of interests under Opinion 16 of the
Accounting Principles Board and applicable Commission rules and regulations
is appropriate if the Merger is closed and consummated as contemplated by
the Agreement, subject to the consummation of the sale of
-36-
<PAGE>
Albertson's Common Stock (if necessary) referred to in the next paragraph.
Each of the accountants' letters [is] based on representations of
management and [does] not address any matters occurring subsequent to the
date of such letters. Consummation of the Merger is conditioned upon the
receipt by each of Albertson's and ASC of a second letter from the other
party's independent public accountants, dated as of the Closing Date,
reaffirming the statements made in the letters issued as of the effective
date of the Registration Statement. See "THE AGREEMENT--Conditions" and
"UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION." Certain events,
including certain transactions with respect to ASC Common Stock or
Albertson's Common Stock by affiliates of ASC or Albertson's, respectively,
may prevent the Merger from qualifying as a pooling of interests. See
"--Resale Restrictions."
Albertson's intends, if required in order to permit the Merger to
qualify as a pooling of interests, to sell up to [300,000] shares of
Albertson's Common Stock prior to the Effective Time.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The income tax discussion set forth in this section describes the
material U.S. federal income tax consequences of the Merger under currently
applicable law based upon the Code, applicable Treasury Regulations
thereunder and administrative rulings and judicial authority as of the date
hereof. All of the foregoing are subject to change, possibly retroactively,
and any such change could affect the continuing validity of the discussion.
The discussion is based upon (i) certain representations of Albertson's and
ASC contained in certificates signed by appropriate officers of Albertson's
and ASC and (ii) the assumption that the Merger will be consummated in
accordance with the terms of the Agreement. The discussion assumes that ASC
stockholders hold their shares of ASC Common Stock as a capital asset, and
does not address the tax consequences that may be relevant to a particular
stockholder subject to special treatment under certain federal income tax
laws, such as dealers in securities, banks, insurance companies, tax-exempt
organizations, non-United States persons and stockholders who acquired
shares of ASC Common Stock pursuant to the exercise of options or otherwise
as compensation or through a tax-qualified retirement plan. The discussion
also does not address any consequences arising under the laws of any state,
locality or foreign jurisdiction. No rulings have been or will be sought
from the Internal Revenue Service with respect to any matters relating to
the Merger.
Based on certain assumptions and upon representations and assumptions
contained in certificates signed by appropriate officers of Albertson's and
ASC, which assumptions and representations have been made as of the date of
the Registration Statement, it is the opinion of each of Fried, Frank,
Harris, Shriver & Jacobson and Wachtell, Lipton, Rosen & Katz that:
(a) No gain or loss will be recognized by Albertson's, ASC or Merger
Sub as a result of the Merger; and
(b) No gain or loss will be recognized by the stockholders of ASC who
exchange their ASC Common Stock solely for Albertson's Common
Stock pursuant to the Merger (except with respect to cash
received in lieu of any fractional share interest in Albertson's
Common Stock).
In addition, the Merger will have the following U.S. federal income
tax consequences:
(i) The tax basis of the Albertson's Common Stock received by ASC
Stockholders who exchange all of their ASC Common Stock for
Albertson's Common Stock in the Merger will be the same as the
tax basis of the ASC Common Stock surrendered in exchange
therefor (reduced by any amount allocable to any fractional share
interest for which cash is received);
(ii) The holding period of the shares of Albertson's Common Stock
received will include the holding period of shares of ASC Common
Stock surrendered in exchange therefor; and
(iii)A holder of shares of ASC Common Stock that receives cash in lieu
of a fractional share interest in Albertson's Common Stock in the
Merger will be treated as having received such cash amount in
exchange for a fractional share interest in Albertson's Common
Stock. Such a holder will recognize gain or loss as a result of
such exchange in an amount equal to the cash received for the
fractional share of Albertson's Common Stock reduced by the
portion of the holder's tax basis in shares of ASC Common Stock
surrendered that is allocable to the fractional share interest in
Albertson's Common Stock. Such gain or loss will be capital gain
or loss, provided that the Albertson's Common Stock is held as a
capital asset at the Effective Time and will be long-term
-37-
<PAGE>
capital gain or loss if the holder's holding period in the
fractional share interest for federal income tax purposes is more
than one year.
It is a condition to the Merger that Albertson's and ASC each receive
a tax opinion that the Merger qualifies as a reorganization within the
meaning of Section 368(a) of the Code. Such opinions will be based upon
updated representations of Albertson's and ASC contained in certificates
signed by appropriate officers of Albertson's and ASC to be delivered at
the Effective Time. The tax opinion cannot be relied upon if any of such
factual assumptions or representations is, or later becomes, inaccurate. No
ruling from the Internal Revenue Service concerning the tax consequences of
the Merger has been requested, and the tax opinion will not be binding upon
the Internal Revenue Service or the courts. If the Merger is consummated,
and it is later determined that the Merger did not qualify as a tax-free
reorganization, a stockholder of ASC will recognize taxable gain or loss in
the Merger equal to the difference between the fair market value of the
Albertson's Common Stock received at the time of the Merger and such
stockholder's basis in the ASC Common Stock exchanged therefore.
Any cash payments to which a stockholder of ASC is entitled pursuant
to the Merger will be subject to backup withholding at a rate of 31% unless
either (i) the stockholder or payee provides its taxpayer identification
number (social security or employer identification number) and certifies
that such number is correct or (ii) an exemption from backup withholding
applies under the applicable law and regulations.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. EACH ASC STOCKHOLDER
IS ADVISED TO CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger cannot be consummated until notifications have been given and
certain information has been furnished to the FTC and the Antitrust
Division and specified waiting period requirements have been satisfied. ASC
and Albertson's filed notification and report forms under the HSR Act with
the FTC and the Antitrust Division on August 31, 1998 and September 1,
1998, respectively. Unless additional information and documentary material
is requested by the FTC or the Antitrust Division, the waiting period will
expire on October 1, 1998. However, if a request from the FTC or the
Antitrust Division for additional information and documentary material is
received on or prior to that date, the waiting period will not terminate
until 20 days after Albertson's and ASC have "substantially complied" (as
such term is defined under the HSR Act) with each such request unless the
FTC or the Antitrust Division terminates the waiting period earlier.
Consequently, there can be no assurance that the consummation of the Merger
will not be delayed by reason of the HSR Act. At any time before or after
consummation of the Merger, the Antitrust Division, the FTC, a state
governmental authority or a private person or entity could seek under the
antitrust laws, among other things, to enjoin the Merger or to cause
Albertson's to divest, in whole or in part, any of its assets or businesses
(including assets and businesses of ASC). There can be no assurance that a
challenge to the Merger will not be made or that, if such a challenge is
made, Albertson's will prevail. The obligations of Albertson's and ASC to
consummate the Merger are subject to the condition that there be no order,
decree or injunction of any court of competent jurisdiction that prohibits
the consummation of the Merger. See "THE AGREEMENT--Best Efforts" for a
description of the obligations of Albertson's and ASC to seek regulatory
approvals.
NO APPRAISAL RIGHTS
No holder of Albertson's Common Stock or ASC Common Stock will have
any dissenters' rights in connection with, or as a result of, the matters
to be acted upon at the Albertson's Special Meeting or ASC Special Meeting,
as applicable.
RESALE RESTRICTIONS
All shares of Albertson's Common Stock received by ASC stockholders in
the Merger will be freely transferable, except that shares of Albertson's
Common Stock received by persons who are deemed to be "affiliates" (as such
term is defined under the Securities Act) of ASC at the time of the ASC
Special Meeting may be resold by them only in transactions permitted by the
resale provisions of Rule 145 promulgated under the Securities Act (or Rule
144 in the case of such persons who become affiliates of Albertson's) or as
otherwise permitted under
-38-
<PAGE>
the Securities Act. Persons who may be deemed to be affiliates of ASC or
Albertson's generally include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal
stockholders of such party. The Agreement requires ASC to use its
reasonable best efforts to cause each of its affiliates to execute a
written agreement to comply with the foregoing requirements. In order for
the Merger to qualify for pooling-of-interests treatment, an affiliate of
either Albertson's or ASC may not sell, transfer or dispose (subject to
certain de minimis exceptions), or in any other way reduce said affiliate's
risk relative to, shares of Albertson's Common Stock and shares of ASC
Common Stock (as the case may be) during the period beginning 30 days prior
to the Effective Time and ending at such time as Albertson's publishes
results covering at least 30 days of combined operations of Albertson's and
ASC. The Agreement requires Albertson's and ASC to use their reasonable
best efforts to cause each of their respective affiliates to execute a
written agreement to comply with the foregoing requirements. Under the
terms of the Agreement, certificates surrendered for exchange by any
affiliate of ASC will not be exchanged for shares of Albertson's Common
Stock until Albertson's has received these agreements from the affiliate of
ASC. See "--Accounting Treatment."
-39-
<PAGE>
THE AGREEMENT
The following is a summary of certain provisions of the Agreement, a
copy of which is attached as Appendix A to this Proxy Statement/Prospectus
and is incorporated herein by reference. This summary is qualified in its
entirety by reference to the full text of the Agreement. Any capitalized
terms not otherwise defined herein have the meanings as defined in the
Agreement.
THE MERGER
Pursuant to the Agreement, subject to the terms and conditions
thereof, at the Effective Time, Merger Sub will be merged with and into
ASC. As a result, ASC will become a wholly owned subsidiary of Albertson's.
The Merger will have the effects specified in the Delaware General
Corporation Law (the "DGCL").
Upon the satisfaction or waiver of all conditions to the Merger, and
provided that the Agreement has not been terminated or abandoned,
Albertson's and ASC will cause a Certificate of Merger to be executed,
acknowledged and filed with the Secretary of State of the State of Delaware
as provided in Section 251 of the DGCL.
As a result of the Merger and without any action on the part of the
holders thereof, each share of ASC Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive 0.63 shares of Albertson's Common Stock (with cash paid in lieu of
any fractional shares) and will cease to be outstanding and will be
cancelled and retired. Each holder of a certificate representing any such
shares of ASC Common Stock (the "ASC Stock Certificate") will thereafter
cease to have any rights with respect to such shares of ASC Common Stock,
except for the right to receive, without interest, shares of Albertson's
Common Stock and cash in lieu of any fractional share of Albertson's Common
Stock (as described in "--Exchange Procedures") upon the surrender of such
ASC Stock Certificate. Each share of ASC Common Stock held in ASC's
treasury or by Albertson's or any of its or ASC's subsidiaries at the
Effective Time will cease to be outstanding and will be cancelled and
retired without payment of any consideration therefor. ASC will take all
action necessary with respect to the options to purchase ASC Common Stock
that are outstanding immediately prior to the Effective Time to entitle the
holder thereof to acquire upon exercise of the option that number of shares
of Albertson's Common Stock equal to the product of (x) the number of
shares of ASC Common Stock subject to such option immediately prior to the
Effective Time and (y) the Exchange Ratio, at an exercise price equal to
(x) the exercise price per share of ASC Common Stock immediately prior to
the Effective Time divided by (y) the Exchange Ratio.
THE EFFECTIVE TIME
The Merger will become effective upon (i) the filing of a Certificate
of Merger relating thereto with the Secretary of State of the State of
Delaware, or (ii) upon such later time as may be agreed upon by the parties
and specified in the Certificate of Merger. The Agreement provides that the
parties thereto will cause the Certificate of Merger to be filed on the
second business day after the satisfaction or waiver of all conditions set
forth in the Agreement. It is expected that the Merger will be consummated
in early 1999, although there can be no assurance as to when, or if, all
the conditions to consummation of the Merger will be satisfied or waived.
See "--Conditions."
EXCHANGE PROCEDURES
Promptly after the Effective Time, the Exchange Agent will mail to
each person who was, at the Effective Time, a holder of record of shares of
ASC Common Stock, a letter of transmittal to be used by such holder in
forwarding his or her ASC Stock Certificates, and instructions for
effecting the surrender of the ASC Stock Certificates in exchange for
certificates representing a whole number of shares of Albertson's Common
Stock (the "Albertson's Stock Certificates"). Upon surrender to the
Exchange Agent of an ASC Stock Certificate for cancellation, together with
such letter of transmittal, the holder of such ASC Stock Certificate will
be entitled to receive an Albertson's Stock Certificate, cash in lieu of
any fractional share of Albertson's Common Stock (as described below) and
unpaid dividends and distributions, if any, which such holder has the right
to receive in respect of the ASC Stock Certificate surrendered, and the ASC
Stock Certificate so surrendered will be cancelled. ASC STOCKHOLDERS SHOULD
NOT SEND IN THEIR ASC STOCK CERTIFICATES UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL.
No fractional shares of Albertson's Common Stock will be issued and
any holder of shares of ASC Common Stock entitled under the Agreement to
receive a fractional share will be entitled to receive only a cash payment
in lieu thereof, which payment will be in an amount equal to the product of
the closing price of a share
-40-
<PAGE>
of Albertson's Common Stock on the NYSE Composite Tape on the trading day
immediately prior to the Closing Date, multiplied by the fractional
percentage of a share of Albertson's Common Stock to which such holder
would otherwise be entitled.
No dividends on shares of Albertson's Common Stock will be paid with
respect to any shares of Albertson's Common Stock represented by an ASC
Stock Certificate until such ASC Stock Certificate is surrendered for
exchange as provided in the Agreement. Subject to the effect of applicable
laws, following surrender of any such ASC Stock Certificate, there will be
delivered to the holder of such certificate, an Albertson's Stock
Certificate issued in exchange therefor plus (i) at the time of such
surrender, the amount of any dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to the
shares of Albertson's Common Stock represented by such Albertson's Stock
Certificate and not paid, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender thereof and a payment date subsequent
to surrender thereof with respect to such shares of Albertson's Common
Stock, in each case less the amount of any withholding taxes which may be
required thereon.
After the Effective Time, there will be no transfers on the transfer
books of ASC of shares of ASC Common Stock which were outstanding
immediately prior to the Effective Time.
Any portion of the monies from which cash payments in lieu of
fractional interests in shares of Albertson's Common Stock will be made
(including the proceeds of any investments thereof) and any shares of
Albertson's Common Stock that are unclaimed by the former stockholders of
ASC one year after the Effective Time will be delivered to Albertson's. Any
former stockholders of ASC who have not theretofore complied with the
exchange procedures in the Agreement may thereafter look only to
Albertson's for payment of shares of Albertson's Common Stock, cash in lieu
of any fractional shares, and any unpaid dividends and distributions on
shares of Albertson's Common Stock, deliverable in respect of each such
unsurrendered ASC Stock Certificate. Notwithstanding the foregoing, none of
ASC, Albertson's, the Exchange Agent or any other person will be liable to
any former holder of shares of ASC Common Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
No interest will be paid or accrued on cash in lieu of any fractional
shares and unpaid dividends and distributions, if any, which will be paid
upon surrender of the ASC Stock Certificates.
In the event that any ASC Stock Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such ASC Stock Certificate to be lost, stolen or destroyed and, if
required by Albertson's, the posting by such person of a bond in such
reasonable amount as Albertson's may direct as indemnity against any claim
that may be made against it with respect to such ASC Stock Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
ASC Stock Certificate the shares of Albertson's Common Stock, cash in lieu
of any fractional share, and any unpaid dividends and distributions on
shares of Albertson's Common Stock, as described above.
REPRESENTATIONS AND WARRANTIES
The Agreement contains various representations and warranties relating
to, among other things: (a) the due organization, power and standing of ASC
and Albertson's and similar corporate matters; (b) the authorization,
execution, delivery and enforceability of the Agreement; (c) the capital
structure of ASC and Albertson's; (d) subsidiaries of ASC and Albertson's;
(e) conflicts under charters or bylaws, violations of any instruments or
law and required consents or approvals; (f) certain documents filed by each
of ASC and Albertson's with the Commission and the accuracy of information
contained therein; (g) litigation and liabilities; (h) conduct of business
in the ordinary course and the absence of certain changes or material
adverse effects; (i) tax matters; (j) retirement and other employee benefit
plans of ASC and Albertson's; (k) labor matters; (l) qualification for
"pooling of interests" accounting treatment; (m) brokers' and finders' fees
with respect to the Merger; (n) receipt of fairness opinions; (o) ownership
of the capital stock of the other company; (p) compliance with law; (q)
environmental matters; (r) intellectual property; (s) insurance; (t)
contracts and commitments; and (u) with respect to Albertson's, the Rights.
CERTAIN COVENANTS
ASC has agreed (and has agreed to cause its subsidiaries), among other
things, prior to the consummation of the Merger, unless Albertson's agrees
in writing or as otherwise expressly contemplated by the Agreement, to
conduct its business in all material respects in the ordinary and usual
course and, to the extent consistent therewith,
-41-
<PAGE>
to use its reasonable best efforts to preserve its business organization
intact in all material respects, keep available the services of its
officers and employees as a group (subject to changes in the ordinary
course) and maintain its existing relations and goodwill with customers,
suppliers, regulators, distributors, creditors, lessors, and others having
business dealings with it.
In addition, ASC has agreed that, among other things, prior to the
consummation of the Merger, unless Albertson's agrees in writing or as
otherwise required or permitted by the Agreement, ASC will not (i) amend
the Restated Certificate of Incorporation of ASC, as amended (the "ASC
Certificate"), or the Restated Bylaws of ASC (the "ASC Bylaws"), (ii)
split, combine, subdivide or reclassify its outstanding shares of capital
stock, (iii) declare any dividend other than regular quarterly cash
dividends in amounts consistent with past practice, (iv) repurchase, redeem
or otherwise acquire any shares of its capital stock or any ASC Equity
Rights (as defined in the Agreement), (v) with certain exceptions, enter
into, adopt or amend any agreement or arrangement relating to severance or
any employee benefit plan or employment or consulting agreement, (vi) with
certain exceptions, incur or amend the terms of any indebtedness for
borrowed money or guarantee any such indebtedness, (vii) make any capital
expenditures in excess of ASC's capital expenditure budget, (viii) with
certain exceptions, transfer, lease, license, sell, mortgage, pledge,
encumber or otherwise dispose of any of its subsidiaries' property or
assets material to ASC and its subsidiaries taken as a whole, (ix) with
certain exceptions, issue, deliver, sell or encumber shares of ASC Common
Stock or any securities convertible into or any rights, warrants or options
to acquire ASC Common Stock, (x) with certain exceptions, acquire any
business, including stores or other facilities, (xi) change its accounting
policies, practices or methods except as required by generally accepted
accounting principles or the rules and regulations of the Commission, (xii)
take any action to cause the shares of ASC Common Stock to cease to be
listed on the NYSE, (xiii) enter into certain contracts, and (xiv) change
or, other than in the ordinary course of business consistent with past
practice, make any material tax election.
Albertson's has agreed (and has agreed to cause its subsidiaries),
among other things, prior to the consummation of the Merger, unless ASC
agrees in writing or as otherwise expressly contemplated by the Agreement,
to conduct its business in all material respects in the ordinary and usual
course and, to the extent consistent therewith, to use its reasonable best
efforts to preserve its business organization intact in all material
respects, keep available the services of its officers and employees as a
group (subject to changes in the ordinary course) and maintain its existing
relations and goodwill with customers, suppliers, regulators, distributors,
creditors, lessors, and others having business dealings with it.
In addition, Albertson's has agreed that, among other things, prior to
the consummation of the Merger, unless ASC agrees in writing or as
otherwise required or permitted by the Agreement, Albertson's shall not (i)
with certain exceptions, issue, deliver, grant or sell any additional
shares of Albertson's Common Stock or securities convertible into or any
rights, warrants or options to acquire Albertson's Common Stock, (ii) amend
the Albertson's Certificate, Albertson's Bylaws or the Rights Agreement or
redeem the Rights, (iii) reclassify the Albertson's Common Stock, (iv)
declare any dividend other than regular quarterly cash dividends in amounts
consistent with past practice, (v) repurchase, redeem or otherwise acquire
any shares of its capital stock or any Albertson's Equity Rights (as
defined in the Agreement), (vi) with certain exceptions, transfer, lease,
license, sell or otherwise dispose of any of its subsidiaries' property or
assets material to Albertson's and its subsidiaries taken as a whole, (vii)
change its accounting policies, practices or methods except as required by
generally accepted accounting principles or the rules and regulations of
the Commission, and (viii) take any action to cause the shares of
Albertson's Common Stock to cease to be listed on the NYSE.
ASC and Albertson's have agreed that, until the Effective Time, except
as otherwise contemplated by the Agreement, neither ASC nor Albertson's
will knowingly take any action which would prevent the treatment of the
Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368 of the Code.
Both ASC and Albertson's have agreed: (a) to cooperate in the prompt
preparation and filing of certain documents under federal and state
securities laws and with applicable government entities and (b) to use
their reasonable best efforts to obtain and deliver to each other certain
letters from "affiliates," as defined under Rule 145 under the Securities
Act or by applicable accounting rules. See "--Best Efforts" and "THE
MERGER--Resale Restrictions."
-42-
<PAGE>
NO SOLICITATION OF TRANSACTIONS
Subject to the exceptions described in the next paragraph, each of ASC
and Albertson's has agreed that it will not, and each will direct and use
its best efforts to cause its respective officers and directors, employees,
financial advisors, agents and representatives (each a "Representative")
not to, (a) initiate, solicit or encourage (including furnishing
information) or take any other action to facilitate directly or indirectly,
any inquiries or the making of any proposal with respect to (i) a merger,
consolidation or similar transaction involving it, or any of its
subsidiaries whose business constitutes 15% or more of its consolidated net
revenues, net income or assets, (ii) a direct or indirect acquisition of a
business of such company or any of its subsidiaries, that constitutes 15%
or more of its consolidated net revenues, net income or assets, (iii) a
direct or indirect acquisition or purchase of 15% or more of any class of
its equity securities or that of any of its subsidiaries whose business
constitutes 15% or more of its consolidated net revenues, net income or
assets, or (iv) a tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of its capital stock
(any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal"), or (b) engage in any discussions or negotiations
relating to or accept an Acquisition Proposal. Each of ASC and Albertson's
has agreed to immediately cease and terminate any existing solicitation,
initiation, encouragement, activity, discussion or negotiation with any
parties conducted prior to the date of the Agreement with respect to any of
the foregoing.
Notwithstanding the restrictions described in the preceding paragraph,
the Board of Directors of ASC or Albertson's may furnish information to, or
enter into discussions or negotiations with, any person or entity that
makes an unsolicited bona fide written Acquisition Proposal prior to the
approval by such party's stockholders of the Agreement or the Stock
Issuance, as the case may be, if, and only to the extent that, (w) such
party's Board of Directors concludes in good faith (after consultation with
its financial advisors) that the transaction contemplated by the
Acquisition Proposal is reasonably capable of being completed, taking into
account all legal, financial, regulatory and other aspects of the
Acquisition Proposal and the person making the Acquisition Proposal, and
could, if consummated, reasonably be expected to result in a transaction
more favorable to such party's stockholders from a financial point of view
than the Merger (any such Acquisition Proposal, a "Superior Proposal"), (x)
the Board of Directors of such party determines in good faith after
consultation with outside counsel that such action is required for the
Board of Directors of such party to act in a manner consistent with its
fiduciary duties under applicable law and (y) prior to furnishing such
information to, or entering into discussions or negotiations with, the
other person or entity, such party provides written notice to the other
party to the effect that it is furnishing information to, or entering into
discussions or negotiations with the other person or entity and the other
person or entity enters into a confidentiality agreement with such party.
In addition, ASC and Albertson's have each agreed not to release any
third party from or waive any provision of, any standstill agreement to
which it is a party or any confidentiality between it and another person
who has made or who may reasonably be considered likely to make an
Acquisition Proposal or who ASC or Albertson's or any of their respective
Representatives have had discussions with regarding a proposed, potential
or contemplated transaction which would constitute an Acquisition Proposal
unless the Board of Directors of ASC or Albertson's, as the case may be,
concludes in good faith, after considering applicable provisions of state
law, and after consulting with outside counsel, that such action is
required for such Board of Directors to act in a manner consistent with its
fiduciary duties under applicable laws.
ASC's and Albertson's have each agreed that their respective Boards of
Directors will not (i) withdraw or modify, or propose publicly to withdraw
or modify, in a manner adverse to the other party, the approval or
recommendation by such Board of Directors of the Agreement and the Merger,
(ii) approve or recommend, or propose publicly to approve or recommend any
Acquisition Proposal, or (iii) cause ASC or Albertson's, as the case may
be, to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any Acquisition Proposal.
Notwithstanding the foregoing, in the event that such Board of Directors
concludes in good faith, after considering applicable state law and after
consultation with outside counsel, that such action is required for it to
act in a manner consistent with its fiduciary duties under applicable law,
such Board of Directors may withdraw or modify its approval or
recommendation of the Agreement and the Merger. Moreover, nothing in the
Agreement shall prohibit ASC or Albertson's from taking and disclosing to
its stockholders a position contemplated by Rule 14e-2(a) under the
Exchange Act or any other disclosure to its stockholders, the failure of
which to disclose would violate such Board of Directors' obligations under
applicable law.
-43-
<PAGE>
BEST EFFORTS
Each of Albertson's and ASC has agreed (except as set forth below)
that it will take any and all steps necessary to avoid or eliminate each
and every impediment under any antitrust, competition or trade regulation
law that may be asserted by any Governmental Entity with respect to the
Merger so as to enable the Closing to occur as soon as reasonably possible
(and in any event no later than June 30, 1999), including, without
limitation, proposing, negotiating, committing to and effecting, by consent
decree, hold separate order, or otherwise, the sale, divestiture or
disposition of its assets or businesses (or any of its subsidiaries) or
otherwise take or commit to take any actions that limit its freedom of
action with respect to, or its ability to retain, any of its businesses,
product lines or assets of Albertson's, ASC or their respective
subsidiaries, as may be required in order to avoid the entry of, or to
effect the dissolution of, any injunction, temporary restraining order, or
other order in any suit or proceeding, which would otherwise have the
effect of preventing or delaying the Closing. If requested by Albertson's,
ASC will divest, hold separate, or otherwise take or commit to take any
action that limits its freedom of action with respect to, or its ability to
retain, any of the businesses, product lines or assets of ASC or any of its
subsidiaries, provided that any such action is conditioned upon the
consummation of the Merger. ASC has agreed and acknowledged that, in
connection with any filing or submission required, action to be taken or
commitment to be made by Albertson's, ASC or any of its respective
subsidiaries to consummate the Merger or other transactions contemplated in
the Agreement, neither ASC nor any of its subsidiaries will, without
Albertson's prior written consent, divest any assets, commit to any
divestiture of assets or businesses of ASC and its subsidiaries or take any
other action or commit to take any action that would limit ASC's,
Albertson's or any of their subsidiaries' freedom of action with respect
to, or their ability to retain, any of their businesses, product lines or
assets. Each of Albertson's and ASC has also agreed to use its reasonable
best efforts to avoid the entry of, or to have vacated or terminated, any
decree, order, or judgment that would restrain, prevent or delay the
Merger, on or before June 30, 1999, including without limitation defending
through litigation on the merits any claim asserted in any court by any
party.
Notwithstanding the foregoing, (x) Albertson's is not required to
agree to the sale, transfer, divestiture or other disposition of stores of
Albertson's, ASC or any of their subsidiaries having aggregate gross annual
sales for the fiscal year ended in January 1998 in excess of 6% of the
combined gross annual sales of ASC, Albertson's and their respective
subsidiaries taken as a whole for such period (which is equivalent to
approximately $2 billion in sales) and (y) other than the sale, transfer,
divestiture or other disposition of stores having revenues up to the gross
annual amount referenced in clause (x) of this paragraph, neither
Albertson's nor ASC is required to take any actions or make any commitments
or agreements, if the taking of such action or the making of any
commitments or the consequences thereof, individually or in the aggregate,
would be reasonably likely to result in any change in or effect (x) that is
or will be materially adverse to the business, results of operations, or
financial condition of Albertson's and its subsidiaries taken as a whole,
or (y) that will prevent or materially impair Albertson's ability to
consummate the Merger (an "Albertson's Material Adverse Effect"); provided
that an Albertson's Material Adverse Effect shall not include changes or
effects (1) relating to economic conditions or financial markets in general
or the retail food and drug industry in general or (2) resulting from
actions required to be taken by the terms of the Agreement. A decline in
the stock market price of the shares of Albertson's Common Stock in and of
itself shall not be deemed an Albertson's Material Adverse Effect.
BENEFIT PLANS
Albertson's has agreed that from and after the Effective Time, it will
honor, or cause to be honored, in accordance with their terms, all existing
employment and severance agreements to which ASC or any of its subsidiaries
is a party and all of ASC's obligations under its benefit plans.
Albertson's has agreed that for a period of one year after the Effective
Time, it will cause to be provided to employees of ASC who continue to be
employees of Albertson's after the Effective Time (other than those subject
to a collective bargaining agreement or party to an individual change in
control employment agreement or similar agreement) the same base salary as
was in effect immediately prior to August 2, 1998 and substantially
identical welfare, retirement and savings benefits as were provided
immediately prior to the Effective Time. For that one year period, those
employees will also have annual cash bonus opportunities substantially
identical to those of similarly situated Albertson's employees and
opportunities to receive equity-based awards of Albertson's on the same
basis as similarly situated employees of Albertson's. ASC employees will
also receive (i) credit for years of service with ASC for purposes of
eligibility and vesting (but not for benefits accrual) under any
Albertson's benefit plans in which they may participate, (ii) a waiver of
any pre-existing condition exclusions and actively at work requirements
under any Albertson's benefit plan in which they may participate that
provides medical, dental or vision benefits, and (iii) credit under any
Albertson's
-44-
<PAGE>
benefit plan in which they may participate for eligible expenses incurred
on or before the Effective Time for the purpose of satisfying all
deductible and similar requirements for the applicable plan year. Certain
of ASC's non-union, non-officer employees located in Salt Lake City who are
employed on the date the Agreement was executed and on the Effective Date
will be eligible to receive (i) a bonus equal to five weeks pay and (ii) a
termination allowance pursuant to the existing ASC Termination Allowance
Plan, if he or she voluntarily terminates his or her employment within
three months following receipt of notification from Albertson's that (A)
his or her base salary is being reduced to an amount less than 80% of his
or her base salary as of the date of the Agreement, (B) he or she is being
required by Albertson's or its subsidiaries to relocate his or her
employment to a facility which increases his or her commute from his or her
then current home by more than 35 miles (but only if he or she does not
relocate) or (C) his or her target bonus opportunity in the aggregate under
all applicable annual cash bonus plans in which he or she then participates
is less than 80% of the amount of such opportunity as of the date of the
Agreement (assuming the employee is otherwise eligible for benefits under
the ASC Termination Allowance Plan), with a minimum guarantee of seven
weeks severance pay in the event of termination. In addition, Albertson's
has agreed to provide relocation benefits in an amount up to $40,000 to any
employee whose employment is terminated by Albertson's or any of its
subsidiaries without cause or by such employee within three months
following receipt of notification from Albertson's of an event described in
subclause (A), (B), or (C) of clause (ii) of the immediately preceding
sentence, in either case within one year following the consummation of the
Merger, but only if the employee had relocated under the ASC relocation
program to Salt Lake City within four years preceding the consummation of
the Merger and is employed in Salt Lake City at the time of such
termination.
GOVERNANCE
Albertson's will cause the number of directors comprising the full
Board of Directors of Albertson's at the Effective Time to be increased by
five directors. To fill the vacancies resulting from such newly created
directorships, Albertson's has agreed to cause Fernando R. Gurnucio, Arthur
K. Smith, Pamela G. Bailey, Henry I. Bryant and Victor L. Lund, who are
currently serving as directors of ASC, to be elected as directors of
Albertson's. If, prior to the Effective Time, any of such persons shall
decline or be unable to serve as a director, ASC is permitted to designate
another person to serve in such person's stead, which person must be
reasonably acceptable to Albertson's. See "MANAGEMENT AND OPERATIONS AFTER
THE MERGER."
INDEMNIFICATION AND INSURANCE
From and after the Effective Time, Albertson's has agreed to, or to
cause the surviving corporation of the Merger to, indemnify and hold
harmless each present and former director and officer of ASC or any of its
subsidiaries (when acting in said capacity) (the "Indemnified Parties"),
against all costs or expenses (including reasonable attorneys' fees)
judgments, fines, losses, claims, damages, or liabilities in connection
with any claim, action, suit, proceeding or investigation (whether civil,
criminal, administrative or investigative) for acts or omissions, existing
or occurring at or prior to the Effective Time, whether asserted or claimed
prior to, at or after the Effective Time to the fullest extent permitted
under the DGCL or other applicable law.
For a period of six years after the Effective Time, Albertson's has
agreed to maintain, or cause the surviving corporation of the Merger to
maintain, a policy of directors' and officers' liability insurance ("D&O
Insurance") for acts and omissions occurring prior to the Effective Time
with coverage in amount and scope at least as favorable as ASC's existing
directors' and officers' liability insurance coverage, provided, however,
if the existing D&O Insurance expires, is terminated or cancelled or if the
annual premium therefor is increased to an amount in excess of 200% of the
last annualized premium paid prior to the date of the execution of the
Agreement (the "Cap"), Albertson's or the surviving corporation in the
Merger is only required to obtain D&O Insurance in an amount and scope as
great as can be obtained for the remainder of such period for a premium not
in excess (on an annualized basis) of the Cap.
CONDITIONS
The respective obligations of ASC and Albertson's to consummate the
Merger are subject to the fulfillment of each of the following conditions,
among others: (a) the approval and adoption of the Agreement and the
approval of the Merger by holders of a majority of the outstanding shares
of ASC Common Stock, and the approval of the Stock Issuance by a majority
of the votes cast at the Albertson's Special Meeting (provided that a
majority of the total shares of Albertson's Common Stock entitled to vote
are present in person or by proxy and are voted); (b) the waiting period
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated; (c) none of the parties to the Agreement shall
be subject to any order, decree or injunction making the
-45-
<PAGE>
Merger illegal or otherwise prohibiting the consummation of the Merger; (d)
the Registration Statement shall have become effective under the Securities
Act and no stop order with respect thereto shall be in effect; and (e) the
shares of Albertson's Common Stock be issued pursuant to the Merger shall
have been duly approved for listing on the NYSE, subject to official notice
of issuance.
The obligations of each of ASC and Albertson's to effect the Merger
are also subject to the satisfaction or waiver by the other party prior to
the Effective Time of the following conditions, among others: (a) (i) the
representations and warranties of the other party set forth in the
Agreement that are qualified by ASC Material Adverse Effect (as defined
below) or Albertson's Material Adverse Effect, as the case may be, shall be
true and correct as of the Closing Date (except to the extent such
representations and warranties shall have been expressly made as of an
earlier date, in which case such representations and warranties shall have
been true and correct as of such earlier date) with the same force and
effect as if made on and as of the Closing Date, and (ii) the
representations and warranties of the other party set forth in the
agreement that are not qualified by ASC Material Adverse Effect or
Albertson's Material Adverse Effect, as the case may be, shall be true and
correct as of the Closing Date (except to the extent such representations
and warranties shall have been expressly made as of an earlier date, in
which case such representations and warranties shall have been true and
correct as of such earlier date) with the same force and effect as if made
on and as of the Closing Date except to the extent that any failures of
such representations and warranties to be so true and correct (determined
without regard to materiality qualifiers or limitations contained therein),
individually or in the aggregate, would not reasonably be expected to have
resulted in an ASC Material Adverse Effect or an Albertson's Material
Adverse Effect, as the case may be; (b) the other party shall have complied
in all material respects with all agreements and covenants required by the
Agreement to be performed or complied with by it on or before the Effective
Time; (c) each party shall have received an opinion of tax counsel that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; (d) ASC and Albertson's
shall have each received from the other party's independent accountants (i)
comfort letters (one dated a date within two business days before the date
the Registration Statement becomes effective and one dated the Closing
Date) covering matters customarily included in such comfort letters
relating to registration statements similar to the Registration Statement
and (ii) letters (one dated a date within two business days before the date
the Registration Statement becomes effective and one dated the Closing
Date) stating as of the respective dates of the letters that, in the case
of the letters to be received by Albertson's, ASC's independent accountants
are not aware of any conditions that exist that would preclude ASC's
ability to be a party in a business combination to be accounted for as a
pooling of interests and, in the case of the letters to be received by ASC,
that accounting for the Merger as a pooling of interests under Opinion 16
of the Accounting Principles Board and applicable Commission rules and
regulations is appropriate if the Merger is closed and consummated as
contemplated by the Agreement; and (e) the other party shall have obtained
all consents from, and shall have made all filings necessary with any
person (including any governmental entity) necessary to be obtained in
order to consummate the Merger, unless the failure to obtain such consents
or make such filings would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the other
party.
For purposes of the Agreement, "ASC Material Adverse Effect" means any
change in or effect (x) that is or will be materially adverse to the
business, results of operations, or financial condition of ASC and its
subsidiaries taken as a whole, or (y) that will prevent or materially
impair ASC's ability to consummate the Merger; provided that an ASC
Material Adverse Effect shall not include changes or effects (1) relating
to economic conditions or financial markets in general or the retail food
and drug industry in general, (2) resulting from the voluntary termination
of employment by employees of ASC and its subsidiaries between the date of
the Agreement and the Closing Date or (3) resulting from actions required
to be taken by the terms of the Agreement. A decline in the stock market
price of the shares of ASC Common Stock in and of itself shall not be
deemed an ASC Material Adverse Effect.
TERMINATION
The Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time: (a) by the mutual consent of ASC and
Albertson's; or (b) by either ASC or Albertson's if (i) the Merger shall
not have been consummated by June 30, 1999, provided that the right to
terminate the Agreement shall not be available to any party whose failure
to fulfill any obligation has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before June 30, 1999, (ii) the
required approvals of the stockholders of the other party shall not have
been obtained at a duly held stockholders' meeting, including any
adjournments or postponements thereof, (iii) any governmental entity shall
have issued a final and nonappealable order, decree or injunction having
-46-
<PAGE>
the effect of making the Merger illegal or permanently prohibiting the
consummation of the Merger; provided that the party seeking to terminate
the Agreement shall have used its reasonable best efforts to have such
injunction, order or decree lifted or vacated, (iv) any of the
representations, warranties, covenants or agreements of the other party
contained in the Agreement shall have been materially breached, which
breach would result in the failure to satisfy one or more of the conditions
to the terminating party's obligations under the Agreement, and such breach
shall be incapable of being cured or, if capable of being cured, shall not
have been cured within 30 days after written notice thereof shall have been
received by the party alleged to be in breach, (v) if the Board of
Directors of the other party or any committee of the Board of Directors of
the other party (w) shall withdraw or modify in any manner adverse to the
terminating party, its approval or recommendation of the Agreement and the
Merger or the Stock Issuance, as the case may be, (x) shall fail to
reaffirm such approval or recommendation within 15 days of the other
party's request after (1) any Acquisition Proposal shall have been made to
such other party and made known to its stockholders generally or shall have
been made directly to its stockholders generally or (2) any Person shall
have publicly announced an intention (whether or not conditional) to make
an Acquisition Proposal with respect to such other party, (y) shall approve
or recommend any Acquisition Proposal or (z) shall resolve to take any of
the actions specified in clause (w), (x) or (y) above, and (vi) the Board
of Directors of either party shall conclude in good faith, after
considering applicable state law, after consulting with outside counsel,
that in light of a Superior Proposal such action is required to act in a
manner consistent with its fiduciary duties under applicable law, such
party may (only after the terminating party has made such payments as are
provided under "--Termination Fees; Expense Reimbursement," below and only
prior to the approval of the Agreement or the Stock Issuance, as the case
may be, by its stockholders) terminate the Agreement solely in order to
concurrently enter into a definitive acquisition agreement or similar
agreement with respect to any Superior Proposal; provided, however, the
terminating party may not terminate the Agreement pursuant to this clause
(vi) until after the second business day following the delivery to the
other party of written notice advising such other party that the Board of
Directors of the party seeking to terminate is prepared to enter into a
definitive acquisition agreement with respect to a Superior Proposal and
only if, during such two-business day period, the party seeking to
terminate and its Representatives shall, if requested by the other party,
have negotiated in good faith with the other party to make such adjustments
to the terms and conditions of this Agreement as would enable the
terminating party to proceed with the Merger on such adjusted terms.
TERMINATION FEES; EXPENSE REIMBURSEMENT
If (i) either party terminates the Agreement to accept a Superior
Proposal as described in clause (b)(vi) under "--Termination," above, (ii)
a Business Combination Proposal (as defined below) shall have been made to
either party, made known to its stockholders generally or made directly to
its stockholders or any person shall have publicly announced its intention
to make a Business Combination Proposal prior to such party's meeting of
stockholders, and thereafter the Agreement is terminated by reason of the
failure to obtain the required approvals of such party's stockholders (see
clause (b)(ii) under "--Termination," above), and, within six months of the
termination of the Agreement, such party enters into an agreement with any
third party with respect to a Business Combination Proposal or a Business
Combination Proposal is consummated with any third party, (iii) the
Agreement is terminated by reason of the actions of the Board of Directors
of either party as described in clause (b)(v) under "--Termination," above,
or (iv) a Business Combination Proposal shall have been made to either
party or made known to its stockholders generally or shall have been made
directly to its stockholders generally, or any person shall have publicly
announced an intention to make a Business Combination Proposal and the
Agreement is terminated as a result of an intentional breach by the party
receiving the Business Combination Proposal of its representations,
warranties and covenants (as described in clause (b)(iv) under
"--Termination," above), and within six months after such termination such
party shall enter into an agreement with any third party for a Business
Combination Proposal or a Business Combination Proposal is consummated with
any third party, then such party shall pay the other party a termination
fee. The termination fee to be paid by ASC to Albertson's, if required,
shall be $177,000,000 and the termination fee to be paid by Albertson's to
ASC, if required, shall be $240,000,000, in each case net of any fees and
expenses previously reimbursed to the other party. A "Business Combination
Proposal" with respect to either party means (x) any merger, consolidation
or other business combination as a result of which the stockholders of such
party prior to such transaction would cease to hold 66-2/3% (or under
certain circumstances 80%) of the voting securities of the entity surviving
or resulting from such transaction (or the ultimate parent entity thereof),
(y) the acquisition by a person of at least 50% of the voting securities of
such party or (z) the sale, lease, exchange or other disposition of at
least 50% of the assets of such party and its subsidiaries taken as a
whole.
-47-
<PAGE>
If the Agreement is terminated by reason of the failure of either
party's stockholders to approve the Agreement and the Merger or the Stock
Issuance, as the case may be, such party will reimburse the other party for
all fees and expenses incurred by such other party in connection with the
Agreement and the Merger. In no event will any party that is in material
breach of its obligations under the Agreement be entitled to receive a
termination fee or to receive reimbursement of its fees and expenses.
EXPENSES
Subject to the expense reimbursement provisions described above,
whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses, except as otherwise
provided in the Agreement. The Agreement provides that the following
expenses will be shared equally by Albertson's and ASC: (a) the filing fee
in connection with the filing of the Registration Statement and the Proxy
Statement/Prospectus with the Commission, (b) all filing fees in connection
with any filings, permits or approvals required under applicable state
securities or "blue sky" laws and (c) the expenses incurred in connection
with printing and mailing the Registration Statement and this Proxy
Statement/Prospectus.
AMENDMENT AND WAIVER
The parties may amend the Agreement by written agreement at any time
prior to the Effective Time, to the extent permitted by applicable law. The
conditions to each party's obligation to consummate the Merger may be
waived by the other party in whole or in part to the extent permitted by
applicable law.
-48-
<PAGE>
THE STOCK OPTION AGREEMENTS
THE ASC STOCK OPTION AGREEMENT
The following is a brief summary of the ASC Stock Option Agreement, a
copy of which is attached hereto as Appendix B and is incorporated herein
by reference in its entirety. This summary is qualified in its entirety by
reference to the full text of the ASC Stock Option Agreement. Capitalized
terms that are used in this section and are not otherwise defined have the
respective meanings given to them in the ASC Stock Option Agreement.
General. Concurrently with the execution of the Agreement and the
Albertson's Stock Option Agreement, Albertson's and ASC also entered into
the ASC Stock Option Agreement, pursuant to which ASC granted Albertson's
an option to purchase, pursuant to the terms and conditions thereof, up to
54,500,000 shares of ASC Common Stock at an exercise price of $30.24 per
share (subject to adjustment upon certain events as provided in the ASC
Stock Option Agreement). In no event will the number of shares for which
the ASC Option is exercisable exceed 19.9% of the shares of ASC Common
Stock issued and outstanding at the time of exercise (without giving effect
to the shares issued or issuable thereunder). The ASC Stock Option
Agreement provides that, upon proper notice to ASC, Albertson's may
exercise the ASC Option in whole or in part from time to time following the
occurrence of a Triggering Event and prior to an Exercise Termination Event
(as such terms are defined below).
Termination. The right to exercise the ASC Option shall terminate upon
either (i) the occurrence of the Effective Time or (ii) (A) if a notice of
exercise has not previously been given, the close of business on the
earlier of (x) the day that is 120 days after the date of a Triggering
Event, (y) the date upon which the Agreement is terminated if no
termination fee could be payable by ASC pursuant to the terms of the
Agreement upon the occurrence of certain events or the passage of time, and
(z) 270 days following the date upon which the Agreement is terminated, and
(B) if the notice of exercise has previously been given, 120 days after the
notice of exercise (the events in (i) and (ii) being referred to as an
"Exercise Termination Event").
Triggering Event. For purposes of the ASC Stock Option Agreement, a
"Triggering Event" will have occurred at such time at which Albertson's
becomes entitled under the Agreement to receive a termination fee from ASC.
If it were to become exercisable, the ASC Stock Option may, for a period of
time, preclude a third party from consummating a pooling transaction with
ASC. See "THE AGREEMENT--Termination Fees; Expense Reimbursement."
Certain Covenants. ASC and Albertson's have each agreed that if a
filing or any clearance is required under the HSR Act, or prior
notification to or prior approval from any regulatory authority is required
under any other law, statute, rule or regulation (including applicable
rules and regulations of national securities exchanges) in connection with
the exercise of the ASC Option, Albertson's or any other person that shall
become a holder of all or part of the ASC Option in accordance with the
terms of the ASC Stock Option Agreement (each such person, including
Albertson's, being referred to as "Holder") or ASC, as required, promptly
after the Notice Date, shall file all necessary notices and applications
for approval and shall expeditiously process the same.
Registration Rights. At any time after a Triggering Event has occurred
and prior to an Exercise Termination Event, ASC has agreed, if requested by
Albertson's in the written notice of exercise, as promptly as practicable
to prepare, file and keep current a shelf registration statement under the
Securities Act, covering any or all shares issued and issuable pursuant to
the ASC Option. ASC has also agreed to use its reasonable best efforts to
cause such registration statement to become effective and remain current
for 365 days after the day the registration statement first becomes
effective or such shorter time as is reasonably appropriate to permit the
sale or other disposition of any shares of ASC Common Stock issued upon
total or partial exercise of the ASC Option in accordance with any plan of
disposition requested by Albertson's. Albertson's may demand two such
registrations.
Repurchase. Upon the occurrence of a Triggering Event and prior to an
Exercise Termination Event, ASC has agreed (i) at the written request of a
Holder delivered within 120 days of such occurrence (or such later period
as provided in the ASC Stock Option Agreement), to repurchase the ASC
Option from such Holder, in whole or in part, at a price equal to the
number of shares of ASC Common Stock then purchasable upon exercise of the
ASC Option (or such lesser number of shares as may be designated in the
repurchase notice) multiplied by the amount by which the ASC Market/Offer
Price (as defined below) exceeds the exercise price or (ii) at the written
request of any owner of shares of ASC Common Stock issued under the ASC
Option (an "Owner") delivered within 120 days of such occurrence (or such
later period as provided in the ASC Stock Option Agreement) to repurchase
from such
-49-
<PAGE>
Owner the number of such shares as is designated in the repurchase notice
at a price per share equal to the ASC Market/Offer Price.
The term "ASC Market/Offer Price" means the highest of (x) the price
per share of ASC Common Stock at which a tender or exchange offer for ASC
Common Stock either has been consummated, or at which a person has publicly
announced its intention to commence a tender or exchange offer, after
August 2, 1998, and prior to the delivery of the repurchase notice, and
which offer either has been consummated and not withdrawn or terminated as
of the date payment of the repurchase price is made, or has been publicly
announced and such intention to make a tender or exchange offer has not
been withdrawn as of the date payment of the repurchase price is made, (y)
the price per share of ASC Common Stock to be paid by any third party
pursuant to an agreement with ASC for a merger, share exchange,
consolidation or reorganization entered into after August 2, 1998 and on or
prior to the delivery of the repurchase notice and (z) the average closing
price for shares of ASC Common Stock on the NYSE for the twenty consecutive
trading days immediately preceding the delivery of the repurchase notice.
In the event that a tender or exchange offer is made for the ASC Common
Stock or an agreement is entered into for a merger, share exchange,
consolidation or reorganization involving consideration other than cash,
the value of the securities or other property issuable or deliverable in
exchange for the ASC Common Stock shall be determined in good faith by a
nationally recognized investment banking firm mutually selected by ASC and
the party seeking such repurchase.
Standstill Provision. Albertson's has agreed that, from the date of
exercise of the ASC Option and for as long as Albertson's owns any shares
of ASC Common Stock acquired pursuant to the exercise of the ASC Option, it
will not, and will not permit its affiliates to, without the prior consent
of the Board of Directors of ASC, (i) acquire or agree, offer, seek or
propose to acquire, ownership of more than 20% of any class of voting
securities of ASC, or any rights or options to acquire such ownership; (ii)
propose a merger, consolidation or similar transaction involving ASC; (iii)
offer, seek or propose to purchase, lease or otherwise acquire all or a
substantial portion of the assets of ASC; (iv) seek or propose to influence
or control the management or policies of ASC or to obtain representation on
the Board of Directors of ASC, or solicit or participate in the
solicitation of any proxies or consents with respect to the securities of
ASC; (v) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing;
or (vi) seek or request permission to do any of the foregoing or seek any
permission to make any public announcement with respect to any of the
foregoing. The above provision will not apply to the actions taken pursuant
to the Agreement. Additionally, Albertson's has agreed not to sell,
transfer any beneficial interest in, pledge, hypothecate or otherwise
dispose of any voting securities of ASC at any time except pursuant to a
tender offer, exchange offer, merger or consolidation of ASC, or in
connection with a sale of all or substantially all of the assets of ASC,
pursuant to a registered public offering or in compliance with Rule 144
promulgated under the Securities Act (or any similar rule). Albertson's has
also agreed to be present in person or to be represented by proxy at all
stockholder meetings of ASC so that all shares of voting securities of ASC
beneficially owned by it or its affiliates may be counted for the purpose
of determining the presence of a quorum at such meetings. Albertson's has
also agreed to vote or cause to be voted all voting securities of ASC
beneficially owned by it or its affiliates proportionately with the votes
cast by all other stockholders present and voting. The provisions described
in this paragraph will terminate at such time as (x) Albertson's
beneficially owns more than 50% of the outstanding ASC Common Stock or (y)
the ASC Option expires without having been exercised in whole or in part.
Limitation on Profit. Notwithstanding any other provision of the ASC
Stock Option Agreement, in no event shall the Albertson's Total Profit (as
defined below) plus any ASC Liquidation Amounts (defined as the aggregate
of all Fees and Expenses and termination fees payable or paid to
Albertson's under the Agreement) exceed in the aggregate $265 million, and,
if it otherwise would exceed this amount, Albertson's, at its sole
election, will either (i) reduce the number of shares of ASC Common Stock
subject to the ASC Option, (ii) deliver to ASC for cancellation shares of
ASC Common Stock previously purchased by Albertson's or any other Holder or
Owner upon exercise of the ASC Option, (iii) pay to ASC cash or refund in
cash ASC Liquidation Amounts previously paid, or reduce or waive the amount
of any ASC Liquidation Amount payable pursuant to the Agreement, or (iv)
any combination thereof, so that Albertson's realized Albertson's Total
Profit, when aggregated with any ASC Liquidation Amounts shall not exceed
$265 million after taking into account the foregoing actions.
"Albertson's Total Profit" means the aggregate amount (before taxes)
of the following: (i) (x) the amount received by Albertson's, any other
Holder and any other Owner pursuant to ASC's repurchase of the ASC Option
(in whole or in part) less, in the case of any repurchase of shares
purchased upon exercise of the ASC Option,
-50-
<PAGE>
(y) Albertson's or such Holder's or Owner's purchase price for such shares,
(ii) (x) the net cash amounts (and the fair market value of any other
consideration) received by Albertson's or another Holder or Owner pursuant
to the sale of shares purchased upon exercise of the ASC Option (or any
other securities into which such shares are converted or exchanged) to any
unaffiliated party, less (y) Albertson's or such Holder's or Owner's
purchase price of such shares, and (iii) the net cash amounts (and the fair
market value of any other consideration) received by Albertson's or another
Holder or Owner on the transfer of the ASC Option (or any portion thereof)
to any unaffiliated party.
Certain Adjustments. In the event of any change in ASC Common Stock by
reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges of shares of the like,
the type and number of securities subject to the ASC Option and the
exercise price will be adjusted appropriately.
THE ALBERTSON'S STOCK OPTION AGREEMENT
The following is a brief summary of the Albertson's Stock Option
Agreement, a copy of which is attached hereto as Appendix C and is
incorporated herein by reference in its entirety. This summary is qualified
in its entirety by reference to the full text of the Albertson's Stock
Option Agreement. Capitalized terms that are used in this section and are
not otherwise defined have the respective meanings given to them in the
Albertson's Stock Option Agreement.
General. Concurrently with the execution of the Agreement and the ASC
Stock Option Agreement, Albertson's and ASC also entered into the
Albertson's Stock Option Agreement, pursuant to which Albertson's granted
ASC an option to purchase, pursuant to the terms and subject to the
conditions thereof, up to 48,800,000 shares of Albertson's Common Stock at
an exercise price of $48.00 per share (subject to adjustment upon certain
events as provided in the Albertson's Stock Option Agreement). In no event
will the number of shares for which the Albertson's Option is exercisable
exceed 19.9% of the shares of Albertson's Common Stock issued and
outstanding at the time of exercise (without giving effect to the shares
issued or issuable thereunder). The Albertson's Stock Option Agreement
provides that, upon proper notice to Albertson's, ASC may exercise the
Albertson's Option in whole or in part from time to time following the
occurrence of a Triggering Event and prior to an Exercise Termination Event
(as such terms are defined below).
Termination. The right to exercise the Albertson's Option shall
terminate upon either (i) the occurrence of the Effective Time or (ii) (A)
if a notice of exercise has not previously been given, the close of
business on the earlier of (x) the day that is 120 days after the date of a
Triggering Event, (y) the date upon which the Agreement is terminated if no
termination fee could be payable by Albertson's pursuant to the terms of
the Agreement upon the occurrence of certain events or the passage of time,
and (z) 270 days following the date upon which the Agreement is terminated,
and (B) if the notice of exercise has previously been given, 120 days after
the notice of exercise (the events in (i) and (ii) being referred to as an
"Exercise Termination Event").
Triggering Event. For purposes of the Albertson's Stock Option
Agreement, a "Triggering Event" will have occurred at such time at which
ASC becomes entitled under the Agreement to receive from Albertson's a
termination fee. If it were to become exercisable, the Albertson's Stock
Option may, for a period of time, preclude a third party from consummating
a pooling transaction with Albertson's. See "THE AGREEMENT--Termination
Fees; Expense Reimbursement."
Certain Covenants. ASC and Albertson's have each agreed that if a
filing or any clearance is required under the HSR Act, or prior
notification to or prior approval from any regulatory authority is required
under any other law, statute, rule or regulation (including applicable
rules and regulations of national securities exchanges) in connection with
the exercise of the Albertson's Option, ASC or any other person that shall
become a holder of all or part of the Albertson's Option in accordance with
the terms of the Albertson's Stock Option Agreement (each such person,
including ASC, being referred to as "Holder") or Albertson's, as required,
promptly after the Notice Date, shall file all necessary notices and
applications for approval and shall expeditiously process the same.
Registration Rights. At any time after a Triggering Event has occurred
and prior to an Exercise Termination Event, Albertson's has agreed if
requested by ASC in the written notice of exercise, as promptly as
practicable to prepare, file and keep current a shelf registration
statement under the Securities Act, covering any or all shares issued and
issuable pursuant to the Albertson's Option and Albertson's has also agreed
to use its reasonable best efforts to cause such registration statement to
become effective and remain current for 365 days after the day the
registration statement first becomes effective or such shorter time as is
reasonably appropriate to
-51-
<PAGE>
permit the sale or other disposition of any shares of Albertson's Common
Stock issued upon total or partial exercise of the Albertson's Option in
accordance with any plan of disposition requested by ASC. ASC may demand
two such registrations.
Repurchase. Upon the occurrence of a Triggering Event and prior to an
Exercise Termination Event, Albertson's has agreed (i) at the written
request of a Holder delivered within 120 days of such occurrence (or such
later period as provided in the Albertson's Stock Option Agreement), to
repurchase the Albertson's Option from such Holder, in whole or in part, at
a price equal to the number of shares of Albertson's Common Stock then
purchasable upon exercise of the Albertson's Option (or such lesser number
of shares as may be designated in the repurchase notice) multiplied by the
amount by which the Albertson's Market/Offer Price (as defined below)
exceeds the exercise price or (ii) at the written request of any owner of
shares of Albertson's Common Stock issued under the Albertson's Option (an
"Owner") delivered within 120 days of such occurrence (or such later period
as provided in the Albertson's Stock Option Agreement) to repurchase from
such Owner the number of shares as is designated in the repurchase notice
at price per share equal to the Albertson's Market/Offer Price.
The term "Albertson's Market/Offer Price" means the highest of (x) the
price per share of Albertson's Common Stock at which a tender or exchange
offer for Albertson's Common Stock either has been consummated, or at which
a person has publicly announced its intention to commence a tender or
exchange offer, after August 2, 1998 and prior to the delivery of the
repurchase notice, and which offer either has been consummated and not
withdrawn or terminated as of the date payment of the repurchase price is
made, or has been publicly announced and such intention to make a tender or
exchange offer has not been withdrawn as of the date payment of the
repurchase notice price is made, (y) the price per share of Albertson's
Common Stock to be paid by any third party pursuant to an agreement with
Albertson's for a merger, share exchange, consolidation or reorganization
entered into after August 2, 1998 and on or prior to the delivery of the
repurchase notice and (z) the average closing price for shares of
Albertson's Common Stock on the NYSE for the twenty consecutive trading
days immediately preceding the delivery of the repurchase notice. In the
event that a tender or exchange offer is made for the Albertson's Common
Stock or an agreement is entered into for a merger, share exchange,
consolidation or reorganization involving consideration other than cash,
the value of the securities or other property issuable or deliverable in
exchange for the Albertson's Common Stock shall be determined in good faith
by a nationally recognized investment banking firm mutually selected by
Albertson's and the party seeking such repurchase.
Standstill Provision. ASC has agreed that, from the date of exercise
of the Albertson's Option and for as long as ASC owns any shares of
Albertson's Common Stock acquired pursuant to the exercise of the
Albertson's Option, it will not, and will not permit its affiliates to,
without the prior consent of the Board of Directors of Albertson's, (i)
acquire or agree, offer, seek or propose to acquire, ownership of more than
20% of any class of voting securities of Albertson's, or any rights or
options to acquire such ownership; (ii) propose a merger, consolidation or
similar transaction involving Albertson's; (iii) offer, seek or propose to
purchase, lease or otherwise acquire all or a substantial portion of the
assets of Albertson's; (iv) seek or propose to influence or control the
management or policies of Albertson's or to obtain representation on the
Board of Directors of Albertson's, or solicit or participate in the
solicitation of any proxies or consents with respect to the securities of
Albertson's; (v) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing;
or (vi) seek or request permission to do any of the foregoing or seek any
permission to make any public announcement with respect to any of the
foregoing. The above provision will not apply to the actions taken pursuant
to the Agreement. Additionally, ASC has agreed not to sell, transfer any
beneficial interest in, pledge, hypothecate or otherwise dispose of any
voting securities of Albertson's at any time except pursuant to a tender
offer, exchange offer, merger or consolidation of Albertson's, or in
connection with a sale of all or substantially all of the assets of
Albertson's, pursuant to a registered public offering or in compliance with
Rule 144 promulgated under the Securities Act (or any similar rule). ASC
has also agreed to be present in person or to be represented by proxy at
all stockholder meetings of Albertson's so that all shares of voting
securities of Albertson's beneficially owned by it or its affiliates may be
counted for the purpose of determining the presence of a quorum at such
meetings. ASC has also agreed to vote or cause to be voted all voting
securities of Albertson's beneficially owned by it or its affiliates
proportionately with the votes cast by all other stockholders present and
voting. The provisions described in this paragraph will terminate at such
time as (x) ASC beneficially owns more than 50% of the outstanding
Albertson's Common Stock or (y) the Albertson's Option expires without
having been exercised in whole or in part.
-52-
<PAGE>
Limitation on Profit. Notwithstanding any other provision of the
Albertson's Stock Option Agreement, in no event shall the ASC Total Profit
(as defined below) plus any Albertson's Liquidation Amounts (defined as the
aggregate of all Fees and Expenses and termination fees payable or paid to
ASC under the Agreement) exceed in the aggregate $360 million, and, if it
otherwise would exceed this amount, ASC, at its sole election, will either
(i) reduce the number of shares of Albertson's Common Stock subject to the
Albertson's Option, (ii) deliver to Albertson's for cancellation shares of
Albertson's Common Stock previously purchased by ASC or any other Holder or
Owner upon exercise of the Albertson's Option, (iii) pay to Albertson's
cash or refund in cash Albertson's Liquidation Amounts previously paid, or
reduce or waive the amount of any Albertson's Liquidation Amount payable
pursuant the Agreement, or (iv) any combination thereof, so that ASC's
realized ASC Total Profit, when aggregated with any Albertson's Liquidation
Amounts, shall not exceed $360 million after taking into account the
foregoing actions.
"ASC Total Profit" means the aggregate amount (before taxes) of the
following: (i) (x) the amount received by ASC, any other Holder and any
other Owner pursuant to Albertson's repurchase of the Albertson's Option
(in whole or in part) less, in the case of any repurchase of shares
purchased upon exercise of the Albertson's Option, (y) ASC's or such
Holders' or Owners' purchase price for such shares, (ii) (x) the net cash
amounts (and the fair market value of any other consideration) received by
ASC or another Holder or Owner pursuant to the sale of shares purchased
upon exercise of the Albertson's Option (or any other securities into which
such shares are converted or exchanged) to any unaffiliated party, less (y)
ASC's purchase price of such shares, and (iii) the net cash amounts (and
the fair market value of any other consideration) received by ASC or
another Holder or Owner on the transfer of the Albertson's Option (or any
portion thereof) to any unaffiliated party.
Certain Adjustments. In the event of any change in Albertson's Common
Stock by reason by stock dividends, split-ups, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges of shares of the like,
the type and number of securities subject to the Albertson's Option and the
exercise price will be adjusted appropriately.
-53-
<PAGE>
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Upon consummation of the Merger, Mr. Michael will continue as Chairman
and Chief Executive Officer of Albertson's and Mr. Lund will serve as Vice
Chairman of Albertson's Board of Directors. Albertson's corporate
headquarters will remain in Boise, Idaho. Albertson's presently intends to
retain the store names currently used by both companies, although the names
of individual stores may change, depending on their size, location and
other factors.
Albertson's will cause the number of directors comprising the full
Albertson's Board of Directors at the Effective Time to be increased by
five directors. To fill the vacancies resulting from such newly created
directorships, Albertson's has agreed to cause Fernando R. Gumucio and
Arthur K. Smith to be elected as directors of Albertson's for terms
expiring at the first annual meeting of Albertson's stockholders following
the Effective Time, Pamela G. Bailey and Henry I. Bryant to be elected as
directors of Albertson's for terms expiring at the second annual meeting of
Albertson's stockholders following the Effective Time, and Victor L. Lund
to be elected as a director of Albertson's for a term expiring at the third
annual meeting of Albertson's stockholders following the Effective Time.
If, prior to the Effective Time, any of such persons shall decline or be
unable to serve as a director, ASC is permitted to designate another person
to serve in such person's stead, which person must be reasonably acceptable
to Albertson's. Biographical information with respect to the designated new
directors of Albertson's is set forth below.
PAMELA G. BAILEY
Ms. Bailey, age 50, has been the Chief Executive Officer of The Healthcare
Leadership Council since 1990. She served as President of the National
Committee for Quality Health Care from February 1987 to January 1997. Ms.
Bailey has served as an ASC director since 1997.
HENRY I. BRYANT
Mr. Bryant, age 55, retired as Managing Director in the Corporate Finance
Unit of J.P. Morgan & Co. Incorporated, an investment banking firm, on
February 1, 1998, after holding that position since August 1994. Prior to
that time, he served as Managing Director of the Financial Institutions
Group at J.P. Morgan from July 1992. Mr. Bryant has served as an ASC
director since 1992.
FERNANDO R. GUMUCIO
Mr. Gumucio, age 63, is owner and President of The Lafayette Group, a
management consulting company, since 1993. He served as the Chairman of the
Board and Chief Executive Officer of Del Monte USA from 1987 to 1988 and as
its President from 1984 to 1987. Mr. Gumucio is also a director of Basic
Vegetable Products Corporation. Mr. Gumucio has served as an ASC director
since 1991.
VICTOR L. LUND
Mr. Lund, age 50, has served as Chairman of the Board of ASC since June
1995 and as Chief Executive Officer since August 1992. He was President of
ASC from August 1992 to June 1995. Mr. Lund is also a director of Borders
Group, Inc. Mr. Lund has served as an ASC director since 1988.
ARTHUR K. SMITH
Mr. Smith, age 61, has served as Chancellor of the University of Houston
System and President of the University of Houston main campus since April
1997. Prior to that, he was President of the University of Utah from August
1991 through March 1997. Mr. Smith is also a director of Shell Exploration
and Production Company, a subsidiary of Shell Oil Company. Mr. Smith has
served as an ASC director since 1992.
-54-
<PAGE>
THE ALBERTSON'S PLAN AMENDMENTS
On April 5, 1995, the Compensation Committee (the "Committee") of the
Albertson's Board of Directors adopted, with authorization from the
Albertson's Board of Directors, and on May 26, 1995, Albertson's
stockholders approved, the Albertson's Inc. 1995 Stock-Based Incentive Plan
(the "Albertson's Plan"). On August 31, 1998, the Albertson's Board of
Directors approved the amendment and restatement of the Albertson's Plan
(renamed the Albertson's, Inc. Amended and Restated 1995 Stock-Based
Incentive Plan), which amendment, included, among other things, increasing
the number of shares of Albertson's Common Stock reserved for issuance
pursuant thereto from 10,000,000 to 30,000,000. The other proposed
amendments to the Albertson's Plan are described under "-- Amendments to
the Albertson's Plan," below. Consummation of the Merger is not conditioned
upon stockholder approval of the Albertson's Plan Amendments; although the
Albertson's Plan Amendments will not become effective unless the Merger is
consummated. Under the terms of the Albertson's Plan, stock options or
other awards (collectively, the "Awards") may be granted to key employees
and non-employee directors of Albertson's or its subsidiaries to purchase
or otherwise acquire shares of Albertson's Common Stock.
SUMMARY OF THE ALBERTSON'S PLAN
A copy of the Albertson's Plan, as amended and restated to reflect the
Albertson's Plan Amendments, is set forth in Appendix F to this Proxy
Statement/Prospectus and is incorporated herein by reference. Following is
a summary of the provisions of the Albertson's Plan as amended and
restated. References in the summary to the "Albertson's Plan" are to such
plan as amended by the Albertson's Plan Amendments. Such summary is
qualified in its entirety by reference to the text of the Albertson's Plan.
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Albertson's Plan.
The purposes of the Albertson's Plan are to aid in the retention of
key employees and non-employee directors and to further align the long-term
interests of key employees and non-employee directors with those of the
stockholders of Albertson's.
The Albertson's Plan permits Albertson's to grant to key employees and
non-employee directors of Albertson's, or its subsidiaries, Awards which
may include Nonqualified Stock Options, Incentive Stock Options, Restricted
or Deferred Stock, Stock Appreciation Rights, alone or in tandem with
Options, or other stock-based incentive Awards.
The Albertson's Plan will be administered by the Committee. Subject to
the limitations in the Albertson's Plan, the Committee has the authority to
determine and designate the key employees and non-employee directors to
whom Awards are to be granted, the number of shares of Albertson's Common
Stock to be awarded, the restrictions, if any, on the shares of Albertson's
Common Stock issuable upon the exercise of the Award, the terms for payment
of the Award price and the terms and conditions of each Award. The
Committee may not, however, reduce the exercise price of an Option after
the date of its grant.
Consideration for the Awards to be granted under the Albertson's Plan
will be provided by the past, present and expected future contributions to
the management of Albertson's made by the key employees and non-employee
directors to whom Awards are granted. Other than the exercise price of
Options, no monetary consideration is expected to be provided by the key
employees and non-employee directors with respect to the grant of the
Awards. It is not possible currently to estimate the number or identity of
future key employees or non-employee directors to be granted Awards under
the Albertson's Plan.
An aggregate of 30,000,000 shares of Albertson's Common Stock has been
reserved for purposes of the Albertson's Plan; provided, however, that not
more than one tenth of such shares reserved may be made the subject of
Awards other than Options and Stock Appreciation Rights. The Albertson's
Common Stock delivered in connection with Awards granted under the
Albertson's Plan may be either authorized and unissued shares or issued
shares reacquired by Albertson's and thereafter held as treasury shares.
Any shares of Albertson's Common Stock as to which an Award granted under
the Albertson's Plan remains unvested and/or unexercised at the expiration
thereof or terminates unvested and/or unexercised, may be the subject of
future Awards. In addition, if any Option is exercised by tendering shares
to Albertson's as full or partial payment of the exercise price, the number
of shares available under the Albertson's Plan will be increased by the
number of shares so tendered. The Albertson's Plan provides for adjustment
of the aggregate number of shares available under the Albertson's Plan and
of the number
-55-
<PAGE>
of shares then subject to any outstanding Award upon the occurrence of
certain events. These events include, among other things, stock dividends,
stock splits and exchanges for a different number or kind of shares of
stock or other securities. No more than 10% of the number of shares of
Albertson's Common Stock reserved for issuance under the Albertson's Plan
may be the subject of Awards granted to any one individual during the life
of the Albertson's Plan.
Both Nonqualified Stock Options and Incentive Stock Options may be
granted under the Albertson's Plan. The per share exercise price of the
Options is fixed when the Options are granted and, unless otherwise
established by the Committee, must be at least 100% of the Fair Market
Value of a share of Albertson's Common Stock on the date the Option is
granted (110% in the case of an Incentive Stock Option granted to a
"ten-percent stockholder" as provided in Section 422 of the Code). Each
Option will be exercisable at the times and in the installments determined
at the time of grant and as provided for in a Stock Option Agreement or
subsequently by the Committee. In the discretion of the Committee, the
exercise price for shares of Albertson's Common Stock acquired pursuant to
the exercise of an Option may be paid (i) in cash, or (ii) by transferring
shares of Albertson's Common Stock (either actually or by attestation) to
Albertson's, or (iii) by a combination of the foregoing.
Options may be exercised by the Optionee during his or her employment
or, in the case of a non-employee director, service as a director, with
Albertson's or a subsidiary, or after termination of the Optionee's
employment or service with Albertson's or a subsidiary in accordance with
the following terms of the Albertson's Plan: (i) if the employment or
service of an Optionee is terminated involuntarily by Albertson's or a
subsidiary or if the Optionee receives a Demotion (as defined in the
Albertson's Plan), the right to exercise any outstanding Options, to the
extent exercisable, held by such Optionee terminates on the date such
Options expire or three months following such Demotion or involuntary
termination, whichever first occurs, or such other period (not beyond the
expiration date of the Option) as determined by the Committee; (ii) if the
employment or service of an Optionee is interrupted by reason of a
"disability" (as described in the Plan) (a "Disability Determination"), the
right to exercise any outstanding Options, to the extent exercisable, held
by such Optionee terminates on the date such Options expire or within three
years of the date that the first disability benefit payment is made in
connection with the Disability Determination, whichever is the shorter
period, or such other period (not beyond the expiration date of the Option)
as determined by the Committee; (iii) if an Optionee's employment
terminates as the result of retirement of the Optionee (as described in the
Albertson's Plan) an Optionee with a Nonqualified Stock Option may exercise
any outstanding Nonqualified Stock Option at any time prior to the
expiration date of the Nonqualified Stock Option, or such other period as
determined by the Committee, and an Optionee with an Incentive Stock Option
may exercise any outstanding Incentive Stock Option at any time prior to
the expiration date of the Incentive Stock Option or within three months
following the effective date of the Optionee's retirement, whichever is the
shorter period; (iv) if an Optionee shall die while an employee or while
serving as a director or within three months after a Disability
Determination, the Optionee's Options may be exercised by the person or
persons entitled to do so at any time prior to the expiration date of such
Options or within three years of the date of the Optionee's death,
whichever is the shorter period, or such other period (not beyond the
expiration date of the Option) as determined by the Committee; (v) if an
Optionee dies within three months after the involuntary termination of the
Optionee's employment, the Optionee's Options may be exercised at any time
prior to the expiration date of such Options or within one year of the date
of the Optionee's death whichever is the shorter period, or such other
period (not beyond the expiration date of the Option) as determined by the
Committee. Under the terms of the Albertson's Plan, any right to exercise
outstanding Options during any such period following a termination of
employment or service exists only to the extent such Options were
exercisable immediately preceding the termination of employment or service,
unless the Committee waives the restrictions relating to exercisability.
Upon expiration of any such period, all of an Optionee's rights under an
Option lapse.
The Albertson's Plan permits the Albertson's Board of Directors to
provide that the restrictions on shares of Restricted Stock or any other
Award may lapse upon the achievement by Albertson's of specified
performance goals. Such performance goals may be expressed in terms of one
or more financial or other objective goals listed below which may be
company-wide or otherwise, including on a divisional basis, regional basis
or on an individual basis. Financial goals may be expressed in terms of
sales, earnings per share, stock price, return on equity, net earnings
growth, net earnings, related return ratios, cash flow, EBITDA, return on
assets, total stockholder return, reductions in overhead ratio and/or
expense to sales ratios, or any one or more of the foregoing. Any criteria
may be measured in absolute terms or as compared to another company or
companies. To the extent applicable, any such performance goal shall be
determined (i) in accordance with the audited financial statements of
Albertson's and generally accepted accounting principles and reported upon
by the independent accountants of Albertson's or
-56-
<PAGE>
(ii) so that a third party having knowledge of the relevant facts could
determine whether such performance goal is met.
To the extent agreements relating to Awards entered into under the
Albertson's Plan contain provisions restricting the exercise of the related
Awards during an employment period following the date of grant, the
Albertson's Plan contains provisions that would cause all outstanding
Awards subject to such agreements to become immediately exercisable upon
the occurrence of certain events related to a Change of Control or possible
Change of Control of Albertson's.
No Awards may be granted under the Albertson's Plan after May 25,
2005. No Award granted under the Albertson's Plan will be transferable
except in the event of the death of a Participant or, in the case of an
Award other than an Incentive Stock Option, pursuant to a domestic
relations order. In addition, the Albertson's Board of Directors or the
Committee may set forth in the agreement evidencing an Award (other than an
Incentive Stock Option) that the Award may be transferred to members of the
Participant's immediate family or to specific entities maintained solely
for the benefit of such Participant's immediate family members.
Restrictions with regard to the Awards such as forfeiture upon termination
of employment and the term of Award granted will be specified by the
Committee at the time of grant of such Awards or thereafter. Termination of
the Albertson's Plan will not affect rights under any Awards outstanding as
of the date of termination.
The Albertson's Board of Directors may amend, alter or discontinue the
Albertson's Plan as it shall deem advisable; provided, however, that no
amendment, alteration or discontinuance may impair the rights of a
Participant under any outstanding Award without such Participant's consent.
AMENDMENTS TO THE ALBERTSON'S PLAN
The Board of Directors amended the Albertson's Plan to increase by
20,000,000 the number of shares of Albertson's Common Stock reserved for
issuance pursuant thereto, subject to stockholder approval of the
Albertson's Plan and the consummation of the Merger. The principal purpose
of this amendment was to enable Albertson's to continue to offer incentive
compensation to key employees and non-employee directors, the number of
whom is expected to increase following the Merger.
The Albertson's Plan was also amended by the Albertson's Board of
Directors, subject to stockholder approval of the Albertson's Plan and the
consummation of the Merger, among other things, to (i) permit non-employee
directors to participate in the Albertson's Plan, (ii) prohibit the
repricing of Awards, (iii) provide the Committee the flexibility to
determine the exercisability of Options following termination of employment
or service as a director, (iv) provide for the limited transferability of
Awards to a Participant's immediate family members or to certain entities
maintained solely for their benefit, (v) provide that shares of Albertson's
Common Stock tendered as full or partial payment of the exercise price of
an Option may be available for future grants, and (vi) set forth the
performance goals to which the vesting of restricted stock awards or
deferred stock awards may be subject.
Consummation of the Merger is not conditioned upon the approval of the
Albertson's Plan Amendments; although the Albertson's Plan Amendments will
not become effective unless the Merger is consummated.
NEW PLAN BENEFITS
The grant of Awards under the Albertson's Plan as amended and restated
is subject to the discretion of the Committee. The Committee has not
granted any Awards under the Albertson's Plan as amended and restated.
Accordingly, Albertson's cannot currently determine the number of shares of
Albertson's Common Stock that may be subject to Awards granted thereunder
in the future to key employees and directors generally.
FEDERAL INCOME TAX CONSEQUENCES
The following is a limited summary of the principal United States
federal income tax consequences under current federal income tax law
relating to the grant and exercise of Options granted under the Albertson's
Plan, and the ownership and disposition of the underlying securities. This
information is not a definitive explanation of the tax consequences of such
Options, and among other things, does not describe state, local and other
tax consequences.
In general, an Optionee will not recognize taxable income upon the
grant or exercise of an Incentive Stock Option, and Albertson's and its
subsidiaries will not be entitled to any business expense deduction with
respect to the grant or exercise of an Incentive Stock Option. (However,
upon the exercise of an Incentive Stock Option, the
-57-
<PAGE>
excess of the fair market value on the date of exercise of the shares
received over the exercise price of the Options will be treated as an
adjustment to alternative minimum taxable income.) In order for the
exercise of an Incentive Stock Option to qualify as an Incentive Stock
Option, an Optionee generally must be an employee of Albertson's or a
subsidiary (within the meaning of Section 422 of the Code) from the date
the Incentive Stock Option is granted through the date three months before
the date of exercise (one year preceding the date of exercise in the case
of an Optionee whose employment is terminated due to disability). The
employment requirement does not apply where an Optionee's employment is
terminated due to his or her death.
If the Optionee has made no disposition of the shares acquired upon
exercise of an Incentive Stock Option for at least two years after the date
of grant and held the shares for at least one year after the date of
exercise, when the Optionee disposes of the shares, the difference, if any,
between the sales price of the shares and the exercise price of the Option
will be treated as long-term capital gain or loss. If an Optionee disposes
of the shares prior to satisfying these holding period requirements (a
"Disqualifying Disposition"), the Optionee will recognize ordinary income
(treated as compensation) at the time of the Disqualifying Disposition,
generally in an amount equal to the excess of the fair market value of the
shares at the time the Option was exercised over the exercise price of the
Option. The balance of the gain realized, if any, will be long-term or
short-term capital gain, depending upon whether the shares have been held
for at least twelve months after the date of exercise. If the Optionee
sells the shares in a Disqualifying Disposition at a price below the fair
market value of the shares at the time the Option was exercised, the amount
of ordinary income (treated as compensation) will be limited to the amount
realized on the sale over the exercise price of the Option. In general, if
Albertson's and its subsidiaries comply with applicable income reporting
requirements, Albertson's and its subsidiaries will be allowed a business
expense deduction to the extent the Optionee recognizes ordinary income.
In general, an Optionee who receives a Nonqualified Stock Option will
recognize no income at the time of the grant of the Option. Upon exercise
of a Nonqualified Stock Option, an Optionee will recognize ordinary income
(treated as compensation) in an amount equal to the excess of the fair
market value of the shares on the date of exercise over the exercise price
of the Option. The basis in shares acquired upon exercise of a Nonqualified
Stock Option will equal the fair market value of such shares at the time of
exercise, and the holding period of the shares (for capital gain purposes)
will begin on the date of exercise. In general, if Albertson's and its
subsidiaries comply with applicable income reporting requirements, they
will be entitled to a business expense deduction in the same amount and at
the same time as the Optionee recognizes ordinary income. In the event of a
sale of the shares of Albertson's Common Stock received upon the exercise
of a Nonqualified Stock Option, any appreciation or depreciation after the
exercise date generally will be taxed as long-term or short-term capital
gain or loss depending upon whether the shares have been held for at least
twelve months after the date of exercise.
Special rules may apply with respect to persons who may be subject to
Section 16(b) of the Exchange Act. Optionees who are or may become subject
to Section 16 of the Exchange Act should consult with their own tax
advisors in this regard.
Under certain circumstances, the accelerated vesting or exercise of
options in connection with a Change in Control might be deemed an "excess
parachute payment" for purposes of the golden parachute tax provisions of
Section 280G of the Code. To the extent it is so considered, an Optionee
may be subject to a 20% excise tax and Albertson's and its subsidiaries may
be denied a tax deduction.
Section 162(m) of the Code generally disallows a federal income tax
deduction to any publicly-held corporation for compensation paid in excess
of $1 million in any taxable year to the chief executive officer or any of
the four other most highly compensated executive officers who are employed
by Albertson's on the last day of the taxable year, but does not disallow a
deduction for qualified "performance-based compensation," the material
terms of which are disclosed to and approved by stockholders. Albertson's
has established the Albertson's Plan and the Committee intends to
administer the Albertson's Plan as amended and restated in a manner such
that compensation attributable to Options will not be subject to the
deductibility limitation imposed by Section 162(m) of the Code.
THE ALBERTSON'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALBERTSON'S
STOCKHOLDERS VOTE FOR THE ALBERTSON'S PLAN AMENDMENTS.
-58-
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial statements are based on the
historical consolidated financial statements of Albertson's and ASC and
give effect to the Merger as a pooling of interests. The unaudited pro
forma combined statements of earnings for the first 26 weeks of fiscal
years 1998 and 1997 and fiscal years 1997, 1996 and 1995 assume that as if
the Merger had been consummated as of the beginning of the earliest period
presented. The unaudited pro forma combined balance sheet data assume that
the Merger had been consummated on July 30, 1998, with respect to
Albertson's and August 1, 1998, with respect to ASC. The unaudited pro
forma adjustments described in the accompanying notes are based upon
preliminary estimates and certain assumptions that the managements of
Albertson's and ASC believe are reasonable.
The unaudited pro forma financial statements are not necessarily
indicative of actual or future financial position or results of operations
that would have or will occur upon consummation of the Merger, and should
be read in conjunction with the audited and unaudited historical
consolidated financial statements, including the notes thereto, of
Albertson's and ASC incorporated by reference or appearing elsewhere in
this Proxy Statement/Prospectus. See "AVAILABLE INFORMATION and "DOCUMENTS
INCORPORATED BY REFERENCE."
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(Amounts in thousands, except per share data)
<CAPTION>
26 Week Period Ended July 30, 1998
-------------------------------------------------------------------
Albertson's
Albertson's ASC Combined
26 Weeks 26 Weeks 26 Weeks
July 30, 1998 August 1, 1998 Adjustments July 30, 1998
-------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Sales .............................. $ 7,843,305 $ 9,822,702 -- $ 17,666,007
Cost of sales ...................... 5,749,491 7,237,190 -- 12,986,681
-------------- -------------- ----------- --------------
Gross profit ....................... 2,093,814 2,585,512 -- 4,679,326
Selling, general and
administrative expenses .......... 1,645,627 2,198,505 -- 3,844,132
Impairment and
restructuring .................... 29,423 -- -- 29,423
-------------- -------------- ----------- --------------
Operating profit ................... 418,764 387,007 -- 805,771
Other (expenses) income:
Interest, net .................... (51,110) (117,269) -- (168,379)
Other, net ....................... 14,777 -- -- 14,777
-------------- -------------- ----------- --------------
Earnings before income
taxes ............................ 382,431 269,738 -- 652,169
Income taxes ....................... 143,412 115,717 -- 259,129
-------------- -------------- ----------- --------------
Net earnings ....................... $ 239,019 $ 154,021 -- $ 393,040
============== ============== =========== ==============
Earnings per share:
Basic ............................ $ 0.97 $ 0.56 $ 0.94(b)
Diluted .......................... $ 0.97 $ 0.56 $ 0.93(b)
Weighted average shares outstanding:
Basic ............................ 245,716 274,189 418,455(a)
Diluted .......................... 246,798 275,752 420,522(a)
</TABLE>
See notes to unaudited pro forma combined financial data on page 65.
-59-
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(Amounts in thousands, except per share data)
<CAPTION>
26 Week Period Ended July 31, 1997
-------------------------------------------------------------------
Albertson's ASC Combined
26 Weeks 26 Weeks 26 Weeks
July 31, 1997 August 2, 1997 Adjustments July 31, 1997
-------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Sales .............................. $ 7,288,050 $ 9,510,818 -- $ 16,798,868
Cost of sales ...................... 5,427,384 6,973,564 -- 12,400,948
-------------- -------------- ----------- --------------
Gross profit ....................... 1,860,666 2,537,254 -- 4,397,920
Selling, general and
administrative expenses .......... 1,478,332 2,143,903 -- 3,622,235
Impairment and
restructuring .................... -- 13,400 -- 13,400
-------------- -------------- ----------- --------------
Operating profit ................... 382,334 379,951 -- 762,285
Other (expenses) income:
Interest, net .................... (38,855) (104,652) -- (143,507)
Shareholder related expense ...... -- (33,913) -- (33,913)
Other, net ....................... 9,045 -- -- 9,045
-------------- -------------- ----------- --------------
Earnings before income taxes ....... 352,524 241,386 -- 593,910
Income taxes ....................... 133,818 117,204 -- 251,022
-------------- -------------- ----------- --------------
Net earnings ....................... $ 218,706 $ 124,182 -- $ 342,888
============== ============== =========== ==============
Earnings per share:
Basic ............................ $ 0.88 $ 0.44 $ 0.81(b)
Diluted .......................... $ 0.87 $ 0.44 $ 0.80(b)
Weighted average shares outstanding:
Basic ............................ 249,827 279,386 425,840(a)
Diluted .......................... 250,524 280,808 427,433(a)
</TABLE>
See notes to unaudited pro forma combined financial data on page 65.
-60-
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(Amounts in thousands, except per share data)
<CAPTION>
FISCAL YEAR 1997
----------------------------------------------------------------------------
Albertson's ASC
52 Weeks 52 Weeks Combined
January 29, 1998 January 31, 1998 Adjustments Fiscal Year 1997
---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Sales ......................... $ 14,689,511 $ 19,138,880 -- $ 33,828,391
Cost of sales ................. 10,807,687 14,039,263 -- 24,846,950
---------------- ---------------- ----------- ----------------
Gross profit .................. 3,881,824 5,099,617 -- 8,981,441
Selling, general and
administrative expenses ..... 2,990,172 4,317,576 -- 7,307,748
Impairment and
restructuring ............... 13,400 -- 13,400
---------------- ---------------- ----------- ----------------
Operating profit .............. 891,652 768,641 -- 1,660,293
Other (expenses) income:
Interest, net ............... (82,563) (211,063) -- (293,626)
Shareholder related expense . (33,913) -- (33,913)
Other, net .................. 17,814 -- 17,814
Earnings before income taxes .. 826,903 523,665 1,350,568
Income taxes .................. 310,089 243,045 -- 553,134
---------------- ---------------- ----------- ----------------
Net earnings .................. $ 516,814 $ 280,620 -- $ 797,434
================ ================ =========== ================
Earnings per share:
Basic ....................... $ 2.09 $ 1.02 $ 1.89(b)
Diluted ..................... $ 2.08 $ 1.01 $ 1.88(b)
Weighted average shares
outstanding:
Basic ....................... 247,735 276,409 421,873(a)
Diluted ..................... 248,497 277,769 423,491(a)
</TABLE>
See notes to unaudited pro forma combined financial data on page 65.
-61-
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(Amounts in thousands, except per share data)
<CAPTION>
FISCAL YEAR 1996
---------------------------------------------------------------------------
Albertson's ASC
52 Weeks 52 Weeks Combined
January 30, 1997 February 1, 1997 Adjustments Fiscal Year 1996
---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Sales ...................... $ 13,776,678 $ 18,678,129 -- $ 32,454,807
Cost of sales .............. 10,211,348 13,713,151 -- 23,924,499
---------------- ---------------- ----------- ----------------
Gross profit ............... 3,565,330 4,964,978 -- 8,530,308
Selling, general and
administrative expenses .. 2,715,776 4,220,187 -- 6,935,963
Impairment and
restructuring ............ -- 77,151 -- 77,151
---------------- ---------------- ----------- ----------------
Operating profit ........... 849,554 667,640 -- 1,517,194
Other (expenses) income:
Interest, net ............ (64,569) (163,088) -- (227,657)
Other, net ............... 9,862 -- -- 9,862
---------------- ---------------- ----------- ----------------
Earnings before income taxes 794,847 504,552 -- 1,299,399
Income taxes ............... 301,068 217,331 -- 518,399
---------------- ---------------- ----------- ----------------
Net earnings ............... $ 493,779 $ 287,221 -- $ 781,000
================ ================ =========== ================
Earnings per share:
Basic .................... $ 1.96 $ 0.98 -- $ 1.79(b)
Diluted .................. $ 1.95 $ 0.98 -- $ 1.79(b)
Weighted average shares
outstanding:
Basic .................... 251,710 291,776 -- 435,529(a)
Diluted .................. 252,730 292,651 -- 437,100(a)
</TABLE>
See notes to unaudited pro forma combined financial data on page 65.
-62-
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(Dollar amounts in thousands, except per share data)
<CAPTION>
FISCAL YEAR 1995
---------------------------------------------------------------------------
Albertson's ASC
52 Weeks 53 Weeks Combined
February 1, 1996 February 3, 1996 Adjustments Fiscal Year 1995
---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Sales .............................. $ 12,585,034 $ 18,308,894 -- $ 30,893,928
Cost of sales ...................... 9,371,736 13,558,690 -- 22,930,426
---------------- ---------------- ----------- ----------------
Gross profit ....................... 3,213,298 4,750,204 -- 7,963,502
Selling, general and
administrative expenses .......... 2,406,082 4,048,490 -- 6,454,572
---------------- ---------------- ----------- ----------------
Operating profit ................... 807,216 701,714 -- 1,508,930
Other (expenses) income:
Interest, net .................... (55,633) (150,798) -- (206,431)
Other, net ....................... 6,918 -- -- 6,918
---------------- ---------------- ----------- ----------------
Earnings before income taxes ....... 758,501 550,916 -- 1,309,417
Income taxes ....................... 293,540 234,107 -- 527,647
---------------- ---------------- ----------- ----------------
Net earnings ....................... $ 464,961 $ 316,809 -- $ 781,770
================ ================ =========== ================
Earnings per share:
Basic ............................ $ 1.84 $ 1.08 -- $ 1.78(b)
Diluted .......................... $ 1.83 $ 1.08 -- $ 1.78(b)
Weighted average shares outstanding:
Basic ............................ 253,080 293,887 -- 438,229(a)
Diluted .......................... 254,093 294,465 -- 439,606(a)
</TABLE>
See notes to unaudited pro forma combined financial data on page 65.
-63-
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(Amounts in thousands)
<CAPTION>
Albertson's ASC Combined
As of As of As of
July 30, 1998 August 1, 1998 Adjustments July 30, 1998
-------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ...... $ 50,462 $ 34,380 $ 15,536 (e) $ 35,378
(65,000) (c)
Accounts and notes receivable .. 123,752 357,890 481,642
Inventories .................... 1,295,697 1,549,924 -- 2,845,621
Prepaid expenses ............... 56,751 80,026 -- 136,777
Deferred income taxes .......... 53,064 13,975 -- 67,039
-------------- -------------- ------------------ --------------
Total current assets ....... 1,579,726 2,036,195 (49,464) 3,566,457
Net land, buildings and
equipment .................... 3,631,321 4,300,317 119,309 (d) 8,050,947
Goodwill, net of accumulated
amortization ................. 91,991 1,600,195 -- 1,692,186
Other assets ................... 250,004 482,696 (119,309) (d) 613,391
-------------- -------------- ------------------ --------------
Total assets ................... $ 5,553,042 $ 8,419,403 $ (49,464) $ 13,922,981
============== ============== ============== ==============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable ............... $ 748,011 $ 1,074,624 -- $ 1,822,635
Salaries and related liabilities 152,877 255,416 -- 408,293
Taxes other than income
taxes ........................ 86,587 -- -- 86,587
Income taxes ................... 1,948 28,999 -- 30,947
Self-insurance ................. 70,236 62,154 -- 132,390
Unearned income ................ 60,260 -- -- 60,260
Other .......................... 58,521 376,250 -- 434,771
Current maturities of long-
term debt and capitalized
lease obligations ............ 15,608 40,287 -- 55,895
-------------- -------------- ------------------ --------------
Total current liabilities .. 1,194,048 1,837,730 -- 3,031,778
Long-term debt and capitalized
lease obligations ............ 1,410,761 3,261,042 -- 4,671,803
Other long-term liabilities
and deferred credits ......... 387,132 888,305 -- 1,275,437
-------------- -------------- ------------------ --------------
Total liabilities .......... 2,991,941 5,987,077 -- 8,979,018
Common stock ................... 245,508 299,778 289 (e) 418,744
(126,831) (f)
Capital in excess of par value . 696 272,654 15,247 (e) --
(288,597) (f)
Retained earnings .............. 2,314,897 2,425,033 (65,000) (c) 4,525,219
(149,711) (f) --
Treasury stock ................. 0 (565,139) 565,139 (f) --
-------------- -------------- ------------------ --------------
Total stockholders' equity . 2,561,101 2,432,326 (49,464) 4,943,963
-------------- -------------- ------------------ --------------
Total liabilities and
stockholders' equity ......... $ 5,553,042 $ 8,419,403 $ (49,464) $ 13,922,981
============== ============== ============== ==============
</TABLE>
See notes to unaudited pro forma combined financial data on page 65.
-64-
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
NOTE 1 - BASIS OF PRESENTATION
On August 2, 1998, Albertson's, ASC and a wholly owned subsidiary of
Albertson's entered into the Agreement providing for the Merger. As a
result of the Merger, each of the then outstanding shares of ASC Common
Stock, would be converted into the right to receive 0.63 shares of
Albertson's Common Stock.
The unaudited pro forma combined financial information has been
prepared assuming that the Merger will be accounted for under the "pooling
of interests" method of accounting. Under this method of accounting, the
assets and liabilities of Albertson's and ASC will be combined based on the
respective carrying values of the accounts in the historical financial
statements of each entity. Results of operations of the combined company
will include income of Albertson's and ASC for the entire fiscal period in
which the combination occurs and the historical results of operations of
the separate companies for fiscal years prior to the Merger will be
combined and reported as the results of operations of the combined company.
Earnings per share data do not reflect the sale by Albertson's of
additional shares in order to meet pooling-of-interest requirements.
The pro forma adjustments represent management's best estimates based
on currently available information. Actual adjustments will differ from
those reflected in the unaudited pro forma combined financial statements.
Albertson's and ASC are still in the process of reviewing their respective
accounting policies relative to those followed by the other entity. As a
result of this review, it may be necessary to restate certain amounts in
Albertson's or ASC's financial statements to conform to those accounting
policies that are most appropriate. In management's opinion, any such
restatements will not be material.
Albertson's and ASC's fiscal years end on the Thursday and Saturday
(respectively) nearest to January 31 of each year. All fiscal years
presented are 52 weeks except ASC's fiscal year 1995 which is a 53 week
year. Unless the context otherwise indicates, reference to a fiscal year
refers to the calendar year in which such fiscal year commences. For
presentation purposes, the date of Albertson's 26 week periods and fiscal
years are utilized to represent the combined company's periods.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Represents the sum of the weighted average number of shares
outstanding of Albertson's Common Stock plus the weighted average
number of shares outstanding of ASC Common Stock multiplied by 0.63
(the Exchange Ratio).
(b) Based upon the computed total weighted average number of shares
outstanding as discussed in (a) above.
(c) Albertson's and ASC estimate that they will incur direct transaction
costs of approximately $65 million (pre-tax) associated with the
Merger. These costs consist primarily of investment banking, legal,
accounting, printing, and regulatory filing fees. The unaudited pro
forma combined balance sheet reflects such expenses as if they had
been paid as of the end of the second quarter 1998.
(d) Adjustment to reclassify land held for development by ASC to conform
to Albertson's classification.
(e) Adjustment to record the sale of 289,000 shares Albertson's Common
Stock prior to the Effective Time in order to meet pooling of
interests accounting requirements.
(f) Represents the conversion (at the Exchange Ratio) of ASC Common Stock
into Albertson's Common Stock. The adjustments also reflect the
retirement of shares ASC's Common Stock held in treasury.
NOTE 3 - MERGER AND INTEGRATION RELATED COSTS
Albertson's and ASC expect to incur charges to operations of
approximately $65 million, pre-tax, for transaction fees and costs incident
to the Merger. These direct incremental Merger costs referred to in Note
2(c) are reflected in the unaudited pro forma combined balance sheet as if
they had been paid as of the end of the second quarter 1998. The pro forma
financial statements do not reflect the non-recurring costs and expenses
associated with integrating the operations of the two companies, nor any of
the anticipated recurring expense savings arising from the integration.
Costs of integration will result in significant non-recurring charges to
the combined results of operations after consummation of the Merger;
however, the actual amount of such charges cannot be determined until the
transition plan relating to the integration of operations is completed.
-65-
<PAGE>
DESCRIPTION OF ALBERTSON'S CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Albertson's authorized capital stock presently consists of
1,200,000,000 shares of Albertson's Common Stock and 10,00,000 shares of
preferred stock, par value $1.00 per share (the "Albertson's Preferred
Stock"), of which 3,000,000 are designated as Series A Junior Participating
Preferred Stock (the "Series A Junior Preferred Stock").
ALBERTSON'S COMMON STOCK
The holders of Albertson's Common Stock are entitled to one vote for
each share on all matters voted on by the stockholders (including the
election of directors). The holders of Albertson's Common Stock do not have
any cumulative voting, conversion, redemption or preemptive rights. Subject
to any preferential rights of any outstanding series of Albertson's
Preferred Stock designated by the Albertson's Board of Directors from time
to time, the holders of Albertson's Common Stock are entitled to such
dividends as may be declared from time to time by the Albertson's Board of
Directors from funds available therefor, and upon liquidation are entitled
to receive pro rata all assets of Albertson's available for distribution to
such holders. For a description of the terms of the Series A Preferred
Stock, see "--Preferred Stock Purchase Rights," below.
ALBERTSON'S PREFERRED STOCK
The Albertson's Board of Directors is authorized to provide for the
issuance of shares of Albertson's Preferred Stock, in one or more series,
and to fix for each such series such voting powers, designations,
preferences and relative, participating, optional and other special rights,
and such qualifications, limitations or restrictions, as are stated in the
resolution adopted by the Albertson's Board of Directors providing for the
issuance of such series and as are permitted by the DGCL. In connection
with the adoption of the Rights Agreement, the Albertson's Board of
Directors authorized the issuance of up to 3,000,000 shares of Albertson's
Preferred Stock designated as the Series A Junior Preferred Stock. Prior to
the Effective Time, Albertson's presently intends to cause additional
shares of Albertson's Preferred Stock to be designated as Series A Junior
Preferred Stock to provide for the additional Rights that will be attached
to the Albertson's Common Stock to be issued in the Merger. Subject to the
consent of ASC as required by the Agreement, in order to attach additional
Rights to the Albertson's Common Stock to be issued in the Merger,
Albertson's reserves the right to amend the terms of the Rights Agreement
so as not to be required to designate additional shares of Albertson's
Preferred Stock as Series A Junior Preferred Stock.
PREFERRED STOCK PURCHASE RIGHTS
Albertson's Board of Directors has adopted a stockholders rights plan,
pursuant to which one Right is associated with each outstanding share of
Albertson's Common Stock. Each Right entitles the registered holder to
purchase from Albertson's one one-hundredth of a share of Series A Junior
Preferred Stock at a purchase price of $160, subject to adjustment (the
"Rights Purchase Price").
The Rights are attached to all outstanding shares of Albertson's
Common Stock (and will attach to all shares of Albertson's Common Stock to
be issued in connection with the Merger) and are not represented by
separate Rights certificates. Until the earlier to occur of (i) ten days
(the "Stock Acquisition Date") following a public announcement that a
person or group of affiliated or associated persons has acquired, or
obtained the right to acquire beneficial ownership of 15% or more of the
outstanding shares of Albertson's Common Stock (an "Acquiring Person") or
(ii) ten business days (or such later date as may be determined by the
Albertson's Board of Directors) following the commencement of a tender
offer or exchange offer that would result in a person or group becoming an
Acquiring Person (the earlier of such dates being called the "Rights
Distribution Date"), the Rights will be evidenced by the Albertson's Stock
Certificates. Until the Rights Distribution Date, (i) the Rights will be
transferred only with Albertson's Stock Certificates; (ii) new Albertson's
Stock Certificates will contain a notation incorporating the Rights
Agreement by reference; and (iii) the surrender for transfer of any
certificates for Albertson's Common Stock outstanding as of the Rights
Distribution Date will also constitute the transfer of the Rights
associated with the Albertson's Common Stock represented by such
certificate. As soon as practicable after the Rights Distribution Date,
separate certificates evidencing the Rights ("Rights Certificates") will be
mailed to holders of record of the Albertson's Common Stock as of the close
of business on the Rights Distribution Date, and the separate Rights
Certificates alone will represent the Rights.
-66-
<PAGE>
The Rights are not exercisable until the Rights Distribution Date and
will expire at the close of business on March 21, 2007, unless earlier
redeemed or exchanged by Albertson's.
In the event that any person becomes an Acquiring Person (except
pursuant to an offer for all outstanding shares of Albertson's Common Stock
that the independent directors determine to be fair to and otherwise in the
best interests of Albertson's and its stockholders), each holder of a Right
will thereafter have the right to receive, upon exercise, Albertson's
Common Stock (or, in certain circumstances, cash, property or other
securities of Albertson's) (a "Flip-in-Event") having a value equal to two
times the Rights Purchase Price. Notwithstanding the foregoing, all Rights
that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will be null
and void. However, Rights are not exercisable following the occurrence of a
Flip-in Event until such time as the Rights are no longer redeemable by
Albertson's as set forth below.
In the event that following the Stock Acquisition Date, (i)
Albertson's engages in a merger or business combination transaction in
which Albertson's is not the surviving corporation; or (ii) Albertson's
engages in a merger or business combination transaction in which
Albertson's is the surviving corporation and Albertson's Common Stock is
changed or exchanged; or (iii) 50% or more of Albertson's assets or earning
power is sold or transferred, each holder of a Right (except Rights which
have previously been voided as set forth above) and except in connection
with certain tender offers shall thereafter have the right to receive, upon
exercise of the Right, common stock of the acquiring company having a value
equal to two times the Rights Purchase Price.
At any time until ten days following the Stock Acquisition Date, the
Albertson's Board of Directors may redeem the Rights in whole, but not in
part at a redemption price of $0.001 per Right (subject to adjustment). The
foregoing notwithstanding, the Rights generally may not be redeemed for one
hundred eighty (180) days following a change in a majority of the
Albertson's Board of Directors as a result of a proxy contest.
At any time after a person becomes an Acquiring Person and prior to
the acquisition by such person or group of fifty percent (50%) or more of
the outstanding Albertson's Common Stock, Albertson's Board of Directors
may exchange the Rights (other than Rights owned by such person or group
which have become void), in whole or in part, at an exchange ratio of one
share of Albertson's Common Stock, or one one-hundredth of a share of
Albertson's Preferred Stock (or of a share of a class or series of
Albertson's preferred stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
Any of the provisions of the Rights Agreement may be amended by the
Albertson's Board of Directors prior to the Rights Distribution Date. After
the Rights Distribution Date, the provisions of the Rights Agreement may be
amended by the Albertson's Board of Directors to cure any ambiguity, defect
or inconsistency, or to make changes which do not adversely affect the
interests of holders of Rights (excluding the interests of any Acquiring
Person) or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment shall be made at a time
when Rights are not redeemable.
The Series A Junior Preferred Stock will be nonredeemable and, will
rank junior to all other series of Albertson's Preferred Stock (unless the
terms of any series provide otherwise), and senior to the Albertson's
Common Stock, as to the payment of dividend and the distribution of assets.
Each share of Series A Junior Preferred Stock will have a quarterly
dividend in an amount equal to the greater of (a) $25.00 and (b) subject to
an adjustment, 100 times the aggregate per share amount of all cash and
non-cash dividends declared on each share of Albertson's Common Stock with
respect to the prior quarter. In the event of liquidation, the holders of
Series A Junior Preferred Stock will receive a liquidation payment equal to
$16,000 per share, plus an amount equal to accrued and unpaid dividends
thereon to the date of such payment. After the holders of Albertson's
Common Stock receive an amount per share equal to the quotient obtained by
dividing the liquidation preference by 100, the remaining assets are paid
to the holders of the Series A Junior Preferred Stock and the Albertson's
Common Stock on a ratable and proportional basis. Each share of Series A
Junior Preferred Stock will have one vote, voting together with the shares
of Albertson's Common Stock. In the event of any merger, consolidation or
other transaction in which shares of Albertson's Common Stock are
exchanged, each share of Series A Junior Preferred Stock will be similarly
exchanged in an amount per share equal to 100 times the amount and type of
consideration received per share of Albertson's Common Stock. The rights of
Series A Junior Preferred Stock as to dividends, liquidation and voting,
and in the event of mergers and consolidations, are protected by customary
anti-dilution provisions. Fractional shares of Series A Junior Preferred
Stock will be issuable in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise
voting rights, receive dividends, participate in distribution and to have
the benefit of all other rights of holders of Series A Junior Preferred
Stock.
-67-
<PAGE>
Until a Right is exercised, the holder thereof, as such, has no rights
as a stockholder of Albertson's including, without limitation, the right to
vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire
Albertson's. The Rights, however, should not affect any prospective offeror
willing to make an offer at a fair price and otherwise in the best
interests of Albertson's and its stockholders as determined by a majority
of Directors who are not affiliated with the person making the offer. The
Rights should not interfere with any merger or other business combination
approved by the Albertson's Board of Directors, since the Albertson's Board
of Directors may generally, at its option at any time until ten days
following the Stock Acquisition Date redeem all, but not less than all, of
the then outstanding Rights.
On August 2, 1998, in connection with the execution of the Agreement
and the Albertson's Stock Option Agreement, the Rights Agreement was
amended to provide that ASC will not be deemed to be (i) the beneficial
owner of or to beneficially own the shares of Albertson's Common Stock
issuable upon exercise of the Albertson's Option and (ii) an Acquiring
Person by reason of its holding of the Albertson's Option or any shares of
Albertson's Common Stock acquired pursuant to the exercise thereof.
The foregoing summary of certain terms of the Rights is qualified in
its entirety by reference to the Rights Agreement, a copy of which is filed
as an exhibit to the Registration Statement and is incorporated herein by
reference.
-68-
<PAGE>
COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
As a result of the Merger, stockholders of ASC will become
stockholders of Albertson's and the rights of all such former ASC
stockholders will thereafter be governed by the Albertson's Certificate,
the Albertson's Bylaws and the DGCL. Since both Albertson's and ASC are
Delaware corporations, the rights of ASC stockholders will continue to be
governed by the DGCL. The rights of the holders of ASC Common Stock are
presently governed by the ASC Certificate, the ASC Bylaws and the DGCL. The
following summary, which does not purport to be a complete statement of the
general differences among the rights of the stockholders of Albertson's and
ASC, sets forth certain differences between the Albertson's Certificate and
the ASC Certificate and between the Albertson's Bylaws and the ASC Bylaws.
This summary is qualified in its entirety by reference to the full text of
each of such documents and the DGCL. For information as to how such
documents may be obtained, see "AVAILABLE INFORMATION."
CLASSIFIED BOARD OF DIRECTORS
The DGCL provides that a corporation's board of directors may be
divided into up to three various classes with staggered terms of office.
The Albertson's Certificate provides that Albertson's Board of Directors is
classified into three classes with each class elected in staggered
elections and serving a three-year term.
Classification of directors has the effect of making it more difficult
for stockholders to change the composition of Albertson's Board of
Directors. At least two annual meetings of stockholders, instead of one,
will generally be required to effect a change in the majority of
Albertson's Board of Directors. Such a delay may help ensure that
Albertson's Board of Directors, if confronted by a holder attempting to
force a proxy contest, a tender or exchange offer or other extraordinary
corporate transaction, would have sufficient time to review the proposal as
well as any available alternatives to the proposal and to act in what it
believes to be the best interests of the stockholders.
The classification provisions could also have the effect of
discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to obtain control of Albertson's, even though
such a transaction could be beneficial to Albertson's and its stockholders.
The ASC Certificate and the ASC Bylaws do not provide for a classified
Board of Directors and each director is elected annually.
STOCKHOLDER RIGHTS PLAN
Albertson's has adopted the Rights Agreement and issued the Rights to
protect Albertson's stockholders from coercive or unfair takeover tactics.
For further discussion of the Rights and the Rights Agreement, see
"DESCRIPTION OF ALBERTSON'S CAPITAL STOCK -- Preferred Stock Purchase
Rights."
ASC presently has no stockholder rights plan.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Albertson's Bylaws provide that the number of directors will be
determined by resolution of the Albertson's Board of Directors or by the
vote at the annual meeting of the holders of at least three-fourths of the
outstanding shares of Albertson's Common Stock entitled to vote in the
election of directors. The Albertson's Certificate provides that in no
event shall the number of directors be less than three and such number of
directors may be otherwise increased or decreased in such manner as
described in the Albertson's Bylaws. The Albertson's Bylaws provide that
the number of directors shall not be more than twenty-one. The Albertson's
Board of Directors currently consists of 14 directors.
Under the DGCL, unless otherwise provided in a corporation's
certificate of incorporation, directors serving on a classified board of
directors may be removed by the stockholders only for cause. The
Albertson's Certificate provides that any director or the entire
Albertson's Board of Directors may be removed from office at any time, but
only for cause, and the Albertson's Bylaws provide that such removal may be
effected only by the affirmative vote of the holders of at least a majority
in voting power of the issued and outstanding Albertson's Common Stock
entitled to vote in the election of directors. The term "cause" shall mean
a conviction of a crime involving moral turpitude, an administrative agency
determination of conduct involving moral turpitude, or a
-69-
<PAGE>
determination in good faith, by a majority in voting power of the issued
and outstanding stock of Albertson's, after a hearing before at minimum
such a majority in voting power of Albertson's Common Stock, of conduct
involving moral turpitude materially adverse to the interests of
Albertson's.
The Albertson's Bylaws provide that vacancies and newly created
directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. If there are
no directors in office, then an election of directors may be held in the
manner provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute
less than a majority of the entire Board of Directors (as constituted
immediately prior to any such increase), the Delaware Court of Chancery
may, upon application of any stockholder or stockholders holding at least
ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to
be held to fill any such vacancies or newly created directorships, or to
replace the directors chosen by the directors then in office. The
Albertson's Bylaws prohibit a director from standing for a reelection to
the Albertson's Board of Directors after reaching the age of 70 other than
certain directors who were grandfathered.
The Board of Directors of ASC currently consists of 12 directors. The
ASC Certificate provides that the total number of directors will be fixed
by the Board of Directors but shall be not less than five nor more than
twenty.
The ASC Certificate does not provide for the procedure for removal of
directors. Therefore, under the DGCL, the ASC directors may be removed by
the stockholders with or without cause.
The provisions of the ASC Bylaws reflecting the procedures for filling
the vacancies and newly created directorships resulting from any increase
in the authorized number of directors are substantially similar to the
provisions of the Albertson's Bylaws described above.
SPECIAL MEETINGS; STOCKHOLDER ACTION BY WRITTEN CONSENT
The DGCL provides that special meetings of stockholders may be called
by a corporation's board of directors or by such person(s) as may be
authorized by the corporation's certificate of incorporation or bylaws.
The Albertson's Bylaws provide that special meetings of stockholders
of Albertson's may be called only by the Chairman or the Vice Chairman of
the Albertson's Board of Directors or by the President of Albertson's, and
shall be called by the Chairman or the Vice Chairman of the Albertson's
Board of Directors or the President or the Secretary of Albertson's at the
request in writing of a majority of the Albertson's Board of Directors. The
Albertson's Bylaws further provide that only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to Albertson's notice of the meeting.
The ASC Certificate and the ASC Bylaws provide that special meetings
of stockholders of ASC may be called by the ASC Board of Directors or by
any person or committee expressly so authorized by the ASC Board of
Directors and by no other person or persons. The ASC Bylaws further provide
that only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to
ASC's notice of the meeting.
The DGCL provides that unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special
meeting of such stockholders of a corporation may be taken without a
meeting, without prior notice and without a vote, if a consent or consents
in writing setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a
meeting.
As permitted by the DGCL, the Albertson's Certificate provides that,
in lieu of corporate action taken at a meeting of the stockholders, the
written consent of the holders of stock having no less than the minimum
percentage of the total vote that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted, may authorize such corporate action to be so taken.
The ASC Certificate prohibits ASC's stockholders from taking any
action by written consent.
-70-
<PAGE>
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
Albertson's. The Albertson's Bylaws set forth an advance notice
procedure for stockholders to make nominations of candidates for election
as directors or bring other business before an annual meeting of
stockholders of Albertson's (the "Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, Albertson's Board of Directors, or by
a stockholder who has given timely written notice to the Secretary of
Albertson's prior to the meeting at which directors are to be elected, will
be eligible for election as directors of Albertson's. The Stockholder
Notice Procedure provides that at an annual meeting only such business may
be conducted as has been brought before the meeting by a stockholder who
has given timely written notice to the Secretary of Albertson's of such
stockholder's intention to bring such business before such meeting. Under
the Stockholder Notice Procedure, to be timely, notice of stockholder
nominations or proposals (a) for an annual meeting must be received by
Albertson's no less than sixty days nor more than ninety days prior to the
anniversary date of the immediately preceding annual meeting of
stockholders (or, in the event that the annual meeting is called for a date
that is not within thirty days before or after such anniversary date, in
order to be timely, notices by the stockholder must be received not later
than the close of business on the tenth day following the earlier of (i)
the day on which such notice of the date of the annual meeting was mailed
or (ii) the date such public disclosure of the date the annual meeting was
made) and (b) for a special meeting of stockholders called for the purpose
of electing directors, must be received by Albertson's not later than the
close of business on the tenth day following the day on which notice of the
date of the special meeting was typed and mailed or public disclosure of
the date of the special meeting was made, whichever occurs first.
Under the Stockholder Notice Procedure, a stockholder's notice to
Albertson's proposing to nominate a person for election as a Director must
set forth (a) as to each person whom the stockholder proposes to nominate
for election as a Director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class or series and number of shares of
the Albertson's Common Stock that are owned beneficially or of record by
the person and (iv) any other information relating to the person that would
be required to be disclosed in a proxy statement or other filings required
to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act; and (b) as to the
stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of the
Albertson's Common Stock that are owned beneficially or of record by such
stockholder, (iii) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to
be made by such stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the
persons named in its notice and (v) any other information relating to such
stockholder that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations of
proxies for election of directors pursuant to Section 14 of the Exchange
Act. Such notice must be accompanied by a written consent of each proposed
nominee to being named as a nominee and to serve as a director if elected.
By requiring advance notice of nominations by stockholders, the
Stockholder Notice Procedure affords Albertson's Board of Directors an
opportunity to consider the qualifications of the proposed nominees and, to
the extent deemed necessary or desirable by Albertson's Board of Directors,
to inform stockholders about such qualifications. By requiring advance
notice of other proposed business, the Stockholder Notice Procedure also
provides a more orderly procedure for conducting annual meetings of
stockholders and to the extent deemed necessary or desirable by Albertson's
Board of Directors, provides Albertson's Board of Directors with an
opportunity to inform stockholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with any
recommendations as to the position of Albertson's Board of Directors
regarding action to be taken with respect to such business, so that
stockholders can better decide whether to attend such a meeting or to grant
a proxy regarding the disposition of any such business.
Although Albertson's Certificate does not give Albertson's Board of
Directors any power to approve or disapprove stockholder nominations for
the election of directors or proposals for action, the foregoing provisions
may have the effect of precluding a contest for the election of directors
or the consideration of stockholder proposals if the proper procedures are
not followed, and of discouraging or deterring a third party from
conducting a solicitation of proxies to elect its own slate of directors or
to approve its own proposal, without regard to whether consideration of
such nominees or proposals might be harmful or beneficial to Albertson's
and its stockholders.
-71-
<PAGE>
ASC. The ASC Bylaws contain a provision similar to the Stockholder
Notice Procedure. For nominations or other business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Corporate Secretary of ASC and such
other business must otherwise be a proper matter for stockholder action. To
be timely, a stockholder's notice must be delivered to the Corporate
Secretary at the principal executive offices of ASC not later than the
close of business on the sixtieth day nor earlier than the close of
business on the ninetieth day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is more than thirty days before or more than
sixty days after such anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the close of business on the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the sixtieth day prior to such annual meeting or
the tenth day following the day on which public announcement of the date of
such meeting is first made by ASC. In no event will the public announcement
of an adjournment of an annual meeting commence a new time period for the
giving of a stockholder's notice as described above.
Such stockholder's notice must set forth (a) as to each person whom
the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act and Rule 14a-11 thereunder (including
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner, if
any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such
stockholder, as they appear on ASC's books, and of such beneficial owner
and (ii) the class and number of shares of ASC which are owned beneficially
and of record by such stockholder and such beneficial owner.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The DGCL provides that the certificate of incorporation of a
corporation may be amended upon adoption by the board of directors of a
resolution setting forth the proposed amendment and declaring its
advisability, followed by the favorable vote of the holders of a majority
of the outstanding stock entitled to vote on the amendment. It also
provides that a certificate of incorporation may require a greater vote
than would otherwise be required by the DGCL.
Albertson's. The Albertson's Certificate provides that Albertson's
reserves the right to amend, alter, suspend or repeal any provision
contained in the Albertson's Certificate from time to time in the manner
now or hereafter prescribed by the DGCL, and all rights conferred upon the
directors, officers and stockholders herein are granted subject to this
reservation. Notwithstanding any other provision of the Albertson's
Certificate or the Albertson's Bylaws (and in addition to any other vote
that may be required by law, the Albertson's Certificate or the Albertson's
Bylaws), the affirmative vote of the holders of three-fourths (3/4) of the
outstanding stock of Albertson's entitled to vote in elections of directors
is required for the Albertson's stockholders to amend, alter, suspend or
repeal the Albertson's Bylaws or the provisions in the Albertson's
Certificate relating to written consent, removal of directors or the
amendment of the Albertson's Certificate and the Albertson's Bylaws. In
addition, the Albertson's Bylaws may be altered, amended, suspended or
repealed, or new bylaws may be adopted, (i) by resolution adopted by a
majority of the full Albertson's Board of Directors at a meeting thereof,
(ii) by unanimous written consent of all the directors in lieu of a
meeting, or (iii) by the affirmative vote, at any annual or special meeting
of the stockholders, of the holders of at least a majority of the
outstanding stock of Albertson's entitled to vote thereon, except that the
affirmative vote of the holders of at least three-fourths (3/4) of the
outstanding stock of Albertson's entitled to vote thereon shall be required
for the stockholders to amend any of the provisions of Article III
(Directors) of the Albertson's Bylaws.
The Albertson's Certificate also provides that the affirmative vote of
eighty percent (80%) or more of the voting power of the issued and
outstanding Albertson's Common Stock entitled to vote shall be required to
amend, modify or repeal, or to adopt any provisions inconsistent with, the
provisions relating to Preferred and Common Stock; provided, however, that
such provisions may be amended, modified or repealed, and any such new
provision may be added, upon the affirmative vote of the holders of not
less than a majority of the voting power of the issued and outstanding
capital stock of Albertson's entitled to vote, if such amendment,
modification, repeal or addition
-72-
<PAGE>
shall first have been approved and recommended by a resolution adopted by
an affirmative vote of at least three-fourths (3/4) of the members of the
Albertson's Board of Directors.
The Albertson's Certificate also provides that the affirmative vote of
eighty percent (80%) or more of the voting power of the issued and
outstanding Albertson's Common Stock entitled to vote shall be required to
amend, modify or repeal, or to adopt any provisions inconsistent with, the
provisions of the Albertson's Certificate relating to Business Combinations
(as defined under "-- Transactions with Interested Stockholders; Related
Parties"); provided, however, that such provisions may be amended, modified
or repealed, and any such new provision may be added, upon the affirmative
vote of the holders of not less than a majority of the voting power of the
issued and outstanding capital stock of Albertson's entitled to vote if:
(a) Such amendment, modification, repeal or addition shall first have
been approved by a resolution adopted by a majority vote of the
Continuing Directors as defined under "--Transactions with
Interested Stockholders; Related Parties" or
(b) All of the following conditions shall have been met with respect
to such Business Combination:
(i) The aggregate amount of cash and the Fair Market Value
(as defined under "-- Transactions with Interested Stockholders;
Related Parties"); as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of the Albertson's Common Stock in
such Business Combination shall be at least equal to the highest
of the following, adjusted to reflect subdivisions of stock and
stock splits:
A. The highest per share price (including brokerage
commissions, transfer taxes and soliciting dealer's
fees) paid by the Interested Stockholder (as defined in
"-- Transactions with Interested Stockholders; Related
Parties"); for any shares of the Albertson's Common
Stock acquired by it (1) within the two-year period
immediately prior to the first public announcement of
the proposal of the Business Combination (the
"Announcement Date"), or (2) in the transaction in
which it became an Interested Stockholder, whichever is
higher;
B. The Fair Market Value per share of the Albertson's
Common Stock (1) on the Announcement Date, or (2) on
the date on which the Interested Stockholder became an
Interested Stockholder (the "Determination Date"),
whichever is higher; and
C. The Fair Market Value per share of the Albertson's
Common Stock determined pursuant to the immediately
preceding subparagraph (B), multiplied by the ratio of
(1) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting
dealer's fees) paid by the Interested Stockholder for
any shares of the Albertson's Common Stock acquired by
it within the two-year period immediately prior to the
Announcement Date, to the (2) the Fair Market Value per
share of the Albertson's Common Stock on the first day
in such two-year period upon which the Interested
Stockholder acquired any shares of the Albertson's
Common Stock.
(ii) The consideration to be received by holders of a
particular class of the outstanding Albertson's Common Stock
entitled to vote shall be in cash or in the same form as the
Interested Stockholder has previously paid for shares of such
class of the outstanding Albertson's Common Stock entitled to
vote. If the Interested Stockholder has paid for shares of any
class of the outstanding Albertson's Common Stock entitled to
vote with varying forms of consideration, the form of
consideration for such class of the outstanding Albertson's
Common Stock entitled to vote shall be either cash or the form
used to acquire the largest number of shares of such class of the
outstanding Albertson's Common Stock entitled to vote previously
acquired by it.
(iii) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (a) there shall have been (1) no reduction
in the annual rate of dividends paid on the Albertson's Common
Stock (except as
-73-
<PAGE>
necessary to reflect any subdivision or split of the Albertson's
Common Stock), except as approved by a majority of the Continuing
Directors, and (2) an increase in such annual rate of dividends
as necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or similar
transaction which has the effect of reducing the number of
outstanding shares of the Albertson's Common Stock, unless the
failure to so increase such annual rate is approved by a majority
of the Continuing Directors; and (b) such Interested Stockholder
shall not have become the Beneficial Owner (as defined under "--
Transactions with Interested Stockholders; Related Parties") of
any additional shares of the Albertson's Common Stock except as
part of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder, and except as
necessary to reflect any subdivision or split of the Albertson's
Common Stock.
(iv) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by Albertson's, whether
in anticipation of or in connection with a Business Combination
or otherwise.
(v) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Exchange Act and the rules and regulations thereunder (or any
subsequent provisions replacing such Act or Rules) shall be
mailed to stockholders of Albertson's at least thirty (30) days
prior to the consummation of such Business Combination (whether
or not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions).
ASC. The ASC Certificate requires the affirmative vote of the holders
of eighty percent (80%) of the ASC Common Stock (as well as a majority of
the outstanding shares of ASC Common Stock not held by a Related Person (as
defined below) for amendments to the provisions of the ASC Certificate
relating to the number of members and annual election of the ASC Board of
Directors, the calling of special meetings of stockholders, stockholder
action only at stockholder meetings, amendments to the ASC Bylaws,
transactions with related parties, the takeover constituency provision and
the amendments to the ASC Certificate. The ASC Certificate requires the
same vote for any amendment by ASC stockholders of the ASC Bylaws. All
other provisions of the ASC Certificate may be amended as provided in the
DGCL.
BUSINESS COMBINATIONS
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business
combination with any interested stockholder for a three-year period
following the date that such stockholder becomes an interested stockholder
unless (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted
in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares held by directors who are also officers and
employee stock purchase plans in which employee participants do not have
the right to determine confidentially whether plan shares will be tendered
in a tender or exchange offer) or (iii) at or subsequent to such time, the
business combination is approved by the board of directors of the
corporation and by the affirmative vote at an annual or special meeting,
and not by written consent, of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. Except as specified
in Section 203 of the DGCL, an interested stockholder is defined to include
(a) any person that is the owner of 15% or more of the outstanding voting
stock of the corporation or is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation, at any time within three years immediately prior to the
relevant date and (b) the affiliates and associates of any such person.
Under certain circumstances, Section 203 of the DGCL may make it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although in the corporation's certificate of incorporation or bylaws,
stockholders may elect that a corporation will not be governed by Section
203. Neither the Albertson's Certificate nor the Albertson's Bylaws
contains such an election. Similarly, neither the ASC Certificate nor the
ASC Bylaws contain such an election. It is anticipated that
-74-
<PAGE>
the provisions of Section 203 of the DGCL may encourage companies
interested in acquiring Albertson's to negotiate in advance with
Albertson's Board of Directors, since the stockholder approval requirement
would be avoided if a majority of the directors then in office approve
either the business combination or the transaction which results in the
stockholder becoming an interested stockholder.
TRANSACTIONS WITH INTERESTED STOCKHOLDERS; RELATED PARTIES
The DGCL provides that the following steps are generally required to
effect a merger or consolidation: (a) the board of directors must approve a
plan of merger or consolidation; and (b) the stockholders, at either an
annual or special meeting, must approve the plan by the affirmative vote of
a majority of all shares entitled to vote thereon. It further provides that
a certificate may require a greater stockholder vote for approval of a
merger or consolidation.
Albertson's. Except under certain circumstances that require a vote of
a majority of holders of the voting power of the Albertson's Common Stock
in case of transactions with an Interested Stockholder, the Albertson's
Certificate contains a "fair price" provision, requiring that certain
Business Combination transactions with an Interested Stockholder will be
subject to the affirmative vote of the holders of not less than 80% of the
outstanding Albertson's Common Stock held by stockholders other than the
Interested Stockholder.
For the purposes of this provision, certain terms are defined as
follows:
"Business Combination" means any one or more of the following
transactions:
(i) Any merger or consolidation of Albertson's or any subsidiary
of Albertson's with any Interested Stockholder or any other
corporation (whether or not itself an Interested Stockholder) which
is, or after such merger or consolidation would be, an affiliate of an
Interested Stockholder.
(ii) Any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder or any affiliate of any Interested
Stockholder of any assets of Albertson's or any subsidiary of
Albertson's having an aggregate Fair Market Value (as defined below)
of $1,000,000 or more.
(iii) The issuance or transfer by Albertson's or any subsidiary
Albertson's (in one transaction or a series of transactions) of any
securities of Albertson's or any subsidiary of Albertson's to any
Interested Stockholder or any affiliate of any Interested Stockholder
in exchange for cash, securities or other property (or combination
thereof) having an aggregate Fair Market Value of $1,000,000 or more.
(iv) The adoption of any plan or proposal for the liquidation or
dissolution of Albertson's proposed by or on behalf of an Interested
Stockholder or any affiliate of any Interested Stockholder.
(v) Any reclassification of securities (including any reverse
stock split), or recapitalization of Albertson's, or any merger or
consolidation of Albertson's with any of its subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly,
of increasing the proportionate share of the outstanding shares of any
class of equity or convertible securities of Albertson's or any
subsidiary which is directly or indirectly beneficially owned by any
Interested Stockholder or any affiliate of any Interested Stockholder.
"Interested Stockholder" shall mean any person (other than
Albertson's or any subsidiary) who or which:
(i) is the Beneficial Owner (as defined below), directly or
indirectly, of ten percent (10%) or more of the Albertson's Common
Stock; or
(ii) is an affiliate of Albertson's and at any time within the
two-year period immediately prior to the date in question was the
Beneficial Owner, directly or indirectly, of ten percent (10%) or more
of the Albertson's Common Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares
of the Albertson's Common Stock which were at any time within the
two-year period immediately prior to the date
-75-
<PAGE>
in question beneficially owned by an Interested Stockholder, if such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act or any successor securities
law.
A person shall be the "Beneficial Owner" with respect to any
Albertson's voting stock:
(i) which such person or any of its affiliates or associates
beneficially owns, directly or indirectly; or
(ii) which such person or any of its affiliates or associates has
(a) the right to acquire (whether such right is exercisable
immediately or only after passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (b) the
right to vote pursuant to any agreement, arrangement or understanding;
or
(iii) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its affiliates or
associates has any agreement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of the
Albertson's Common Stock.
"Continuing Director" shall mean any member of the Albertson's
Board of Directors who is not an Interested Stockholder and is not an
affiliate of an Interested Stockholder and was a member of the Board
of Directors prior to May 24, 1985 or to the time that such Interested
Stockholder became an Interested Stockholder, and any successor of a
Continuing Director who is not an Affiliate of such Interested
Stockholder and who is recommended to succeed a Continuing Director by
a majority of the Continuing Directors then on the Albertson's Board
of Directors.
"Fair Market Value" shall mean:
(i) in the case of stock, the highest closing sale price of a
share of such stock during the thirty (30) day period immediately
preceding the date for which such Fair Market Value is being
determined on the principal United States securities exchange
registered under the Exchange Act or successor law on which such stock
is listed, or if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock
during the thirty (30) day period preceding the date for which such
Fair Market Value is being determined on the National Association of
Securities Dealers, Inc. Automated Quotation System or any system then
in use, or if no such quotations are available, the Fair Market Value
of such stock as determined by the Albertson's Board of Directors in
good faith; and
(ii) in the case of property other than cash or stock, the Fair
Market Value of such property determined by the Albertson's Board of
Directors in good faith for the date on which such Fair Market Value
is being determined.
The "fair price" provision is intended to ensure that all stockholders
receive equal treatment in the event of a tender or exchange offer and to
protect stockholders against coercive or two-tiered takeover bids.
Notwithstanding the foregoing, the provision could also have the affect of
discouraging a third party from making a tender or exchange offer for
Albertson's, even though such an offer might be beneficial to Albertson's
and its stockholders.
ASC. Pursuant to the ASC Certificate, the approval of any proposal
that ASC enter into a Related Person Transaction (as defined below) shall
require, in addition to any approval otherwise required by law or the ASC
Certificate, the affirmative vote of the holders of not less than
two-thirds of the ASC Common Stock not held by the Related Person (as
defined below) and/or its affiliates; provided, however, that the foregoing
shall not apply to any such merger, consolidation, sale or exchange, or
issuance or delivery of stock or other securities which is (i) approved by
resolution of the ASC Board of Directors adopted by the affirmative vote of
not less than two-thirds (2/3) of the then authorized number of directors,
or (ii) approved by resolution of the ASC Board of Directors prior to the
acquisition of ASC Common Stock which resulted in the Related Person
becoming such.
For the purposes of the ASC Certificate, a "Related Person
Transaction" shall mean any transaction in which ASC (a) merges or
consolidates with any other person or entity if such other person or entity
and its affiliates singly or in the aggregate are directly or indirectly
the beneficial owners of more than ten percent (10%) of the
-76-
<PAGE>
outstanding shares of ASC Common Stock (any such other person or entity, a
"Related Person"); or (b) sells or exchanges all or substantially all of
its assets or business to or with a Related Person; or (c) issues or
delivers any stock or other securities of its issue in exchange or payment
for any properties or assets of a Related Person or securities issued by a
Related Person, or in a merger of any affiliate of ASC with or into a
Related Person or any of its affiliates.
CONSIDERATION OF OTHER CONSTITUENCIES
The DGCL does not contain provisions relating to the ability of a
board of directors to consider the impact of its decisions on
constituencies other than stockholders.
The ASC Certificate requires the Board of Directors to give due
consideration to all relevant factors when evaluating any proposal from
another party to (a) make a tender offer for equity securities of ASC; (b)
merge or consolidate ASC with another corporation; or (c) purchase or
otherwise acquire substantially all of the properties and assets of ASC.
Such considerations include but are not limited to the social and economic
effects on the employees, customers, suppliers and other constituents of
ASC and its subsidiaries and on the communities in which they operate or
are located.
The Albertson's Certificate contains no comparable provision.
LIMITATION OF LIABILITY OF DIRECTORS
The DGCL permits a corporation to include a provision in its
certificate of incorporation eliminating or limiting the personal liability
of a director or officer to the corporation or its stockholders for damages
for breach of the director's or officer's fiduciary duty, subject to
certain limitations. Each of the Albertson's Certificate and the ASC
Certificate includes such a provision, as set forth below, to the maximum
extent permitted by law.
Each of the Albertson's Certificate and the ASC Certificate provides
that a director will not be personally liable to Albertson's or its
stockholders or ASC or its stockholders, as the case may be, for monetary
damages for breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, which concerns unlawful payments of dividends,
stock purchases or redemption, or (iv) for any transaction from which the
director derived an improper personal benefit.
While these provisions provide directors with protection from awards
for monetary damages for breaches of their duty of care, they do not
eliminate such duty. Accordingly, these provisions will have no affect on
the availability of equitable remedies such as an injunction or rescission
based on a director's breach of his or her duty of care.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to indemnify officers, directors,
employees and agents against expenses, judgments and other amounts actually
and reasonably incurred if such person acted in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interests of
the corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The DGCL provides that a
corporation may advance expenses of defense (upon receipt of a written
undertaking to reimburse the corporation if indemnification is not
appropriate) and must reimburse a successful officer or director defendant
for expenses, including attorney's fees, actually and reasonably incurred,
and permits a corporation to purchase and maintain liability insurance for
its directors and officers. The DGCL provides that indemnification may not
be made for any claim, issue or matter as to which a person has been
adjudged by a court of competent jurisdiction, to be liable to the
corporation, unless and only to the extent a court determines that the
person is entitled to indemnity for such expenses as the court deems
proper.
The Albertson's Certificate and Albertson's Bylaws provide that each
person who is involved in any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director, officer, employee
or agent of Albertson's, or is or was serving at the request of Albertson's
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan, will be indemnified by
Albertson's to the extent permitted by the DGCL, as the same exists or may
be amended. The indemnification rights conferred by
-77-
<PAGE>
the Albertson's Certificate are not exclusive of any other right to which a
person seeking indemnification may be entitled under any law, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
Albertson's is authorized to purchase and maintain (and Albertson's
maintains) insurance on behalf of its directors, officers, employees and
agents. Additionally, the Agreement requires such insurance to be
maintained by Albertson's covering present and former officers, directors,
employees, trustees and agents of ASC for a period of at least six years
following the Effective Time, subject to certain limitations. See "THE
AGREEMENT--Indemnification and Insurance."
The ASC Certificate contains substantially similar provisions relating
to indemnification (with respect to officers and directors) and insurance.
LEGAL MATTERS
The validity of the issuance of the shares of Albertson's Common Stock
being offered hereby will be passed upon for Albertson's by Thomas R.
Saldin, Executive Vice President, Administration and General Counsel of
Albertson's. Fried, Frank, Harris, Shriver & Jacobson, New York, New York
(a partnership including professional corporations), counsel for
Albertson's, and Wachtell Lipton Rosen & Katz, New York, New York, counsel
for ASC, will be delivering as of the effective date of the Registration
Statement opinions concerning certain federal income tax consequences of
the Merger. See "THE MERGER--Certain U.S. Federal Income Tax Consequences."
EXPERTS
The consolidated financial statements of Albertson's appearing in
Albertson's 1997 Form 10-K, incorporated by reference in this Proxy
Statement/Prospectus, and which are referred to and made a part of the
Registration Statement, have been audited by Deloitte & Touche LLP,
independent auditors as set forth in their report included therein and
incorporated herein by reference. Such financial statements have been
incorporated herein by reference in reliance upon the reports of such firm
given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements and schedules of ASC appearing
in ASC's 1997 Form 10-K, incorporated by reference in this Proxy
Statement/Prospectus, and which is referred to and made a part of the
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report with respect thereto, included
therein. Such financial statements and schedules are incorporated herein by
reference in reliance on such report given upon the authority of such firm
as experts in accounting and auditing.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETINGS
As described in Albertson's proxy statement on Schedule 14A relating
to its 1998 Annual Meeting of Stockholders, any proposals that stockholders
of Albertson's wish to be considered for inclusion in the Proxy Statement
for the 1999 Annual Meeting of Stockholders must be received by Albertson's
at its principal executive offices no later than December 19, 1998. Under
the Albertson's Bylaws, in order for a stockholder proposal to be eligible
to be considered at the Albertson's 1999 Annual Meeting of Stockholders
notice must be given to Albertson's Corporate Secretary not later than
March 22, 1999 (i.e., namely no less than 60 days before the anniversary
date of the immediately preceding annual meeting of stockholders) but not
prior to February 19, 1999 (i.e., namely no more than 90 days before the
anniversary date of the immediately preceding annual meeting of
stockholders). Any stockholder proposals included in Albertson's proxy
solicitation materials for its 1999 annual meeting or otherwise to be
considered at such meeting shall be subject to the requirements of the
Albertson's Bylaws and the proxy rules adopted under the Exchange Act. See
"COMPARATIVE RIGHTS OF STOCKHOLDERS--Advance Notice Provisions for
Stockholder Nominations and Stockholder Proposals."
As described in ASC's proxy statement on Schedule 14A relating to its
1998 Annual Meeting of Stockholders, in order for proposals of stockholders
to be considered for inclusion in the proxy statement for the 1999 Annual
Meeting of Stockholders of ASC (if the Merger is not consummated prior to
such meeting), such proposals must have been received by the Corporate
Secretary of ASC no later than January 1, 1999. Under the ASC Bylaws, in
order for a stockholder proposal to be eligible to be considered at the ASC
1999 Annual Meeting of Stockholders (if held), written notice must be given
to ASC's Corporate Secretary not later than April 17, 1999 (i.e., namely no
less than 60 days before the anniversary date of the immediately preceding
annual meeting of stockholders) but not prior to March 18, 1999 (i.e.,
namely no more than 90 days before the anniversary date of the immediately
preceding annual meeting of stockholders). Any stockholder proposals
included in ASC's proxy solicitation materials for its 1999
-78-
<PAGE>
annual meeting or otherwise to be considered at such meeting shall be
subject to the requirements of the ASC Bylaws and the proxy rules
promulgated under the Exchange Act. See "COMPARATIVE RIGHTS OF
STOCKHOLDERS-- Advance Notice Provisions for Stockholder Nominations and
Stockholder Proposals."
-79-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporate Law (the "DGCL")
provides that a corporation may indemnify directors and officers as well as
other employees and individuals against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement in connection with
specified actions, suits, or proceedings whether civil, criminal,
administrative, or investigative (other than action by or in the right of
the corporation--a "derivative action"), if they acted in good faith and in
a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
A similar standard is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or
settlement of such action, and the statute requires court approval before
there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is
not exclusive of other indemnification that may be granted by a
corporation's bylaws, disinterested director vote, stockholder vote,
agreement, or otherwise.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not
be personally liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty by such director, as a director,
except for liability for (i) any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) payment of unlawful dividends or unlawful stock purchases or
redemptions, or (iv) any transaction from which the director derived an
improper personal benefit.
Article Seventh of the Restated Albertson's Certificate of
Incorporation (the "Albertson's Certificate") provides that a director of
the corporation shall not be personally liable to Albertson's or its
stockholders for monetary damages for breach of fiduciary duty as a
director, except for any matter in respect of which such director shall be
liable under Section 174 of the DGCL (for payment of unlawful dividends or
unlawful stock purchases or redemptions) or any amendment thereto or
successor provision thereof or shall be liable by reason that, in addition
to any and all other requirements for such liability such director (i)
shall have breached his or her duty of loyalty to Albertson's or its
stockholders, (ii) in acting or in failing to act, shall not have acted in
good faith or shall have acted in a manner involving intentional misconduct
or a knowing violation of law or (iii) shall have derived an improper
personal benefit from the transaction in respect of which such breach of
fiduciary duty occurred. Neither the amendment nor repeal of the foregoing
provision of Article Seventh of the Albertson's Certificate may eliminate
or reduce its effect in respect of any matter occurring, or any of action,
suit or claim that, but for the foregoing provision of Article Seventh of
the Albertson's Certificate, would accrue or arise, prior to such amendment
or repeal. The Albertson's Certificate also provides that Albertson's shall
have power to indemnify any person, including present or former directors,
officers, employees or agents of Albertson's or any person who is or was
serving at the request of Albertson's or a director, officer, employee or
agent of another corporation, partnership, joint venture or other
enterprise, to the extent permitted by the DGCL. The Albertson's
Certificate provides that this right of indemnification is in addition to
all other rights to which those indemnified may be entitled under any
statute, by-law, agreement, vote of stockholders or otherwise.
Albertson's By-laws (the "Albertson's Bylaws") provide that
Albertson's shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (both in an action that is not an action by or
in the right of Albertson's and in an action that is an action by or in the
right of Albertson's) to procure a judgment in the person's favor by reason
of the fact that such person is or was a director or officer of Albertson's
serving at the request of Albertson's. Any indemnification under the
Albertson's Bylaws (unless ordered by a court) shall be made by Albertson's
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
the Albertson's Bylaws. Such determination shall be made (a) by a majority
vote of the directors who are not parties to such action, suit or
proceeding, even though less that a quorum, or (b) if there are no such
directors, or if such directors so direct, by independent legal counsel
II-1
<PAGE>
in a written opinion or (c) by the stockholders. To the extent, however,
that a director or officer of Albertson's has been successful on the merits
or otherwise in defense of any action, suit or proceeding described above,
or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith, without the
necessity of authorization in the specific case.
Notwithstanding any contrary determination in the specific case and
notwithstanding the absence of any determination thereunder, any director
or officer may apply to the Court of Chancery of the State of Delaware or
any other court of competent jurisdiction in the State of Delaware for
indemnification to the extent otherwise permissible under the Albertson's
Bylaws. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer
is proper in the circumstances because such person has met the applicable
standards of conduct set forth in the Albertson's Bylaws.
Albertson's maintains directors' and officers' liability insurance
which provides for payment, on behalf of the directors and officers thereof
and its subsidiaries, of certain losses of such persons (other than matters
uninsurable under law) arising from claims, including claims arising under
the Securities Act of 1933, as amended (the "Securities Act of 1933"), for
acts or omissions by such persons while acting as directors or officers
thereof and/or its subsidiaries, as the case may be.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT INDEX
*2.1 -- Agreement and Plan of Merger, dated as of August 2, 1998,
among Albertson's, Inc., Abacus Holdings, Inc. and American
Stores Company (included in the Proxy Statement/Prospectus
as Appendix A).
4.1 -- Stockholder Rights Plan Agreement (incorporated herein by
reference to Exhibit 1 of Form 8-A Registration Statement
dated as of March 4, 1997 as amended by Amendment No. 1 on
Form 8-A dated as of August 6, 1998).
4.2 -- Indenture, dated as of May 1, 1992, between Albertson's
Inc., and Morgan Guaranty Trust Company of New York as
Trustee (incorporated herein by reference to Exhibit 4.1 of
Form S-3 Registration Statement 333-41793 filed with the
Commission on December 9, 1997). In reliance upon Item
601(b)(4)(iii)(A) of Regulation S-K, various other
instruments defining the rights of holders of long-term debt
of the Registrant and its subsidiaries are not being filed
herewith, because the total amount of securities authorized
under each such instrument does not exceed 10% of the total
assets of the Registrant and its subsidiaries on a
consolidated basis. The Registrant hereby agrees to furnish
a copy of any such instrument to the Commission upon
request.
**5 -- Opinion of Thomas R. Saldin, Executive Vice President,
Administration and General Counsel of Registrant regarding
the legality of the shares being issued in the Merger.
**8.1 -- Opinion of Wachtell, Lipton, Rosen & Katz as to certain
federal income tax consequences described in the Proxy
Statement/Prospectus.
**8.2 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to
certain federal income tax consequences described in the
Proxy Statement/Prospectus.
*10.1 -- Termination and Consulting Agreement among Victor L. Lund,
American Stores Company and Albertson's, Inc. dated as of
August 2, 1998.
*10.2 -- Albertson's Inc. Amended and Restated 1995 Stock-Based
Incentive Plan (included in the Proxy Statement/Prospectus
as Appendix F).
*10.3 -- Stock Option Agreement, dated as of August 2, 1998, between
American Stores Company and Albertson's, Inc. (American
Stores Company as Issuer) (included in the Proxy
Statement/Prospectus as Appendix B).
*10.4 -- Stock Option Agreement, dated as of August 2, 1998, between
Albertson's, Inc. and American Stores Company (Albertson's
as Issuer) (included in the Proxy Statement/Prospectus as
Appendix C).
**23.1 -- Consent of Thomas R. Saldin Executive Vice President,
Administration and General Counsel of Registrant (included
in Exhibit 5).
**23.2 -- Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 8.1).
**23.3 -- Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 8.2).
*23.4 -- Consent of Deloitte & Touche LLP.
*23.5 -- Consent of Ernst & Young LLP.
*23.6 -- Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
*23.7 -- Consent of The Blackstone Group L.P.
*24 -- Power of Attorney of directors of Registrant (included on
signature page).
II-3
<PAGE>
*99.1 -- Consent of Pamela G. Bailey.
*99.2 -- Consent of Henry I. Bryant.
*99.3 -- Consent of Fernando R. Gumucio.
*99.4 -- Consent of Victor L. Lund.
*99.5 -- Consent of Arthur K. Smith.
**99.6 -- Form of Proxy of Albertson's.
**99.7 -- Form of Proxy of ASC.
- ---------------------
* Filed herewith.
** To be filed by Amendment.
All supporting schedules have been omitted because they are not
required or the information required to be set forth therein is included in
the consolidated financial statements or in the notes thereto.
ITEM 22. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this registration statement (or
the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the information
set forth in this registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act of 1933, if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this registration
statement or any material change to such information in this
Registration Statement;
provided, however, that the undertakings set forth in paragraphs
(1)(i) and (ii) above do not apply if the information required to be
included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended that are incorporated by reference in this registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933 each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
II-4
<PAGE>
(B) The undersigned Registrant hereby undertakes, that, for purposes
of determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(C) The undersigned Registrant hereby undertakes:
(1) That, prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this Registration Statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph
(1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a
part of an amendment to the Registration Statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(D) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(E) The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated
by reference into the prospectus pursuant to Item 4, 10(b), 11, 13 of
this Form S-4, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(2) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Boise, Idaho on
the 8th day of September, 1998.
ALBERTSON'S, INC.
By:/s/ Gary G. Michael
-----------------------------------
Name: Gary G. Michael
Title:Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date first above written and the undersigned
directors and officers of Albertson's, do hereby constitute and appoint
Thomas R. Saldin and A. Craig Olson his or her true and lawful attorney and
agent, each with full power and authority (acting alone and without the
other) to execute in the name and on behalf of the undersigned as such
Director and/or Officer, to execute any and all amendments to this
Registration Statement, whether filed prior or subsequent to the time such
Registration Statement becomes effective. The undersigned hereby grants
unto such attorneys and agents, and each of them, full power of
substitution and revocation in the premises and hereby ratifies and
confirms all that such attorneys and agents may do or cause to be done by
virtue of these presents.
SIGNATURE TITLE DATE
/s/ Gary G. Michael
- ----------------------------
Gary G. Michael Chairman of the Board September 8, 1998
and Chief Executive
Officer (Principal
Executive Officer)
/s/ A. Craig Olson
- ----------------------------
A. Craig Olson Senior Vice President, September 8, 1998
Finance and Chief
Financial Officer
(Principal Financial
Officer)
/s/ Richard J. Navarro
- ----------------------------
Richard J. Navarro Group Vice President September 8, 1998
and Controller
(Principal Accounting
Officer)
/s/ A. Gary Ames
- ----------------------------
A. Gary Ames Director September 8, 1998
/s/ Cecil D. Andrus
- ----------------------------
Cecil D. Andrus Director September 8, 1998
/s/ John B. Carley
- ----------------------------
John B. Carley Director September 8, 1998
II-6
<PAGE>
/s/ Paul I. Corddry
- ----------------------------
Paul I. Corddry Director September 8, 1998
/s/ John B. Fery
- ----------------------------
John B. Fery Director September 8, 1998
/s/ Clark A. Johnson
- ----------------------------
Clark A. Johnson Director September 8, 1998
/s/ Richard L. King
- ----------------------------
Richard L. King Director September 8, 1998
/s/ Charles D. Lein
- ----------------------------
Charles D. Lein Director September 8, 1998
/s/ Beatriz Rivera
- ----------------------------
Beatriz Rivera Director September 8, 1998
/s/ J.B. Scott
- ----------------------------
J.B. Scott Director September 8, 1998
/s/ Thomas L. Stevens, Jr.
- ----------------------------
Thomas L. Stevens, Jr. Director September 8, 1998
/s/ Will M. Storey
- ----------------------------
Will M. Storey Director September 8, 1998
/s/ Steven D. Symms
- ----------------------------
Steven D. Symms Director September 8, 1998
II-7
<PAGE>
EXHIBIT INDEX
*2.1 -- Agreement and Plan of Merger, dated as of August 2, 1998,
among Albertson's, Inc., Abacus Holdings, Inc. and American
Stores Company dated as of August 2, 1998 (included in the
Proxy Statement/Prospectus as Appendix A).
4.1 -- Stockholder Rights Plan Agreement (incorporated herein by
reference to Exhibit 1 of Form 8-A Registration Statement
dated as of March 4, 1997 as amended by Amendment No. 1 on
Form 8-A dated as of August 6, 1998).
4.2-- Indenture, dated as of May 1, 1992, between Albertson's
Inc., and Morgan Guaranty Trust Company of New York as
Trustee (incorporated herein by reference to Exhibit 4.1 of
Form S-3 Registration Statement 333-41793 filed with the
Commission on December 9, 1997). In reliance upon Item
601(b)(4)(iii)(A) of Regulation S-K, various other
instruments defining the rights of holders of long-term debt
of the Registrant and its subsidiaries are not being filed
herewith, because the total amount of securities authorized
under each such instrument does not exceed 10% of the total
assets of the Registrant and its subsidiaries on a
consolidated basis. The Registrant hereby agrees to furnish
a copy of any such instrument to the Commission upon
request.
**5 -- Opinion of Thomas R. Saldin, Executive Vice President,
Administration and General Counsel of Registrant regarding
the legality of the shares being issued in the Merger.
**8.1 -- Opinion of Wachtell, Lipton, Rosen & Katz as to certain
federal income tax consequences described in the Proxy
Statement/Prospectus.
**8.2 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to
certain federal income tax consequences described in the
Proxy Statement/Prospectus.
*10.1 -- Termination and Consulting Agreement among Victor L. Lund,
American Stores Company and Albertson's, Inc. dated as of
August 2, 1998.
*10.2 -- Albertson's Inc. Amended and Restated 1995 Stock-Based
Incentive Plan (included in the Proxy Statement/Prospectus
as Appendix F).
*10.3 -- Stock Option Agreement, dated as of August 2, 1998, between
American Stores Company and Albertson's, Inc. (American
Stores Company as Issuer) (included in the Proxy
Statement/Prospectus as Appendix B).
*10.4 -- Stock Option Agreement, dated as of August 2, 1998, between
Albertson's, Inc. and American Stores Company (Albertson's
as Issuer) (included in the Proxy Statement/Prospectus as
Appendix C).
**23.1 -- Consent of Thomas R. Saldin Executive Vice President,
Administration and General Counsel of Registrant (included
in Exhibit 5).
**23.2 -- Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 8.1).
**23.3 -- Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 8.2).
*23.4 -- Consent of Deloitte & Touche LLP.
*23.5 -- Consent of Ernst & Young LLP.
*23.6 -- Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
*23.7 -- Consent of The Blackstone Group L.P.
*24 -- Power of Attorney of directors of Registrant (included on
signature page).
*99.1 -- Consent of Pamela G. Bailey.
*99.2 -- Consent of Henry I. Bryant.
*99.3 -- Consent of Fernando R. Gumucio.
*99.4 -- Consent of Victor L. Lund.
*99.5 -- Consent of Arthur K. Smith.
**99.6 -- Form of Proxy of Albertson's.
**99.7 -- Form of Proxy of ASC
- ---------------------
* Filed herewith.
** To be filed by Amendment.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
DATED AS OF
AUGUST 2, 1998
BY AND BETWEEN
ALBERTSON'S, INC.,
ABACUS HOLDINGS, INC.,
AND
AMERICAN STORES COMPANY
<PAGE>
TABLE OF CONTENTS
ARTICLE I..................................................................A-1
Section 1.1 The Merger...............................................A-1
Section 1.2 The Closing; Effective Time..............................A-2
Section 1.3 Subsequent Actions.......................................A-2
Section 1.4 Certificate of Incorporation; Bylaws; Directors
and Officers of the Surviving Corporation................A-2
ARTICLE II.................................................................A-3
Section 2.1 Treatment of Capital Stock...............................A-3
Section 2.2 Conversion of Common Stock...............................A-3
Section 2.3 Cancellation of Excluded Shares..........................A-3
Section 2.4 Conversion of Common Stock of Abacus Holdings............A-3
Section 2.5 Exchange Agent; Exchange Procedures......................A-3
Section 2.6 Transfer Books...........................................A-4
Section 2.7 No Fractional Share Certificates; Termination of
Exchange Fund............................................A-5
Section 2.8 Options to Purchase Abacus Shares........................A-5
Section 2.9 Appraisal Rights.........................................A-6
Section 2.10 Dividends...............................................A-6
Section 2.11 Certain Adjustments.....................................A-6
ARTICLE III................................................................A-6
Section 3.1 Organization and Qualification; Subsidiaries.............A-6
Section 3.2 Certificate of Incorporation and Bylaws..................A-7
Section 3.3 Capitalization...........................................A-7
Section 3.4 Power and Authority; Authorization; Valid & Binding......A-8
Section 3.5 No Conflict; Required Filings and Consents...............A-8
Section 3.6 SEC Reports; Financial Statements........................A-9
Section 3.7 Absence of Certain Changes...............................A-9
Section 3.8 Litigation and Liabilities..............................A-10
Section 3.9 No Violation of Law; Permits............................A-10
Section 3.10 Employee Matters; ERISA................................A-10
Section 3.11 Labor Matters..........................................A-12
Section 3.12 Environmental Matters..................................A-12
Section 3.13 Board Action; Vote Required............................A-13
Section 3.14 Opinion of Financial Advisor...........................A-14
Section 3.15 Brokers................................................A-14
Section 3.16 Tax Matters............................................A-14
Section 3.17 Intellectual Property..................................A-15
Section 3.18 Insurance..............................................A-15
Section 3.19 Contracts and Commitments..............................A-15
Section 3.20 Accounting and Tax Matters.............................A-16
Section 3.21 Ownership of Shares of Alphabet........................A-16
ARTICLE IV................................................................A-16
Section 4.1 Organization and Qualification; Subsidiaries............A-16
Section 4.2 Certificate of Incorporation and Bylaws.................A-17
Section 4.3 Capitalization..........................................A-17
Section 4.4 Power and Authority; Authorization; Valid & Binding.....A-18
Section 4.5 No Conflict; Required Filings and Consents..............A-18
Section 4.6 SEC Reports; Financial Statements.......................A-19
Section 4.7 Absence of Certain Changes..............................A-19
Section 4.8 Litigation and Liabilities..............................A-20
Section 4.9 No Violation of Law; Permits............................A-20
Section 4.10 Employee Matters; ERISA................................A-21
Section 4.11 Labor Matters..........................................A-22
Section 4.12 Environmental Matters..................................A-22
Section 4.13 Board Action; Vote Required............................A-23
Section 4.14 Opinion of Financial Advisor...........................A-23
Section 4.15 Brokers................................................A-23
Section 4.16 Tax Matters............................................A-24
Section 4.17 Intellectual Property..................................A-24
Section 4.18 Insurance..............................................A-24
Section 4.19 Contracts and Commitments..............................A-25
Section 4.20 Accounting and Tax Matters.............................A-25
Section 4.21 Ownership of Shares of Alphabet........................A-26
Section 4.22. Rights Agreement......................................A-26
ARTICLE V.................................................................A-26
Section 5.1 Interim Operations of Abacus............................A-26
Section 5.2 Interim Operations of Alphabet..........................A-28
Section 5.3 No Solicitation by Abacus...............................A-29
Section 5.4 No Solicitation by Alphabet.............................A-31
ARTICLE VI................................................................A-32
Section 6.1 Meetings of Stockholders................................A-32
Section 6.2 Filings Best Efforts....................................A-32
Section 6.3 Publicity...............................................A-34
Section 6.4 Registration Statement..................................A-34
Section 6.5 Listing Application.....................................A-34
Section 6.6 Further Action..........................................A-35
Section 6.7 Expenses................................................A-35
Section 6.8 Notification of Certain Matters.........................A-35
Section 6.9 Access to Information...................................A-35
Section 6.10 Review of Information..................................A-36
Section 6.11 Indemnification, Directors' and Officers'
Insurance...............................................A-36
Section 6.12 Employee Benefit Plans.................................A-36
Section 6.13 Alphabet Board of Directors............................A-38
Section 6.14 Affiliates.............................................A-38
Section 6.15 Pooling-of-Interests...................................A-39
Section 6.16 Tax-Free Reorganization................................A-39
Section 6.17 Accountant's Comfort Letters...........................A-39
Section 6.18 Accountant's Pooling Letters...........................A-39
ARTICLE VII...............................................................A-39
Section 7.1 Conditions to Obligations of the Parties to
Consummate the Merger...................................A-39
Section 7.2 Additional Conditions to Obligations of Alphabet
and Abacus Holdings.....................................A-40
Section 7.3 Additional Conditions to Obligations of Abacus..........A-41
ARTICLE VIII..............................................................A-42
Section 8.1 Termination.............................................A-42
Section 8.2 Effect of Termination and Abandonment...................A-43
Section 8.3 Amendment...............................................A-45
ARTICLE IX................................................................A-45
Section 9.1 Non-Survival of Representations, Warranties and
Agreements..............................................A-45
Section 9.2 Notices.................................................A-45
Section 9.3 Certain Definitions; Interpretation.....................A-46
Section 9.4 Headings................................................A-47
Section 9.5 Severability............................................A-47
Section 9.6 Entire Agreement; No Third-Party Beneficiaries..........A-48
Section 9.7 Assignment..............................................A-48
Section 9.8 Governing Law...........................................A-48
Section 9.9 Counterparts............................................A-48
INDEX OF DEFINED TERMS
DEFINED TERM Page No.
Abacus.....................................................................A-1
Abacus Acquisition Proposal...............................................A-27
Abacus Acquisition Transaction............................................A-27
Abacus Benefit Plan........................................................A-9
Abacus Business Combination Proposal......................................A-41
Abacus Capital Stock Disclosure Date.......................................A-6
Abacus Certificate of Incorporation........................................A-2
Abacus Common Stock........................................................A-1
Abacus Contracts..........................................................A-14
Abacus Covered Employees..................................................A-34
Abacus Covered Salt Lake Employees........................................A-34
Abacus Disclosure Letter...................................................A-6
Abacus Employee...........................................................A-10
Abacus Employees..........................................................A-10
Abacus Equity Rights.......................................................A-6
Abacus ERISA Affiliate....................................................A-10
Abacus Holdings............................................................A-1
Abacus Material Adverse Effect............................................A-42
Abacus Multiemployer Plan..................................................A-9
Abacus Options.............................................................A-4
Abacus Preferred Stock.....................................................A-6
Abacus SEC Reports.........................................................A-8
Abacus Shares..............................................................A-1
Abacus Stock Option Agreement..............................................A-1
Abacus Superior Proposal..................................................A-27
Abacus Termination Fee....................................................A-40
affiliate.................................................................A-43
Agreement..................................................................A-1
Allowance Plan............................................................A-34
Alphabet...................................................................A-1
Alphabet Acquisition Proposal.............................................A-29
Alphabet Benefit Plan.....................................................A-19
Alphabet Business Combination Proposal....................................A-41
Alphabet Capital Stock Disclosure Date....................................A-15
Alphabet Certificate of Incorporation......................................A-2
Alphabet Common Stock......................................................A-1
Alphabet Contracts........................................................A-22
Alphabet Disclosure Letter................................................A-15
Alphabet Employee.........................................................A-19
Alphabet Employees........................................................A-19
Alphabet Equity Rights....................................................A-16
Alphabet ERISA Affiliate..................................................A-19
Alphabet Material Adverse Effect..........................................A-43
Alphabet Multiemployer Plan...............................................A-19
Alphabet Preferred Stock..................................................A-15
Alphabet Rights...........................................................A-23
Alphabet Rights Agreement.................................................A-23
Alphabet SEC Reports......................................................A-17
Alphabet Shares............................................................A-1
Alphabet Stock Option Agreement............................................A-1
Alphabet Superior Proposal................................................A-28
Alphabet Termination Fee..................................................A-40
Certificate of Incorporation...............................................A-2
Closing....................................................................A-2
Closing Date...............................................................A-2
Code.......................................................................A-1
Confidentiality Agreement.................................................A-27
Consents..................................................................A-37
control...................................................................A-43
Current Premium...........................................................A-33
D&O Insurance.............................................................A-33
Deloitte..................................................................A-36
DGCL.......................................................................A-1
E&Y.......................................................................A-36
Effective Time.............................................................A-2
Environmental Claim.......................................................A-12
Environmental Laws........................................................A-12
Environmental Permits.....................................................A-11
ERISA.....................................................................A-43
Exchange Agent.............................................................A-3
Exchange Fund..............................................................A-3
Exchange Ratio.............................................................A-3
Excluded Shares............................................................A-3
Fees and Expenses.........................................................A-40
Filings...................................................................A-37
Form S-4..................................................................A-31
GAAP.......................................................................A-1
Governmental Entity........................................................A-8
Hazardous Materials.......................................................A-12
HSR Act....................................................................A-7
Indemnified Parties.......................................................A-33
knowledge.................................................................A-43
Merger.....................................................................A-1
Merger Sub.................................................................A-1
NYSE.......................................................................A-4
Party......................................................................A-1
PCBs......................................................................A-12
Pension Plan..............................................................A-10
Person....................................................................A-43
Proxy Statement/Prospectus................................................A-31
Release...................................................................A-12
Renewal Date..............................................................A-34
Representative........................................................A-27, 28
SEC........................................................................A-1
Securities Act.............................................................A-7
Significant Subsidiary....................................................A-43
Stock Option Agreements....................................................A-1
Subsidiary................................................................A-43
Surviving Corporation......................................................A-1
Tax Return................................................................A-13
Taxable...................................................................A-13
Taxes.....................................................................A-13
Termination Date..........................................................A-38
Termination Fee...........................................................A-39
Trusts....................................................................A-26
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 2, 1998 (this
"Agreement"), between Albertson's, Inc. ("Alphabet") a Delaware
corporation, Abacus Holdings, Inc. ("Abacus Holdings" or "Merger Sub"), a
Delaware corporation and a wholly-owned subsidiary of Alphabet, and
American Stores Company ("Abacus"), a Delaware corporation. Alphabet and
Abacus are sometimes referred to herein, individually, as a "Party," and
together, as the "Parties."
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Alphabet, Abacus
Holdings and Abacus have each determined that the merger of Abacus Holdings
with and into Abacus (the "Merger") upon the terms and subject to the
conditions set forth in this Agreement is advisable, fair to and in the
best interests of their respective corporations and stockholders and have
approved the Merger;
WHEREAS, it is intended that, for federal income tax purposes,
the Merger will qualify as a tax-free reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended and the rules and regulations
promulgated thereunder (the "Code");
WHEREAS, it is intended that, for accounting purposes, the Merger
will be accounted for as a pooling-of-interests under United States
generally accepted accounting principles ("GAAP") and applicable rules and
regulations of the Securities and Exchange Commission (the "SEC").
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Alphabet's willingness to
enter into this Agreement, Alphabet and Abacus have executed and delivered
a Stock Option Agreement, dated as of the date hereof (the "Abacus Stock
Option Agreement"), pursuant to which Abacus is granting to Alphabet an
option to purchase, under certain circumstances, up to a number of shares
of common stock, par value $1.00 per share, of Abacus (the "Abacus Common
Stock" or "Abacus Shares") equal to 19.9% of the outstanding shares of
Abacus Common Stock with an exercise price per share equal to $30.24.
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Abacus' willingness to enter
into this Agreement, Abacus and Alphabet have executed and delivered a
Stock Option Agreement, dated as of the date hereof (the "Alphabet Stock
Option Agreement" and together with the Abacus Stock Option Agreement, the
"Stock Option Agreements"), pursuant to which Alphabet is granting to
Abacus an option to purchase, under certain circumstances, up to a number
of shares of common stock, par value $1.00 per share, of Alphabet, together
with the associated preferred stock purchase rights (the "Alphabet Common
Stock" or "Alphabet Shares") equal to 19.9% of the outstanding shares of
Alphabet Common Stock with an exercise price per share equal to $48.00.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, the parties hereto agree as follows (certain
capitalized terms used herein are defined in Section 9.3 hereof):
ARTICLE I
Section 1.1 The Merger. At the Effective Time (as defined in Section
1.2(b)) and subject to and upon the terms and conditions of this Agreement
and in accordance with the Delaware General Corporation Law (the "DGCL"),
Abacus Holdings shall be merged with and into Abacus and the separate
corporate existence of Abacus Holdings shall cease. Abacus shall continue
as the surviving corporation (sometimes referred to herein as the
"Surviving Corporation") in the Merger, and as of the Effective Time shall
be a wholly-owned subsidiary of Alphabet. The Merger shall have the effects
specified in Section 259(a) of the DGCL.
Section 1.2 The Closing; Effective Time. (a) The closing of the Merger
(the "Closing") shall take place (i) at the offices of Fried, Frank,
Harris, Shriver & Jacobson, One New York Plaza, New York, New York, 10004,
at 10:00 A.M. local time, on the second business day following the date on
which the last to be satisfied or waived of the conditions set forth in
Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or, where
permitted, waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (ii) at such other place, time and/or
date as Alphabet and Abacus shall agree (the date of the Closing, the
"Closing Date").
(b) On the Closing Date, Alphabet, Abacus and Abacus Holdings
shall cause a certificate of merger in respect of the Merger to be properly
executed, and filed with the Secretary of State of the State of Delaware as
provided in Section 251 of the DGCL. The Merger shall become effective at
such time at which such certificate of merger shall be duly filed with
Secretary of State of Delaware, or at such later time reflected in such
certificate of merger as shall be agreed by Alphabet and Abacus (the time
that the Merger becomes effective, the "Effective Time").
Section 1.3 Subsequent Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to continue in, vest, perfect or confirm
of record or otherwise in the Surviving Corporation's right, title or
interest in, to or under any of the rights, properties, privileges,
franchises or assets of either of its constituent corporations acquired or
to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger, or otherwise to carry out the intent of this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of either of
the constituent corporations of the Merger, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
each of such corporations or otherwise, all such other actions and things
as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties,
privileges, franchises or assets in the Surviving Corporation or otherwise
to carry out the intent of this Agreement.
Section 1.4 Certificate of Incorporation; Bylaws; Directors and
Officers of the Surviving Corporation. Unless otherwise agreed by Alphabet
and Abacus prior to the Closing, at the Effective Time:
(a) The Amended and Restated Certificate of Incorporation of
Abacus, as amended (the "Abacus Certificate of Incorporation;" it and the
Amended and Restated Certificate of Incorporation of Alphabet, as amended
(the "Alphabet Certificate of Incorporation"), are each sometimes referred
to herein as a "Certificate of Incorporation"), as in effect immediately
prior to the Effective Time shall be at and after the Effective Time (until
amended as provided by law and by such Certificate of Incorporation) the
certificate of incorporation of the Surviving Corporation, except that
Article Fourth of the Abacus Certificate of Incorporation shall be amended
to read in its entirety as follows: "The aggregate number of shares that
the Corporation shall have the authority to issue is 1,000 shares of Common
Stock, par value $1.00 per share."
(b) The Bylaws of Abacus as in effect immediately prior to the
Effective Time shall be at and after the Effective Time (until amended as
provided by law, its Certificate of Incorporation and its Bylaws, as
applicable) the Bylaws of the Surviving Corporation;
(c) The officers of Abacus immediately prior to the Effective
Time shall continue to serve in their respective offices of the Surviving
Corporation from and after the Effective Time, until their successors are
elected or appointed and qualified or until their resignation or removal;
and
(d) The directors of Abacus Holdings immediately prior to the
Effective Time shall be the directors of the Surviving Corporation from and
after the Effective Time, until their successors are elected or appointed
and qualified or until their resignation or removal.
ARTICLE II
Section 2.1 Treatment of Capital Stock. The manner and basis of
converting the shares of common stock of Abacus and Abacus Holdings, by
virtue of the Merger and without any action on the part of any holder
thereof, shall be as set forth in this Article II.
Section 2.2 Conversion of Common Stock. (a) Each share of Abacus
Common Stock issued and outstanding immediately prior to the Effective Time
(excluding those held in the treasury of Abacus, by any of its Subsidiaries
or by Alphabet or any of its Subsidiaries (collectively, the "Excluded
Shares")), and all rights in respect thereof, shall at the Effective Time,
without any action on the part of any holder thereof, forthwith cease to
exist and be converted into the right to receive .63 (the "Exchange Ratio")
validly issued, fully paid and nonassessable shares of Alphabet Common
Stock.
(b) Except as otherwise provided herein, commencing immediately
after the Effective Time, each certificate which, immediately prior to the
Effective Time, represented issued and outstanding shares of Abacus Common
Stock shall evidence the right to receive shares of Alphabet Common Stock
on the basis set forth in paragraph (a) above (and cash in lieu of any
fractional shares pursuant to Section 2.7 hereof).
Section 2.3 Cancellation of Excluded Shares. At the Effective Time,
each Excluded Share, by virtue of the Merger and without any action on the
part of the holder thereof, shall cease to be outstanding, shall be
canceled and retired, and no shares of stock or other securities of
Alphabet or the Surviving Corporation shall be issuable, and no payment or
other consideration shall be made or paid, in respect thereof.
Section 2.4 Conversion of Common Stock of Abacus Holdings. At the
Effective Time, each share of common stock of Abacus Holdings issued and
outstanding immediately prior to the Effective Time, and all rights in
respect thereof, shall, without any action on the part of Alphabet,
forthwith cease to exist and be converted into one validly issued, fully
paid and nonassessable share of common stock of the Surviving Corporation.
Section 2.5 Exchange Agent; Exchange Procedures. (a) Subject to the
terms and conditions of this Agreement, at or prior to the Effective Time,
Alphabet shall appoint ChaseMellon Shareholder Services, L.L.C., or such
other exchange agent selected by Alphabet that is reasonably acceptable to
Abacus (the "Exchange Agent"), to effect the exchange of Abacus Shares for
shares of Alphabet Common Stock in accordance with the provisions of this
Article II. As soon as reasonably practicable following the Effective Time,
Alphabet shall deposit, or cause to be deposited, with the Exchange Agent
certificates representing the shares of Alphabet Common Stock to be issued
in the Merger, any cash payable in respect of fractional shares in
accordance with Section 2.7 hereof and the amount of any dividends or
distributions in accordance with Section 2.5(b) hereof (the "Exchange
Fund").
(b) As soon as reasonably practicable after the Effective Time,
Alphabet shall instruct the Exchange Agent to mail to each record holder of
a certificate or certificates which immediately prior to the Effective Time
represented Abacus Shares (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to such
certificates shall pass, only upon delivery to the Exchange Agent and shall
be in such form and have such other provisions as Alphabet shall reasonably
specify) and (ii) instructions for use in effecting the surrender of
certificates which immediately prior to the Effective Time represented
Abacus Shares for certificates representing shares of Alphabet Common Stock
and cash in lieu of fractional shares, if any. Commencing immediately after
the Effective Time, upon the surrender to the Exchange Agent of such
certificate or certificates, together with a duly executed and completed
letter of transmittal and all other documents and other materials required
by the Exchange Agent to be delivered in connection therewith, the holder
thereof shall be entitled to receive a certificate or certificates
representing the number of whole shares of Alphabet Common Stock into which
the shares of Abacus Common Stock which immediately prior to the Effective
Time were represented by the certificate or certificates so surrendered
shall have been converted in accordance with the provisions of Section 2.2,
together with a cash payment (net of any applicable tax withholdings) in
lieu of fractional shares, if any. Unless and until any certificate or
certificates which immediately prior to the Effective Time represented
shares of Abacus Common Stock are so surrendered, no dividend or other
distribution, if any, payable to the holders of record of shares of
Alphabet Common Stock as of any date subsequent to the Effective Time shall
be paid to the holder of such certificate or certificates in respect
thereof. Except as otherwise provided herein, upon the surrender of any
certificate or certificates which immediately prior to the Effective Time
represented Abacus Shares, the record holder of the certificate or
certificates representing shares of Alphabet Common Stock issued in
exchange therefore shall be entitled to receive (i) at the time of
surrender, the amount of any dividends or other distributions (net of any
applicable tax withholdings) having a record date after the Effective Time
and a payment date prior to the surrender date, payable in respect of such
shares of Alphabet Common Stock and (ii) at the appropriate payment date,
the amount of dividends or other distributions (net of any applicable tax
withholdings) having a record date after the Effective Time and a payment
date subsequent to the date of such surrender, payable in respect of such
shares of Alphabet Common Stock. No interest shall be payable in respect of
the payment of dividends or distributions pursuant to the immediately
preceding sentence.
(c) Notwithstanding anything in this Agreement to the contrary,
certificates surrendered for exchange by any "affiliate" (as defined in
Section 6.14 hereof) of Abacus shall not be exchanged for shares of
Alphabet Common Stock until Alphabet shall have received a signed agreement
from such "affiliate" as provided in Section 6.14 hereof.
Section 2.6 Transfer Books. The stock transfer books of Abacus shall
be closed at the Effective Time and no transfer of any Abacus Shares will
thereafter be recorded on any of such stock transfer books. In the event of
a transfer of ownership of any Abacus Shares that is not registered in the
stock transfer records of Abacus at the Effective Time, a certificate or
certificates representing the number of full shares of Alphabet Common
Stock into which such Abacus Shares shall have been converted in the Merger
shall be issued to the transferee together with a cash payment (net of any
applicable tax withholdings) in lieu of fractional shares, if any, in
accordance with Section 2.7, and a cash payment in accordance with Section
2.5(b) of dividends or distributions, if any, only if the certificate or
certificates which immediately prior to the Effective Time represented such
Abacus Shares are surrendered as provided in Section 2.5, accompanied by
all documents required to evidence and effect such transfer and by evidence
of payment of any applicable stock transfer taxes.
Section 2.7 No Fractional Share Certificates; Termination of Exchange
Fund. (a) No scrip or fractional share certificate for Alphabet Common
Stock will be issued upon the surrender for exchange of a certificate or
certificates which immediately prior to the Effective Time represented
Abacus Shares, and no outstanding fractional share interest will entitle
the holder thereof to vote or receive dividends or distributions or any
other rights of a stockholder of Alphabet with respect to such fractional
share interest. Each holder entitled to receive a fractional share of
Alphabet Common Stock but for this Section 2.7(a) shall be entitled to
receive an amount of cash (net of applicable tax withholdings) equal to the
product obtained by multiplying (i) the fractional share interest to which
such holder would otherwise be entitled (after taking into account all
shares of Abacus Common Stock held immediately prior to the Effective Time
by such holder) by (ii) the closing price for a share of Alphabet Common
Stock on the New York Stock Exchange (the "NYSE") Composite Transaction
Tape on the trading day immediately prior to the Closing Date. No interest
shall be payable in respect of any cash payment for fractional share
interests.
(b) Any portion of the Exchange Fund which remains undistributed
one year after the Effective Time shall be delivered to Alphabet upon
demand, and each holder of Abacus Shares who had not theretofore
surrendered certificates or certificates which immediately prior to the
Effective Time represented Abacus Shares in accordance with the provisions
of this Article II shall thereafter look only to Alphabet for satisfaction
of such holder's claims for shares of Alphabet Common Stock, any cash in
lieu of fractional shares of Alphabet Common Stock and any dividends or
distributions payable in accordance with Section 2.5(b). Notwithstanding
the foregoing, none of Alphabet, the Surviving Corporation, the Exchange
Agent or any other Person shall be liable to any former holder of Abacus
Shares for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
Section 2.8 Options to Purchase Abacus Shares. (a) Prior to the
Effective Time, Abacus shall take all action necessary with respect to each
of the plans or arrangements of Abacus and its Subsidiaries pursuant to
which options to purchase Abacus Shares (the "Abacus Options") will be
outstanding immediately prior to the Effective Time such that as of and
after the Effective Time each Abacus Option shall entitle the holder
thereof to purchase such number of shares of Alphabet Common Stock as is
equal to the product of (x) the number of shares of Abacus Common Stock
subject to such option immediately prior to the Effective Time and (y) the
Exchange Ratio; and the exercise price per share of Alphabet Common Stock
subject to such option shall be equal to (x) the exercise price per share
of Abacus Common Stock immediately prior to the Effective Time divided by
(y) the Exchange Ratio. Abacus shall take no action to cause any Abacus
Option which pursuant to its terms as in effect as of the date hereof would
not become vested or exercisable by reason of the transactions contemplated
by this Agreement to become vested or exercisable in connection herewith,
and nothing contained in this Agreement shall be interpreted as causing any
such Abacus Option to become vested or exercisable.
(b) Notwithstanding the foregoing, the number of shares of
Alphabet Common Stock deliverable upon exercise of each Abacus Option at
and after the Effective Time as contemplated by paragraph (a) above shall
be rounded, if necessary, to the nearest whole share, and the exercise
price with respect thereto shall be rounded, if necessary, to the nearest
one one-hundredth of a cent. Other than as provided in paragraph (a) above
and in the prior sentence of this paragraph (b), as of and after the
Effective Time, each Abacus Option shall be subject to the same terms and
conditions as in effect immediately prior to the Effective Time, but giving
effect to the Merger (it being understood that all Options exercisable at
the same price and granted on the same date shall be aggregated for this
purpose).
(c) As soon as practicable after the Effective Time, Alphabet
shall deliver (i) to the holders of Abacus Options which become fully
vested and exercisable by virtue of the Merger a notice stating that by
virtue of the Merger and pursuant to the terms of the relevant Abacus
Benefit Plan (as herein defined) such Abacus Options have become fully
vested and exercisable and (ii) to the holders of all Abacus Options a
notice stating that the agreements evidencing the grants of such Abacus
Options shall continue in effect on the same terms and conditions (subject
to the adjustments required by this Section 2.8 after giving effect to the
Merger and the terms of the relevant Abacus Benefit Plan).
(d) Alphabet shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Alphabet Common Stock for
delivery upon exercise of Abacus Options in accordance with this Section
2.8. Promptly after the Effective Time, Alphabet shall file a registration
statement on Form S-8 (if available) (or any successor or other appropriate
forms) with respect to the shares of Alphabet Common Stock subject to such
options and shall use all reasonable efforts to maintain the effectiveness
of such registration statement (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such options
remain outstanding.
Section 2.9 Appraisal Rights. In accordance with Section 262 of the
DGCL, no appraisal rights shall be available to holders of Abacus Shares in
connection with the Merger.
Section 2.10 Dividends. Alphabet and Abacus shall coordinate with each
other the declaration of, and the setting of record dates and payment dates
for, dividends in respect of their respective common stock so that, in
respect of any fiscal quarter, holders thereof (i) do not receive dividends
in respect of both (x) Abacus Shares and (y) shares of Alphabet Common
Stock received pursuant to the Merger in respect thereof or (ii) fail to
receive a dividend in respect of both (x) Abacus Shares and (y) the shares
of Alphabet Common Stock received pursuant to the Merger in respect
thereof.
Section 2.11 Certain Adjustments. If between the date of this
Agreement and the Effective Time, the outstanding shares of Abacus Common
Stock or Alphabet Common Stock shall be changed into a different number of
shares by reason of any stock split, combination of shares, or any dividend
payable in stock shall be declared thereon with a record date within such
period, the Exchange Ratio shall be appropriately adjusted to provide the
holders of Abacus Shares the same economic effect as contemplated by this
Agreement prior to such event.
ARTICLE III
Except as set forth in the corresponding sections or subsections
of the disclosure letter, dated the date hereof, delivered by Abacus to
Alphabet (the "Abacus Disclosure Letter"), Abacus hereby represents and
warrants to Alphabet and Abacus Holdings as follows:
Section 3.1 Organization and Qualification; Subsidiaries. (a) Abacus
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of the Subsidiaries of Abacus
is a corporation or other business entity duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization, and each of Abacus and its Subsidiaries has the requisite
corporate or other organizational power and authority to own, operate or
lease its properties and to carry on its business as it is now being
conducted, and is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned, operated or leased or the nature of its activities makes
such qualification necessary, in each case except as would not,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect.
(b) All of the outstanding shares of capital stock and other
equity securities of the Significant Subsidiaries of Abacus have been
validly issued and are fully paid and nonassessable, and are owned,
directly or indirectly, by Abacus, free and clear of all pledges and
security interests. All outstanding shares of capital stock and other
equity interests of each Subsidiary of Abacus owned directly or indirectly
by Abacus are free and clear of all liens, claims or encumbrances as would,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect. There are no subscriptions, options, warrants,
calls, commitments, agreements, conversion rights or other rights of any
character (contingent or otherwise) entitling any Person to purchase or
otherwise acquire from Abacus or any of its Significant Subsidiaries at any
time, or upon the happening of any stated event, any shares of capital
stock or other equity securities of any of the Significant Subsidiaries of
Abacus. The Abacus Disclosure Letter lists the name and jurisdiction of
incorporation or organization of each of the Significant Subsidiaries of
Abacus.
(c) Except for interests in its Subsidiaries, neither Abacus nor
any of its Subsidiaries owns directly or indirectly any material equity
interest in any Person or has any obligation or made any commitment to
acquire any such interest or make any such investment.
Section 3.2 Certificate of Incorporation and Bylaws. Abacus has
furnished, or otherwise made available, to Alphabet a complete and correct
copy of the certificate of incorporation and bylaws, as amended to the date
of this Agreement, of Abacus. Such certificate of incorporation and bylaws
are in full force and effect. Abacus is not in violation of any of the
provisions of its certificate of incorporation or bylaws.
Section 3.3 Capitalization. (a) The authorized capital stock of Abacus
consists of 700,000,000 shares of Abacus Common Stock and 10,000,000 shares
of Preferred Stock, par value $1.00 per share (the "Abacus Preferred
Stock"). At the close of business on June 28, 1998 (the "Abacus Capital
Stock Disclosure Date"), (i) 274,216,016 shares of Abacus Common Stock, and
no shares of Abacus Preferred Stock, were issued and outstanding and (ii)
25,562,456 shares of Abacus Common Stock, and no shares of Abacus Preferred
Stock, were held by Abacus in its treasury. The Abacus Disclosure Letter
lists the number of shares of Abacus Common Stock and Abacus Preferred
Stock reserved for issuance as of the Abacus Capital Stock Disclosure Date
under each of the Abacus Benefit Plans (as defined in Section 3.10) or
otherwise. Since the Abacus Capital Stock Disclosure Date until the date of
this Agreement, no shares of Abacus Common Stock or Abacus Preferred Stock
have been issued or reserved for issuance, except in respect of the
exercise, conversion or exchange of Abacus Equity Rights (as defined below)
outstanding as of the Abacus Capital Stock Disclosure Date and in
connection with the Abacus Stock Option Agreement. For purposes of this
Agreement, "Abacus Equity Rights" shall mean subscriptions, options,
warrants, calls, commitments, agreements, conversion rights or other rights
of any character (contingent or otherwise) to purchase or otherwise acquire
from Abacus or any of its Subsidiaries at any time, or upon the happening
of any stated event, any shares of the capital stock of Abacus. The Abacus
Disclosure Letter sets forth the number and type of Abacus Equity Rights
(including the number and class of Abacus' capital stock for or into which
such Abacus Equity Rights are exercisable, convertible or exchangeable and
any Abacus Benefit Plan pursuant to which such Abacus Equity Rights were
granted or issued) outstanding as of the Abacus Capital Stock Disclosure
Date. Other than the Abacus Equity Rights disclosed in the Abacus
Disclosure Letter and the Abacus Equity Rights granted pursuant to the
Abacus Stock Option Agreement, Abacus does not have outstanding any Abacus
Equity Rights as of the date of this Agreement. Except as disclosed in the
Abacus SEC Reports (defined below), no stockholders of Abacus are party to
any voting agreement, voting trust or similar arrangement with respect to
Abacus Shares to which Abacus or any Subsidiary of Abacus is a Party.
(b) There are no outstanding obligations of Abacus or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Abacus Common Stock or any Abacus Equity Rights (except in connection with
the exercise, conversion or exchange of outstanding Abacus Equity Rights).
All of the issued and outstanding shares of Abacus Common Stock are validly
issued, fully paid, nonassessable and free of preemptive rights. The Abacus
Disclosure Letter sets forth the number of shares of Abacus Common Stock
repurchased, and the number issued, by Abacus or any of its Subsidiaries
since July 1, 1996.
Section 3.4 Power and Authority; Authorization; Valid & Binding.
Abacus has the necessary corporate power and authority to enter into and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby, except that the Merger is
subject to the adoption and approval of this Agreement and the Merger by
Abacus' stockholders as required by the DCGL. The execution and delivery of
this Agreement by Abacus, the performance by it of its obligations
hereunder and the consummation by Abacus of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action on the
part of Abacus (other than with respect to the Merger, the adoption and
approval of this Agreement and the Merger by its stockholders as required
by the DGCL). This Agreement has been duly executed and delivered by Abacus
and, assuming the due authorization, execution and delivery by Alphabet and
Merger Sub, constitutes a legal, valid and binding obligation of Abacus
enforceable against it in accordance with the terms hereof or thereof,
subject to bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
Section 3.5 No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement and the Abacus Stock Option
Agreement by Abacus does not, and the performance by Abacus of its
obligations hereunder and thereunder and the consummation by Abacus of the
transactions contemplated hereby, and thereby will not, (i) violate or
conflict with the certificate of incorporation, or bylaws of Abacus, (ii)
subject to obtaining or making the notices, reports, filings, waivers,
consents, approvals or authorizations referred to in paragraph (b) below,
conflict with or violate any law, regulation, court order, judgment or
decree applicable to Abacus or any of its Subsidiaries or by which any of
their respective property is bound or affected, (iii) result in any breach
of or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, cancellation, vesting, modification, alteration or
acceleration of any obligation under, result in the creation of a lien,
claim or encumbrance on any of the properties or assets of Abacus or any of
its Subsidiaries pursuant to, result in the loss of any material benefit
under (including an increase in the price paid by, or cost to, Abacus or
any of its Subsidiaries), require the consent of any other party to, or
result in any obligation of the part of Abacus or any of its Subsidiaries
to repurchase (with respect to a bond or a note), any agreement, contract,
instrument, bond, note, indenture, permit, license or franchise to which
Abacus or any of its Subsidiaries is a party or by which Abacus, any of its
Subsidiaries or any of their respective property is bound or affected,
except, in the case of clauses (ii) and (iii) above, as would not,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect.
(b) Except for applicable requirements, if any, under the
premerger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the filing of a
certificate of merger with respect to the Merger as required by the DGCL,
filings with the SEC under the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act, any filings required pursuant to
any state securities or "blue sky" laws, any filings required pursuant to
any state liquor, gaming or pharmacy laws, any applicable Environmental
Laws (as defined herein) governing the transfer of any interest in real
property or of business operations (including without limitation transfer
acts, notifications, and deed restrictions), and the transfer or
application requirements with respect to the environmental permits of
Abacus or its Subsidiaries, or pursuant to the rules and regulations of any
stock exchange on which the Abacus Shares are listed, neither Abacus nor
any of its Subsidiaries is required to submit any notice, report or other
filing with any Governmental Entity (defined below) in connection with the
execution, delivery, performance or consummation of this Agreement, the
Stock Option Agreements or the Merger except for such notices, reports or
filings that, if not made, would not, individually or in the aggregate,
reasonably be expected to have an Abacus Material Adverse Effect. Except as
set forth in the immediately preceding sentence, no waiver, consent,
approval or authorization of any governmental or regulatory authority,
court, agency, commission or other governmental entity or any securities
exchange or other self-regulatory body, domestic or foreign ("Governmental
Entity"), is required to be obtained by Abacus or any of its Subsidiaries
in connection with its execution, delivery, performance or consummation of
this Agreement, the Stock Option Agreement or the transactions contemplated
hereby except for such waivers, consents, approvals or authorizations that,
if not obtained or made, would not, individually or in the aggregate,
reasonably be expected to have, an Abacus Material Adverse Effect.
Section 3.6 SEC Reports; Financial Statements. (a) Abacus has filed
all forms, reports and documents (including all Exhibits, Schedules and
Annexes thereto) required to be filed by it with the SEC since January 1,
1995, including any amendments or supplements thereto (collectively,
including any such forms, reports and documents filed after the date
hereof, the "Abacus SEC Reports"), and, with respect to the Abacus SEC
Reports filed by Abacus after the date hereof and prior to the Closing
Date, will deliver or make available, to Alphabet all of its Abacus SEC
Reports in the form filed with the SEC. The Abacus SEC Reports (i) were
(and any Abacus SEC Reports filed after the date hereof will be) in all
material respects in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder, and (ii) as of their respective filing dates, did
not (and any Abacus SEC Reports filed after the date hereof will not)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The financial statements, including all related notes and
schedules, contained in the Abacus SEC Reports (or incorporated therein by
reference) fairly present in all material respects (or, with respect to
financial statements contained in the Abacus SEC Reports filed after the
date hereof, will fairly present in all material respects) the consolidated
financial position of Abacus and its consolidated subsidiaries as of the
respective dates thereof and the consolidated results of operations,
retained earnings and cash flows of Abacus and its consolidated
subsidiaries for the respective periods indicated, in each case in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except for changes in accounting principles disclosed in the
notes thereto) and the rules and regulations of the SEC, except that
interim financial statements are subject to normal year-end adjustments
which are not and are not expected to be, individually or in the aggregate,
material in amount and do not include certain notes which may be required
by GAAP but which are not required by Form 10-Q of the SEC.
Section 3.7 Absence of Certain Changes. Except as disclosed in the
Abacus SEC Reports filed prior to the date hereof, since the end of Abacus'
fiscal year last ended, (a) Abacus and each of its Subsidiaries has
conducted its business in all material respects in the ordinary and usual
course of its business consistent with past practice and there has not been
any change in the financial condition, business or results of operations of
Abacus and its Subsidiaries, or any development or combination of
developments that, individually or in the aggregate, has had or would
reasonably be expected to have an Abacus Material Adverse Effect and (b)
since the end of Abacus' fiscal year last ended until the date hereof there
has not been (i) any declaration, setting aside or payment of any dividend
or other distribution in respect of the capital stock of Abacus, other than
regular cash dividends consistent with past practice; (ii) any change by
Abacus to its accounting policies, practices or methods; (iii) any
amendment or change to the terms of any of its indebtedness material to
Abacus and its Subsidiaries taken as a whole; (iv) any incurrence of any
material indebtedness outside of the ordinary course of business; (v)
outside the ordinary course of business, any transfer, lease, license,
sale, mortgage, pledge, encumbrance or other disposition of assets or
properties material to Abacus and its Subsidiaries taken as a whole; (vi)
any material damage, destruction or other casualty loss with respect to any
asset or property owned, leased or otherwise used by Abacus or its
Subsidiaries material to Abacus and its Subsidiaries taken as a whole,
whether or not covered by insurance; (vii) except on a case-by-case basis
in the ordinary course of business consistent with past practice for
employees other than executive officers or directors, or except as required
by applicable law or pursuant to a contractual obligation in effect as of
the date of this Agreement, (A) any execution, adoption or amendment of any
agreement or arrangement relating to severance or any employee benefit plan
or employment or consulting agreement (including, without limitation, the
Abacus Benefit Plans referred to in Section 3.10 hereof) or (B) any grant
of any stock options or other equity related award; or (viii) any agreement
or commitment entered into with respect to any of the foregoing. With
respect to Abacus, any action taken by Abacus pursuant to and consistent
with its corporate and functional consolidations or its Delta Plan shall be
deemed for the purposes hereof to be an action of Abacus that is consistent
with past practice.
Section 3.8 Litigation and Liabilities. (a) Except as disclosed in the
Abacus SEC Reports filed prior to the date hereof, there are no civil,
criminal or administrative actions, suits or claims, proceedings (including
condemnation proceedings) or, to the knowledge of Abacus, hearings or
investigations, pending or, to the knowledge of Abacus, threatened against,
or otherwise adversely affecting Abacus or any of its Subsidiaries or any
of their respective properties and assets, except for any of the foregoing
which would not, individually or in the aggregate, reasonably be expected
to have an Abacus Material Adverse Effect.
(b) Neither Abacus nor any of its Subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) the existence of
which would, individually or in the aggregate, reasonably be expected to
have an Abacus Material Adverse Effect except (i) liabilities, described in
the Abacus SEC Reports filed with the SEC prior to the date hereof or
reflected on Abacus' consolidated balance sheet (and related notes thereto)
as of the end of its most recently completed fiscal year filed in the
Abacus SEC Reports, (ii) liabilities incurred since the end of Abacus' most
recently completed fiscal year in the ordinary course of business
consistent with past practice that would not, individually or in the
aggregate, reasonably be expected to have an Abacus Material Adverse Effect
or (iii) liabilities permitted to be incurred pursuant to Section 5.1.
Section 3.9 No Violation of Law; Permits. The business of Abacus and
each of its Subsidiaries is being conducted in accordance with all
applicable statutes of law, ordinances, regulations, judgments, orders or
decrees of any Governmental Entity, and not in violation of any permits,
franchises, licenses, authorizations or consents granted by any
Governmental Entity, and Abacus and each of its Subsidiaries has obtained
all permits, franchises, licenses, authorizations or consents necessary for
the conduct of its business, except, in each case, as would not,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect. Neither Abacus nor any of its Subsidiaries is
subject to any cease and desist or other order, judgment, injunction or
decree issued by, or is a party to any written agreement, consent agreement
or memorandum of understanding with, or, to the knowledge of Abacus, is a
party to any commitment letter or similar undertaking to, or, to the
knowledge of Abacus, is subject to any order or directive by, or has
adopted any board resolutions at the request of, any Governmental Entity,
that materially restricts the conduct of its business (whether the type of
business, the location thereof or otherwise) and which, individually or in
the aggregate, would reasonably be expected to have an Abacus Material
Adverse Effect, nor to the knowledge of Abacus, has Abacus been advised in
writing that any Governmental Entity has proposed issuing or requesting any
of the foregoing.
Section 3.10 Employee Matters; ERISA. (a) Set forth in the Abacus
Disclosure Letter is a complete list of each Abacus Benefit Plan and each
Abacus Multiemployer Plan. The term "Abacus Benefit Plan" shall mean (i)
each plan, program, policy, contract or agreement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits of any
kind, including, without limitation, any "employee benefit plan," within
the meaning of Section 3(3) of ERISA but excluding any "multiemployer plan"
within the meaning of Sections 3(37) or 4001(a)(3) of ERISA, and (ii) each
employment, severance, consulting, non-compete, confidentiality, or similar
agreement or contract, in each case, with respect to which Abacus or any
Subsidiary of Abacus has or may have any liability (accrued, contingent or
otherwise). The term "Abacus Multiemployer Plan" shall mean any
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA in
respect to which Abacus or any Subsidiary of Abacus has or may have any
liability (accrued, contingent or otherwise).
(b) Abacus has provided or made available, or has caused to be
provided or made available, to Alphabet (i) current, accurate and complete
copies of all documents embodying each Abacus Benefit Plan, including all
amendments thereto, written interpretations thereof (which interpretation
materially increases the liabilities of Abacus and its Subsidiaries taken
as a whole under the relevant Abacus Benefit Plan) and all trust or funding
agreements with respect thereto; (ii) the most recent annual actuarial
valuation, if any, prepared for each Abacus Benefit Plan; (iii) the most
recent annual report (Series 5500 and all schedules thereto), if any,
required under ERISA in connection with each Abacus Benefit Plan or related
trust; (iv) the most recent determination letter received from the Internal
Revenue Service, if any, for each Abacus Benefit Plan and related trust
which is intended to satisfy the requirements of Section 401(a) of the
Code; (v) if any Abacus Benefit Plan is funded, the most recent annual and
periodic accounting of such Abacus Benefit Plan's assets; (vi) the most
recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Abacus Benefit Plan; and (vii) all material communications to any one or
more current, former or retired employee, officer, consultant, independent
contractor, agent or director of Abacus or any Subsidiary of Abacus (each,
an "Abacus Employee" and collectively, the "Abacus Employees") relating to
each Abacus Benefit Plan (which communication materially increases the
liabilities of Abacus and its Subsidiaries taken as a whole under the
relevant Abacus Benefit Plan). The Board of Directors of Abacus has adopted
a resolution described on Schedule 3.10(b).
(c) All Abacus Benefit Plans have been administered in all
respects in accordance with the terms thereof and all applicable laws
except for violations which, individually or in the aggregate, would not
reasonably be expected to have an Abacus Material Adverse Effect. Each
Abacus Benefit Plan which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA ("Pension Plan") and which is intended to
be qualified under Section 401(a) of the Code (each, an "Abacus Pension
Plan"), has received a favorable determination letter from the Internal
Revenue Service, and Abacus is not aware of any circumstances that would
reasonably be expected to result in the revocation or denial of such
qualified status. Except as otherwise set forth in the Abacus Disclosure
Letter or in the Abacus SEC Reports filed prior to the date hereof, there
is no pending or, to Abacus' knowledge, threatened, claim, litigation,
proceeding, audit, examination or investigation relating to any Abacus
Benefit Plans or Abacus Employees that, individually or in the aggregate,
would reasonably be expected to have an Abacus Material Adverse Effect.
(d) No material liability under Title IV of ERISA has been or is
reasonably expected to be incurred by Abacus or any Subsidiaries of Abacus
or any entity which is considered a single employer with Abacus or any
Subsidiary of Abacus under Section 4001(a)(15) of ERISA or Section 414 of
the Code (an "Abacus ERISA Affiliate"). No notice of a "reportable event,"
within the meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any
Abacus Pension Plan within the past twelve (12) months.
(e) All contributions, premiums and payments (other than
contributions, premiums or payments that are not material, in the
aggregate) required to be made under the terms of any Abacus Benefit Plan
have been made. No Abacus Pension Plan has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA. Neither Abacus nor any Subsidiaries of
Abacus nor any Abacus ERISA Affiliate has provided, or is required to
provide, security to any Abacus Pension Plan pursuant to Section 401(a)(29)
of the Code.
(f) Except as set forth in the Abacus SEC Reports filed prior to
the date hereof, under each Abacus Pension Plan which is a defined benefit
plan, as of the last day of the most recent plan year ended prior to the
date hereof, the actuarially determined present value of all "benefit
liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in each such
Pension Plan's most recent actuarial valuation) did not exceed the then
current value of the assets of such Pension Plan, and there has been no
adverse change in the financial condition of such Pension Plan (with
respect to either assets or benefits) since the last day of the most recent
plan year of such Pension Plan.
(g) As of the Closing Date, neither Abacus, any Subsidiary of
Abacus nor any Abacus ERISA Affiliate will have incurred any withdrawal
liability as described in Section 4201 of ERISA for withdrawals that have
occurred on or prior to the Closing Date that has not previously been
satisfied. Neither Abacus, any Subsidiary of Abacus nor any Abacus ERISA
Affiliate has knowledge that any Abacus Multiemployer Plan fails to qualify
under Section 401(a) of the Code, is insolvent or is in reorganization
within the meaning of Part 3 of Subtitle E of Title IV of ERISA nor of any
condition that would reasonably be expected to result in an Abacus
Multiemployer Plan becoming insolvent or going into reorganization.
(h) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) (i) constitute an event
under any Abacus Benefit Plan, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation
to fund benefits with respect to any Abacus Employee, or (ii) result in the
triggering or imposition of any restrictions or limitations on the right of
Abacus, any Subsidiary of Abacus or Alphabet to amend or terminate any
Abacus Benefit Plan. No payment or benefit which will or may be made by
Abacus, any Subsidiary of Abacus, Alphabet or any of their respective
affiliates with respect to any Abacus Employee will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
Section 3.11 Labor Matters. (a) Except as set forth in the Abacus SEC
Reports filed prior to the date hereof, and except for those matters that
would not, individually or in the aggregate, reasonably be expected to have
an Abacus Material Adverse Effect no work stoppage, slowdown, lockout or
labor strike against Abacus or any Subsidiary of Abacus by Abacus Employees
(or any union that represents them) is pending or, to the knowledge of
Abacus, threatened.
(b) Except as set forth in the Abacus SEC Reports filed prior to
the date hereof and as, individually or in the aggregate, would not
reasonably be expected to have an Abacus Material Adverse Effect, as of the
date of this Agreement, neither Abacus nor any Subsidiary of Abacus is
involved in or, to the knowledge of Abacus, threatened with any labor
dispute, grievance, or arbitration or union organizing activity (by it or
any of its employees) involving any Abacus Employees.
Section 3.12 Environmental Matters. Except as set forth in the Abacus
SEC Reports filed prior to the date hereof and except for those matters
that would not, individually or in the aggregate, reasonably be expected to
have an Abacus Material Adverse Effect:
(i) Abacus and each of its Subsidiaries is in compliance
with all applicable Environmental Laws (as defined below), and neither
Abacus nor any of its Subsidiaries has received any written communication
from any Person or Governmental Entity that alleges that Abacus or any of
its Subsidiaries is not in compliance with applicable Environmental Laws.
(ii) Abacus and each of its Subsidiaries has obtained or has
applied for all applicable environmental, health and safety permits,
licenses, variances, approvals and authorizations required under
Environmental Laws (collectively, the "Environmental Permits") necessary
for the construction of its facilities or the conduct of its operations,
and all those Environmental Permits are in effect or, where applicable, a
renewal application has been timely filed and is pending agency approval,
and Abacus and its Subsidiaries are in compliance with all terms and
conditions of such Environmental Permits.
(iii) There is no Environmental Claim (as defined below)
pending or, to the knowledge of Abacus, threatened (i) against Abacus or
any of its Subsidiaries, (ii) against any Person whose liability for any
Environmental Claim has been retained or assumed contractually by Abacus or
any of its Subsidiaries, or (iii) against any real or personal property or
operations which Abacus or any of its Subsidiaries owns, leases or
operates, in whole or in part.
(iv) There have been no Releases (as defined below) of any
Hazardous Material (as defined below) that would be reasonably likely to
form the basis of any Environmental Claim against Abacus or any of its
Subsidiaries, or against any Person whose liability for any Environmental
Claim has been retained or assumed contractually by Abacus or any of its
Subsidiaries.
(v) None of the properties owned, leased or operated by
Abacus, its Subsidiaries or any predecessor thereof are now, or were in the
past, listed on the National Priorities List of Superfund Sites or any
analogous state list (excluding easements that transgress those Superfund
sites).
For purposes of this Agreement:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any person (including any federal, state,
local or foreign governmental authority) alleging potential liability
(including, without limitation, potential responsibility for or liability
for enforcement, investigatory costs, cleanup costs, governmental response
costs, removal costs, remedial costs, natural resources damages, property
damages, personal injuries or penalties) arising out of, based on or
resulting from (A) the presence, or Release or threatened Release into the
environment, of any Hazardous Materials at any location, whether or not
owned, operated, leased or managed by the representing Party or any of its
Subsidiaries; or (B) circumstances forming the basis of any violation or
alleged violation of any Environmental Law; or (C) any and all claims by
any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials.
(ii) "Environmental Laws" means all applicable foreign,
federal, state and local laws, rules, requirements and regulations relating
to pollution, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or
protection of human health as it relates to the environment including,
without limitation, laws and regulations relating to Releases of Hazardous
Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials or relating to management of asbestos in buildings.
(iii) "Hazardous Materials" means (A) any petroleum or any
by-products or fractions thereof, asbestos or asbestos-containing
materials, urea formaldehyde foam insulation, any form of natural gas,
explosives, polychlorinated biphenyls ("PCBs"), radioactive materials,
ionizing radiation, electromagnetic field radiation or microwave
transmissions; (B) any chemicals, materials or substances, whether waste
materials, raw materials or finished products, which are now defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous substances," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "pollutants,"
"contaminants," or words of similar import under any Environmental Law; and
(C) any other chemical, material or substance, whether waste materials, raw
materials or finished products, regulated or forming the basis of liability
under any Environmental Law.
(iv) "Release" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or migration
into the environment (including without limitation ambient air, atmosphere,
soil, surface water, groundwater or property).
Section 3.13 Board Action; Vote Required. (a) Abacus' Board of
Directors has approved this Agreement, the Abacus Stock Option Agreement
and the transactions contemplated hereby and thereby, including the Merger,
has determined that the Merger is advisable, fair to and in the best
interests of Abacus and its stockholders and has resolved to recommend to
stockholders that they vote in favor of approving and adopting this
Agreement and approving the Merger. Neither Section 203 of the DGCL nor any
other state takeover or similar statute or regulation applies to the
Merger, this Agreement, the Abacus Stock Option Agreement (including the
purchase of shares of Abacus Common Stock thereunder) or any of the
transactions contemplated hereby or thereby. The Board of Directors of
Abacus has duly adopted (and not withdrawn) a resolution rescinding any
authorization previously granted permitting Abacus to repurchase shares of
Abacus Common Stock. In connection with each Abacus Benefit Plan under
which a holder of an option granted pursuant thereto would be entitled, in
respect of such option, to receive cash upon a change of control, the Board
of Directors (or the appropriate Committee thereof) has taken all necessary
action so that in connection with the Merger such holder would be entitled
to exercise such option solely for shares of Abacus Common Stock or,
following the Merger, Alphabet Common Stock.
(b) The affirmative vote of the holders of a majority of all of
the outstanding shares of Abacus Common Stock is necessary to approve and
adopt this Agreement and the Merger. Such vote is the only vote of the
holders of any class or series of Abacus' capital stock required to approve
this Agreement, the Abacus Stock Option Agreement and the transactions
contemplated hereby and thereby.
Section 3.14 Opinion of Financial Advisor. Abacus or its Board of
Directors has received the written opinion of The Blackstone Group, dated
as of the date hereof, to the effect that, as of the date hereof, the
Exchange Ratio is fair to the holders of shares of Abacus Common Stock from
a financial point of view. An executed copy of such opinion has been
delivered to Alphabet.
Section 3.15 Brokers. Set forth in the Abacus Disclosure Letter is a
list of each broker, finder or investment banker and other Person entitled
to any brokerage, finder's, investment banking or other similar fee or
commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Abacus or any of
its Subsidiaries and the expected amounts of such fees and commissions.
Abacus has previously provided to Alphabet copies of any agreements giving
rise to any such fee or commission.
Section 3.16 Tax Matters. (a) All material Tax Returns (defined below)
required to be filed by Abacus or its Subsidiaries on or prior to the
Effective Time or with respect to taxable periods ending on or prior to the
Effective Time have been or will be prepared in good faith and timely filed
with the appropriate Governmental Entity on or prior to the Effective Time
or by the due date thereof including extensions except where the failure to
so file would not, individually or in the aggregate, reasonably be expected
to have an Abacus Material Adverse Effect.
(b) Except where the failure to pay, collect or withhold would
not, individually or in the aggregate, reasonably be expected to have an
Abacus Material Adverse Effect (i) all Taxes (defined below), that are
required to be paid, have been or will be fully paid (except with respect
to matters contested in good faith as set forth in the Abacus Disclosure
Letter) or as of May 2, 1998 adequately reflected as a liability on Abacus'
or its Subsidiaries' books and records (without taking into account any
deferred Tax liabilities) and (ii) all Taxes required to be collected or
withheld from third parties have in all material respects been collected or
withheld.
(c) Abacus and each of its Subsidiaries have not waived any
statute of limitations with respect to federal income Taxes or agreed to
any extension of time with respect to federal income or material state Tax
assessment or deficiency.
(d) As of the date hereof, there are not pending or, to the
knowledge of Abacus, threatened in writing, any audits, examinations,
investigations or other proceedings in respect of Taxes or Tax matters that
(i) were raised by any Taxing authority in a written communication to
Abacus or any Subsidiary and (ii) would, individually or in the aggregate,
reasonably be expected to have an Abacus Material Adverse Effect after
taking into account any reserves for Taxes set forth on the most recent
balance sheet contained in the Abacus SEC Reports filed prior to the date
hereof.
(e) Abacus has made available to Alphabet true and correct copies
of the United States federal income and all material state income or
franchise Tax Returns filed by Abacus and its Subsidiaries for each of its
fiscal years ended on or about January 31, 1995, 1996, and 1997.
As used in this Agreement, (i) the term "Tax " (including, with
correlative meaning, the terms "Taxes" and "Taxable") includes all federal,
state, local and foreign income, profits, franchise, gross receipts,
license, premium, environmental (including taxes under Section 59A of the
Code), capital stock, severance, stamp, payroll, sales, employment,
unemployment, disability, use, transfer, property, withholding, excise,
production, occupation, windfall profits, customs duties, social security
(or similar), registration, value added, alternative or add-on minimum,
estimated, occupancy and other taxes, duties or governmental assessments of
any nature whatsoever, together with all interest, penalties and additions
imposed with respect to such amounts and any interest in respect of such
penalties and additions, and (ii) the term "Tax Return" includes all
returns and reports (including elections, declarations, disclosures,
schedules, estimates and information returns) required to be supplied to a
Tax authority relating to Taxes.
Section 3.17 Intellectual Property. Neither Abacus nor any of its
Subsidiaries currently utilizes, or to the knowledge of the general counsel
and members of the legal department of Abacus involved in intellectual
property, has in the past utilized, any existing or pending patent,
trademark, trade name, service mark, copyright, software, trade secret or
know-how, except for those which are owned, possessed or lawfully used by
Abacus or its Subsidiaries in their business operations, and neither Abacus
nor any of its Subsidiaries infringes upon or unlawfully uses any patent,
trademark, trade name, service mark, copyright or trade secret owned or
validly claimed by another Person except, in each case, as would not,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect. Abacus and its Subsidiaries own, have a valid
license to use or have the right validly to use all existing and pending
patents, trademarks, tradenames, service marks, copyrights and software
necessary to carry on their respective businesses substantially as
currently conducted except the failure of which to own, validly license or
have the right validly to use, individually or in the aggregate, would not
reasonably be expected to have an Abacus Material Adverse Effect.
Section 3.18 Insurance. Except to the extent adequately accrued on the
most recent balance sheet contained in the Abacus SEC Reports filed as of
the date hereof, neither Abacus nor its Subsidiaries has any obligation
(contingent or otherwise) to pay in connection with any insurance policies
any retroactive premiums or "retro-premiums" that, individually or in the
aggregate, would reasonably be expected to have an Abacus Material Adverse
Effect.
Section 3.19 Contracts and Commitments. Set forth in the Abacus
Disclosure Letter is a complete and accurate list of all of the following
contracts (written or oral), plans, undertakings, commitments or agreements
("Abacus Contracts") to which Abacus or any of its Subsidiaries is a party
or by which any of them is bound as of the date of this Agreement:
(a) each distribution, supply, inventory purchase, franchise,
license, sales, agency or advertising contract involving annual
expenditures or liabilities in excess of $30,000,000 which is not
cancelable (without material penalty, cost or other liability) within one
year;
(b) each promissory note, loan, agreement, indenture, evidence
of indebtedness or other instrument providing for the lending of money,
whether as borrower, lender or guarantor, in excess of $20,000,000;
(c) each contract, lease, agreement, instrument or other
arrangement containing any "radius clause" applicable to markets in which
Alphabet has operations the compliance (or failure to comply) with which
would reasonably be expected, individually or in the aggregate, to have an
Abacus Material Adverse Effect;
(d) each joint venture or partnership agreement pursuant to which
any third party is entitled to develop any property and/or facility on each
behalf of Abacus or any of its Subsidiaries material to Abacus and its
Subsidiaries taken as a whole; and
(e) any contract that would constitute a "material contract" (as
such term is defined in Item 601(b)(10) of Regulation S-K of the SEC).
True and complete copies of the written Abacus Contracts, as
amended to date, that would be required to be filed as exhibits to Abacus'
Form 10-K if such Form 10-K were being filed on the date hereof, that are
identified in the Abacus Disclosure Letter and have not been filed prior to
the date hereof as Exhibits to the Abacus SEC Reports have been delivered
or made available to Alphabet.
To the knowledge of Abacus, each Abacus Contract is valid and
binding on Abacus, any Subsidiary of Abacus which is a party thereto and
each other party thereto and is in full force and effect, and Abacus and
its Subsidiaries have performed and complied with all obligations required
to be performed or compiled with by them under each Abacus Contract, except
in each case as would not, individually or in the aggregate, reasonably be
expected to have an Abacus Material Adverse Effect.
Section 3.20 Accounting and Tax Matters. Neither Abacus nor any of its
affiliates has taken or agreed to take any action, nor does Abacus have any
knowledge of any fact or circumstance with respect to Abacus, which would
prevent the business combination to be effected pursuant to the Merger from
being accounted for as a "pooling-of-interests" under GAAP or the rules and
regulations of the SEC or prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368 of the Code.
Section 3.21 Ownership of Shares of Alphabet. Abacus and its
Subsidiaries do not beneficially own (as defined in Rule 13d-3 under the
Exchange Act) any capital stock or other equity securities of Alphabet or
any Alphabet Equity Rights (as defined herein) other than pursuant to the
Alphabet Stock Option Agreement.
ARTICLE IV
Except as set forth in the corresponding sections or subsections
of the disclosure letter, dated the date hereof, delivered by Alphabet to
Abacus (the "Alphabet Disclosure Letter"), Alphabet and Abacus Holdings
hereby represent and warrant to Abacus as follows:
Section 4.1 Organization and Qualification; Subsidiaries. (a) Alphabet
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of the Subsidiaries of
Alphabet (including Abacus Holdings) is a corporation or other business
entity duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization, and each of Alphabet
and its Subsidiaries has the requisite corporate or other organizational
power and authority to own, operate or lease its properties and to carry on
its business as it is now being conducted, and is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, operated or
leased or the nature of its activities makes such qualification necessary,
in each case except as would not, individually or in the aggregate,
reasonably be expected to have an Alphabet Material Adverse Effect.
(b) All of the outstanding shares of capital stock and other
equity securities of the Significant Subsidiaries of Alphabet (including
Abacus Holdings) have been validly issued and are fully paid and
nonassessable, and are owned, directly or indirectly, by Alphabet, free and
clear of all pledges and security interests. All outstanding shares of
capital stock and other equity interests of each Subsidiary of Alphabet
owned directly or indirectly by Alphabet are free and clear of all liens,
claims or encumbrances as would, individually or in the aggregate,
reasonably be expected to have an Alphabet Material Adverse Effect. There
are no subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or
otherwise) entitling any Person to purchase or otherwise acquire from
Alphabet or any of its Significant Subsidiaries at any time, or upon the
happening of any stated event, any shares of capital stock or other equity
securities of any of the Subsidiaries of Alphabet (including Abacus
Holdings). The Alphabet Disclosure Letter lists the name and jurisdiction
of incorporation or organization of each of the Significant Subsidiaries of
Alphabet.
(c) Except for interests in Subsidiaries, neither Alphabet nor
any of its Subsidiaries owns directly or indirectly any material equity
interest in any Person or, other than pursuant to this Agreement, has any
obligation or made any commitment to acquire any such interest or make any
such investment.
Section 4.2 Certificate of Incorporation and Bylaws. Alphabet has
furnished, or otherwise made available, to Abacus a complete and correct
copy of the certificate of incorporation and bylaws, as amended to the date
of this Agreement, of Alphabet. Such certificate of incorporation and
bylaws are in full force and effect. Alphabet is not in violation of any of
the provisions of its certificate of incorporation or bylaws.
Section 4.3 Capitalization. (a) The authorized capital stock of
Alphabet consists of 1,200,000,000 shares of Alphabet Common Stock and
10,000,000 shares of Preferred Stock, par value $1.00 per share (the
"Alphabet Preferred Stock"). At the close of business on July 30, 1998 (the
"Alphabet Capital Stock Disclosure Date"), (i) 245,507,844 shares of
Alphabet Common Stock, and no shares of Alphabet Preferred Stock, were
issued and outstanding and (ii) no shares of Alphabet Common Stock, and no
shares of Alphabet Preferred Stock, were held by Alphabet in its treasury.
The Alphabet Disclosure Letter lists the number of shares of Alphabet
Common Stock and Alphabet Preferred Stock reserved for issuance as of the
Alphabet Capital Stock Disclosure Date under each of the Alphabet Benefit
Plans (as defined in Section 4.10) or otherwise. Since the Alphabet Capital
Stock Disclosure Date until the date of this Agreement, no shares of
Alphabet Common Stock or Alphabet Preferred Stock have been issued or
reserved for issuance, except in respect of the exercise, conversion or
exchange of Alphabet Equity Rights outstanding as of the Alphabet Capital
Stock Disclosure Date and in connection with the Alphabet Stock Option
Agreement. For purposes of this Agreement, "Alphabet Equity Rights" shall
mean subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or
otherwise) to purchase or otherwise acquire from Alphabet or any of its
Subsidiaries at any time, or upon the happening of any stated event, any
shares of the capital stock of Alphabet. The Alphabet Disclosure Letter
sets forth the number and type of Alphabet Equity Rights (including the
number and class of Alphabet's capital stock for or into which such
Alphabet Equity Rights are exercisable, convertible or exchangeable and any
Alphabet Benefit Plan pursuant to which such Alphabet Equity Rights were
granted or issued) outstanding as of the Alphabet Capital Stock Disclosure
Date. Other than the Alphabet Equity Rights disclosed in the Alphabet
Disclosure Letter and the Alphabet Equity Rights granted pursuant to the
Alphabet Stock Option Agreement, Alphabet does not have any outstanding
Alphabet Equity Rights as of the date of this Agreement. Except as
disclosed in the Alphabet SEC Reports (defined below), no stockholders of
Alphabet are party to any voting agreement, voting trust or similar
arrangement with respect to Alphabet Shares to which Alphabet or any
Subsidiary of Alphabet is a Party.
(b) There are no outstanding obligations of Alphabet or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Alphabet Common Stock or any Alphabet Equity Rights (except in connection
with the exercise, conversion or exchange of outstanding Alphabet Equity
Rights). All of the issued and outstanding shares of Alphabet Common Stock
are validly issued, fully paid, nonassessable and free of preemptive
rights. The Alphabet Disclosure Letter sets forth the number of shares of
Alphabet Common Stock repurchased, and the number issued, by Alphabet or
any of its Subsidiaries since July 1, 1996.
Section 4.4 Power and Authority; Authorization; Valid & Binding. Each
of Alphabet and Abacus Holdings has the necessary corporate power and
authority to deliver this Agreement and, in the case of Alphabet, the Stock
Option Agreements, to perform its obligations hereunder, as applicable, and
to consummate the transactions contemplated hereby, as applicable, except
that the issuance of shares of Alphabet Common Stock in accordance with the
terms of this Agreement is subject to the approval of stockholders of
Alphabet as required by the rules and regulations of the NYSE. The
execution and delivery by each of Alphabet and Abacus Holdings of this
Agreement and, in the case of Alphabet, the Stock Option Agreements, the
performance by it of its obligations hereunder and thereunder, as
applicable, and the consummation by Alphabet of the transactions
contemplated hereby and thereby, as applicable, have been duly authorized
by all necessary corporate action on the part of Alphabet, except that the
issuance of shares of Alphabet Common Stock in accordance with the terms of
this Agreement and the Merger is subject to the approval of stockholders of
Alphabet as required by the rules and regulations of the NYSE. This
Agreement has been duly executed and delivered by Alphabet and Abacus
Holdings and, assuming the due authorization, execution and delivery by
Abacus, constitutes a legal, valid and binding obligation of Alphabet and
Abacus Holdings enforceable against such parties in accordance with the
terms hereof or thereof, subject to bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
Section 4.5 No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by each of Alphabet and Abacus
Holdings and the Alphabet Stock Option Agreement by Alphabet does not, and
the performance by Alphabet of its obligations hereunder and thereunder and
the consummation by Alphabet of the transactions contemplated hereby and
thereby will not, (i) violate or conflict with the certificate of
incorporation or bylaws of Alphabet (ii) subject to obtaining or making the
notices, reports, filings, waivers, consents, approvals or authorizations
referred to in paragraph (b) below, conflict with or violate any law,
regulation, court order, judgment or decree applicable to Alphabet or any
of its Subsidiaries or by which any of their respective property is bound
or affected, (iii) subject to obtaining the approval of the stockholders of
Alphabet for the issuance of shares of Alphabet Common Stock in accordance
with the terms hereof, result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, cancellation, vesting,
modification, alteration or acceleration of any obligation under, result in
the creation of a lien, claim or encumbrance on any of the properties or
assets of Alphabet or any of its Subsidiaries pursuant to, result in the
loss of any material benefit under (including an increase in the price paid
by, or cost to, Alphabet or any of its Subsidiaries), require the consent
of any other party to, or result in any obligation on the part of Alphabet
or any of its Subsidiaries to repurchase (with respect to a bond or a
note), any agreement, contract, instrument, bond, note, indenture, permit,
license or franchise to which Alphabet or any of its Subsidiaries is a
party or by which Alphabet, any of its Subsidiaries or any of their
respective property is bound or affected, except, in the case of clauses
(ii) and (iii) above, as would not, individually or in the aggregate,
reasonably be expected to have an Alphabet Material Adverse Effect.
(b) Except for applicable requirements, if any, under the
premerger notification requirements of the HSR Act, the filing of a
certificate of merger with respect to the Merger as required by the DGCL,
filings with the SEC under the Securities Act and the Exchange Act, any
filings required pursuant to any state securities or "blue sky" laws any
filings required pursuant to any state liquor, gaming or pharmacy laws, any
applicable Environmental Laws (as defined herein) governing the transfer of
any interest in real property or of business operations (including without
limitation transfer acts, notifications, and deed restrictions), and the
transfer or application requirements with respect to the environmental
permits of Alphabet or its Subsidiaries, or pursuant to the rules and
regulations of any stock exchange on which the Alphabet Shares are listed,
and approval of stockholders required under the rules and regulations of
the NYSE, neither Alphabet nor any of its Subsidiaries (including Abacus
Holdings) is required to submit any notice, report or other filing with any
Governmental Entity in connection with the execution, delivery, performance
or consummation of this Agreement, the Stock Option Agreements or the
Merger except for such notices, reports or filings, that, if not made,
would not, individually or in the aggregate, reasonably be expected to have
an Alphabet Material Adverse Effect. Except as set forth in the immediately
preceding sentence, no waiver, consent, approval or authorization of any
Governmental Entity is required to be obtained by Alphabet or any of its
Subsidiaries (including Abacus Holdings) in connection with its execution,
delivery, performance or consummation of this Agreement, the Stock Option
Agreements or the transactions contemplated hereby and thereby except for
such waivers, consents, approvals or authorizations that, if not obtained
or made, would not, individually or in the aggregate, reasonably be
expected to have an Alphabet Material Adverse Effect.
Section 4.6 SEC Reports; Financial Statements. (a) Alphabet has filed
all forms, reports and documents (including all Exhibits, Schedules and
Annexes thereto) required to be filed by it with the SEC since January 1,
1995, including any amendments or supplements thereto (collectively,
including any such forms, reports and documents filed after the date
hereof, the "Alphabet SEC Reports"), and, with respect to the Alphabet SEC
Reports filed by Alphabet after the date hereof and prior to the Closing
Date, will deliver or make available, to Abacus all of its Alphabet SEC
Reports in the form filed with the SEC. The Alphabet SEC Reports (i) were
(and any Alphabet SEC Reports filed after the date hereof will be) in all
material respects in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder, and (ii) as of their respective filing dates, did
not (and any Alphabet SEC Reports filed after the date hereof will not)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The financial statements, including all related notes and
schedules, contained in the Alphabet SEC Reports (or incorporated therein
by reference) fairly present in all material respects (or, with respect to
financial statements contained in the Alphabet SEC Reports filed after the
date hereof, will fairly present in all material respects) the consolidated
financial position of Alphabet and its consolidated subsidiaries as at the
respective dates thereof and the consolidated results of operations,
retained earnings and cash flows of Alphabet and its consolidated
subsidiaries for the respective periods indicated, in each case in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except for changes in accounting principles disclosed in the
notes thereto) and the rules and regulations of the SEC, except that
interim financial statements are subject to normal year-end adjustments
which are not and are not expected to be, individually or in the aggregate,
material in amount and do not include certain notes which may be required
by GAAP but which are not required by Form 10-Q of the SEC.
Section 4.7 Absence of Certain Changes. Except as disclosed in the
Alphabet SEC Reports filed prior to the date hereof, (a) since the end of
Alphabet's fiscal year last ended, Alphabet and each of its Subsidiaries
has conducted its business in all material respects in the ordinary and
usual course of its business consistent with past practice and there has
not been any change in the financial condition, business or results of
operations of Alphabet and its Subsidiaries or any development or
combination of developments that, individually or in the aggregate, has had
or would reasonably be expected to have an Alphabet Material Adverse Effect
and (b) since the end of Alphabet's fiscal year last ended until the date
hereof, there has not been (i) any declaration, setting aside or payment of
any dividend or other distribution in respect of the capital stock of
Alphabet, other than regular cash dividends consistent with past practice;
(ii) any change by Alphabet to its accounting policies, practices or
methods; (iii) any amendment or change to the terms of any of its
indebtedness material to Alphabet and its Subsidiaries taken as a whole;
(iv) any incurrence of any material indebtedness outside of the ordinary
course of business; (v) outside the ordinary course of business, any
transfer, lease, license, sale, mortgage, pledge, encumbrance or other
disposition of assets or properties material to Alphabet and its
Subsidiaries taken as a whole; (vi) any material damage, destruction or
other casualty loss with respect to any asset or property owned, leased or
otherwise used by Alphabet or its Subsidiaries material to Alphabet and its
Subsidiaries taken as a whole, whether or not covered by insurance; (vii)
except on a case-by-case basis in the ordinary course of business
consistent with past practice for employees other than executive officers
or directors, or except as required by applicable law or pursuant to a
contractual obligation in effect as of the date of this Agreement, (A) any
execution, adoption or amendment of any agreement or arrangement relating
to severance or any employee benefit plan or employment or consulting
agreement (including, without limitation, the Alphabet Benefit Plans
referred to in Section 4.10 hereof) or (B) any grant of any stock options
or other equity related award; or (viii) any agreement or commitment
entered into with respect to any of the foregoing.
Section 4.8 Litigation and Liabilities. (a) Except as disclosed in the
Alphabet SEC Reports filed prior to the date hereof, there are no civil,
criminal or administrative actions, suits or claims, proceedings (including
condemnation proceedings) or, to the knowledge of Alphabet, hearings or
investigations, pending or, to the knowledge of Alphabet, threatened
against, or otherwise adversely affecting Alphabet or any of its
Subsidiaries or any of their respective properties and assets, except for
any of the foregoing which would not, individually or in the aggregate,
reasonably be expected to have an Alphabet Material Adverse Effect.
(b) Neither Alphabet nor any of its Subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) the existence of
which would, individually or in the aggregate, reasonably be expected to
have an Alphabet Material Adverse Effect, except (i) liabilities described
in the Alphabet SEC Reports filed with the SEC prior to the date hereof or
reflected on the Alphabet's consolidated balance sheet (and related notes
thereto) as of the end of its most recently completed fiscal year filed in
the Alphabet SEC Reports, (ii) liabilities incurred since the end of
Alphabet's most recently completed fiscal year in the ordinary course of
business consistent with past practice, that would not, individually or in
the aggregate, reasonably be expected to have an Alphabet Material Adverse
Effect or (iii) liabilities permitted to be incurred pursuant to Section
5.2.
Section 4.9 No Violation of Law; Permits. The business of Alphabet and
each of its Subsidiaries is being conducted in accordance with all
applicable statutes of law, ordinances, regulations, judgments, orders or
decrees of any Governmental Entity, and not in violation of any permits,
franchises, licenses, authorizations or consents granted by any
Governmental Entity, and Alphabet and each of its Subsidiaries has obtained
all permits, franchises, licenses, authorizations or consents necessary for
the conduct of its business, except, in each case, as would not,
individually or in the aggregate, reasonably be expected to have an
Alphabet Material Adverse Effect. Neither Alphabet nor any of its
Subsidiaries is subject to any cease and desist or other order, judgment,
injunction or decree issued by or is a party to any written agreement,
consent agreement or memorandum of understanding with, or to the knowledge
of Alphabet, is a party to any commitment letter or similar undertaking to,
or, to the knowledge of Alphabet, is subject to any order or directive by,
or has adopted any board resolutions at the request of, any Governmental
Entity, that materially restricts the conduct of its business (whether the
type of business, the location thereof or otherwise) and which,
individually or in the aggregate, would reasonably be expected to have an
Alphabet Material Adverse Effect, nor to the knowledge of Alphabet, has
Alphabet been advised in writing that any Governmental Entity has proposed
issuing or requesting any of the foregoing.
Section 4.10 Employee Matters; ERISA. (a) Set forth in the Alphabet
Disclosure Letter is a complete list of each Alphabet Benefit Plan and each
Alphabet Multiemployer Plan. The term "Alphabet Benefit Plan" shall mean
(i) each plan, program, policy, contract or agreement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits of any
kind including, without limitation, any "employee benefit plan," within the
meaning of Section 3(3) of ERISA but excluding any "multiemployer plan"
within the meaning of Sections 3(37) or 4001(a)(3) of ERISA, and (ii) each
employment, severance, consulting, non-compete, confidentiality, or similar
agreement or contract, in each case, with respect to which Alphabet or any
Subsidiary of Alphabet has or may have any liability (accrued, contingent
or otherwise). The term "Alphabet Multiemployer Plan" shall mean any
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA in
respect to which Alphabet or any Subsidiary of Alphabet has or may have any
liability (accrued, contingent or otherwise).
(b) Alphabet has provided or made available, or has caused to be
provided or made available, to Abacus (i) current, accurate and complete
copies of all documents embodying each Alphabet Benefit Plan, including all
amendments thereto, written interpretations thereof (which interpretation
materially increases the liabilities of Alphabet and its Subsidiaries taken
as a whole under the relevant Alphabet Benefit Plan) and all trust or
funding agreements with respect thereto; (ii) the most recent annual
actuarial valuation, if any, prepared for each Alphabet Benefit Plan; (iii)
the most recent annual report (Series 5500 and all schedules thereto), if
any, required under ERISA in connection with each Alphabet Benefit Plan or
related trust; (iv) the most recent determination letter received from the
Internal Revenue Service, if any, for each Alphabet Benefit Plan and
related trust which is intended to satisfy the requirements of Section
401(a) of the Code; (v) if any Alphabet Benefit Plan is funded, the most
recent annual and periodic accounting of such Alphabet Benefit Plan's
assets; (vi) the most recent summary plan description together with the
most recent summary of material modifications, if any, required under ERISA
with respect to each Alphabet Benefit Plan; and (vii) all material
communications to any one or more current, former or retired employee,
officer, consultant, independent contractor, agent or director of Alphabet
or any Subsidiary of Alphabet (each, an "Alphabet Employee" and
collectively, the "Alphabet Employees") relating to each Alphabet Benefit
Plan (which communication materially increases the liabilities of Alphabet
and its Subsidiaries taken as a whole under the relevant Alphabet Benefit
Plan).
(c) All Alphabet Benefit Plans have been administered in all
respects in accordance with the terms thereof and all applicable laws
except for violations which, individually or in the aggregate, would not
reasonably be expected to have an Alphabet Material Adverse Effect. Each
Alphabet Benefit Plan which is a Pension Plan and which is intended to be
qualified under Section 401(a) of the Code (each, an "Alphabet Pension
Plan"), has received a favorable determination letter from the Internal
Revenue Service, and Alphabet is not aware of any circumstances that would
reasonably be expected to result in the revocation or denial of such
qualified status. Except as otherwise set forth in the Alphabet Disclosure
Letter or in the Alphabet SEC Reports filed prior to the date hereof, there
is no pending or, to Alphabet's knowledge, threatened, claim, litigation,
proceeding, audit, examination or investigation relating to any Alphabet
Benefit Plans or Alphabet Employees that, individually or in the aggregate,
would reasonably be expected to have an Alphabet Material Adverse Effect.
(d) No material liability under Title IV of ERISA has been or is
reasonably expected to be incurred by Alphabet or any Subsidiaries of
Alphabet or any entity which is considered a single employer with Alphabet
or any Subsidiary of Alphabet under Section 4001(a)(15) of ERISA or Section
414 of the Code (an "Alphabet ERISA Affiliate"). No notice of a "reportable
event," within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed
for any Alphabet Pension Plan within the past twelve (12) months.
(e) All contributions, premiums and payments (other than
contributions, premiums or payments that are not material, in the
aggregate) required to be made under the terms of any Alphabet Benefit Plan
have been made. No Alphabet Pension Plan has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA. Neither Alphabet nor any Subsidiaries of
Alphabet nor any Alphabet ERISA Affiliate has provided, or is required to
provide, security to any Alphabet Pension Plan pursuant to Section
401(a)(29) of the Code.
(f) Except as set forth in the Alphabet SEC Reports filed prior
to the date hereof, under each Alphabet Pension Plan which is a defined
benefit plan, as of the last day of the most recent plan year ended prior
to the date hereof, the actuarially determined present value of all
"benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA
(as determined on the basis of the actuarial assumptions contained in each
such Pension Plan's most recent actuarial valuation) did not exceed the
then current value of the assets of such Pension Plan, and there has been
no adverse change in the financial condition of such Pension Plan (with
respect to either assets or benefits) since the last day of the most recent
plan year of such Pension Plan.
(g) As of the Closing Date, neither Alphabet, any Subsidiary of
Alphabet nor any Alphabet ERISA Affiliate will have incurred any withdrawal
liability as described in Section 4201 of ERISA for withdrawals that have
occurred on or prior to the Closing Date that has not previously been
satisfied. Neither Alphabet, any Subsidiary of Alphabet nor any Alphabet
ERISA Affiliate has knowledge that any Alphabet Multiemployer Plan fails to
qualify under Section 401(a) of the Code, is insolvent or is in
reorganization within the meaning of Part 3 of Subtitle E of Title IV of
ERISA nor of any condition that would reasonably be expected to result in
an Alphabet Multiemployer Plan becoming insolvent or going into
reorganization.
(h) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) (i) constitute an event
under any Alphabet Benefit Plan, trust or loan that will or may result in
any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Alphabet Employee, or (ii)
result in the triggering or imposition of any restrictions or limitations
on the right of Alphabet or any Subsidiary of Alphabet to amend or
terminate any Alphabet Benefit Plan. No payment or benefit which will or
may be made by Alphabet, any Subsidiary of Alphabet or any of their
respective affiliates with respect to any Alphabet Employee will be
characterized as an "excess parachute payment," within the meaning of
Section 280G(b)(1) of the Code.
Section 4.11 Labor Matters. (a) Except as set forth in the Alphabet
SEC Reports filed prior to the date hereof and except for those matters
that would not, individually or in the aggregate, reasonably be expected to
have an Alphabet Material Adverse Effect, no work stoppage, slowdown,
lockout or labor strike against Alphabet or any Subsidiary of Alphabet by
Alphabet Employees (or any union that represents them) is pending or, to
the knowledge of Alphabet, threatened.
(b) Except as set forth in the Alphabet SEC Reports filed prior
to the date hereof and as, individually or in the aggregate, would not
reasonably be expected to have an Alphabet Material Adverse Effect, as of
the date of this Agreement, neither Alphabet nor any Subsidiary of Alphabet
is involved in or, to the knowledge of Alphabet, threatened with any labor
dispute, grievance, or arbitration or union organizing activity (by it or
any of its employees) involving any Alphabet Employees.
Section 4.12 Environmental Matters. Except as set forth in Alphabet's
SEC Reports filed prior to the date hereof and except for those matters
that would not, individually or in the aggregate, reasonably be expected to
have an Alphabet Material Adverse Effect:
(i) Alphabet and each of its Subsidiaries is in compliance
with all applicable Environmental Laws, and neither Alphabet nor any of its
Subsidiaries has received any written communication from any Person or
Governmental Entity that alleges that Alphabet or any of its Subsidiaries
is not in compliance with applicable Environmental Laws.
(ii) Alphabet and each of its Subsidiaries has obtained or
has applied for all Environmental Permits necessary for the construction of
its facilities or the conduct of its operations, and all those
Environmental Permits are in effect or, where applicable, a renewal
application has been timely filed and is pending agency approval, and
Alphabet and its Subsidiaries are in compliance with all terms and
conditions of such Environmental Permits.
(iii) There is no Environmental Claim pending or, to the
knowledge of Alphabet, threatened (i) against Alphabet or any of its
Subsidiaries, (ii) against any Person whose liability for any Environmental
Claim has been retained or assumed contractually by Alphabet or any of its
Subsidiaries, or (iii) against any real or personal property or operations
which Alphabet or any of its Subsidiaries owns, leases or operates, in
whole or in part.
(iv) There have been no Releases of any Hazardous Material
that would be reasonably likely to form the basis of any Environmental
Claim against Alphabet or any of its Subsidiaries, or against any Person
whose liability for any Environmental Claim has been retained or assumed
contractually by Alphabet or any of its Subsidiaries.
(v) None of the properties owned, leased or operated by
Alphabet, its Subsidiaries or any predecessor thereof are now, or were in
the past, listed on the National Priorities List of Superfund Sites or any
analogous state list (excluding easements that transgress those Superfund
sites).
Section 4.13 Board Action; Vote Required. (a) Alphabet's Board of
Directors has approved this Agreement, the Alphabet Stock Option Agreement
and the transactions contemplated hereby and thereby, including the Merger,
has determined that the Merger is advisable, fair to and in the best
interests of Alphabet and its stockholders and has resolved to recommend to
its stockholders that they vote in favor of the issuance of shares of
Alphabet Common Stock pursuant to the terms hereof. Neither Section 203 of
the DGCL, nor any other state takeover or similar statute or regulation
applies to the Merger, this Agreement, the Alphabet Stock Option Agreement
(including the purchase of shares of Alphabet Common Stock thereunder) or
any of the transactions contemplated hereby or thereby. The Board of
Directors of Alphabet has duly adopted (and not withdrawn) a resolution
rescinding any authorization previously granted permitting Alphabet to
repurchase shares of Alphabet Common Stock.
(b) The affirmative vote of the holders of a majority of the
shares of Alphabet Common Stock present in person or by proxy at a duly
convened and held meeting of the stockholders of Alphabet is necessary to
approve the issuance by Alphabet of the shares of Alphabet Common Stock
pursuant to the terms hereof. Such vote is the only vote of the holders of
any class or series of Alphabet's capital stock required in connection with
this Agreement, the Stock Option Agreements and the transactions
contemplated hereby and thereby.
Section 4.14 Opinion of Financial Advisor. Alphabet or its Board of
Directors has received the written opinion of Merrill Lynch, Pierce, Fenner
& Smith Incorporated dated as of the date hereof, to the effect that, as of
the date hereof, the Exchange Ratio is fair from a financial point of view
to Alphabet. An executed copy of such opinion has been delivered to Abacus.
Section 4.15 Brokers. Set forth in the Alphabet Disclosure Letter is a
list of each broker, finder or investment banker and other Person entitled
to any brokerage, finder's, investment banking or other similar fee or
commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Alphabet or any
of its Subsidiaries and the expected amounts of such fees and commissions.
Alphabet has previously provided to Abacus copies of any agreements giving
rise to any such fee or commission.
Section 4.16 Tax Matters. (a) All material Tax Returns required to be
filed by Alphabet or its Subsidiaries on or prior to the Effective Time or
with respect to taxable periods ending on or prior to the Effective Time
have been or will be prepared in good faith and timely filed with the
appropriate Governmental Entity on or prior to the Effective Time or by the
due date thereof including extensions except where the failure to so file
would not, individually or in the aggregate, reasonably be expected to have
an Alphabet Material Adverse Effect.
(b) Except where the failure to pay, collect or withhold would
not, individually or in the aggregate, reasonably be expected to have an
Alphabet Material Adverse Effect (i) all Taxes that are required to be paid
have been or will be fully paid (except with respect to matters contested
in good faith as set forth in the Alphabet Disclosure Letter) or as of May
2, 1998 adequately reflected as a liability on Alphabet's or its
Subsidiaries' books and records (without taking into account any deferred
Tax liabilities) and (ii) all Taxes required to be collected or withheld
from third parties have in all material respects been collected or
withheld.
(c) Alphabet and each of its Subsidiaries have not waived any
statute of limitations with respect to federal income Taxes or agreed to
any extension of time with respect to a federal income or material state
Tax assessment or deficiency.
(d) As of the date hereof, there are not pending or, to the
knowledge of Alphabet, threatened in writing, any audits, examinations,
investigations or other proceedings in respect of Taxes or Tax matters that
(i) were raised by any Taxing authority in a written communication to
Alphabet or any Subsidiary and (ii) would, individually or in the
aggregate, reasonably be expected to have an Alphabet Material Adverse
Effect after taking into account any reserves for Taxes set forth on the
most recent balance sheet contained in the Alphabet SEC Report filed prior
to the date hereof.
(e) Alphabet has made available to Abacus true and correct copies
of the United States federal income and all material state income or
franchise Tax Returns filed by Alphabet and its Subsidiaries for each of
its fiscal years ended on or about January 31, 1995, 1996, 1997.
Section 4.17 Intellectual Property. Neither Alphabet nor any of its
Subsidiaries currently utilizes, or to the knowledge of the general counsel
and the members of the legal department of Alphabet involved in
intellectual property, has in the past, utilized any existing or pending
patent, trademark, trade name, service mark, copyright, software, trade
secret or know-how, except for those which are owned, possessed or lawfully
used by Alphabet or its Subsidiaries in their business operations, and
neither Alphabet nor any of its Subsidiaries infringes upon or unlawfully
uses any patent, trademark, trade name, service mark, copyright or trade
secret owned or validly claimed by another Person except, in each case, as
would not, individually or in the aggregate, reasonably be expected to have
an Alphabet Material Adverse Effect. Alphabet and its Subsidiaries own or
have a valid license to use or have the right validly to use all existing
and pending patents, trademarks, tradenames, service marks, copyrights and
software necessary to carry on their respective businesses substantially as
currently conducted except the failure of which to own, or validly license,
or have the right to validly use individually or in the aggregate, would
not reasonably be expected to have an Alphabet Material Adverse Effect.
Section 4.18 Insurance. Except to the extent adequately accrued on the
most recent balance sheet contained in the Alphabet SEC Reports filed as of
the date hereof, neither Alphabet nor its Subsidiaries has any obligation
(contingent or otherwise) to pay in connection with any insurance policies
any retroactive premiums or "retro premiums" that, individually in the
aggregate, would reasonably be expected to have, an Alphabet Material
Adverse Effect.
Section 4.19 Contracts and Commitments. Set forth in the Alphabet
Disclosure Letter is a complete and accurate list of all of the following
contracts (written or oral), plans, undertakings, commitments or agreements
("Alphabet Contracts") to which Alphabet or any of its Subsidiaries is a
party or by which any of them is bound as of the date of this Agreement.
(a) each distribution, supply, inventory purchase, franchise,
license, sales, agency or advertising contract involving annual
expenditures or liabilities in excess of $30,000,000 which is not
cancelable (without material penalty, cost or other liability) within one
(1) year;
(b) each promissory note, loan, agreement, indenture, evidence of
indebtedness or other instrument providing for the lending of money,
whether as borrower, lender or guarantor, in excess of $20,000,000;
(c) each contract, lease, agreement, instrument or other
arrangement containing any "radius clause" applicable to markets in which
Alphabet has operations the compliance (or failure to comply) with which
would not reasonably be expected, individually or in the aggregate, to have
an Alphabet Material Adverse Effect;
(d) each joint venture or partnership agreement pursuant to which
any third party is entitled to develop any property and/or facility on each
behalf of Alphabet or any of its Subsidiaries material to Alphabet and its
Subsidiaries taken as a whole;
(e) any contract that would constitute a "material contract" (as
such term is defined in Item 601(b)(10) of Regulation S-K of the SEC); and
(f) except as would not reasonably be expected to have,
individually or in the aggregate, an Alphabet Material Adverse Effect, each
contract, lease, agreement, plan (including Alphabet Benefit Plans),
instrument, note, indenture or other arrangement to which Alphabet or any
of its Subsidiaries is a party or otherwise bound under the terms of which
any of the rights or obligations of a party thereto (or any other Person
who has rights or obligations thereunder) may be terminated, accelerated,
vested, modified or altered as a result of the execution and delivery of
this Agreement and the Stock Option Agreement, the performance by the
parties of their obligations hereunder or thereunder or consummation of the
transactions contemplated hereby and thereby;
True and complete copies of the written Alphabet Contracts, as
amended to date, that would be required to be filed as exhibits to
Alphabet's Form 10-K if such Form 10-K were being filed on the date hereof,
that are identified in the Alphabet Disclosure Letter and have not been
filed prior to the date hereof as Exhibits to the Alphabet SEC Reports have
been delivered or made available to Abacus.
To the knowledge of Alphabet, each Alphabet Contract is valid and
binding on Alphabet, any Subsidiary of Alphabet which is a party thereto
and each other party thereto and is in full force and effect, and Alphabet
and its Subsidiaries have performed and complied with all obligations
required to be performed or compiled with by them under each Alphabet
Contract, except in each case as would not, individually or in the
aggregate, reasonably be expected to have an Alphabet Material Adverse
Effect.
Section 4.20 Accounting and Tax Matters. Neither Alphabet nor any of
its affiliates has taken or agreed to take any action, nor does Alphabet
have any knowledge of any fact or circumstance with respect to Alphabet or
Merger Sub, which would prevent the business combination to be effected
pursuant to the Merger from being accounted for as a "pooling-of-interests"
under GAAP or the rules and regulations of the SEC or prevent the Merger
from qualifying as a "reorganization" within the meaning of Section 368 of
the Code.
Section 4.21 Ownership of Shares of Alphabet. Alphabet and its
Subsidiaries do not beneficially own (as defined in Rule 13d-3 under the
Exchange Act) any capital stock or other equity securities of Abacus or any
Abacus Equity Rights other than the Abacus Stock Option Agreement.
Section 4.22. Rights Agreement. No "Distribution Date," "Stock
Acquisition Date" or "Triggering Event" (as such terms are defined in the
Rights Agreement, dated as of December 9, 1996, between Alphabet and
ChaseMellon Shareholder Services L.L.C., as Rights Agent (the "Alphabet
Rights Agreement")) has occurred as of the date hereof. The execution and
delivery of this Agreement and the Alphabet Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby will not
result in the ability of any Person to exercise any rights ("Alphabet
Rights") issued under the Alphabet Rights Agreement or cause the Alphabet
Rights to separate from the shares of Alphabet Common Stock to which they
are attached or to be triggered or become exercisable.
ARTICLE V
Section 5.1 Interim Operations of Abacus. Abacus covenants and agrees
as to itself and its Subsidiaries that, after the date hereof and prior to
the Effective Time (unless Alphabet shall otherwise approve in writing, or
unless as otherwise expressly contemplated by this Agreement or disclosed
in the Abacus Disclosure Letter):
(i) the business of Abacus and its Subsidiaries shall be
conducted in all material respects in the ordinary and usual course and, to
the extent consistent therewith, each of Abacus and its Subsidiaries shall
use its reasonable best efforts to preserve its business organization
intact in all material respects, keep available the services of its
officers and employees as a group (subject to changes in the ordinary
course) and maintain its existing relations and goodwill in all material
respects with customers, suppliers, regulators, distributors, creditors,
lessors, and others having business dealings with it;
(ii) Abacus shall not (A) amend its Certificate of
Incorporation or Bylaws, or adopt any shareholders rights plan or enter
into any agreement with any of its stockholders in their capacity as such;
(B) split, combine, subdivide or reclassify its outstanding shares of
capital stock; (C) declare, set aside or pay any dividend or distribution
payable in cash, stock or property in respect of any of its capital stock,
other than regular quarterly cash dividends in amounts consistent with past
practice which dividends shall not exceed the per share quarterly dividend
amounts set forth on the Abacus Disclosure Letter; or (D) repurchase,
redeem or otherwise acquire or permit any of its Subsidiaries to purchase,
redeem or otherwise acquire, any shares of its capital stock or any Abacus
Equity Rights (it being understood that this provision shall not prohibit
the exercise (cashless or otherwise) of options);
(iii) neither Abacus nor any of its Subsidiaries shall take
any action that to the knowledge of Abacus would prevent the business
combination to be effected pursuant to the Merger from qualifying for
"pooling of interests" accounting treatment under GAAP and the rules and
regulations of the SEC, or would prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368 of the Code or take any
action that it knows would cause any of its representations and warranties
herein to become inaccurate in any material respect;
(iv) except as expressly permitted by this Agreement, and
except as required by applicable law or pursuant to contractual obligations
in effect on the date hereof, Abacus shall not, and shall not permit its
Subsidiaries to, (A) enter into, adopt or amend (except for renewals on
substantially identical terms) any agreement or arrangement relating to
severance, (B) enter into, adopt or amend (except for renewals on
substantially identical terms) any employee benefit plan or employment or
consulting agreement (including, without limitation, the Abacus Benefit
Plans referred to in Section 3.10 hereof; provided however that Abacus and
its Subsidiaries may enter into consulting agreements in the ordinary
course of business consistent with past practice pursuant to the Abacus
Delta Program as in effect on the date hereof), or (C) grant any stock
options or other equity related awards except issuances of restricted stock
in accordance with the existing obligations of Abacus under its Performance
Incentive Plan as in effect on the date hereof;
(v) except for (A) borrowings under lines of credit as
existing as of the date hereof, (B) any amendments, renewals, replacements
or extensions of such lines of credit that will not increase the aggregate
amount of borrowing permitted thereunder, (C) the issuance and roll-over of
commercial paper, (D) the issuance of medium term notes with a maturity
date not later than 364 days from the date of issuance to renew, replace or
refinance existing indebtedness and (E) new indebtedness with a maturity
date not later than 364 days from the date of issuance in the aggregate
principal amount not to exceed $300,000,000, in each case in the ordinary
course of business, neither Abacus nor any of its Subsidiaries shall issue,
incur or amend the terms of any indebtedness for borrowed money or
guarantee any such indebtedness (other than indebtedness of Abacus or any
wholly-owned Subsidiary thereof);
(vi) neither Abacus nor any of its Subsidiaries shall make
any capital expenditures in any twelve month period after the date hereof
in an aggregate amount in excess of the aggregate amount reflected in the
capital expenditure budget for such twelve month period, a copy of which is
attached to the Abacus Disclosure Letter;
(vii) other than in the ordinary course of business
consistent with past practice, neither Abacus nor any of its Subsidiaries
shall transfer, lease, license, sell, mortgage, pledge, encumber or
otherwise dispose of any of its or its Subsidiaries' property or assets
(including capital stock of any of its Subsidiaries) material to Abacus and
its Subsidiaries taken as a whole, except pursuant to contracts existing as
of the date hereof (the terms of which have been previously disclosed to
Alphabet);
(viii) neither Abacus nor any of its Subsidiaries shall
issue, deliver, sell or encumber shares of any class of its capital stock
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, except any such shares issued pursuant to options
and other awards outstanding on the date hereof under Abacus Benefit Plans
and awards of options and other awards granted hereafter under Abacus
Benefit Plans in accordance with the terms of this Agreement and shares
issuable pursuant to such awards;
(ix) neither Abacus nor any of its Subsidiaries shall
acquire any business, including any stores or other facilities, whether by
merger, consolidation, purchase of property or assets or otherwise, except
to the extent provided for in the capital expenditure budget attached to
the Abacus Disclosure Letter in respect of any twelve month period after
the date hereof;
(x) Abacus shall not change its accounting policies,
practices or methods except as required by GAAP or by the rules and
regulations of the SEC;
(xi) other than pursuant to this Agreement, Abacus shall
not, and shall not permit any of its Subsidiaries to, take any action to
cause Abacus Shares to cease to be listed on the NYSE;
(xii) Abacus shall not, and shall not permit any of its
Subsidiaries to, enter into any Abacus Contract described in clauses (a),
(c) and (d) of Section 3.19, or amend any distribution, supply, inventory,
purchase, franchise, license, sales agency or advertising contract such
that annual expenditures or liabilities thereunder increase by more than
$30,000,000 and Abacus' inability to cancel or terminate such contract is
extended by more than one year, but in no event to a date later than June
30, 2000;
(xiii) Abacus shall not change or, other than in the
ordinary course of business consistent with past practice, make any
material Tax election; or
(xiv) Abacus shall not enter into, or permit any of its
Subsidiaries to enter into, any commitments or agreements to do any of the
foregoing.
Section 5.2 Interim Operations of Alphabet. Alphabet covenants and
agrees as to itself and its Subsidiaries that, after the date hereof and
prior to the Effective Time (unless Abacus shall otherwise approve in
writing and except as otherwise expressly contemplated by this Agreement or
disclosed in the Alphabet Disclosure Letter):
(i) the business of Alphabet and its Subsidiaries shall be
conducted in all material respects in the ordinary and usual course and to
the extent consistent therewith, each of Alphabet and its Subsidiaries
shall use its reasonable best efforts to preserve its business organization
intact in all material respects, keep available the services of its
executive officers and employees as a group (subject to changes in the
ordinary course) and maintain its existing relationships and goodwill in
all material respects with customers, suppliers, regulators, distributors,
creditors, lessors and others having business dealings with it; provided,
however, that nothing contained in this clause (i) shall prohibit Alphabet
from acquiring, or exploring the acquisition of, any retail business,
including any stores or facilities, whether by merger, consolidation,
purchase of property or assets or otherwise to the extent that such
acquisition is not reasonably expected to interfere with or delay (in any
material respect) the consummation of the Merger provided that the
aggregate fair market value of the consideration paid in connection with
any single acquisition or series of integrally related acquisitions shall
not exceed $1,000,000,000;
(ii) Alphabet shall not issue, deliver, grant or sell any
additional shares of Alphabet Common Stock or any Alphabet Equity Rights,
(other than the issuance, delivery, grant or sale of shares of Alphabet
Common Stock or Alphabet Equity Rights (w) pursuant to a stock split or
stock dividend, (x) in the ordinary course of business consistent with past
practice pursuant to Alphabet Benefit Plans, (y) pursuant to the exercise
or conversion of Equity Rights outstanding as of the date hereof or issued
by Alphabet after the date hereof in accordance with subclauses (x) and (z)
of this clause (ii) and, (z) representing, in the aggregate (but not
including shares of Alphabet Common Stock or Alphabet Equity Rights issued,
delivered, granted or sold pursuant to subclauses (w), (x) and (y) hereof),
not more than such number of shares of Alphabet Common Stock as would
represent more than 15% of the then outstanding capital stock of Alphabet.
(iii) Alphabet shall not (A) amend its Certificate of
Incorporation, or Bylaws or amend the Alphabet Rights Agreement or redeem
the Alphabet Rights; (B) reclassify its outstanding shares of capital
stock; (C) declare, set aside or pay any dividend or distribution payable
in cash, stock or property in respect of any of its capital stock, other
than regular quarterly cash dividends in amounts consistent with past
practice; or (D) repurchase, redeem or otherwise acquire or permit any of
its Subsidiaries to purchase, redeem or otherwise acquire, any shares of
its capital stock or any Alphabet Equity Rights (it being understood that
this provision shall not prohibit the exercise (cashless or otherwise) of
options);
(iv) neither Alphabet nor any of its Subsidiaries shall take
any action that to the knowledge of Alphabet would prevent the business
combination to be effected pursuant to Merger from qualifying for "pooling
of interests" accounting treatment under GAAP and the rules and regulations
of the SEC, or would prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368 of the Code or take any
action that it knows would cause any of its representations and warranties
herein to become inaccurate in any material respect;
(v) other than in the ordinary course of business consistent
with past practice, neither Alphabet nor any of its Subsidiaries shall
transfer, lease, license, sell or otherwise dispose of any of its or its
Subsidiaries' property or assets (including capital stock of any of its
Subsidiaries) material to Alphabet and its Subsidiaries taken as a whole,
except pursuant to contracts existing as of the date hereof (the terms of
which have been previously disclosed to Abacus) and except for any sale or
disposition of assets in a single transaction or series of integrally
related sales or dispositions the proceeds of which have a fair market
value of not more than $1,000,000,000;
(vi) Alphabet shall not change its accounting policies,
practices or methods except as required by GAAP or by the rules and
regulations of the SEC;
(vii) other than pursuant to this Agreement, Alphabet shall
not, and shall not permit any of its Subsidiaries to, take any action to
cause the shares of its common stock to cease to be listed on the NYSE; and
(viii) Alphabet shall not enter into, or permit any of its
Subsidiaries to enter into, any commitments or agreements to do any of the
foregoing.
Nothing in this Section 5.2 shall prohibit Alphabet from amending
the Alphabet, Inc. Executive Deferred Compensation Trust, the Alphabet,
Inc. Executive Make-Up Trust and the Alphabet, Inc. 1990 Deferred
Compensation Trust (collectively, the "Trusts") to provide that the
transactions contemplated by this Agreement (including, without limitation,
the Merger) do not constitute a "Change in Control" (as defined in the
Trusts) for purposes of the Trusts.
Section 5.3 No Solicitation by Abacus. (a) Abacus shall immediately
cease and terminate any existing solicitation, initiation, encouragement,
activity, discussion or negotiation with any Persons conducted heretofore
by Abacus, its Subsidiaries or any of their respective Representatives
(defined below) with respect to any proposed, potential or contemplated
Abacus Acquisition Transaction (as defined below).
(b) From and after the date hereof, without the prior written
consent of Alphabet, Abacus will not, will not authorize or permit any of
its Subsidiaries to, and shall use its reasonable best efforts to cause any
of its or their respective officers, directors, employees, financial
advisors, agents or representatives (each a "Representative") not to,
directly or indirectly, solicit, initiate or encourage (including by way of
furnishing information) or take any other action to facilitate any
inquiries or the making of any proposal which constitutes or may reasonably
be expected to lead to an Abacus Acquisition Proposal (as defined below)
from any Person, or engage in any discussion or negotiations relating
thereto or accept any Abacus Acquisition Proposal; provided, however, that,
notwithstanding any other provision hereof, Abacus may (i) engage in
discussions or negotiations with a third party who (without any
solicitation, initiation or encouragement, directly or indirectly, by or
with Abacus, its Subsidiaries or any of their respective Representatives
after the date hereof) seeks to initiate such discussions or negotiations
and may furnish such third party information concerning Abacus, its
Subsidiaries and their business, properties and assets if, and only to the
extent that, (A)(x) the third party has first made a bona fide Abacus
Acquisition Proposal in writing prior to the date upon which the Agreement
and the Merger shall have been approved and adopted by the required vote of
the stockholders of Abacus, (y) Abacus' Board of Directors concludes in
good faith (after consultation with its financial advisor) that the Abacus
Acquisition Transaction contemplated by such Abacus Acquisition Proposal is
reasonably capable of being completed, taking into account all legal,
financial, regulatory and other aspects of the Abacus Acquisition Proposal
and the Person making the Abacus Acquisition Proposal, and could, if
consummated, reasonably be expected to result in a transaction more
favorable to Abacus' stockholders from a financial point of view than the
Merger contemplated by this Agreement (any such Abacus Acquisition
Proposal, an "Abacus Superior Proposal") and (z) Abacus' Board of Directors
shall have concluded in good faith, after considering applicable provisions
of state law, and after consultation with outside counsel, that such action
is required for the Board of Directors to act in a manner consistent with
its fiduciary duties under applicable law and (B) prior to furnishing such
information to or entering into discussions or negotiations with such
Person, Abacus (x) provides prompt notice to Alphabet to the effect that
Abacus is furnishing information to or entering into discussions or
negotiations with such Person and (y) receives from such Person an executed
confidentiality agreement in reasonably customary form on terms not in the
aggregate materially more favorable to such Person than the terms contained
in the confidentiality agreement, dated as of June 23, 1998, among
Alphabet, Abacus and the other party thereto (the "Confidentiality
Agreement").
(c) Abacus agrees not to release any third party from, or waive
any provision of, any standstill agreement to which it is a party or any
confidentiality agreement between it and another Person who has made, or
who may reasonably be considered likely to make, an Abacus Acquisition
Proposal, or who Abacus or any of its Representatives have had discussions
with regarding a proposed, potential or contemplated Abacus Acquisition
Transaction unless the Abacus Board of Directors shall conclude in good
faith, after considering applicable provisions of state law, and after
consultation with outside counsel, that such action is required for the
Board of Directors to act in a manner consistent with its fiduciary duties
under applicable law. Abacus shall notify Alphabet orally and in writing of
any such inquiries, offers or proposals (including, without limitation, the
terms and conditions of any such offers or proposals, any amendments or
revisions thereto, and the identity of the Person making it), as promptly
as practicable following the receipt thereof, and shall keep Alphabet
reasonably informed of the status and material terms of any such inquiry,
offer or proposal. For purposes of this Agreement, "Abacus Acquisition
Proposal" shall mean, with respect to Abacus, any inquiry, proposal or
offer from any Person (other than Alphabet or any of its Subsidiaries)
relating to any (i) direct or indirect acquisition or purchase of a
business of Abacus or any of its Subsidiaries, that constitutes 15% or more
of the consolidated net revenues, net income or assets of Abacus and its
Subsidiaries, (ii) direct or indirect acquisition or purchase of 15% or
more of any class of equity securities of Abacus or any of its Subsidiaries
whose business constitutes 15% or more of the consolidated net revenues,
net income or assets of Abacus and its Subsidiaries, (iii) tender offer or
exchange offer that if consummated would result in any person beneficially
owning 15% or more of the capital stock of Abacus, or (iv) merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Abacus or any of its
Subsidiaries whose business constitutes 15% or more of the consolidated net
revenues, net income or assets of Abacus and its Subsidiaries. Each of the
transactions referred to in clauses (i) - (iv) of the definition of Abacus
Acquisition Proposal, other than any such transaction to which Alphabet or
any of its Subsidiaries is a party, is referred to herein as an "Abacus
Acquisition Transaction".
(d) Except as expressly permitted by this Section 5.3 or in
connection with its termination of this Agreement in accordance with the
terms and conditions of Section 8.1(g), neither the Board of Directors of
Abacus nor any committee thereof shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Alphabet, the
approval or recommendation by such Board of Directors of this Agreement or
the Merger, (ii) approve or recommend, or propose publicly to approve or
recommend, any Abacus Acquisition Proposal or Abacus Acquisition
Transaction or (iii) cause Abacus to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement
related to any Abacus Acquisition Proposal or Abacus Acquisition
Transaction. Notwithstanding the foregoing, in the event that the Board of
Directors of Abacus shall conclude in good faith, after considering
applicable state law, and after consultation with outside counsel, that
such action is required for it to act in a manner consistent with its
fiduciary duties under applicable law, the Board of Directors of Abacus may
withdraw or modify its approval or recommendation of this Agreement and the
Merger.
(e) Nothing contained in this Section 5.3 shall prohibit Abacus
(x) from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or (y) from making any
disclosure to its stockholders if, the Board of Directors of Abacus shall
conclude in the good faith, after considering applicable provisions of
state law, and after consultation with outside counsel, that failure so to
disclose would violate its obligations under applicable law; provided,
however, that, except in accordance with paragraph (d) of this Section 5.3
or in connection with its termination of this Agreement in accordance with
the terms and conditions of Section 8.1(g), neither Abacus nor its Board of
Directors shall approve or recommend, an Abacus Acquisition Proposal or
Abacus Acquisition Transaction.
Section 5.4 No Solicitation by Alphabet. (a) Alphabet shall
immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any Persons
conducted heretofore by Alphabet, its Subsidiaries or any of their
respective Representatives (defined below) with respect to any proposed,
potential or contemplated Alphabet Acquisition Transaction (as defined
below).
(b) From and after the date hereof, without the prior written
consent of Abacus, Alphabet will not, will not authorize or permit any of
its Subsidiaries to, and will not authorize any of its or their respective
officers, directors, employees, financial advisors, agents or
representatives (each a "Representative") to, and shall use reasonable best
efforts to cause its Representatives not to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information)
or take any other action to facilitate any inquiries or the making of any
proposal which constitutes or may reasonably be expected to lead to an
Alphabet Acquisition Proposal (as defined below) from any Person, or engage
in any discussion or negotiations relating thereto or accept any Alphabet
Acquisition Proposal; provided, however, that, notwithstanding any other
provision hereof, Alphabet may (i) engage in discussions or negotiations
with a third party who (without any solicitation, initiation or
encouragement, directly or indirectly, by or with Alphabet, its
Subsidiaries or any of their respective Representatives after the date
hereof) seeks to initiate such discussions or negotiations and may furnish
such third party information concerning Alphabet, its Subsidiaries and
their business, properties and assets if, and only to the extent that,
(A)(x) the third party has first made a bona fide Alphabet Acquisition
Proposal in writing prior to the date upon which the issuance of Alphabet
Shares pursuant to this Agreement shall have been approved and adopted by
the required vote of the stockholders of Alphabet and (y) Alphabet's Board
of Directors concludes in good faith (after consultation with its financial
advisor) that the Alphabet Acquisition Transaction contemplated by such
Alphabet Acquisition Proposal is reasonably capable of being completed,
taking into account all legal, financial, regulatory and other aspects of
the Alphabet Acquisition Proposal and the Person making the Alphabet
Acquisition Proposal, and could, if consummated, reasonably be expected to
result in a transaction more favorable to Alphabet's stockholders from a
financial point of view than the Merger contemplated by this Agreement (any
such Alphabet Acquisition Proposal, an "Alphabet Superior Proposal") and
(z) Alphabet's Board of Directors shall have concluded in good faith, after
considering applicable provisions of state law, and after consultation with
outside counsel, that such action is required for the Board of Directors to
act in a manner consistent with its fiduciary duties under applicable law
and (B) prior to furnishing such information to or entering into
discussions or negotiations with such Person, Alphabet (x) provides prompt
notice to Abacus to the effect that Alphabet is furnishing information to
or entering into discussions or negotiations with such Person and (y)
receives from such Person an executed confidentiality agreement in
reasonably customary form on terms not in the aggregate materially more
favorable to such Person than the terms contained in the Confidentiality
Agreement.
(c) Alphabet agrees not to release any third party from, or waive
any provision of, any standstill agreement to which it is a party or any
confidentiality agreement between it and another Person who has made, or
who may reasonably be considered likely to make, an Alphabet Acquisition
Proposal, or who Alphabet or any of its Representatives have had
discussions with regarding a proposed, potential or contemplated Alphabet
Acquisition Transaction unless the Alphabet Board of Directors shall
conclude in good faith, after considering applicable provisions of state
law, and after consulting with outside counsel, that such action is
required for the Board of Directors to act in a manner consistent with its
fiduciary duties under applicable law. Alphabet shall notify Abacus orally
and in writing of any such inquiries, offers or proposals (including,
without limitation, the terms and conditions of any such offers or
proposals, any amendments or revisions thereto, and the identity of the
Person making it), as promptly as practicable following the receipt
thereof, and shall keep Abacus reasonably informed of the status and
material terms of any such inquiry, offer or proposal. For purposes of this
Agreement, "Alphabet Acquisition Proposal" shall mean, with respect to
Alphabet, any inquiry, proposal or offer from any Person (other than Abacus
or any of its Subsidiaries) relating to any (i) direct or indirect
acquisition or purchase of a business of Alphabet or any of its
Subsidiaries, that constitutes 15% or more of the consolidated net
revenues, net income or assets of Alphabet and its Subsidiaries, (ii)
direct or indirect acquisition or purchase of 15% or more of any class of
equity securities of Alphabet or any of its Subsidiaries whose business
constitutes 15% or more of the consolidated net revenues, net income or
assets of Alphabet and its Subsidiaries, (iii) tender offer or exchange
offer that if consummated would result in any person beneficially owning
15% or more of the capital stock of Alphabet, or (iv) merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Alphabet or any of its
Subsidiaries whose business constitutes 15% or more of the consolidated net
revenues, net income or assets of Alphabet and its Subsidiaries; provided,
however, that an Alphabet Acquisition Transaction does not include a
Transaction permitted pursuant to Section 5.2 as long as such transaction
is not reasonably expected to interfere with or delay (in any material
respect) the consummation of the Merger.
(d) Except as expressly permitted by this Section 5.4 or in
connection with its termination of this Agreement in accordance with the
terms and conditions of Section 8.1(h), neither the Board of Directors of
Alphabet nor any committee thereof shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Abacus, the approval
or recommendation by such Board of Directors of this Agreement or the
Merger, (ii) approve or recommend, or propose publicly to approve or
recommend, any Alphabet Acquisition Proposal or Alphabet Acquisition
Transaction or (iii) cause Alphabet to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement
related to any Alphabet Acquisition Proposal or Alphabet Acquisition
Transaction. Notwithstanding the foregoing, in the event that the Board of
Directors of Alphabet shall conclude in good faith, after considering
applicable state law, and after consultation with outside counsel, that
such action is required for it to act in a manner consistent with its
fiduciary duties under applicable law, the Board of Directors of Alphabet
may withdraw or modify its approval or recommendation of this Agreement and
the Merger.
(e) Nothing contained in this Section 5.4 shall prohibit Alphabet
(x) from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or (y) from making any
disclosure to its stockholders if, the Board of Directors of Alphabet shall
conclude in good faith, after considering applicable provisions of state
law, and after consultation with outside counsel, that failure so to
disclose would violate its obligations under applicable law; provided,
however, that, except in accordance with paragraph (d) of this Section 5.4
or in connection with its termination of this Agreement in accordance with
the terms and conditions of Section 8.1(h), neither Alphabet nor its Board
of Directors shall approve or recommend, an Alphabet Acquisition Proposal
or Alphabet Acquisition Transaction.
ARTICLE VI
Section 6.1 Meetings of Stockholders. Each of the Parties will take
all action necessary in accordance with applicable law and its Certificate
of Incorporation and Bylaws to convene a meeting of its stockholders as
promptly as practicable to consider and vote upon the approval of this
Agreement and the Merger, in the case of Abacus, or the issuance of shares
of Alphabet Common Stock in accordance with the terms hereof, in the case
of Alphabet. The Board of Directors of each Party shall, subject to
Sections 5.3 and 5.4, recommend such approval and each of the Parties shall
take all lawful action to solicit such approval including, without
limitation, timely mailing the Proxy Statement/Prospectus (as defined in
Section 6.4). The Parties shall coordinate and cooperate with respect to
the timing of such meetings and shall use their reasonable best efforts to
hold such meetings on the same day.
Section 6.2 Filings Best Efforts
(a) Subject to the terms and conditions herein provided, Abacus
and Alphabet shall:
(i) within 20 business days from the date hereof, make their
respective filings under the HSR Act with respect to the Merger and
thereafter shall promptly make any other required submissions under the HSR
Act;
(ii) use their reasonable best efforts to cooperate with one
another in (i) determining which filings are required to be made prior to
the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time
from, Governmental Entities of the United States and the several states in
connection with the execution and delivery of this Agreement and the
consummation of the Merger and the transactions contemplated hereby; (ii)
timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations; and (iii) as promptly as practicable
responding to any request for information from such Governmental Entities;
(iii) subject to any restrictions under the antitrust laws,
to the extent practicable, promptly notify each other of any communication
to that party from any Governmental Entity and permit the other party to
review in advance any proposed communication to any Governmental Entity;
(iv) not agree to participate in any meeting with any
Governmental Entity in respect of any filings, investigation or other
inquiry unless it consults with the other party in advance and, to the
extent permitted by such Governmental Entity, gives the other party the
opportunity to attend and participate thereat, in each case to the extent
practicable;
(v) subject to any restrictions under the antitrust laws,
furnish the other party with copies of all correspondence, filings, and
communications (and memoranda setting forth the substance thereof) between
them and their affiliates and their respective representatives on the one
hand, and any Governmental Entity or members or its staffs on the other
hand, with respect to this Agreement and the transactions contemplated
hereby (excluding documents and communications which are subject to
preexisting confidentiality agreements and to attorney client privilege);
and
(vi) furnish the other party with such necessary information
and reasonable assistance as such other Party and its affiliates may
reasonably request in connection with their preparation of necessary
filings, registrations, or submissions of information to any Governmental
Entities, including without limitation, any filings necessary or
appropriate under the provisions of the HSR Act.
(b) Without limiting Section 6.2(a), Alphabet and Abacus shall
(i) each use its reasonable best efforts to avoid the entry
of, or to have vacated or terminated, any decree, order, or judgment that
would restrain, prevent or delay the Closing, on or before June 30, 1999,
including without limitation defending through litigation on the merits any
claim asserted in any court by any party; and
(ii) each take any and all steps necessary to avoid or
eliminate each and every impediment under any antitrust, competition or
trade regulation law that may be asserted by any Governmental Entity with
respect to the Merger so as to enable the Closing to occur as soon as
reasonably possible (and in any event no later than June 30, 1999),
including, without limitation, proposing, negotiating, committing to and
effecting, by consent decree, hold separate order, or otherwise, the sale,
divestiture or disposition of such assets or businesses of Alphabet or
Abacus (or any of their respective subsidiaries) or otherwise take or
commit to take any actions that limits its freedom of action with respect
to, or its ability to retain, any of the businesses, product lines or
assets of Alphabet, Abacus or their respective Subsidiaries, as may be
required in order to avoid the entry of, or to effect the dissolution of,
any injunction, temporary restraining order, or other order in any suit or
proceeding, which would otherwise have the effect of preventing or delaying
the Closing. At the request of Alphabet, Abacus shall agree to divest, hold
separate, or otherwise take or commit to take any action that limits its
freedom of action with respect to, or its ability to retain, any of the
businesses, product lines or assets of Abacus or any of its Subsidiaries,
provided that any such action is conditioned upon the consummation of the
Merger. Abacus agrees and acknowledges that, in connection with any filing
or submission required, action to be taken or commitment to be made by
Alphabet, Abacus or any of its respective Subsidiaries to consummate the
Merger or other transactions contemplated in this Agreement, neither Abacus
nor any of its Subsidiaries shall, without Alphabet's prior written
consent, divest any assets, commit to any divestiture or assets or
businesses of Abacus and its subsidiaries or take any other action or
commit to take any action that would limit Abacus', Alphabet's or any of
their subsidiaries freedom of action with respect to, or their ability to
retain any of their businesses, product lines or assets.
Notwithstanding the foregoing, (x) nothing herein shall require
Alphabet to agree to the sale, transfer, divestiture or other disposition
of stores of Alphabet, Abacus or any of their subsidiaries having aggregate
gross annual sales for the fiscal year ended in January 1998 in excess of
6% of the combined gross annual sales of Abacus, Alphabet and their
respective subsidiaries taken as a whole for such period, (y) and other
than the sale, transfer, divestiture or other disposition of stores having
revenues up to the gross annual amount referenced in clause (x) of this
paragraph (b), neither party shall be required to take any actions or make
any commitments or agreements pursuant to paragraph (b)(ii) above, if the
taking of such action or the making of any commitments or the consequences
thereof, individually or in the aggregate, would be reasonably likely to
have an Alphabet Material Adverse Effect. Any actions taken by Alphabet or
Abacus to comply with their respective obligations under Section
6.2(b)(ii), including a decision by Alphabet to waive any of the provisions
of this paragraph, shall not be considered to constitute or result in an
Alphabet Material Adverse Effect or an Abacus Material Adverse Effect, as
applicable.
(c) If any "fair price," "moratorium," "control share
acquisition" or similar anti-takeover statute or regulation is or may
become applicable to the Merger, each Party and its Boards of Directors
shall grant such approvals and take such actions as are necessary so that
the Merger may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize
the effects of such statute or regulation on such transactions.
Section 6.3 Publicity. The Parties agree that the initial press
release with respect to the Merger shall be a joint press release.
Thereafter, subject to their respective legal obligations (including
requirements of stock exchanges and other similar regulatory bodies), the
Parties shall consult with each other, and use reasonable best efforts to
agree upon the text of any press release, before issuing any such press
release or otherwise making public statements with respect to the Merger
and in making any filings with any federal or state governmental or
regulatory agency or with any national securities exchange with respect
thereto.
Section 6.4 Registration Statement. The Parties shall cooperate and
promptly prepare and Alphabet shall file with the SEC as soon as
practicable a Registration Statement on Form S-4 (the "Form S-4") under the
Securities Act with respect to the Alphabet Common Stock issuable in the
Merger, a portion of which Registration Statement shall also serve as the
joint proxy statement/prospectus with respect to the meetings of the
stockholders of each of the Parties in connection with the Merger (the
"Proxy Statement/Prospectus"). The Parties will cause the Proxy
Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange
Act and the rules and regulations thereunder. Alphabet shall use its
reasonable best efforts to, and Abacus will cooperate with Alphabet to,
have the Form S-4 declared effective by the SEC as promptly as practicable.
Alphabet shall use its reasonable best efforts to obtain, prior to the
effective date of the Form S-4, all necessary state securities law or "blue
sky" permits or approvals required to carry out the Merger (provided that
Alphabet shall not be required to qualify to do business in any
jurisdiction in which it is not now so qualified). Each of the Parties
agree that the information provided by it for inclusion in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time
of mailing thereof, at the time of the respective meetings of stockholders
of the Parties, and at the time it is filed or becomes effective, will not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 6.5 Listing Application. Alphabet shall promptly prepare and
submit to the NYSE and all other securities exchanges on which the shares
of Alphabet Common Stock are listed a listing application with respect to
the shares of Alphabet Common Stock issuable in the Merger, and shall use
its reasonable best efforts to obtain, prior to the Effective Time,
approval for the listing of such Alphabet Common Stock on such exchanges,
subject to official notice of issuance.
Section 6.6 Further Action. Each of the Parties shall, subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof and use its reasonable
best efforts to perform such further acts and execute such documents as may
be reasonably required to effect the transactions contemplated hereby. Each
of the Parties will comply in all material respects with all applicable
laws and with all applicable rules and regulations of any Governmental
Entity in connection with its execution, delivery and performance of this
Agreement and the Stock Option Agreements and the transactions contemplated
hereby and thereby. Each of the Parties agrees to use its reasonable best
efforts to obtain in a timely manner all necessary waivers, consents,
approvals and opinions and to effect all necessary registrations and
filings, and to use its reasonable best efforts to take, or cause to be
taken, all other actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly
as practicable the Merger.
Section 6.7 Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated thereby, including the Merger shall be paid by
the party hereto incurring such expenses except as expressly provided
herein and except that (a) the filing fees in connection with the filing of
the Form S-4 and the Proxy Statement/Prospectus with the SEC, (b) all
filing fees in connection with any filings, permits or approvals required
under applicable state securities or "blue sky" laws, and (c) the expenses
incurred in connection with printing and mailing of the Form S-4 and the
Proxy Statement/Prospectus shall be shared by Alphabet and Abacus equally.
Section 6.8 Notification of Certain Matters. Each Party shall give
prompt notice to the other Party of the following:
(a) the occurrence or nonoccurrence of any event whose occurrence
or nonoccurrence is reasonably expected to cause any of the conditions
precedent set forth in Article VII not to be satisfied;
(b) the status of matters relating to completion of the Merger,
including promptly furnishing the other with copies of notice or other
communications received by any Party or any of its respective Subsidiaries
from any Governmental Entity or other third party with respect to this
Agreement or the transactions contemplated thereby, including the Merger;
and
(c) any facts relating to that Party which would make it
necessary or advisable to amend the Proxy Statement/Prospectus or the Form
S-4 in order to make the statements therein not misleading or to comply
with applicable law; provided, however, that the delivery of any notice
pursuant to this Section 6.8 shall not limit or otherwise affect the
remedies available hereunder to the Party receiving such notice.
Section 6.9 Access to Information. (a) From this date to the Effective
Time, each of the Parties shall, and shall cause its respective
Subsidiaries, and its and their officers, directors, employees, auditors,
counsel and agents to afford the officers, employees, auditors, counsel and
agents of the other Party reasonable access at reasonable times upon
reasonable notice to each of the Party's and its Subsidiaries' officers,
employees, auditors, counsel, agents, properties, offices and other
facilities and to all of their respective books and records, and shall
furnish the other Party with all financial, operating and other data and
information as such other Party may reasonably request, in each case only
to the extent, in the judgment of counsel to such Party, permitted by law,
including antitrust law, and provided no Party shall be obligated to make
any disclosure which would cause forfeiture of attorney-client privilege or
would violate confidentiality agreements (so long as such Party shall have
used commercially reasonable efforts to obtain a release or waiver from the
applicable confidentiality agreement in respect of such disclosure).
(b) Each of the Parties agrees that all information so received
from the other Parties shall be deemed received pursuant to the
Confidentiality Agreement, and that Party shall, and shall cause its
affiliates and each of its and their Representatives to, comply with the
provisions of the Confidentiality Agreement with respect to such
information and the provisions of the Confidentiality Agreement are hereby
incorporated herein by reference with the same effect as if fully set forth
in this Agreement.
Section 6.10 Review of Information. Subject to applicable laws
relating to the exchange of information, each Party shall have the right to
review in advance, and to the extent practicable each will consult the
other on, all the information relating to it, or any of its respective
Subsidiaries, that appear in any filing made with, or written materials
submitted to, any third party and/or any Governmental Entity in connection
with the Merger. In exercising the foregoing right, each of the Parties
shall act reasonably and as promptly as practicable.
Section 6.11 Indemnification, Directors' and Officers' Insurance. (a)
From and after the Effective Time, Alphabet shall, or shall cause the
Surviving Corporation to, indemnify and hold harmless each present and
former director and officer of Abacus or any of its Subsidiaries (when
acting in such capacity) (the "Indemnified Parties"), against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, for acts or omissions existing or
occurring at or prior to the Effective Time, whether asserted or claimed
prior to, at or after the Effective Time, to the fullest extent permitted
under the DGCL or other applicable law, as applicable (and Alphabet shall,
or shall cause the Surviving Corporation to, also advance expenses as
incurred to the fullest extent permitted under the DGCL or other applicable
law, provided the Person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
Person is not entitled to indemnification).
(b) Alphabet shall maintain, or cause the Surviving Corporation
to maintain, a policy of officers' and directors' liability insurance for
acts and omissions occurring prior to the Effective Time ("D&O Insurance")
with coverage in amount and scope at least as favorable as its existing
directors' and officers' liability insurance coverage for a period of six
years after the Effective Time; provided, however, if the existing D&O
Insurance expires, is terminated or canceled, or if the annual premium
therefor is increased to an amount in excess of 200% of the last annualized
premium paid prior to this date (the "Current Premium"), in each case
during such six year period, Alphabet shall, or shall cause the Surviving
Corporation to, obtain D&O Insurance in an amount and scope as great as can
be obtained for the remainder of such period for a premium not in excess
(on an annualized basis) of 200% of the Current Premium.
(c) If Alphabet or the Surviving Corporation or any of their
respective successors or assigns (i) shall consolidate with or merge into
any other corporation or other entity and shall not be the continuing or
surviving corporation or entity of the consolidation or merger or (ii)
shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provisions shall be made so that the successors and assigns of Alphabet or
the Surviving Corporation shall assume all of the obligations set forth in
this Section 6.11.
(d) The provisions of this Section 6.11 are intended to be for
the benefit of, and shall be enforceable by, each of the Indemnified
Parties, their heirs and their representatives.
Section 6.12 Employee Benefit Plans. (a) From and after the Effective
Time, Alphabet will cause the Surviving Corporation and its Subsidiaries to
honor, in accordance with their terms, all existing employment and
severance agreements between Abacus and its Subsidiaries and any officer,
director or employee of Abacus or any of its Subsidiaries and all
obligations of Abacus under the Abacus Benefit Plans. Nothing in this
Section 6.12 shall be interpreted to prohibit Alphabet or any of its
Subsidiaries from amending or terminating any Abacus Benefit Plan in
accordance with the terms thereof.
(b) For a period of one year after the Effective Time, Alphabet
shall cause to be provided to each Abacus Employee (other than any person
who is subject to a collective bargaining agreement or party to a change in
control employment or similar agreement, including those persons listed on
Schedule 3.10 as party to a change in control employment agreement) who
continues to remain employed by Alphabet or any of its Subsidiaries after
the Effective Time ("Abacus Covered Employees") base salary not less than
his or her base salary in effect immediately prior to the date hereof and
welfare (including severance), retirement and savings benefits, in each
case, substantially identical to those provided to such person immediately
prior to the Effective Time. In addition, during the one-year period after
the Effective Time, Abacus Covered Employees shall have (i) annual cash
bonus opportunities substantially identical to those of similarly situated
employees of Alphabet and its Subsidiaries and (ii) opportunities to
receive equity-based awards of Alphabet on the same basis as similarly
situated employees of Alphabet and its Subsidiaries. For purposes of
determining eligibility and vesting (but not for benefits accrual) under
any Alphabet Benefit Plan in which an Abacus Employee or any of its
Subsidiaries participates after the Effective Time, such employee shall be
credited with his or her years of service with Abacus or its Subsidiaries,
but only to the extent that those years of service would have been credited
under the relevant Alphabet Benefit Plan if such Abacus Employee had been a
similarly situated Alphabet Employee during the relevant period of time. To
the extent that any Alphabet Benefit Plan in which an Abacus Employee
participates after the Effective Time provides medical, dental or vision
benefits, Alphabet shall cause all pre-existing condition exclusions and
actively at work requirements of such plan to be waived for such employee
and his or her covered dependents except to the extent such employee and
his or her covered dependents were subject to such requirements under the
applicable Abacus Benefit Plans, and Alphabet shall cause any eligible
expenses incurred by such employee on or before the Effective Time to be
taken into account under such plan for purposes of satisfying all
deductible, coinsurance and maximum out-of-pocket requirements applicable
to such employee and his or her covered dependents for the applicable plan
year.
(c) Prior to the Effective Time, Abacus shall amend Section 5(h)
of the American Stores Company Termination Allowance Plan (the "Allowance
Plan") to provide that with respect to periods after the later of the
Closing Date and December 31, 1998 (such later date, the "Renewal Date")
(i) the Allowance Plan shall remain in effect without further amendment
(except as provided in this Agreement) with respect to terminations of
employment occurring on or before the first anniversary of the Closing
Date, it being understood that Alphabet may cause the Allowance Plan to be
terminated immediately following such first anniversary with respect to
terminations occurring after such first anniversary and no amendment to the
Allowance Plan after the date hereof shall in any way limit Alphabet's
ability to do so, (ii) relocation benefits shall be payable thereunder only
if the individual is terminated by Alphabet or its Subsidiaries without
cause, or voluntarily terminates his or her own employment within three
months following receipt of notification from Alphabet of an event
described in subclause (A), (B) or (C) of clause (iii) of the immediately
following sentence, in either case within one year following the Change of
Control (as defined in the Allowance Plan) and such individual relocates
within six months of such termination, (iii) the maximum aggregate cash and
non-cash relocation benefit with respect to any individual (and his or her
family and dependents) pursuant to Section 5(h) shall be $40,000, and (iv)
the benefits set forth in such Section 5(h) shall not be provided to any
individual other than Abacus Covered Employees who have "Relocated" under
the Relocation Program (as defined in said Section 5(h)) within four years
preceding the Closing Date and who are employed at the time of termination
in Salt Lake City, Utah (the "Abacus Covered Salt Lake Employees"). In
addition, prior to the Effective Time Abacus shall amend the Allowance Plan
to provide that (i) each Abacus Covered Salt Lake Employee who is not an
officer and who is so employed on the date hereof and at the Effective Time
shall be paid a lump sum payment on the Closing Date equal to five times
his or her weekly Pay (as defined in the Allowance Plan), (ii) with respect
to Abacus Covered Salt Lake Employees who are not officers and who are
employed on the date hereof and at the Effective Time, the minimum
termination allowance payable pursuant to Section 5 thereof shall be seven
weeks' Pay, and (iii) a Participant (as defined in the Allowance Plan)
shall be entitled to a termination allowance pursuant to Section 5 thereof
if he or she voluntarily terminates his or her employment within three
months following receipt of notification from Alphabet that (A) his or her
base salary (whether expressed as an hourly rate or a salary) is being
reduced to an amount less than 80% of his or her base salary as of the date
hereof, (B) he or she is being required by Alphabet or its Subsidiaries to
relocate his or her employment to a facility more than 35 miles further
from his or her then current home than such home is from his or her then
current workplace (but only if he or she does not so relocate) or (C) his
or her target bonus opportunity in the aggregate under all applicable
annual cash bonus plans in which he or she then participates is less than
80% of the amount of such opportunity as of the date hereof under the bonus
plans of Abacus in which he or she participates as of the date hereof, and,
in each case, the Participant is otherwise entitled to a termination
allowance under the Allowance Plan.
(d) On or prior to the Effective Time, Abacus shall take all such
actions as are necessary to terminate its Employee Stock Purchase Plan at
or prior to the Effective Time. Abacus shall, in connection with such
termination, cause all participants in such plan not to be permitted to
have Abacus withhold any monies for investment in such plan after October
7, 1998 and, prior to the Effective Time, cause each such participant
either to receive previously invested cash or purchase Abacus Common Stock
pursuant to such plan.
(e) If and to the extent that participants in the Abacus
Performance Incentive Plan become entitled to receive restricted stock
thereunder after the Effective Time, such stock shall be shares of Alphabet
Common Stock rather than Abacus Common Stock, and if the number of shares
of restricted stock to which participants are entitled is determined based
upon the value of Abacus Common Stock before the Effective Time, the number
of shares of Alphabet Common Stock to be so issued shall be determined
using the Exchange Ratio. The foregoing does not in any way limit
Alphabet's or its Subsidaries' ability after the Effective Time to amend in
any manner or terminate the Abacus Performance Incentive Plan.
Section 6.13 Alphabet Board of Directors. As of the Effective Time,
Alphabet shall increase the size of its Board of Directors by adding five
directorships. As of the Effective Time, the five individuals listed in the
Abacus Disclosure Letter shall be elected to the Board of Directors of
Alphabet, and each such individual shall become a member of that class of
the Board of Directors of Alphabet that is specified for such member in the
Abacus Disclosure Letter. In the event that any of such individuals shall
be unable or unwilling to serve as a member of the Board of Directors of
Alphabet as of the Effective Time, his or her replacement shall be selected
by Abacus, provided that any such replacement shall be reasonably
acceptable to Alphabet.
Section 6.14 Affiliates. (a) Not less than 45 days prior to the
Effective Time, each Party (i) shall have delivered to the other Party a
letter identifying all Persons who, in the opinion of the Party delivering
such letter, may be, as of the date this Agreement is submitted for
adoption by such Party's stockholders, its "affiliates" for purposes of
Rule 145 under the Securities Act or SEC Accounting Series Releases 130 and
135, and (ii) shall use its reasonable best efforts to cause each Person
who is identified as an "affiliate" of it in such letter to deliver, as
promptly as practicable but in no event later than 30 days prior to the
Closing (or after such later date as the Parties may agree), a signed
agreement, in the case of affiliates of Abacus, to Abacus and Alphabet
substantially in the form customary for transactions of this type, and in
the case of affiliates of Alphabet, to Alphabet substantially in the form
customary for transactions of this type. Each Party shall notify each other
Party from time to time after the delivery of the letter described in the
prior sentence of any Person not identified on such letter who then is, or
may be, such an "affiliate" and use its reasonable best efforts to cause
each additional Person who is identified as an "affiliate" to execute a
signed agreement as set forth in this Section 6.14(a).
(b) Shares of Alphabet Common Stock and shares of Abacus Common
Stock beneficially owned by each such "affiliate" of Alphabet or Abacus who
is not provided a signed agreement in accordance with Section 6.14(a) shall
not be transferable during any period prior to and after the Effective Time
if, as a result of such transfer during any such period, taking into
account the nature, extent and timing of such transfer and similar
transfers by all other "affiliates" of Alphabet and Abacus, such transfer
will, in the reasonable judgment of accountants of Alphabet, interfere
with, or prevent the Merger from being accounted for, as a
pooling-of-interests. Neither Alphabet or Abacus shall register, or allow
its transfer agent to register, on its books the transfer of any shares of
Alphabet Common Stock or Abacus Common Stock of any affiliate of Abacus or
Alphabet who has not provided a signed agreement in accordance with Section
6.14(a) unless the transfer is made in compliance with the foregoing. The
restrictions on the transferability of shares held by Persons who execute
an agreement pursuant to Section 6.14(a) shall be as provided in those
agreements.
Section 6.15 Pooling-of-Interests. Each of the Parties will use its
reasonable best efforts to cause the Merger to be accounted for as a
pooling-of-interests in accordance with GAAP and the rules and regulations
of the SEC.
Section 6.16 Tax-Free Reorganization. Each of the Parties will use its
reasonable best efforts to cause the Merger to qualify as a tax-free
"reorganization" under Section 368 of the Code.
Section 6.17 Accountant's Comfort Letters. Each Party shall use its
reasonable best efforts to cause to be delivered to the other Party two
letters from its independent public accountants, one dated a date within
two business days before the date on which the Form S-4 shall become
effective and one dated the Closing Date, in form and substance reasonably
satisfactory to recipient and customary in scope and substance for comfort
letters delivered by independent accountants in connection with
registration statements similar to the Form S-4.
Section 6.18 Accountant's Pooling Letters. Abacus shall use its
reasonable best efforts to cause to be delivered to Alphabet from Ernst &
Young LLP ("E&Y") (or any other independent public accounting firm
reasonably satisfactory to Alphabet) two letters each addressed to Alphabet
and Deloitte & Touche LLP ("Deloitte") (or any other independent public
accounting firm selected by Alphabet), one dated the date upon which the
Form S-4 becomes effective and one dated the Closing Date, stating that as
of the respective dates of its letters, E&Y is not aware of any conditions
that exist that would preclude Abacus' ability to be a party in a business
combination to be accounted for as a pooling of interests. Alphabet shall
use its reasonable best efforts to cause to be delivered to Abacus from
Deloitte (or any other independent public accounting firm reasonably
satisfactory to Abacus) two letters, each addressed to Abacus and E&Y (or
any other independent public accounting firm selected by Abacus), one dated
the date upon which the Form S-4 becomes effective and one dated the
Closing Date, stating that accounting for the Merger as a pooling of
interests under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations is appropriate if the Merger is closed
and consummated as contemplated by this Agreement.
ARTICLE VII
Section 7.1 Conditions to Obligations of the Parties to Consummate the
Merger. The respective obligation of each party to consummate the Merger
shall be subject to the satisfaction of each of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the requisite vote of the stockholders of
Abacus and the issuance of shares of Alphabet Common Stock in connection
with the Merger shall have been approved by the requisite vote of the
stockholders of Alphabet, in each case in accordance with the DGCL or the
rules and regulations of the NYSE, as applicable.
(b) Legality. No order, decree or injunction shall have been
entered or issued by any Governmental Entity which is in effect and has the
effect of making the Merger illegal or otherwise prohibiting consummation
of the Merger. Each Party agrees that, in the event that any such order,
decree or injunction shall be entered or issued, it shall use its
reasonable best efforts to cause any such order, decree or injunction to be
lifted or vacated.
(c) HSR Act. The waiting period (or extension thereof) under the
HSR Act applicable to the Merger shall have expired or been terminated.
(d) Registration Statement Effective. The Form S-4 shall have
become effective prior to the mailing by each of the Parties of the Proxy
Statement/Prospectus to its respective stockholders and no stop order
suspending the effectiveness of the Form S-4 shall then be in effect;
(e) Stock Exchange Listing. The shares of Alphabet Common Stock
to be issued pursuant to the Merger shall have been duly approved for
listing on the NYSE, subject to official notice of issuance.
Section 7.2 Additional Conditions to Obligations of Alphabet and
Abacus Holdings. The obligations of Alphabet and Abacus Holdings to
consummate the Merger shall also be subject to the satisfaction or waiver
of each of the following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of Abacus contained in this Agreement that are qualified by
Abacus Material Adverse Effect shall be true and correct on and as of the
Closing Date (except to the extent such representations and warranties
shall have been expressly made as of an earlier date, in which case such
representations and warranties shall have been true and correct as of such
earlier date) with the same force and effect as if made on and as of the
Closing Date and (ii) the representations and warranties of Alphabet Abacus
Holdings contained in this Agreement that are not qualified as to Abacus
Material Adverse Effect shall be true and correct on and as of the Closing
Date (except to the extent such representations and warranties shall have
been expressly made as of an earlier date, in which case such
representations and warranties shall have been true and correct as of such
earlier date) with the same force and effect as if made on and as of the
Closing Date, except to the extent that any failures of such
representations and warranties to be so true and correct (determined
without regard to materiality qualifiers or limitations contained therein),
individually or in the aggregate, would not reasonably be expected to have
resulted in an Abacus Material Adverse Effect.
(b) Agreements and Covenants. Abacus shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
before the Effective Time.
(c) Certificates. Alphabet shall have received a certificate of
an executive officer of Abacus that the conditions set forth in paragraphs
(a) and (b) above have been satisfied.
(d) Consents. Except as set forth in the Abacus Disclosure
Letter, Abacus shall have obtained all consents, approvals, releases or
authorizations ("Consents") from, and Abacus shall have made all filings
and registrations ("Filings") to or with, any Person, including without
limitation any Governmental Entity, necessary to be obtained or made in
order for Alphabet and Abacus Holdings to consummate the Merger or issue
shares of Alphabet Common Stock pursuant thereto, as applicable, unless the
failure to obtain such Consents or make such Filings would not,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect.
(e) Tax Opinion. Alphabet shall have received an opinion of
Fried, Frank, Harris, Shriver & Jacobson (or, in the event Fried, Frank,
Harris, Shriver & Jacobson fails to provide such opinion, the opinion of
Wachtell, Lipton, Rosen & Katz), dated as of the Closing Date, in form and
substance reasonably satisfactory to it, substantially to the effect that,
on the basis of the facts and assumptions described in the opinion, the
Merger constitutes a tax-free reorganization under Section 368 of the Code.
In rendering such opinion, counsel may require and rely upon
representations and covenants including those contained in this Agreement
or in certificates of officers of the Parties and others; and
(f) Accountants Letters. Alphabet shall have received each of the
accountants' letters contemplated by Sections 6.17 and 6.18 hereof to be
received by it.
Section 7.3 Additional Conditions to Obligations of Abacus. The
obligations of Abacus to consummate the Merger shall also be subject to the
satisfaction or waiver of each of the following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of Alphabet and Abacus Holdings contained in this Agreement that
are qualified by Alphabet Material Adverse Effect shall be true and correct
on and as of the Closing Date (except to the extent such representations
and warranties shall have been expressly made as of an earlier date, in
which case such representations and warranties shall have been true and
correct as of such earlier date) with the same force and effect as if made
on and as of the Closing Date, and (ii) the representations and warranties
of Alphabet and Abacus Holdings contained in this Agreement that are not
qualified as to Alphabet Material Adverse Effect shall be true on and as of
the Closing Date (except to the extent such representations and warranties
shall have been expressly made as of an earlier date, in which case such
representations and warranties shall have been true and correct as of such
earlier date) with the same force and effect as if made on and as of the
Closing Date, except to the extent that any failures of such
representations and warranties to be so true and correct (determined
without regard to materiality qualifiers or limitations contained therein),
individually or in the aggregate, would not reasonably be expected to have
resulted in an Alphabet Material Adverse Effect;
(b) Agreements and Covenants. Each of Alphabet and Abacus
Holdings shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by it on or before the Effective Time.
(c) Certificates. Abacus shall have received a certificate of an
executive officer of Alphabet that the conditions set forth in paragraphs
(a) and (b) above have been satisfied;
(d) Consents. Except as set forth in the Alphabet Disclosure
Letter, Alphabet shall have obtained all Consents from, and Alphabet shall
have made all Filings to or with, any Person, including without limitation
any Governmental Entity, necessary to be obtained or made in order for
Abacus to consummate the Merger, unless the failure to obtain such Consents
or make such Filings would not, individually or in the aggregate, be
reasonably expected to have an Alphabet Material Adverse Effect.
(e) Tax Opinion. Abacus shall have received an opinion of
Wachtell, Lipton, Rosen & Katz (or other counsel reasonably satisfactory to
it), dated as of the Closing Date, in form and substance reasonably
satisfactory to it, substantially to the effect that, on the basis of the
facts and assumptions described in the opinion, the Merger constitutes a
tax-free reorganization under Section 368 of the Code. In rendering such
opinion, counsel may require and rely upon representations and covenants
including those contained in this Agreement or in certificates of officers
of the Parties and others; and
(f) Accountants Letters. Abacus shall have received each of the
accountants' letters contemplated by Sections 6.17 and 6.18 hereof to be
received by it.
ARTICLE VIII
Section 8.1 Termination. This Agreement may be terminated at any time
before the Effective Time (except as otherwise provided) as follows:
(a) by mutual written consent of each of Alphabet and Abacus;
(b) by any Party, if the Effective Time shall not have occurred
on or before June 30, 1999 (the "Termination Date"); provided, however,
that the right to terminate this Agreement under this Section 8.1(b) shall
not be available to any Party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date;
(c) by any Party, if a Governmental Entity shall have issued an
order, decree or injunction having the effect of making the Merger illegal
or permanently prohibiting the consummation of the Merger, and such order,
decree or injunction shall have become final and nonappealable (but only if
such Party shall have used its reasonable best efforts to cause such order,
decree or injunction to be lifted or vacated);
(d) by either Abacus or Alphabet, if (x) there shall have been a
material breach by the other of any of its representations, warranties,
covenants or agreements contained in this Agreement, which breach would
result in the failure to satisfy one or more of the conditions set forth in
Section 7.2(a) or (b) (in the case of a breach by Abacus) or Section 7.3(a)
or (b) (in the case of a breach by Alphabet), and such breach shall be
incapable of being cured or, if capable of being cured, shall not have been
cured within 30 days after written notice thereof shall have been received
by the Party alleged to be in breach.
(e) (i) by Alphabet, if the Board of Directors of Abacus or any
committee of the Board of Directors of Abacus (w) shall withdraw or modify
in any manner adverse to Alphabet, its approval or recommendation of this
Agreement and the Merger, (x) shall fail to reaffirm such approval or
recommendation within 15 days of Alphabet's request, which request may only
be made with respect to any Abacus Acquisition Proposal on a single
occasion, after (1) any Abacus Acquisition Proposal shall have been made to
Abacus and made known to Abacus' stockholders generally or shall have been
made directly to its stockholders generally or (2) any Person shall have
publicly announced an intention (whether or not conditional) to make an
Alphabet Acquisition Proposal (y) shall approve or recommend any Abacus
Acquisition Proposal or Abacus Acquisition Transaction or (z) shall resolve
to take any of the actions specified in clauses (w), (x) or (y) above; or
(ii) by Abacus, if the Board of Directors of Alphabet or any
committee of the Board of Directors of Alphabet (w) shall withdraw or
modify in any manner adverse to Abacus, its approval or recommendation of
the issuance of shares of Alphabet Common Stock pursuant to the Merger, (x)
shall fail to reaffirm such approval or recommendation within 15 days of
Abacus' request, which request may only be made with respect to any
Alphabet Acquisition Proposal on a single occasion, after (1) any Alphabet
Acquisition Proposal shall have been made to Alphabet and made known to
Alphabet's stockholders generally or shall have been made directly to its
stockholders generally or (2) any Person shall have publicly announced an
intention (whether or not conditional) to make an Alphabet Acquisition
Proposal, (y) shall approve or recommend any Alphabet Acquisition Proposal
or Alphabet Transaction or (z) shall resolve to take any of the actions
specified in clauses (w), (x) or (y) above.
(f) by either Party, if the required approvals of the
stockholders of the other Party shall not have been obtained at a duly held
stockholders' meeting, including any adjournments or postponements thereof;
and
(g) if the Board of Directors of Abacus shall conclude in good
faith, after considering applicable state law, after consulting with
outside counsel, that in light of an Abacus Superior Proposal such action
is required to act in a manner consistent with its fiduciary duties under
applicable law, Abacus may (only after Abacus has made such payments as are
provided for in Section 8.2 and only prior to the approval of this
Agreement by Abacus' stockholders) terminate this Agreement solely in order
to concurrently enter into a definitive acquisition agreement or similar
agreement with respect to any Abacus Superior Proposal; provided, however,
Abacus may not terminate the Agreement pursuant to this clause (g) until
after the second business day following the delivery to Alphabet of written
notice advising Alphabet that the Board of Directors of Abacus is prepared
to enter into a definitive acquisition agreement with respect to an Abacus
Superior Proposal and only if, during such two-business day period, Abacus
and its Representatives shall, if requested by Alphabet, have negotiated in
good faith with Alphabet to make such adjustments to the terms and
conditions of this Agreement as would enable Abacus to proceed with the
Merger on such adjusted terms.
(h) if the Board of Directors of Alphabet shall conclude in good
faith, after considering applicable state law, and after consultation with
outside counsel, that in light of an Alphabet Superior Proposal such action
is required in order to act in a manner consistent with its fiduciary
duties under applicable law, Alphabet may (only after Alphabet has made
such payments as are provided for in Section 8.2 and only prior to the
approval of the issuance of Alphabet Common Stock pursuant to this
Agreement by Alphabet stockholders) terminate this Agreement solely in
order to concurrently enter into a definitive acquisition agreement or
similar agreement with respect to an Alphabet Superior Proposal; provided,
however, Alphabet may not terminate this Agreement pursuant to this clause
(h) until after the second business day following the delivery to Abacus of
written notice advising Abacus that the Board of Directors of Alphabet is
prepared to enter into a definitive acquisition agreement with respect to
an Alphabet Superior Proposal and only if, during such two-business-day
period, Alphabet and its Representatives shall, if requested by Abacus,
have negotiated in good faith with Abacus to make such adjustments to the
terms and conditions of this Agreement as would enable Alphabet to proceed
with the Merger in such adjusted terms.
Section 8.2 Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement pursuant to this Article VIII, this Agreement
(other than as set forth in Section 9.1) shall become void and of no effect
with no liability on the part of any party hereto (or of any of its
Representatives); provided, however, no such termination shall relieve any
party hereto from (x) any liability for damages resulting from any willful
and intentional breach of this Agreement or (y) any obligation to provide
reimbursement for or pay the Abacus Termination Fee (defined below) or the
Alphabet Termination Fee (defined below) (each a "Termination Fee"), or
Fees and Expenses (as defined below) pursuant to this Section 8.2;
(b) In the event that Abacus terminates this Agreement pursuant
to Section 8.1(g), simultaneously with such termination, Abacus shall pay
to Alphabet a fee equal to $177,000,000 (the "Abacus Termination Fee"). In
the event that Alphabet terminates this Agreement pursuant to Section
8.1(h), simultaneously with such termination, Alphabet shall pay to Abacus
a fee equal to $240,000,000 (the "Alphabet Termination Fee").
(c) (i) In the event that an Abacus Business Combination Proposal
(defined below) shall have been made to Abacus and made known to its
stockholders generally or shall have been made directly to its stockholders
generally or any Person shall have publicly announced an intention (whether
or not conditional) to make an Abacus Business Combination Proposal prior
to the meeting of Abacus' stockholders duly convened and held to vote in
respect of this Agreement and the Merger and thereafter (i) this Agreement
is terminated pursuant to Section 8.1(f) by reason of the failure of the
stockholders of Abacus to approve this Agreement or the Merger at such
meeting and (ii) within six months of the termination of this Agreement,
Alphabet enters into an agreement with any Person with respect to an Abacus
Business Combination Proposal or an Abacus Business Combination Proposal is
consummated. Abacus shall, upon the occurrence of the event described in
clause (ii) above, pay to Alphabet the Abacus Termination Fee.
(ii) In the event that an Alphabet Business Combination
Proposal (defined below) shall have been made to Alphabet and made known to
its stockholders generally or shall have been made directly to its
stockholders generally or any Person shall have publicly announced an
intention (whether or not conditional) to make an Alphabet Business
Combination Proposal prior to the meeting of Alphabet's stockholders duly
convened and held to vote in respect to the issuance of shares pursuant to
this Agreement and thereafter (i) this Agreement is terminated pursuant to
Section 8.1(f) by reason of the failure of the stockholders of Alphabet to
approve such issuance at such meeting and (ii) within six months of the
termination of this Agreement, Alphabet enters into an agreement with any
Person with respect to an Alphabet Business Combination Proposal or an
Alphabet Business Combination Proposal is consummated. Alphabet shall, upon
the occurrence of the event described in clause (ii) above, pay to Abacus
the Alphabet Termination Fee.
(d) In the event that this Agreement is terminated pursuant to
Section 8.1(f) by reason of the failure of any Party's stockholders to
approve this Agreement or the Merger at a meeting of stockholders duly
convened and held to vote in respect of this Agreement and the Merger or
the issuance of shares pursuant thereto, such Party shall promptly upon
such termination (following receipt of a statement therefor) reimburse the
other Party for all fees and expenses (including, without limitation, fees
and expenses of counsel, financial advisors, accountants, consultants and
other advisors and Representatives) incurred by it in connection with this
Agreement and the Merger ("Fees and Expenses").
(e) In the event that this Agreement is terminated as a result of
Abacus' Board of Directors taking any of the actions described in Section
8.1(e)(i), Abacus shall promptly after such termination pay to Alphabet the
Abacus Termination Fee. In the event that this Agreement is terminated as a
result of Alphabet's Board of Directors taking any of the actions described
in Section 8.1 (e) (ii), Alphabet shall promptly after such termination pay
to Abacus the Alphabet Termination Fee.
(f) (i) In the event that an Abacus Business Combination Proposal
shall have been made to Abacus and made known to its stockholders generally
or shall have been made directly to its stockholders generally, or any
Person shall have publicly announced an intention (whether or not
conditional) to make an Abacus Business Combination Proposal, and this
Agreement is subsequently terminated pursuant to Section 8.1(d) as a result
of an intentional breach by Abacus of its representations, warranties and
covenants by Abacus, and within six months after such termination, Abacus
shall enter into an agreement with any Person for an Abacus Business
Combination Proposal or an Abacus Business Combination Proposal is
consummated, simultaneously with its entering into such agreement or upon
such consummation, Abacus shall pay to Alphabet the Abacus Termination Fee.
(ii) In the event that an Alphabet Business Combination
Proposal shall have been made to Alphabet and made known to its
stockholders generally or shall have been made directly to its stockholders
generally, or any Person shall have publicly announced an intention
(whether or not conditional) to make an Alphabet Business Combination
Proposal, and this Agreement is subsequently terminated pursuant to Section
8.1(d) as a result of an intentional breach by Alphabet of its
representations, warranties and covenants by Alphabet, and within six
months after such termination, Alphabet shall enter into an agreement with
any Person for an Alphabet Business Combination Proposal or an Alphabet
Business Combination Proposal is consummated, simultaneously with its
entering into such agreement or upon such consummation, Alphabet shall pay
to Abacus the Alphabet Termination Fee.
(g) Reimbursements of Fees and Expenses hereunder and any
Termination Fee payable hereunder shall be payable by wire transfer of
immediately available funds.
The reimbursement of Fees and Expenses shall be credited against
any Termination Fee payable by such Party. In no event shall more than one
Termination Fee be payable by a Party. No Party which is in material breach
of its covenants, agreements or representations shall be entitled to
receive Fees and Expenses or a Termination Fee.
(h) The Parties acknowledge that the agreements contained in this
Section 8.2 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Alphabet and Abacus would
not enter into this Agreement, and the fees payable as reimbursable
hereunder constitute liquidated damages and not a penalty; accordingly, if
either Party fails to pay promptly amount due pursuant to this Section 8.2,
and, in order to obtain such payment, the other Party commences a suit
which results in a judgment against such first Party for such amount (or
any portion thereof), such first Party shall pay the costs and expenses
(including attorneys fees) of the other party in connection with such suit,
together with interest on such amount in respect of the period from the
date such amount became due until paid at the prime rate of The Chase
Manhattan Bank in effect from time to time during such period.
(i) "Abacus Business Combination Proposal" shall mean (x) any
merger, consolidation or other business combination as a result of which
the stockholders of Abacus prior to such transaction would cease to hold at
least 66-2/3% of the voting securities of the entity surviving or resulting
from such transaction (or the ultimate parent entity thereof), (y) the
acquisition by a Person of at least 50% of the outstanding voting
securities of Abacus, or (z) the sale, lease, exchange or other disposition
of at least 50% of the assets of Abacus and its Subsidiaries taken as a
whole; provided, however, that, with respect to Section 8.2.(c)(i) and
8.2(f)(i), the reference in this definition to 66-2/3% shall be deemed to
be a reference to 80% if the Person (or an Affiliate of such Person) which
enters into an agreement with respect to, or consummates, an Abacus
Business Combination Proposal after the termination of this Agreement, had
made an Abacus Business Combination Proposal prior to the termination of
this Agreement.
(j) "Alphabet Business Combination Proposal" shall mean (x) any
merger, consolidation or other business combination as a result of which
the stockholders of Alphabet prior to such transaction would cease to hold
at least 66-2/3% of the voting securities of the entity surviving or
resulting from such transaction (or the ultimate parent entity thereof),
(y) the acquisition by a Person at least 50% of the outstanding voting
securities of Alphabet, or (z) the sale, lease, exchange or other
disposition of at least 50% of the assets of Alphabet and its Subsidiaries
taken as a whole; provided, however that, with respect to Section
8.2(c)(ii) and 8.2(f)(ii), the reference in this definition to 66-2/3%
shall be deemed to be a reference to 80% if the Person (or an Affiliate of
such Person) which enters into an agreement with respect to, or
consummates, an Alphabet Business Combination Proposal after the
termination of this Agreement, had made an Alphabet Business Combination
Proposal prior to the termination of this Agreement.
Section 8.3 Amendment. This Agreement may be amended at any time
before the Effective Time but only pursuant to a writing executed and
delivered by Alphabet and Abacus.
ARTICLE IX
Section 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this
Agreement shall terminate at the Effective Time or upon the termination of
this Agreement pursuant to Section 8.1, as the case may be, except that (a)
the agreements set forth in Sections 1.3, 6.11 and 6.12 shall survive the
Effective Time, and (b) the agreements set forth in Sections 6.7, 6.9(b)
and 8.2 shall survive termination indefinitely.
Section 9.2 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the date of receipt and shall be delivered
personally or mailed by registered or certified mail (postage prepaid,
return receipt requested), sent by overnight courier or sent by telecopy,
to the applicable party at the following addresses or telecopy numbers (or
at such other address or telecopy number for a party as shall be specified
by like notice):
(a) if to Abacus:
American Stores Company
299 South Main Street
Salt Lake City, Utah 84111
Attention: Kathleen E. McDermott, Esq.
Telecopy No.: (801) 537-7808
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Richard D. Katcher, Esq.
Eric S. Robinson, Esq.
Telecopy No.: (212) 403-2000
(b) if to Alphabet or Abacus Holdings:
Albertson's, Inc.
250 Parkcenter Blvd.
Boise, Idaho 83726
Attention: Thomas R. Saldin, Esq.
Telecopy No.: (208) 395-6225
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Sanford Krieger, Esq.
Jeffrey Bagner, Esq.
Telecopy No.: (212) 859-4000
Section 9.3 Certain Definitions; Interpretation. (a) For purposes of
this Agreement, the following terms shall have the following meanings:
(i) "Abacus Material Adverse Effect" means any change in or
effect (x) that is or will be materially adverse to the business, results
of operations, or financial condition of Abacus and its Subsidiaries taken
as a whole, or (y) that will prevent or materially impair Abacus' ability
to consummate the Merger, provided that an Abacus Material Adverse Effect
shall not include changes or effects (1) relating to economic conditions or
financial markets in general or the retail food and drug industry in
general, (2) resulting from the voluntary termination of employment by
employees of Abacus and its Subsidiaries between the date hereof and the
Closing Date or (3) resulting from actions required to be taken by the
terms of this Agreement. A decline in the stock market price of the shares
of Abacus Common Stock in and of itself shall not be deemed an "Abacus
Material Adverse Effect."
(ii) "Alphabet Material Adverse Effect" means any change in
or effect (x) that is or will be materially adverse to the business,
results of operations or financial conditions of Alphabet and its
Subsidiaries taken as a whole, or (y) that is or will prevent or materially
impair Alphabet's ability to consummate the Merger or to issue shares of
Alphabet Common Stock in accordance with the terms hereof, provided that an
Alphabet Material Adverse Effect shall not include changes or effects
relating to economic conditions or financial markets in general or the
retail food and drug industry in general or, (2) changes or effects
resulting from actions required to be taken by the terms of this Agreement.
A decline in the stock market price of the shares of Alphabet Common Stock
in and of itself shall not be deemed an "Alphabet Material Adverse Effect."
(iii) "affiliate" of a Person means a Person that directly
or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, the first mentioned Person.
(iv) "control" (including the terms "controlled by" and
"under common control with") means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise.
(v) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended and the rules and regulations promulgated
thereunder.
(vi) "knowledge" of any Party shall mean the actual
knowledge of the executive officers of that Party.
(vii) "Person" means an individual, corporation,
partnership, limited liability company, association, trust, unincorporated
organization, entity or group (as defined in the Exchange Act).
(viii) "Significant Subsidiary" shall have the meaning set
forth in Rule 1-02 of Regulation S-X of the SEC.
(ix) "Subsidiary," of a Person means any corporation or
other legal entity of which such Person (either alone or through or
together with any other Subsidiary or Subsidiaries) is the general partner
or managing entity or of which at least a majority of the stock or other
equity interests the holders of which are generally entitled to vote for
the election of the board of directors or others performing similar
functions of such corporation or other legal entity is directly or
indirectly owned or controlled by such Person (either alone or through or
together with any other Subsidiary or Subsidiaries).
(b) When a reference is made in this Agreement to Articles,
Sections, Disclosure Letters or Exhibits, such reference is to an Article
or a Section of, or an Exhibit to, this Agreement, unless otherwise
indicated. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be
understood to be followed by the words "without limitation."
Section 9.4 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic
or legal substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any Party. Upon a determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the Parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the Parties as closely as
possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the maximum extent possible.
Section 9.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the Confidentiality Agreement constitute the entire agreement
and supersede any and all other prior agreements and undertakings, both
written and oral, among the parties hereto, or any of them, with respect to
the subject matter hereof and, except for Section 6.11 (Indemnification,
Directors' and Officers' Insurance), does not, and is not intended to,
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
Section 9.7 Assignment. This Agreement shall not be assigned by any
party hereto by operation of law or otherwise without the express written
consent of each of the other parties.
Section 9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with, the laws of the State of Delaware without
regard to the conflicts of laws provisions thereof. Each of the Parties
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of Delaware and the courts of the
United States of America located in the State of Delaware for any
litigation arising out of or relating to this Agreement or the Merger or
any of the other transactions contemplated hereby (and agrees not to
commence any litigation relating hereto except in such courts), and further
agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in Section 9.2 shall be
effective service of process for any litigation brought against it in any
such court. Each of the Parties hereby irrevocably and unconditionally
waives any objection to the laying of venue of any litigation arising out
of this Agreement or the Merger or any of the other transactions
contemplated hereby in the courts of the State of Delaware or the courts of
the United States of America located in the State of Delaware and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such litigation brought in any such court
has been brought in an inconvenient forum. Each of the parties hereto
hereby irrevocably and unconditionally waives any right it may have to
trial by jury in connection with any litigation arising out of or relating
to this agreement, the stock option agreement, the merger or any of the
other transactions contemplated hereby or thereby
Section 9.9 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties in separate counterparts,
each of which when executed shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first written above by their respective
officers thereunto duly authorized.
ALBERTSON'S, INC.
By: /s/ Michael F. Rueling
----------------------
Name: Michael F. Rueling
Title: Executive Vice President,
Store Development
ABACUS HOLDINGS, INC.
By: /s/ Michael F. Reuling
----------------------
Name: Michael F. Reuling
Title: Vice President
AMERICAN STORES COMPANY
By: /s/ Victor L. Lund
----------------------
Name: Victor Lund
Title: Chairman and Chief Executive
Officer
<PAGE>
Appendix B
THE ASC STOCK OPTION AGREEMENT
<PAGE>
THE TRANSFER OF THIS AGREEMENT IS SUBJECT
TO CERTAIN PROVISIONS CONTAINED HEREIN
AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of August 2, 1998 (this
"Agreement"), between American Stores Company, a Delaware corporation
("Issuer"), and Albertson's, Inc., a Delaware corporation ("Grantee").
WHEREAS, Issuer, Grantee, and a wholly-owned subsidiary of
Grantee (the "Merger Sub") propose to enter into an Agreement and Plan of
Merger, to be dated as of the date hereof (the "Merger Agreement"),
pursuant to which Merger Sub is to merge with and into Issuer, with Issuer
continuing as the surviving corporation and a wholly owned subsidiary of
Grantee after such merger, and in such merger, each share of common stock,
par value $1.00 per share, of Issuer ("Common Stock") will be converted to
a right to receive shares of common stock, par value $1.00 per share, of
Grantee as provided in the Merger Agreement;
WHEREAS, as an inducement and condition to Grantee's willingness
to enter into the Merger Agreement and in consideration thereof, Issuer is
granting to Grantee, pursuant to the terms and subject to the conditions
contained in this Agreement, an option to purchase 19.9% of the
outstanding shares of Common Stock; and
WHEREAS, the Board of Directors of Issuer has approved the grant
by Issuer to Grantee of the Option (defined below) pursuant to this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement and in the Merger
Agreement, the parties agree as follows:
1. The Option. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, pursuant to the terms and
subject to the conditions hereof, up to 54.5 million fully paid and
nonassessable shares of Common Stock at a price of $30.24 per share (the
"Option Price"); provided, however, that in no event shall the number of
shares for which the Option is exercisable exceed 19.9% of the shares of
Common Stock issued and outstanding at the time of exercise (without giving
effect to the shares of Common Stock issued or issuable under the Option).
The number of shares of Common Stock purchasable upon exercise of the
Option and the Option Price are subject to adjustment as set forth in this
Agreement.
2. Exercise; Closing.
(a) Conditions to Exercise; Termination. Grantee or any other
person that shall become a holder of all or a part of the Option in
accordance with the terms of this Agreement (each such person, including
Grantee, being referred to as "Holder") may exercise the Option, in whole
or in part, from time to time, and prior to the occurrence of an Exercise
Termination Event (as defined below), provided that the Holder shall have
delivered a written notice as provided in Section 2(d) within 120 days of
the occurrence of a Triggering Event (as defined in Section 2(b)). The
right to exercise the Option shall terminate upon either (i) the occurrence
of the Effective Time (as defined in the Merger Agreement) or (ii) (A) if a
Notice Date (as defined in Section 2(d) hereof) has not previously
occurred, the close of business on the earlier of (x) the day that is 120
days after the date of a Triggering Event, (y) the date upon which the
Merger Agreement is terminated if no Termination Fee could be payable by
Issuer pursuant to the terms of the Merger Agreement upon the occurrence of
certain events or the passage of time, and (z) 270 days following the date
upon which the Merger Agreement is terminated, and (B) if the Notice Date
has previously occurred, 120 days after the Notice Date (the events in (i)
or (ii) being referred to as "Exercise Termination Events").
(b) Triggering Event. A "Triggering Event" shall have occurred at
such time at which the Grantee becomes entitled to receive from Issuer a
Termination Fee pursuant to Section 8.2 of the Merger Agreement.
(c) Notice of Trigger Event by Issuer. Issuer shall notify
Grantee promptly in writing of the occurrence of any Triggering Event (it
being understood that the giving of the notice by Issuer shall not be a
condition to the right of Holder to exercise the option).
(d) Notice of Exercise. If Holder shall be entitled to and
desires to exercise the Option, in whole or in part, it shall send to
Issuer a written notice (any date on which such notice is given, in
accordance with Section 15 hereof, is referred to as a "Notice Date")
specifying (i) the total number of shares that Holder will purchase
pursuant to the exercise and (ii) a place and date (a "Closing Date") not
earlier than three business days nor later than 60 business days from the
Notice Date for the closing of the purchase (a "Closing"); provided, that
if a filing or any approval is required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), or prior
notification to or prior approval from any regulatory authority is required
under any other law, statute, rule or regulation (including applicable
rules and regulations of national securities exchanges) in connection with
such purchase, Holder or Issuer, as required, promptly after the Notice
Date, shall file all necessary notices and applications for approval and
shall expeditiously process the same and the period of time referred to in
clause (ii) shall commence on the date on which all required notification
and waiting periods, if any, shall have expired or been terminated and all
required approvals, if any, shall have been obtained. Any exercise of the
Option shall be deemed to occur on the date of the Notice Date relating
thereto. Each of Holder and Issuer agrees to use its reasonable best
efforts to cooperate with and provide information to the other, for the
purpose of any required notice or application for approval.
(e) Payment of Purchase Price; Delivery of Common Stock. (i) At
each Closing, Holder shall pay to Issuer the aggregate purchase price for
the shares of Common Stock purchased pursuant to the exercise of the Option
in immediately available funds by a wire transfer to a bank account
designated by Issuer; provided, that failure or refusal of Issuer to
designate a bank account shall not preclude Holder from exercising the
Option, in whole or in part.
(ii) At each Closing, simultaneously with the payment of the
aggregate purchase price by Holder, Issuer shall deliver to Holder a
certificate or certificates representing the number of shares of Common
Stock purchased by Holder and, if the Option shall be exercised in part
only, a new Agreement providing for an Option evidencing the rights of
Holder to purchase the balance (as adjusted pursuant to Section l(b)) of
the shares then purchasable hereunder and the Holder shall deliver this
Agreement and a letter agreeing that the Holder will not offer to sell or
otherwise dispose of such shares in violation of applicable laws or the
provisions of this Agreement.
(iii) Notwithstanding anything to the contrary contained in
paragraphs (i) and (ii) of this Section 2(e), Holder shall have the right
(a "Cashless Exercise Right") to direct the Issuer, in the written notice
of exercise referred to in Section 2(d), to reduce the number of shares of
Common Stock required to be delivered by Issuer to Holder at any Closing by
such number of shares of Common Stock that have an aggregate Market/Offer
Price (as defined in Section 9(a)) equal to the aggregate purchase price
payable at such Closing (but for this paragraph (iii)), or any portion
thereof, in lieu of Holder paying to the Issuer at such Closing such
aggregate purchase price or portion thereof, as the case may be. Any
exercise of the Option in which, and to the extent to which, Holder
exercises its Cashless Exercise Right pursuant to this paragraph (iii)
shall be referred to as a "Cashless Exercise."
(f) Restrictive Legend. Certificates for Common Stock delivered
at a Closing may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer, a copy of which agreement is on file at the
principal office of Issuer, and to resale restrictions arising under
the Securities Act of 1933, as amended. A copy of the aforementioned
agreement will be mailed to the holder without charge promptly after
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "Securities
Act"), in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if Holder shall have delivered to
Issuer a copy of a letter from the staff of the Securities and Exchange
Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) both are satisfied. In
addition, the certificates shall bear any other legend as may be required
by applicable law.
(g) Ownership of Record; Tender of Purchase Price; Expenses. Upon
the giving by Holder to Issuer of the written notice of exercise referred
to in Section 2(d) and, except to the extent such notice relates to a
Cashless Exercise, the tender of the applicable purchase price in
immediately available funds, Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be
closed or that certificates representing such shares of Common Stock shall
not have been actually delivered to Holder. Issuer shall pay all expenses,
and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issuance
and delivery of stock certificates under this Section 2 in the name of
Holder or its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and
covenants herein, Issuer agrees:
(a) Shares Reserved for Issuance. To maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be fully exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to
purchase shares of Common Stock;
(b) No Avoidance. Not to avoid or seek to avoid (whether by
charter amendment or through reorganization, consolidation, merger,
issuance of rights, dissolution or sale of assets, or by any other
voluntary act) the observance or performance of any of the covenants,
agreements or conditions to be observed or performed hereunder by Issuer
and not to take any action which would cause any of its representations or
warranties not to be true; and
(c) Further Assurances. Promptly after the date hereof to take
all actions as may from time to time be required (including (i) complying
with all applicable premerger notification, reporting and waiting period
requirements under the HSR Act and (ii) in the event that any other prior
approval of or notice to any regulatory authority is necessary under any
applicable federal, state or local law before the Option may be exercised,
cooperating fully with Holder in preparing and processing the required
applications or notices) in order to permit Holder to exercise the Option
and purchase shares of Common Stock pursuant to such exercise.
4. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Holder that Issuer has all requisite corporate
power and authority and has taken all corporate action necessary to
authorize, execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby; and that
this Agreement has been duly and validly authorized, executed and delivered
by Issuer. Issuer hereby further represents and warrants to Holder that it
has taken all necessary corporate action to authorize and reserve for
issuance upon exercise of the Option the number of shares of Common Stock
equal to the maximum number of shares of Common Stock at any time or from
time to time issuable upon exercise of the Option and that all shares of
Common Stock, upon issuance pursuant to the Option, will be delivered free
and clear of all claims, liens, encumbrances, and security interests (other
than those created by this Agreement) and not subject to any preemptive
rights. The execution and delivery of this Agreement, the grant of the
Option hereunder and the exercise in whole or in part of the Option in
accordance with this Agreement, will not (i) result in the occurrence of
any "Distribution Date," "Stock Acquisition Date" or "Triggering Event"
under any rights agreement of the Issuer, (ii) permit any Person to
exercise any rights issued under such rights agreement, or (iii) cause the
separation of any such rights from the shares of Common Stock to which they
are attached or such rights becoming exercisable. Issuer has taken all
action necessary to make inapplicable to Grantee any state takeover,
business combination, control share or other similar statute and any
charter provisions which would otherwise be applicable to Grantee or any
transaction involving Issuer and Grantee by reason of the grant of the
Option, the acquisition of beneficial ownership of shares of Common Stock
as a result of the grant of the Option, or the acquisition of shares of
Common Stock upon exercise of the Option, except for statutes or provisions
which by their terms cannot be waived or rendered inapplicable by any
action of Issuer or the Board of Directors of Issuer.
5. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that Grantee has all requisite corporate
power and authority and has taken all corporate action necessary in order
to authorize, execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized, executed and delivered by
Grantee. Grantee represents and warrants to Issuer that any shares of
Common Stock acquired upon exercise of the Option will be acquired for
Grantee's own account, and will not be, and the Option is not being,
acquired by Grantee with a view to the distribution thereof in violation of
any applicable provision of the Securities Act. Grantee has such knowledge
and experience in business and financial matters as to be capable of
utilizing the information which is available to Grantee to evaluate the
merits and risks of an investment by Grantee in the Common Stock and
Grantee is able to bear the economic risks of any investment in the shares
of Common Stock which Grantee may acquire upon exercise of the Option.
6. Exchange; Replacement. This Agreement and the Option are
exchangeable, without expense, at the option of Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for
other Agreements providing for Options of different denominations entitling
the holder thereof to purchase on the same terms and subject to the same
conditions as set forth herein in the aggregate the same number of shares
of Common Stock purchasable at such time hereunder, subject to
corresponding adjustments in the number of shares of Common Stock
purchasable upon exercise so that the aggregate number of such shares under
all Agreements issued in respect of this Agreement shall not exceed 19.9%
of the outstanding shares of Common Stock of the Issuer (without giving
effect to shares of Common Stock issued or issuable pursuant to the
Option). Unless the context shall require otherwise, the terms "Agreement"
and "Option" as used in this Agreement include any Agreements and related
options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon (i) receipt by Issuer of reasonably satisfactory evidence
of the loss, theft, destruction, or mutilation of this Agreement, (ii)
receipt by Issuer of reasonably satisfactory indemnification in the case of
loss, theft or destruction and (iii) surrender and cancellation of this
Agreement in the case of mutilation, Issuer will execute and deliver a new
Agreement of like tenor and date. Any new Agreement executed and delivered
shall constitute an additional contractual obligation on the part of
Issuer, whether or not the Agreement so lost, stolen, destroyed or
mutilated shall at any time be enforceable by any person other than the
holder of the new Agreement.
7. Adjustments. The total number of shares of Common Stock
purchasable upon the exercise of the Option and the Option Price shall be
subject to adjustment from time to time as follows:
In the event of any change in, or distribution in respect
of, the outstanding shares of Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares or the like, the type (including, in the
event of any Major Transaction described in Section 9(d) hereof in which
Issuer is not the surviving or continuing corporation, to provide that the
Option shall be exercisable for shares of common stock of the surviving or
continuing corporation in such Major Transaction) and number of shares of
Common Stock purchasable upon exercise of the Option and the Option Price
shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits contemplated hereby, and proper provision shall be made
in the agreements governing any such transactions to provide for such
proper adjustment and the full satisfaction of Issuer's obligation
hereunder.
8. Registration. At any time after a Triggering Event occurs and
prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered in the written notice of exercise of the Option provided
for in Section 2(d), and, with respect to the first demand registration as
to which Grantee exercises its demand rights under this Section 8,
delivered no later than 90 days following such Triggering Event, as
promptly as practicable prepare, file and keep current a shelf registration
statement under the Securities Act covering any or all shares issued and
issuable pursuant to the Option and shall use its reasonable best efforts
to cause such registration statement to become effective and remain current
in order to permit the sale or other disposition of any shares of Common
Stock issued upon total or partial exercise of the Option ("Option Shares")
in accordance with any plan of disposition requested by Grantee; provided,
however, that Issuer may postpone filing a registration statement relating
to a registration request by Grantee under this Section 8 for a period of
time (not in excess of 90 days) if in Grantee's judgment such filing would
require the disclosure of material information that Issuer has a bona fide
business purpose for preserving as confidential. Issuer will use its
reasonable best efforts to cause such registration statement first to
become effective and then to remain effective for 365 days after the day
the registration statement first becomes effective or such shorter time as
is reasonably appropriate to effect such sales or other dispositions.
Grantee shall have the right to demand two such registrations. In
connection with any such registration, Issuer and Holder shall provide each
other with representations, warranties, indemnities and other agreements
customarily given in connection with such registrations. To the extent
requested by Holder in connection with such registration, Issuer shall (x)
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating Issuer in respect of
representations, warranties, indemnities, contribution and other agreements
(in each case reasonably acceptable to Issuer) customarily made by issuers
in such underwriting agreements, and (y) use its reasonable best efforts to
take all further actions which shall be reasonably necessary to effect such
registration and sale (including participating in road-show presentations
and causing to be delivered customary certificates, opinions of counsel and
"comfort letters"). Notwithstanding anything to the contrary contained
herein, in no event shall Issuer be obligated to effect more than two
registrations pursuant to this Section 8 by reason of the fact that there
shall be more than one Grantee as a result of any assignment or division of
this Agreement. Upon the effectiveness of a registration statement demanded
pursuant to this Section 8, the Holder of the Option Shares that are the
subject of such registration may not thereafter require the Issuer to
repurchase such Option Shares so long as such registration statement
remains effective as required hereby.
9. Repurchase of Option and/or Shares.
(a) Repurchase; Repurchase Price. Upon the occurrence of a
Triggering Event prior to an Exercise Termination Event, (i) at the request
of Holder, delivered in writing within 120 days of such occurrence (or such
later period as provided in Section 2(d) with respect to any required
notice or application or in Section 10), Issuer shall repurchase the Option
from Holder, in whole or in part, at a price (the "Option Repurchase
Price") equal to the number of shares of Common Stock then purchasable upon
exercise of the Option (or such lesser number of shares as may be
designated in the Repurchase Notice (as defined in Section 9(b)))
multiplied by the amount by which the Market/Offer Price (as defined below)
exceeds the Option Price or (ii) at the request of any owner of Option
Shares (an "Owner") delivered in writing within 120 days of such occurrence
(or such later period as provided in Section 2(d) with respect to any
required notice or application or in Section 10), Issuer shall repurchase
such number of Option Shares from such Owner as such Owner shall designate
in the Repurchase Notice at a price (the "Option Share Repurchase Price")
equal to the number of shares designated multiplied by the Market/Offer
Price. The term "Market/Offer Price" shall mean the highest of (x) the
price per share of Common Stock at which a tender or exchange offer for
Common Stock either has been consummated, or at which a Person has publicly
announced its intention to commence a tender or exchange offer, after the
date of this Agreement and prior to the delivery of the Repurchase Notice,
and which offer either has been consummated and not withdrawn or terminated
as of the date payment of the Repurchase Price is made, or has been
publicly announced and such intention to make a tender or exchange offer
has not been withdrawn as of the date payment of the Repurchase Price is
made, (y) the price per share of Common Stock to be paid by any third party
pursuant to an agreement with Issuer for a merger, share exchange,
consolidation or reorganization entered into after the date hereof and on
or prior to the delivery of the Repurchase Notice and (z) the average
closing price for shares of Common Stock on the New York Stock Exchange
(the "NYSE") (or, if the Common Stock is not then listed on the NYSE, any
other national securities exchange or automated quotation system on which
the Common Stock is then listed or quoted) for the twenty consecutive
trading days immediately preceding the delivery of the Repurchase Notice.
In the event that a tender or exchange offer is made for the Common Stock
or an agreement is entered into for a merger, share exchange, consolidation
or reorganization involving consideration other than cash, the value of the
securities or other property issuable or deliverable in exchange for the
Common Stock shall be determined in good faith by a nationally recognized
investment banking firm mutually selected by Issuer and Holder or Owner, as
the case may be.
(b) Method of Repurchase. Holder or Owner, as the case may be,
may exercise its right to require Issuer to repurchase the Option, in whole
or in part, and/or any Option Shares then owned by Holder or Owner pursuant
to this Section 9 by surrendering for this purpose to Issuer, at its
principal office, this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that Holder
or Owner elects to require Issuer to repurchase the Option and/or such
Option Shares in accordance with the provisions of this Section 9 (each
such notice, a "Repurchase Notice"). Within four business days after the
surrender of the Agreement for the Option and/or certificates representing
Option Shares and the receipt of the Repurchase Notice, Issuer shall
deliver or cause to be delivered to Holder or Owner of Option Shares, as
the case may be, the applicable Option Repurchase Price and/or the Option
Share Repurchase Price or, in either case, the portion that Issuer is not
then prohibited under applicable law and regulation from so delivering in
immediately available funds by a wire transfer to a bank account designated
by grantee. In the event that the Repurchase Notice shall request the
repurchase of the Option in part, Issuer shall deliver with the Option
Repurchase Price a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock purchasable pursuant to the
Option at the time of delivery of the Repurchase Notice minus the number of
shares of Common Stock represented by that portion of the Option then being
repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase.
To the extent that, upon or following the delivery of a Repurchase Notice,
Issuer is prohibited under applicable law or regulation from repurchasing
the Option (or a portion thereof) and/or any Option Shares subject to such
Repurchase Notice (and Issuer hereby undertakes to use its reasonable best
efforts to obtain all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish this
repurchase), Issuer shall promptly so notify Holder or Owner, as the case
may be, in writing and thereafter deliver or cause to be delivered, from
time to time, to Holder or Owner, as the case may be, the portion of the
Option Repurchase Price and the Option Share Repurchase Price that Issuer
is no longer prohibited from delivering, within four business days after
the date on which it is no longer so prohibited; provided, however, that
upon notification by Issuer in writing of this prohibition, Holder or
Owner, as the case may be, may, within 5 days of receipt of this
notification from Issuer, revoke in writing its Repurchase Notice, whether
in whole or to the extent of the prohibition, whereupon, in the latter
case, Issuer shall promptly (i) deliver to Holder or Owner, as the case may
be, that portion of the Option Repurchase Price and/or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
(a) deliver to Holder with respect to the Option, a new Agreement
evidencing the right of Holder to purchase that number of shares of Common
Stock for which the surrendered Agreement was exercisable at the time of
delivery of the Repurchase Notice less the number of shares as to which the
Option Repurchase Price has theretofore been delivered to Holder, and/or
(b) deliver to the owner of Option Shares, with respect to its Option
Shares, a certificate for the Option Shares as to which the Option Share
Repurchase Price has not theretofore been delivered to such owner.
Notwithstanding anything to the contrary in this Agreement, including,
without limitation, the time limitations on the exercise of the Option,
Holder may exercise the Option at least until 120 days after such date upon
which Issuer is no longer prohibited from delivering all of the Option
Repurchase Price.
(d) Major Transactions. Issuer hereby agrees that, prior to the
occurrence of an Exercise Termination Event, Issuer shall not enter into or
agree to enter into any agreement for a Major Transaction (defined below)
unless the other party or parties thereto agree to assume in writing
Issuer's obligations under this Agreement. "Major Transaction" shall mean
any merger or consolidation involving the Issuer and any transaction
involving a sale, transfer or other disposition of a majority of the assets
or shares of capital stock of the Issuer.
10. Extension of Exercise Periods. The 120 and 270 day periods
for exercise of certain rights under Sections 2 and 9 shall be extended in
each such case at the request of Holder or Owner to the extent necessary to
avoid liability by a Holder or Owner under Section 16(b) of the Securities
Exchange Act of 1934, as amended, by reason of such exercise.
11. Assignment. Neither party hereto may assign any of its rights
or obligations under this Agreement or the Option to any other person
without the express written consent of the other party except that Holder
or Owner may assign its rights in whole or in part to any of its affiliates
and, in the event that a Triggering Event shall have occurred prior to the
occurrence of an Exercise Termination Event, Holder or Owner may within 90
days following such Triggering Event assign the Option or any of its other
rights hereunder, in whole or in part to one or more third parties,
provided that the affiliate and any such third party shall execute this
Agreement and agree to become subject to its terms. Any attempted
assignment in contravention of the preceding sentence shall be null and
void.
12. Filings; Other Actions. Each party hereto will use its
reasonable best efforts to make all filings with, and to obtain consents
of, all third parties and govern mental authorities necessary for the
consummation of the transactions contemplated by this Agreement.
13. Specific Performance. The parties acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either
party and that the obligations of the parties shall be specifically
enforceable through injunctive or other equitable relief.
14. Severability; Etc. If any term, provision, covenant, or
restriction contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired, or invalidated. If for
any reason a court or regulatory agency determines that Holder is not
permitted to acquire, or Issuer is not permitted to repurchase pursuant to
Section 9, any portion of the Option or the full number of shares of Common
Stock provided in Section l(a) hereof (as adjusted pursuant Section 1(b)
and 7 hereof), it is the express intention of the parties to allow Holder
to acquire or to require Issuer to repurchase such lesser portion of the
Option or number of shares as may be permissible, without any amendment or
modification of this Agreement.
15. Notices. All notices, requests, instructions, or other
documents to be given hereunder shall be furnished in accordance with
Section 9.2 of the Merger Agreement.
16. Expenses. Except as otherwise expressly provided in this
Agreement or in the Merger Agreement, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring the expense, including fees
and expenses of its own financial consultants, investment bankers,
accountants, and counsel.
17. Entire Agreement, Etc. This Agreement and Merger Agreement
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties, both written and oral,
between the parties, with respect to the subject matter of this Agreement.
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties, and their
respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
18. Limitation on Profit. (a) Notwithstanding any other provision
of this Agreement, in no event shall the Total Profit (as hereinafter
defined) plus any Liquidation Amounts (as defined below) exceed in the
aggregate $265 million, and, if it otherwise would exceed this amount, the
Grantee, at its sole election, shall either (i) reduce the number of shares
of Common Stock subject to this Option, (ii) deliver to the Issuer for
cancellation Option Shares previously purchased by Grantee or any other
Holder or Owner, (iii) pay to the Issuer cash or refund in cash Liquidation
Amounts previously paid or reduce or waive the amount of any Liquidation
Amount payable pursuant to Section 8.2, or (iv) any combination thereof, so
that Grantee's realized Total Profit, when aggregated with any Liquidation
Amounts so paid or payable to Grantee, shall not exceed $265 million after
taking into account the foregoing actions.
As used herein the term "Liquidation Amounts" means the aggregate
amount of all Fees and Expenses, and Termination Fees, payable or paid to
Grantee and its assigns pursuant to Section 8.2 of the Merger Agreement
(and not repaid or refunded to the Issuer pursuant to this Section 18 or
otherwise).
(b) Notwithstanding any other provision of this Agreement, the
Option may not be exercised for a number of shares as would, as of the date
of exercise, result in a Notional Total Profit (as defined below) which,
together with any Liquidation Amount theretofore paid or then payable to
Grantee (and not repaid or refunded to the Issuer pursuant to this Section
18 or otherwise), would exceed $265 million provided, that nothing in this
sentence shall restrict any exercise of the Option permitted hereby on any
subsequent date.
(c) As used in this Agreement, the term "Total Profit" shall mean
the aggregate amount (before taxes) of the following: (i) (x) the amount
received by Grantee, any other Holder and any Owner pursuant to Issuer's
repurchase of the Option (or any portion thereof) or any Option Shares
pursuant to Section 9, less, in the case of any repurchase of Option
Shares, (y) the Grantee's, any other Holder's and any Owner's purchase
price for such Option Shares, as the case may be, (ii) (x) the net cash
amounts (and the fair market value of any other consideration) received by
Grantee, any other Holder and any Owner pursuant to the sale of Option
Shares (or any other securities into which such Option Shares are converted
or exchanged) to any unaffiliated party, less (y) the Grantee's (or any
other Holder's or Owner's) purchase price of such Option Shares, and (iii)
the net cash amounts (and the fair market value of any other consideration)
received by Grantee (or any other Holder) on the transfer of the Option (or
any portion thereof) to any unaffiliated party. In the case of clauses
(ii)(x) and (iii) above, the Grantee and each Holder and Owner agrees to
furnish as promptly as reasonably practicable after any disposition of all
or a portion of the Option or Option Shares a complete and correct
statement, certified by a responsible executive officer or partner of
Grantee, Holder or Owner, as applicable, of the net cash amounts (and the
fair market value of any other consideration) received in connection with
any sale or transfer of the Option or Option Shares.
(d) As used in this Agreement, the term "Notional Total Profit"
with respect to any number of shares as to which Grantee and any other
Holder may propose to exercise the Option shall be the Total Profit
determined as of the date of such proposal (taking into account the
provision of Section 18(a) hereof) assuming that the Option were exercised
on such date for such number of shares and assuming that such shares,
together with all other Option Shares held by Grantee and any other Holders
and Owners and their respective affiliates as of such date were sold for
cash at the closing market price for the Common Stock on the New York Stock
Exchange Composite Transaction Tape as of the close of business on the
preceding trading day (less customary brokerage commissions).
19. Captions. The section, paragraph and other captions in this
Agreement are for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to limit or otherwise affect any of
the provisions of this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, and by both parties in separate counterparts, each of which
when exercised shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
21. Restrictions on Certain Actions; Covenants of Grantee. From
and after the date of exercise of the Option in whole or part, and for as
long as Grantee owns shares of Common Stock acquired pursuant to the
exercise of the Option:
(a) Without the prior consent of the Board of Directors of Issuer
specifically expressed in a resolution, Grantee will not, and will not
permit any of its Affiliates (as defined in Section 23) to:
(i) acquire or agree, offer, seek or propose to acquire,
ownership (including, but not limited to, beneficial
ownership as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of more than 20% of
any class of Voting Securities (as defined in Section
23), or any rights or options to acquire such ownership
(including from a third party);
(ii) propose a merger, consolidation or similar transaction
involving the Issuer;
(iii) offer, seek or propose to purchase, lease or otherwise
acquire all or a substantial portion of the assets of
the Issuer;
(iv) seek or propose to influence or control the management
or policies of the Issuer or to obtain representation
on the Issuer's Board of Directors, or solicit or
participate in the solicitation of any proxies or
consents with respect to the securities of the Issuer;
(v) enter into any discussions, negotiations, arrangements
or understandings with any third party with respect to
any of the foregoing; or
(vi) seek or request permission to do any of the foregoing
or seek any permission to make any public announcement
with respect to any of the foregoing.
The provisions of this Section 21 shall not apply to actions
taken pursuant to the Merger Agreement; and
(b) Grantee may not sell, transfer any beneficial interest in,
pledge, hypothecate or otherwise dispose of any Voting Securities at any
time except as follows:
(i) pursuant to a tender offer, exchange offer, merger or
consolidation of the Issuer, or in connection with a
sale of all or substantially all of the Issuer's
assets; or
(ii) pursuant to a registered public offering under Section
8; or
(iii) in compliance with Rule 144 of the General Rules and
Regulations under the Securities Act (or any similar
successor rule); and
(c) (i) Grantee agrees to be present in person or to be
represented by proxy at all stockholder meetings of Issuer so that all
shares of Voting Securities beneficially owned by it or its Affiliates may
be counted for the purpose of determining the presence of a quorum at such
meetings.
(ii) Grantee agrees to vote or cause to be voted all Voting
Securities beneficially owned by it or its Affiliates proportionately with
the votes cast by all other stockholders present and voting.
(iii) The provisions of this Section 21 shall terminate at
such time as (x) Grantee beneficially owns more than 50% of the outstanding
Common Stock of Issuer or (y) the Option granted hereby expires without
having been exercised in whole or part.
22. Governing Law. This Agreement shall be governed by and
continued in accordance with the internal law of the State of Delaware
23. Definitions. For the purposes of this Agreement the following
terms shall have the meanings specified with respect thereto below:
"Affiliate" shall mean, as to any Person, any other Person
which directly or indirectly controls, or is under common control with, or
is controlled by, such Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of management or policies,
whether through ownership or securities or partnership or other ownership
interest, by contract or otherwise).
"Voting Securities" means the shares of Common Stock,
preferred stock and any other securities of Issuer entitled to vote
generally for the election of directors or any other securities (including,
without limitation, rights and options), convertible into, exchangeable
into or exercisable for, any of the foregoing (whether or not presently
exercisable, convertible or exchangeable).
"Person" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated organization,
entity or group (as defined in the Exchange Act).
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the
date first written above.
AMERICAN STORES COMPANY
By: /s/ Victor L. Lund
------------------
Name: Victor Lund
Title: Chairman and Chief Executive
Officer
ALBERTSON'S, INC.
By: /s/ Michael F. Reuling
----------------------
Name: Michael F. Reuling
Title: Executive Vice President,
Store Development
<PAGE>
APPENDIX C
THE ALBERTSON'S STOCK OPTION AGREEMENT
<PAGE>
THE TRANSFER OF THIS AGREEMENT IS SUBJECT
TO CERTAIN PROVISIONS CONTAINED HEREIN
AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of August 2, 1998 (this
"Agreement"), between Albertson's, Inc., a Delaware corporation ("Issuer"),
and American Stores Company, a Delaware corporation ("Grantee").
WHEREAS, Issuer, Grantee, and a wholly-owned subsidiary of Issuer
(the "Merger Sub") propose to enter into an Agreement and Plan of Merger,
to be dated as of the date hereof (the "Merger Agreement"), pursuant to
which Merger Sub is to merge with and into Issuer, with Grantee continuing
as the surviving corporation and a wholly owned subsidiary of Issuer after
such merger, and in such merger, each share of common stock, par value
$1.00 per share, of Grantee ("Common Stock") will be converted to a right
to receive shares of common stock, par value $1.00 per share, of Issuer as
provided in the Merger Agreement;
WHEREAS, as an inducement and condition to Grantee's willingness
to enter into the Merger Agreement and in consideration thereof, Issuer is
granting to Grantee, pursuant to the terms and subject to the conditions
contained in this Agreement, an option to purchase 19.9% of the
outstanding shares of Common Stock; and
WHEREAS, the Board of Directors of Issuer has approved the grant
by Issuer to Grantee of the Option (defined below) pursuant to this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement and in the Merger
Agreement, the parties agree as follows:
1. The Option. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, pursuant to the terms and
subject to the conditions hereof, up to 48.8 million fully paid and
nonassessable shares of Common Stock at a price of $48 per share (the
"Option Price"); provided, however, that in no event shall the number of
shares for which the Option is exercisable exceed 19.9% of the shares of
Common Stock issued and outstanding at the time of exercise (without giving
effect to the shares of Common Stock issued or issuable under the Option).
The number of shares of Common Stock purchasable upon exercise of the
Option and the Option Price are subject to adjustment as set forth in this
Agreement.
2. Exercise; Closing.
(a) Conditions to Exercise; Termination. Grantee or any other
person that shall become a holder of all or a part of the Option in
accordance with the terms of this Agreement (each such person, including
Grantee, being referred to as "Holder") may exercise the Option, in whole
or in part, from time to time, and prior to the occurrence of an Exercise
Termination Event (as defined below), provided that the Holder shall have
delivered a written notice as provided in Section 2(d) within 120 days of
the occurrence of a Triggering Event (as defined in Section 2(b)). The
right to exercise the Option shall terminate upon either (i) the occurrence
of the Effective Time (as defined in the Merger Agreement) or (ii) (A) if a
Notice Date (as defined in Section 2(d) hereof) has not previously
occurred, the close of business on the earlier of (x) the day that is 120
days after the date of a Triggering Event, (y) the date upon which the
Merger Agreement is terminated if no Termination Fee could be payable by
Issuer pursuant to the terms of the Merger Agreement upon the occurrence of
certain events or the passage of time, and (z) 270 days following the date
upon which the Merger Agreement is terminated, and (B) if the Notice Date
has previously occurred, 120 days after the Notice Date (the events in (i)
or (ii) being referred to as "Exercise Termination Events").
(b) Triggering Event. A "Triggering Event" shall have occurred at
such time at which the Grantee becomes entitled to receive from Issuer a
Termination Fee pursuant to Section 8.2 of the Merger Agreement.
(c) Notice of Trigger Event by Issuer. Issuer shall notify
Grantee promptly in writing of the occurrence of any Triggering Event (it
being understood that the giving of the notice by Issuer shall not be a
condition to the right of Holder to exercise the option).
(d) Notice of Exercise. If Holder shall be entitled to and
desires to exercise the Option, in whole or in part, it shall send to
Issuer a written notice (any date on which such notice is given, in
accordance with Section 15 hereof, is referred to as a "Notice Date")
specifying (i) the total number of shares that Holder will purchase
pursuant to the exercise and (ii) a place and date (a "Closing Date") not
earlier than three business days nor later than 60 business days from the
Notice Date for the closing of the purchase (a "Closing"); provided, that
if a filing or any approval is required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), or prior
notification to or prior approval from any regulatory authority is required
under any other law, statute, rule or regulation (including applicable
rules and regulations of national securities exchanges) in connection with
such purchase, Holder or Issuer, as required, promptly after the Notice
Date, shall file all necessary notices and applications for approval and
shall expeditiously process the same and the period of time referred to in
clause (ii) shall commence on the date on which all required notification
and waiting periods, if any, shall have expired or been terminated and all
required approvals, if any, shall have been obtained. Any exercise of the
Option shall be deemed to occur on the date of the Notice Date relating
thereto. Each of Holder and Issuer agrees to use its reasonable best
efforts to cooperate with and provide information to the other, for the
purpose of any required notice or application for approval.
(e) Payment of Purchase Price; Delivery of Common Stock. (i) At
each Closing, Holder shall pay to Issuer the aggregate purchase price for
the shares of Common Stock purchased pursuant to the exercise of the Option
in immediately available funds by a wire transfer to a bank account
designated by Issuer; provided, that failure or refusal of Issuer to
designate a bank account shall not preclude Holder from exercising the
Option, in whole or in part.
(ii) At each Closing, simultaneously with the payment of the
aggregate purchase price by Holder, Issuer shall deliver to Holder a
certificate or certificates representing the number of shares of Common
Stock purchased by Holder and, if the Option shall be exercised in part
only, a new Agreement providing for an Option evidencing the rights of
Holder to purchase the balance (as adjusted pursuant to Section l(b)) of
the shares then purchasable hereunder and the Holder shall deliver this
Agreement and a letter agreeing that the Holder will not offer to sell or
otherwise dispose of such shares in violation of applicable laws or the
provisions of this Agreement.
(iii) Notwithstanding anything to the contrary contained in
paragraphs (i) and (ii) of this Section 2(e), Holder shall have the right
(a "Cashless Exercise Right") to direct the Issuer, in the written notice
of exercise referred to in Section 2(d), to reduce the number of shares of
Common Stock required to be delivered by Issuer to Holder at any Closing by
such number of shares of Common Stock that have an aggregate Market/Offer
Price (as defined in Section 9(a)) equal to the aggregate purchase price
payable at such Closing (but for this paragraph (iii)), or any portion
thereof, in lieu of Holder paying to the Issuer at such Closing such
aggregate purchase price or portion thereof, as the case may be. Any
exercise of the Option in which, and to the extent to which, Holder
exercises its Cashless Exercise Right pursuant to this paragraph (iii)
shall be referred to as a "Cashless Exercise."
(f) Restrictive Legend. Certificates for Common Stock delivered
at a Closing may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer, a copy of which agreement is on file at the
principal office of Issuer, and to resale restrictions arising under
the Securities Act of 1933, as amended. A copy of the aforementioned
agreement will be mailed to the holder without charge promptly after
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "Securities
Act"), in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if Holder shall have delivered to
Issuer a copy of a letter from the staff of the Securities and Exchange
Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) both are satisfied. In
addition, the certificates shall bear any other legend as may be required
by applicable law.
(g) Ownership of Record; Tender of Purchase Price; Expenses. Upon
the giving by Holder to Issuer of the written notice of exercise referred
to in Section 2(d) and, except to the extent such notice relates to a
Cashless Exercise, the tender of the applicable purchase price in
immediately available funds, Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be
closed or that certificates representing such shares of Common Stock shall
not have been actually delivered to Holder. Issuer shall pay all expenses,
and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issuance
and delivery of stock certificates under this Section 2 in the name of
Holder or its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and
covenants herein, Issuer agrees:
(a) Shares Reserved for Issuance. To maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be fully exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to
purchase shares of Common Stock;
(b) No Avoidance. Not to avoid or seek to avoid (whether by
charter amendment or through reorganization, consolidation, merger,
issuance of rights, dissolution or sale of assets, or by any other
voluntary act) the observance or performance of any of the covenants,
agreements or conditions to be observed or performed hereunder by Issuer
and not to take any action which would cause any of its representations or
warranties not to be true; and
(c) Further Assurances. Promptly after the date hereof to take
all actions as may from time to time be required (including (i) complying
with all applicable premerger notification, reporting and waiting period
requirements under the HSR Act and (ii) in the event that any other prior
approval of or notice to any regulatory authority is necessary under any
applicable federal, state or local law before the Option may be exercised,
cooperating fully with Holder in preparing and processing the required
applications or notices) in order to permit Holder to exercise the Option
and purchase shares of Common Stock pursuant to such exercise.
4. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Holder that Issuer has all requisite corporate
power and authority and has taken all corporate action necessary to
authorize, execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby; and that
this Agreement has been duly and validly authorized, executed and delivered
by Issuer. Issuer hereby further represents and warrants to Holder that it
has taken all necessary corporate action to authorize and reserve for
issuance upon exercise of the Option the number of shares of Common Stock
equal to the maximum number of shares of Common Stock at any time or from
time to time issuable upon exercise of the Option and that all shares of
Common Stock, upon issuance pursuant to the Option, will be delivered free
and clear of all claims, liens, encumbrances, and security interests (other
than those created by this Agreement) and not subject to any preemptive
rights. The execution and delivery of this Agreement, the grant of the
Option hereunder and the exercise in whole or in part of the Option in
accordance with this Agreement, will not (i) result in the occurrence of
any "Distribution Date," "Stock Acquisition Date" or "Triggering Event"
under the Alphabet Rights Agreement (as defined in the Merger Agreement)
(ii) permit any Person to exercise any rights issued under any rights
agreements of Issuer, or (iii) cause the separation of any such rights from
the shares of Common Stock to which they are attached or such rights
becoming exercisable. Issuer has taken all action necessary to make
inapplicable to Grantee any state takeover, business combination, control
share or other similar statute and any charter provisions which would
otherwise be applicable to Grantee or any transaction involving Issuer and
Grantee by reason of the grant of the Option, the acquisition of beneficial
ownership of shares of Common Stock as a result of the grant of the Option,
or the acquisition of shares of Common Stock upon exercise of the Option,
except for statutes or provisions which by their terms cannot be waived or
rendered inapplicable by any action of Issuer or the Board of Directors of
Issuer.
5. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that Grantee has all requisite corporate
power and authority and has taken all corporate action necessary in order
to authorize, execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized, executed and delivered by
Grantee. Grantee represents and warrants to Issuer that any shares of
Common Stock acquired upon exercise of the Option will be acquired for
Grantee's own account, and will not be, and the Option is not being,
acquired by Grantee with a view to the distribution thereof in violation of
any applicable provision of the Securities Act. Grantee has such knowledge
and experience in business and financial matters as to be capable of
utilizing the information which is available to Grantee to evaluate the
merits and risks of an investment by Grantee in the Common Stock and
Grantee is able to bear the economic risks of any investment in the shares
of Common Stock which Grantee may acquire upon exercise of the Option.
6. Exchange; Replacement. This Agreement and the Option are
exchangeable, without expense, at the option of Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for
other Agreements providing for Options of different denominations entitling
the holder thereof to purchase on the same terms and subject to the same
conditions as set forth herein in the aggregate the same number of shares
of Common Stock purchasable at such time hereunder, subject to
corresponding adjustments in the number of shares of Common Stock
purchasable upon exercise so that the aggregate number of such shares under
all Agreements issued in respect of this Agreement shall not exceed 19.9%
of the outstanding shares of Common Stock of the Issuer (without giving
effect to shares of Common Stock issued or issuable pursuant to the
Option). Unless the context shall require otherwise, the terms "Agreement"
and "Option" as used in this Agreement include any Agreements and related
options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon (i) receipt by Issuer of reasonably satisfactory evidence
of the loss, theft, destruction, or mutilation of this Agreement, (ii)
receipt by Issuer of reasonably satisfactory indemnification in the case of
loss, theft or destruction and (iii) surrender and cancellation of this
Agreement in the case of mutilation, Issuer will execute and deliver a new
Agreement of like tenor and date. Any new Agreement executed and delivered
shall constitute an additional contractual obligation on the part of
Issuer, whether or not the Agreement so lost, stolen, destroyed or
mutilated shall at any time be enforceable by any person other than the
holder of the new Agreement.
7. Adjustments. The total number of shares of Common Stock
purchasable upon the exercise of the Option and the Option Price shall be
subject to adjustment from time to time as follows:
In the event of any change in, or distribution in respect
of, the outstanding shares of Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares or the like, the type (including, in the
event of any Major Transaction described in Section 9(d) hereof in which
Issuer is not the surviving or continuing corporation, to provide that the
Option shall be exercisable for shares of common stock of the surviving or
continuing corporation in such Major Transaction) and number of shares of
Common Stock purchasable upon exercise of the Option and the Option Price
shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits contemplated hereby, and proper provision shall be made
in the agreements governing any such transactions to provide for such
proper adjustment and the full satisfaction of Issuer's obligation
hereunder.
8. Registration. At any time after a Triggering Event occurs and
prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered in the written notice of exercise of the Option provided
for in Section 2(d), and, with respect to the first demand registration as
to which the Grantee exercises its demand rights under this Section 8,
delivered no later than 90 days following such Triggering Event, as
promptly as practicable prepare, file and keep current a shelf registration
statement under the Securities Act covering any or all shares issued and
issuable pursuant to the Option and shall use its reasonable best efforts
to cause such registration statement to become effective and remain current
in order to permit the sale or other disposition of any shares of Common
Stock issued upon total or partial exercise of the Option ("Option Shares")
in accordance with any plan of disposition requested by Grantee; provided,
however, that Issuer may postpone filing a registration statement relating
to a registration request by Grantee under this Section 8 for a period of
time (not in excess of 90 days) if in Grantee's judgment such filing would
require the disclosure of material information that Issuer has a bona fide
business purpose for preserving as confidential. Issuer will use its
reasonable best efforts to cause such registration statement first to
become effective and then to remain effective for 365 days after the day
the registration statement first becomes effective or such shorter time as
is reasonably appropriate to effect such sales or other dispositions.
Grantee shall have the right to demand two such registrations. In
connection with any such registration, Issuer and Holder shall provide each
other with representations, warranties, indemnities and other agreements
customarily given in connection with such registrations. To the extent
requested by Holder in connection with such registration, Issuer shall (x)
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating Issuer in respect of
representations, warranties, indemnities, contribution and other agreements
(in each case reasonably acceptable to Issuer) customarily made by issuers
in such underwriting agreements, and (y) use its reasonable best efforts to
take all further actions which shall be reasonably necessary to effect such
registration and sale (including participating in road-show presentations
and causing to be delivered customary certificates, opinions of counsel and
"comfort letters"). Notwithstanding anything to the contrary contained
herein, in no event shall Issuer be obligated to effect more than two
registrations pursuant to this Section 8 by reason of the fact that there
shall be more than one Grantee as a result of any assignment or division of
this Agreement. Upon the effectiveness of a registration statement demanded
pursuant to this Section 8, the Holder of the Option Shares that are the
subject of such registration may not thereafter require the Issuer to
repurchase such Option Shares so long as such registration statement
remains effective as required hereby.
9. Repurchase of Option and/or Shares.
(a) Repurchase; Repurchase Price. Upon the occurrence of a
Triggering Event prior to an Exercise Termination Event, (i) at the request
of Holder, delivered in writing within 120 days of such occurrence (or such
later period as provided in Section 2(d) with respect to any required
notice or application or in Section 10), Issuer shall repurchase the Option
from Holder, in whole or in part, at a price (the "Option Repurchase
Price") equal to the number of shares of Common Stock then purchasable upon
exercise of the Option (or such lesser number of shares as may be
designated in the Repurchase Notice (as defined in Section 9(b)))
multiplied by the amount by which the Market/Offer Price (as defined below)
exceeds the Option Price or (ii) at the request of any owner of Option
Shares (an "Owner") delivered in writing within 120 days of such occurrence
(or such later period as provided in Section 2(d) with respect to any
required notice or application or in Section 10), Issuer shall repurchase
such number of Option Shares from such Owner as such Owner shall designate
in the Repurchase Notice at a price (the "Option Share Repurchase Price")
equal to the number of shares designated multiplied by the Market/Offer
Price. The term "Market/Offer Price" shall mean the highest of (x) the
price per share of Common Stock at which a tender or exchange offer for
Common Stock either has been consummated, or at which a Person has publicly
announced its intention to commence a tender or exchange offer, after the
date of this Agreement and prior to the delivery of the Repurchase Notice,
and which offer either has been consummated and not withdrawn or terminated
as of the date payment of the Repurchase Price is made, or has been
publicly announced and such intention to make a tender or exchange offer
has not been withdrawn as of the date payment of the Repurchase Price is
made, (y) the price per share of Common Stock to be paid by any third party
pursuant to an agreement with Issuer for a merger, share exchange,
consolidation or reorganization entered into after the date hereof and on
or prior to the delivery of the Repurchase Notice and (z) the average
closing price for shares of Common Stock on the New York Stock Exchange
(the "NYSE") (or, if the Common Stock is not then listed on the NYSE, any
other national securities exchange or automated quotation system on which
the Common Stock is then listed or quoted) for the twenty consecutive
trading days immediately preceding the delivery of the Repurchase Notice.
In the event that a tender or exchange offer is made for the Common Stock
or an agreement is entered into for a merger, share exchange, consolidation
or reorganization involving consideration other than cash, the value of the
securities or other property issuable or deliverable in exchange for the
Common Stock shall be determined in good faith by a nationally recognized
investment banking firm mutually selected by Issuer and Holder or Owner, as
the case may be.
(b) Method of Repurchase. Holder or Owner, as the case may be,
may exercise its right to require Issuer to repurchase the Option, in whole
or in part, and/or any Option Shares then owned by Holder or Owner pursuant
to this Section 9 by surrendering for this purpose to Issuer, at its
principal office, this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that Holder
or Owner elects to require Issuer to repurchase the Option and/or such
Option Shares in accordance with the provisions of this Section 9 (each
such notice, a "Repurchase Notice"). Within four business days after the
surrender of the Agreement for the Option and/or certificates representing
Option Shares and the receipt of the Repurchase Notice, Issuer shall
deliver or cause to be delivered to Holder or Owner of Option Shares, as
the case may be, the applicable Option Repurchase Price and/or the Option
Share Repurchase Price or, in either case, the portion that Issuer is not
then prohibited under applicable law and regulation from so delivering in
immediately available funds by a wire transfer to a bank account designated
by grantee. In the event that the Repurchase Notice shall request the
repurchase of the Option in part, Issuer shall deliver with the Option
Repurchase Price a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock purchasable pursuant to the
Option at the time of delivery of the Repurchase Notice minus the number of
shares of Common Stock represented by that portion of the Option then being
repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase.
To the extent that, upon or following the delivery of a Repurchase Notice,
Issuer is prohibited under applicable law or regulation from repurchasing
the Option (or a portion thereof) and/or any Option Shares subject to such
Repurchase Notice (and Issuer hereby undertakes to use its reasonable best
efforts to obtain all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish this
repurchase), Issuer shall promptly so notify Holder or Owner, as the case
may be, in writing and thereafter deliver or cause to be delivered, from
time to time, to Holder or Owner, as the case may be, the portion of the
Option Repurchase Price and the Option Share Repurchase Price that Issuer
is no longer prohibited from delivering, within four business days after
the date on which it is no longer so prohibited; provided, however, that
upon notification by Issuer in writing of this prohibition, Holder or
Owner, as the case may be, may, within 5 days of receipt of this
notification from Issuer, revoke in writing its Repurchase Notice, whether
in whole or to the extent of the prohibition, whereupon, in the latter
case, Issuer shall promptly (i) deliver to Holder or Owner, as the case may
be, that portion of the Option Repurchase Price and/or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
(a) deliver to Holder with respect to the Option, a new Agreement
evidencing the right of Holder to purchase that number of shares of Common
Stock for which the surrendered Agreement was exercisable at the time of
delivery of the Repurchase Notice less the number of shares as to which the
Option Repurchase Price has theretofore been delivered to Holder, and/or
(b) deliver to the owner of Option Shares, with respect to its Option
Shares, a certificate for the Option Shares as to which the Option Share
Repurchase Price has not theretofore been delivered to such owner.
Notwithstanding anything to the contrary in this Agreement, including,
without limitation, the time limitations on the exercise of the Option,
Holder may exercise the Option at least until 120 days after such date upon
which Issuer is no longer prohibited from delivering all of the Option
Repurchase Price.
(d) Major Transactions. Issuer hereby agrees that, prior to the
occurrence of an Exercise Termination Event, Issuer shall not enter into or
agree to enter into any agreement for a Major Transaction (defined below)
unless the other party or parties thereto agree to assume in writing
Issuer's obligations under this Agreement. "Major Transaction" shall mean
any merger or consolidation involving the Issuer and any transaction
involving a sale, transfer or other disposition of a majority of the assets
or shares of capital stock of the Issuer.
10. Extension of Exercise Periods. The 120 and 270 day periods
for exercise of certain rights under Sections 2 and 9 shall be extended in
each such case at the request of Holder or Owner to the extent necessary to
avoid liability by a Holder or Owner under Section 16(b) of the Securities
Exchange Act of 1934, as amended, by reason of such exercise.
11. Assignment. Neither party hereto may assign any of its rights
or obligations under this Agreement or the Option to any other person
without the express written consent of the other party except that Holder
or Owner may assign its rights in whole or in part to any of its affiliates
and, in the event that a Triggering Event shall have occurred prior to the
occurrence of an Exercise Termination Event, Holder or Owner may within 90
days following such Triggering Event assign the Option or any of its other
rights hereunder, in whole or in part to one or more third parties,
provided that the affiliate and any such third party shall execute this
Agreement and agree to become subject to its terms. Any attempted
assignment in contravention of the preceding sentence shall be null and
void.
12. Filings; Other Actions. Each party hereto will use its
reasonable best efforts to make all filings with, and to obtain consents
of, all third parties and governmental authorities necessary for the
consummation of the transactions contemplated by this Agreement.
13. Specific Performance. The parties acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either
party and that the obligations of the parties shall be specifically
enforceable through injunctive or other equitable relief.
14. Severability; Etc. If any term, provision, covenant, or
restriction contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired, or invalidated. If for
any reason a court or regulatory agency determines that Holder is not
permitted to acquire, or Issuer is not permitted to repurchase pursuant to
Section 9, any portion of the Option or the full number of shares of Common
Stock provided in Section l(a) hereof (as adjusted pursuant Section 1(b)
and 7 hereof), it is the express intention of the parties to allow Holder
to acquire or to require Issuer to repurchase such lesser portion of the
Option or number of shares as may be permissible, without any amendment or
modification of this Agreement.
15. Notices. All notices, requests, instructions, or other
documents to be given hereunder shall be furnished in accordance with
Section 9.2 of the Merger Agreement.
16. Expenses. Except as otherwise expressly provided in this
Agreement or in the Merger Agreement, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring the expense, including fees
and expenses of its own financial consultants, investment bankers,
accountants, and counsel.
17. Entire Agreement, Etc. This Agreement and Merger Agreement
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties, both written and oral,
between the parties, with respect to the subject matter of this Agreement.
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties, and their
respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
18. Limitation on Profit. (a) Notwithstanding any other provision
of this Agreement, in no event shall the Total Profit (as hereinafter
defined) plus any Liquidation Amounts (as defined below) exceed in the
aggregate $360 million and, if it otherwise would exceed this amount, the
Grantee, at its sole election, shall either (i) reduce the number of shares
of Common Stock subject to this Option, (ii) deliver to the Issuer for
cancellation Option Shares previously purchased by Grantee or any other
Holder or Owner, (iii) pay to the Issuer cash or refund in cash Liquidation
Amounts previously paid or reduce or waive the amount of any Liquidation
Amount payable pursuant to Section 8.2, or (iv) any combination thereof, so
that Grantee's realized Total Profit, when aggregated with any Liquidation
Amounts so paid or payable to Grantee, shall not exceed $360 million after
taking into account the foregoing actions.
As used herein the term "Liquidation Amounts" means the aggregate
amount of all Fees and Expenses, and Termination Fees, payable or paid to
Grantee and its assigns pursuant to Section 8.2 of the Merger Agreement
(and not repaid or refunded to the Issuer pursuant to Section 18 or
otherwise).
(b) Notwithstanding any other provision of this Agreement, the
Option may not be exercised for a number of shares as would, as of the date
of exercise, result in a Notional Total Profit (as defined below) which,
together with any Liquidation Amount theretofore paid or then payable to
Grantee (and not repaid or refunded to the Issuer pursuant to Section 18 or
otherwise), would exceed $360 million provided, that nothing in this
sentence shall restrict any exercise of the Option permitted hereby on any
subsequent date.
(c) As used in this Agreement, the term "Total Profit" shall mean
the aggregate amount (before taxes) of the following: (i) (x) the amount
received by Grantee, any other Holder and any Owner pursuant to Issuer's
repurchase of the Option (or any portion thereof) or any Option Shares
pursuant to Section 9, less, in the case of any repurchase of Option
Shares, (y) the Grantee's, any other Holder's and any Owner's purchase
price for such Option Shares, as the case may be, (ii) (x) the net cash
amounts (and the fair market value of any other consideration) received by
Grantee, any other Holder and any Owner pursuant to the sale of Option
Shares (or any other securities into which such Option Shares are converted
or exchanged) to any unaffiliated party, less (y) the Grantee's (or any
other Holder's or Owner's) purchase price of such Option Shares, and (iii)
the net cash amounts (and the fair market value of any other consideration)
received by Grantee (or any other Holder) on the transfer of the Option (or
any portion thereof) to any unaffiliated party. In the case of clauses
(ii)(x) and (iii) above, the Grantee and each Holder and Owner agrees to
furnish as promptly as reasonably practicable after any disposition of all
or a portion of the Option or Option Shares a complete and correct
statement, certified by a responsible executive officer or partner of
Grantee, Holder or Owner, as applicable, of the net cash amounts (and the
fair market value of any other consideration) received in connection with
any sale or transfer of the Option or Option Shares.
(d) As used in this Agreement, the term "Notional Total Profit"
with respect to any number of shares as to which Grantee and any other
Holder may propose to exercise the Option shall be the Total Profit
determined as of the date of such proposal (taking into account the
provision of Section 18(a) hereof) assuming that the Option were exercised
on such date for such number of shares and assuming that such shares,
together with all other Option Shares held by Grantee and any other Holders
and Owners and their respective affiliates as of such date were sold for
cash at the closing market price for the Common Stock on the New York Stock
Exchange Composite Transaction Tape as of the close of business on the
preceding trading day (less customary brokerage commissions).
19. Captions. The section, paragraph and other captions in this
Agreement are for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to limit or otherwise affect any of
the provisions of this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, and by both parties in separate counterparts, each of which
when exercised shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
21. Restrictions on Certain Actions; Covenants of Grantee. From
and after the date of exercise of the Option in whole or part, and for as
long as Grantee owns shares of Common Stock acquired pursuant to the
exercise of the Option:
(a) Without the prior consent of the Board of Directors of Issuer
specifically expressed in a resolution, Grantee will not, and will not
permit any of its Affiliates (as defined in Section 23) to:
(i) acquire or agree, offer, seek or propose to acquire,
ownership (including, but not limited to, beneficial
ownership as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of more than 20% of
any class of Voting Securities (as defined in Section
23), or any rights or options to acquire such ownership
(including from a third party);
(ii) propose a merger, consolidation or similar transaction
involving the Issuer;
(iii) offer, seek or propose to purchase, lease or otherwise
acquire all or a substantial portion of the assets of
the Issuer;
(iv) seek or propose to influence or control the management
or policies of the Issuer or to obtain representation
on the Issuer's Board of Directors, or solicit or
participate in the solicitation of any proxies or
consents with respect to the securities of the Issuer;
(v) enter into any discussions, negotiations, arrangements
or understandings with any third party with respect to
any of the foregoing; or
(vi) seek or request permission to do any of the foregoing
or seek any permission to make any public announcement
with respect to any of the foregoing.
The provisions of this Section 21 shall not apply to actions
taken pursuant to the Merger Agreement; and
(b) Grantee may not sell, transfer any beneficial interest in,
pledge, hypothecate or otherwise dispose of any Voting Securities at any
time except as follows:
(i) pursuant to a tender offer, exchange offer, merger or
consolidation of the Issuer, or in connection with a
sale of all or substantially all of the Issuer's
assets; or
(ii) pursuant to a registered public offering under Section
8; or
(iii) in compliance with Rule 144 of the General Rules and
Regulations under the Securities Act (or any similar
successor rule); and
(c) (i) Grantee agrees to be present in person or to be
represented by proxy at all stockholder meetings of Issuer so that all
shares of Voting Securities beneficially owned by it or its Affiliates may
be counted for the purpose of determining the presence of a quorum at such
meetings.
(ii) Grantee agrees to vote or cause to be voted all Voting
Securities beneficially owned by it or its Affiliates proportionately with
the votes cast by all other stockholders present and voting.
(iii) The provision of this Section 21 shall terminate at
such time as (x) Grantee beneficially owns more than 50% of the outstanding
Common Stock of Issuer or (y) the Option granted hereby expires without
having been exercised in whole or part.
22. Governing Law. This Agreement shall be governed by and
continued in accordance with the internal law of the State of Delaware.
23. Definitions. For the purposes of this Agreement the following
terms shall have the meanings specified with respect thereto below:
"Affiliate" shall mean, as to any Person, any other Person
which directly or indirectly controls, or is under common control with, or
is controlled by, such Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of management or policies,
whether through ownership or securities or partnership or other ownership
interest, by contract or otherwise).
"Voting Securities" means the shares of Common Stock,
preferred stock and any other securities of Issuer entitled to vote
generally for the election of directors or any other securities (including,
without limitation, rights and options), convertible into, exchangeable
into or exercisable for, any of the foregoing (whether or not presently
exercisable, convertible or exchangeable).
"Person" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated organization,
entity or group (as defined in the Exchange Act).
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the
date first written above.
ALBERTSON'S, INC.
By: /s/ Michael F. Reuling
-------------------------------------
Name: Michael F. Reuling
Title: Executive Vice President,
Store Development
AMERICAN STORES COMPANY
By: /s/ Victor L. Lund
-------------------------------------
Name: Victor Lund
Title: Chairman and Chief Executive
Officer
<PAGE>
APPENDIX D
OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
<PAGE>
[MERRILL LYNCH LETTERHEAD]
August 2, 1998
Board of Directors
Albertson's, Inc.
250 Parkcenter Boulevard
Boise, Idaho 83726
Members of the Board:
American Stores Company (the "Company"), Albertson's, Inc. (the
"Acquiror") and Abacus Holdings, Inc., a wholly owned subsidiary of the
Acquiror (the "Acquisition Sub"), propose to enter into an Agreement and
Plan of Merger (the "Agreement") pursuant to which the Acquisition Sub will
be merged with and into the Company in a transaction (the "Merger") in
which each outstanding share of the Company's common stock, par value $1.00
per share (the "Company Shares"), will be converted into the right to
receive 0.63 shares (the "Exchange Ratio") of the common stock of the
Acquiror, par value $1.00 per share (the "Acquiror Shares"). In addition,
the parties propose to enter into agreements (the "Option Agreements")
pursuant to which the Company and the Acquiror will each grant to the other
party an option to acquire Company Shares or Acquiror Shares, respectively,
in an amount equal to 19.9% of the total outstanding.
You have asked us whether, in our opinion, the Exchange Ratio is
fair from a financial point of view to the Acquiror.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and the Acquiror that we
deemed to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Company and the Acquiror,
furnished to us by the Company and the Acquiror,
respectively, as well as the amount and timing of the cost
savings and related expenses and synergies expected to
result from the Merger (the "Expected Synergies") furnished
to us by the Acquiror following discussions with the
Company;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning
the matters described in clauses 1 and 2 above, as well as
their respective businesses and prospects before and after
giving effect to the Merger and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the
Company Shares and the Acquiror Shares and compared them
with those of certain publicly traded companies that we
deemed to be relevant;
(5) Reviewed the results of operations of the Company and the
Acquiror and compared them with those of certain publicly
traded companies that we deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions that we deemed
to be relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their
financial and legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed a draft dated July 31, 1998 of the Agreement;
(10) Reviewed drafts dated July 31, 1998 of the Option
Agreements; and
(11) Reviewed such other financial studies and analyses and took
into account such other matters as we deemed necessary,
including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to us, discussed with or reviewed by or for us by the Company or
the Acquiror, or publicly available, and we have not assumed any
responsibility for independently verifying such information or undertaken
an independent evaluation or appraisal of any of the assets or liabilities
of the Company or the Acquiror or been furnished with any such evaluation
or appraisal. In addition, we have not assumed any obligation to conduct
any physical inspection of the properties or facilities of the Company and
the Acquiror. With respect to the financial forecasts furnished to or
discussed with us by the Company and the Acquiror and the information
regarding the Expected Synergies furnished to and discussed with us by the
Acquiror, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of the
management of the Company or the Acquiror, as the case may be, as to the
expected future financial performance of the Company or the Acquiror and
the Expected Synergies. In addition, we have assumed that the Merger will
be accounted for as a pooling of interests under generally accepted
accounting principles and that it will qualify as a tax-free reorganization
for U.S. federal income tax purposes. We have also assumed that in the
course of obtaining the necessary regulatory or other consents or approvals
(contractual or otherwise) for the Merger, no restrictions, including any
divestiture requirements or amendments or modifications, will be imposed
that will have a material adverse effect on the contemplated benefits of
the Merger. We have also assumed that the final form of the Agreement and
the Option Agreements will be substantially similar to the last drafts
reviewed by us.
Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on, and on the information
made available to us as of, the date hereof.
We are acting as financial advisor to the Acquiror in connection
with the Merger and will receive a fee from the Acquiror for our services,
a significant portion of which is contingent upon the consummation of the
Merger. In addition, the Acquiror has agreed to indemnify us for certain
liabilities arising out of our engagement. We may, in the future, provide
financial advisory and financing services to the Acquiror and may receive
fees for the rendering of such services and have, in the past, provided
financing services to both the Company and the Acquiror. In addition, in
the ordinary course of our business, we may actively trade the Company
Shares and other securities of the Company, as well as the Acquiror Shares
and other securities of the Acquiror, for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
This opinion is for the use and benefit of the Board of Directors
of the Acquiror in its evaluation of the Merger. Our opinion does not
address the merits of the underlying decision by the Acquiror to engage in
the Merger and does not constitute a recommendation to any shareholder of
the Acquiror as to how such shareholder should vote on the Merger.
We are not expressing any opinion herein as to the prices at
which the Acquiror Shares will trade following the announcement or
consummation of the Merger.
On the basis of and subject to the foregoing, we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair from a
financial point of view to the Acquiror.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
<PAGE>
APPENDIX E
OPINION OF THE BLACKSTONE GROUP L.P.
<PAGE>
[THE BLACKSTONE GROUP LETTERHEAD]
August 2, 1998
Board of Directors
American Stores Company
299 South Main Street
Salt Lake City, UT 84111
Gentlemen and Mesdames:
We understand that Albertson's, Inc. ("ABS"), American Stores Company
("ASC") and a wholly-owned subsidiary of ABS ("Abacus"), have entered into
an Agreement and Plan of Merger (the "Agreement"), dated as of August 2,
1998, which provides for, among other things, the merger of Abacus with and
into ASC (the "Merger"). Pursuant to the Agreement, each issued and
outstanding share of common stock, par value $1.00 per share, of ASC ("ASC
Common Stock"), other than those shares held in treasury, by subsidiaries
of ASC, by ABS or by subsidiaries of ABS, will be converted into the right
to receive 0.63 shares (the "Exchange Ratio") of the common stock, par
value $1.00 per share, of ABS ("ABS Common Stock"). It is also our
understanding that ABS and ASC have entered into Stock Option Agreements,
each dated as of August 2, 1998 (the "Option Agreements"), pursuant to
which ABS and ASC have each granted the other an option to acquire, upon
the terms and conditions set forth in the respective Option Agreements, ABS
Common Stock or ASC Common Stock (collectively, the "Options"), as the case
may be. The terms and conditions of the Merger and the Options are set
forth in the Agreement and Option Agreements, respectively.
<PAGE>
You have asked us whether, in our opinion, the Exchange Ratio is fair to
the holders of ASC Common Stock from a financial point of view.
In arriving at the opinion set forth below, we reviewed, among other
things, certain publicly available information concerning the business,
financial condition and operations of ABS and ASC which we believe to be
relevant to our inquiry, certain internal financial analyses and forecasts
relating to ABS and ASC prepared, and furnished to us, by the respective
managements of ABS and ASC, and forecasts of certain operating efficiencies
and financial synergies expected to be achieved as a result of the Merger
prepared by the managements of ABS and ASC; held discussions with members
of management of ABS and ASC concerning their respective businesses,
operating environments, prospects and strategic objectives; reviewed the
historical market prices and trading activity for ABS Common Stock and ASC
Common Stock, compared certain financial and stock market information for
ABS and ASC with similar information for certain other companies the
securities of which are publicly traded, and reviewed the financial terms
of certain recent business combinations in the grocery store and drug store
industries; considered the pro forma financial effect of the Merger on ABS;
participated in discussions among representatives of ABS and ASC and their
respective financial and legal advisors; reviewed the Merger Agreement and
Option Agreements; and performed such other studies and analyses, and took
into account such other matters, as we deemed appropriate.
In arriving at our opinion, we have relied without assuming responsibility
for independent verification upon the accuracy and completeness of all of
the financial and other information reviewed by us that was publicly
available, that was supplied or otherwise made available to us by ABS and
ASC or that was otherwise reviewed by us. We have further relied upon the
assurances of the managements of ABS and ASC that they are not aware of any
facts that would make such information inaccurate, incomplete or
misleading. Without limiting the generality of the foregoing, we have
assumed that the financial forecasts prepared by ABS and ASC and provided
to us, including without limitation, forecasts of operating efficiencies
and synergies that would result from the combination of ABS and ASC, have
been reasonably determined on a basis reflecting the best currently
available judgment and estimates of ABS and ASC as to the future financial
performance of ABS and ASC. We express no view as to such financial
forecasts or the assumptions on which they are based. In addition, we have
not conducted a physical inspection of the properties and facilities of ABS
or ASC, nor have we made an independent evaluation or appraisal of the
assets and liabilities of ABS or ASC. We have assumed that the Merger
contemplated by the Agreement will be accounted for as a
pooling-of-interests under generally accepted accounting principles and
that it will qualify as a tax-free reorganization for U.S. federal income
tax purposes. Our opinion is necessarily based upon economic, market,
monetary and other conditions as they exist and can be evaluated, and the
information made available to us, as of the date hereof. Furthermore, we
express no opinion as to the prices at which ABS Common Stock or ASC Common
Stock will trade at any time. We have assumed that in the course of
obtaining the necessary regulatory or other consents or approvals
(contractual or otherwise) for the Merger, no restrictions, including any
divestiture requirements or amendments or modifications, will be imposed
that will have a material adverse effect on the contemplated benefits of
the Merger. We have acted as financial advisor to ASC with respect to the
Merger and will receive a fee from ASC for our services, which is in part
contingent upon the consummation of the Merger. ASC has also agreed to
indemnify us for certain liabilities arising out of the rendering of this
opinion. In addition, we have performed other investment banking and
financial advisory services for ASC in the past for which we have received
customary compensation. This letter does not constitute a recommendation to
any shareholder as to how such holder should vote with respect to the
Merger or any matter related thereto. This opinion is for the use and
benefit of the Board of Directors of ASC. Based upon and subject to the
foregoing, it is our opinion that, as of the date hereof, the Exchange
Ratio is fair to the holders of ASC Common Stock from a financial point of
view.
Very truly yours,
THE BLACKSTONE GROUP L.P.
<PAGE>
APPENDIX F
ALBERTSON'S, INC.
AMENDED AND RESTATED
1995 STOCK-BASED INCENTIVE PLAN
<PAGE>
SECTION 1. GENERAL PURPOSES OF PLAN.
The name of this plan is the Albertson's, Inc. Amended and Restated 1995
Stock-Based Incentive Plan (the "Plan"). The Plan, as amended and restated,
was adopted on August 31, 1998 by the Board of Directors subject to
approval by the Company's stockholders, in separate votes, of both (i) the
Plan and (ii) the merger (as contemplated in the Agreement and Plan of
Merger by and among the Company, American Stores Company and Abacus
Holdings Inc., dated August 3, 1998 (the "Merger")). The Plan was
originally adopted by the Board of Directors on April 5, 1995 and approved
by the Company's stockholders on May 26, 1995. The purposes of the Plan are
to promote the growth and profitability of the Company and its Subsidiaries
by enabling them to attract and retain the best available personnel for
positions of substantial responsibility, to provide key employees and
non-employee directors with an opportunity for investment in the Company's
Common Stock, to give them an additional incentive to increase their
efforts on behalf of the Company and its Subsidiaries, and to further align
the long-term interests of key employees and non-employee directors with
those of the stockholders. Awards granted under the Plan may be (a) options
which may be designated as (i) Nonqualified Stock Options or (ii) Incentive
Stock Options; (b) Stock Appreciation Rights; (c) Restricted or Deferred
Stock; or (d) other forms of stock-based incentive awards.
SECTION 2. DEFINITIONS.
The terms defined in this Section 2 shall, for all purposes of this Plan,
have the meanings herein specified:
(a) "Act" shall mean the Securities Exchange Act of 1934, as amended.
(b) "Administrator" shall mean the Board, or if the Board does not
administer the Plan, the Committee in accordance with Section 4.
(c) "Award Agreement" shall mean a Stock Option Agreement or other
written agreement between the Company and a Participant evidencing the
number of shares of Common Stock, SARs or Units subject to the Award
and setting forth the terms and conditions of the Award as the
Committee may deem appropriate which shall not be inconsistent with
the Plan.
(d) "Award Price" shall mean the Option Price in the case of an Option
or the price to be paid for the shares of Common Stock, SARs or Units
to be granted pursuant to an Award Agreement.
(e) "Awards" shall mean, collectively, (i) Options which may be
designated as (A) Nonqualified Stock Options or (B) Incentive Stock
Options; (ii) Stock Appreciation Rights (SARs); (iii) Restricted or
Deferred Stock; or (iv) other forms of stock-based incentive awards as
described in Section 10 hereof.
(f) "Board" or "Board of Directors" shall mean the Board of Directors
of the Company.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.
(h) "Commission" shall be the Securities and Exchange Commission.
(i) "Committee" shall mean the committee appointed by the Board of
Directors pursuant to Section 4 hereof.
(j) "Common Stock" shall mean the Company's presently authorized
Common Stock, par value $1.00 per share, except as this definition may
be modified pursuant to Section 14 hereof.
(k) "Company" shall mean Albertson's, Inc., a Delaware corporation.
(l) "Deferred Stock" shall mean deferred stock awards as described in
Section 9 hereof.
(m) "Demotion" shall mean the reduction of an Optionee's salary grade,
job classification, or title (the Optionee's job classification or
title shall govern in cases where said job classification or title are
not defined by means of a salary grade) with the Company to a level at
which Options under this Plan or any other option plan of the Company
have not been granted within the three years preceding such demotion.
(n) "Eligible Director" means a director of the Company who is not an
employee of the Company or any Subsidiary.
(o) "Employee" or "Employees" shall mean key persons (including, but
not limited to, employee members of the Board of Directors and
officers) employed by the Company, or a Subsidiary thereof, on a
full-time basis and who are compensated for such employment by a
regular salary.
(p)"Fair Market Value" shall mean the last sale price of the Common
Stock on the New York Stock Exchange Composite Tape on the date an
Award is granted or exercised, as applicable, (or for purposes of
determining the value of shares of Common Stock used in payment of the
Award Price, the date the certificate is delivered) or, if there are
no sales on such date, on the next following day on which there are
sales.
(q) "Incentive Stock Option" shall mean an "incentive stock option" as
defined in Section 422 of the Code.
(r) "Mature Stock" shall mean Common Stock which was obtained through
the exercise of an option under this Plan or any other plan of the
Company, which is delivered to the Company in order to exercise an
Option and which has been held continuously by an Optionee for the
longer of: (i) six months or more, or (ii) any other period that may
in the future be recognized under Generally Accepted Accounting
Principles for purposes of defining the term "Mature Stock" in
connection with such an Option exercise.
(s) "Nonqualified Stock Option" shall mean an Option that by its terms
is designated as not being an Incentive Stock Option as defined above.
(t) "Option" shall mean the option to purchase shares of Common Stock
set forth in a Stock Option Agreement between the Company and an
Optionee and which may be granted as a Nonqualified Stock Option or an
Incentive Stock Option.
(u) "Optionee" shall mean an eligible Employee or Eligible Director,
as described in Section 5 hereof, who accepts an Option.
(v) "Option Price" shall mean the price to be paid for the shares of
Common Stock being purchased pursuant to a Stock Option Agreement.
(w) "Option Period" shall mean the period from the date of grant of an
Option to the date after which such Option may no longer be exercised.
Nothing in this Plan shall be construed to extend the termination date
of the Option Period beyond the date set forth in the Stock Option
Agreement.
(x) "Participant" shall be an Employee or Eligible Director who has
been granted an Award under the Plan.
(y) "Plan" shall mean the Albertson's, Inc. Amended and Restated 1995
Stock-Based Incentive Plan.
(z) "Restricted Stock" shall mean restricted stock awards as described
in Section 9 hereof.
(aa) "SARs" shall mean stock appreciation rights as described in
Section 8 hereof.
(bb) "Stock Appreciation Rights" shall mean stock appreciation rights
as described in Section 8 hereof.
(cc) "Stock Option Agreement" shall mean the written agreement between
the Company and Optionee setting forth the Option and the terms and
conditions upon which it may be exercised.
(dd) "Subsidiary" shall mean any corporation in which the Company
owns, directly or indirectly through Subsidiaries, at least 50% of the
total combined voting power of all classes of stock, or any other
entity (including, but not limited to, partnerships and joint
ventures) in which the Company owns an interest of at least 50% of the
total combined equity thereof.
(ee) "Successor" or "Successors" shall have the meaning set forth in
Subsection C3(d) of Section 7 hereof.
(ff) "Unit" shall mean a unit of measurement which is measured by the
Fair Market Value of the Common Stock.
SECTION 3. EFFECTIVE DATE AND TERM.
The effective date of the Plan, as amended and restated, is August 31,
1998, subject to approval by the Company's stockholders in separate votes
of both (i) the Plan and (ii) the Merger.
No Award shall be granted pursuant to the Plan on or after the tenth
anniversary of May 26, 1995, the original effective date of the Plan, but
Awards theretofore granted may extend beyond that date.
SECTION 4. ADMINISTRATION.
The Plan shall be administered by the Board in accordance with the
requirements of Rule 16b-3 as promulgated by the Commission under the Act,
or by the Compensation Committee of the Board plus such additional
individuals as the Board shall designate in order to fulfill the
Non-Employee Directors requirement of Rule 16b-3 and as such Rule may be
amended from time to time, or any successor definition adopted by the
Commission, or any other committee the Board may subsequently appoint to
administer the Plan. Any committee so designated shall be composed entirely
of individuals who meet the qualifications referred to in Rule 16b-3.
Any Awards under this Plan made to Eligible Directors are made to such
non-employee directors solely in their capacity as directors.
Members of the Committee shall serve at the pleasure of the Board of
Directors. Vacancies occurring in the membership of the Committee shall be
filled by appointment by the Board of Directors.
The Committee shall keep minutes of its meetings. A majority of the
Committee shall constitute a quorum thereof and the acts of a majority of
the members present at any meeting of the Committee at which a quorum is
present, or acts approved in writing by a majority of the entire Committee,
shall be the acts of the Committee.
If at any time the Board shall not administer the Plan, then the functions
of the Board shall be exercised by the Committee.
SECTION 5. ELIGIBILITY.
Subject to the provisions of the Plan, the Administrator shall determine
and designate from time to time those key Employees and/or Eligible
Directors of the Company or its Subsidiaries to whom Awards are to be
granted, the number of shares of Common Stock, SARs or Units to be awarded
from time to time to any individual and the length of the term of any
Award. In determining the eligibility of an Employee or Eligible Director
to receive an Award, as well as in determining the size of the Award to be
made to any Employee or Eligible Director, the Administrator shall consider
the position and responsibilities of the Employee or Eligible Director
being considered, the nature and value to the Company or a Subsidiary of
the Employee's or Eligible Director's services and accomplishments, the
Employee's or Eligible Director's present and potential contribution to the
success of the Company or its Subsidiaries and such other factors as the
Administrator may deem relevant. An Employee or Eligible Director who has
been granted an Award in one year shall not necessarily be entitled to be
granted Awards in subsequent years.
More than one Award may be granted to an individual, but the aggregate
number of shares of Common Stock, SARs or Units with respect to which an
Award is made to any individual, during the life of the Plan may not,
subject to adjustment as provided in Section 14 hereof, exceed 10% of the
shares of Common Stock reserved for purposes of the Plan, in accordance
with the provisions of Section 6 hereof.
SECTION 6. NUMBER OF SHARES SUBJECT TO THE PLAN.
Under the Plan the maximum number and kind of shares with respect to which
Awards may be granted, subject to adjustment in accordance with Section 14
hereof, is thirty million (30,000,000) shares of Common Stock; provided,
however, that in the aggregate, not more than one-tenth (1/10) of such
allotted shares may be made the subject of Awards other than Options and
Stock Appreciation Rights. The Common Stock to be offered under the Plan
may be either authorized and unissued shares or issued shares reacquired by
the Company and presently or hereafter held as treasury shares. The Board
of Directors has reserved for the purposes of the Plan a total of thirty
million (30,000,000) of the authorized but unissued shares of Common Stock,
subject to adjustment in accordance with Section 14 hereof.
If any shares as to which an Award granted under the Plan shall remain
unvested and /or unexercised at the expiration thereof or shall be
terminated unvested and/or unexercised, they may be the subject of further
Awards provided that the Plan has not been terminated pursuant to Section
18 hereof. In addition, if any Option is exercised by tendering shares to
the Company as full or partial payment of the exercise price in accordance
with Subsection C of Section 7 hereof, the number of shares available under
this Section 6 shall be increased by the number of shares so tendered.
SECTION 7. STOCK OPTIONS.
The Administrator may grant Options which may be designated as (i)
Nonqualified Stock Options or (ii) Incentive Stock Options. The grant of
each Option shall be confirmed by a Stock Option Agreement (in a form
prescribed by the Administrator) that shall be executed by the Company and
by the Optionee as promptly as practicable after such grant. The Stock
Option Agreement shall expressly state or incorporate by reference the
applicable provisions of this Plan pertaining to the type of Option
granted.
A. NONQUALIFIED STOCK OPTIONS. A Nonqualified Stock Option is an Award
in the form of an Option to purchase a specified number of shares of
Common Stock during such specified time as the Administrator may
determine, at a price determined by the Administrator that, unless
deemed otherwise by the Administrator, is not less than the Fair
Market Value of the Common Stock on the date the Option is granted.
B. INCENTIVE STOCK OPTIONS. An Incentive Stock Option is an Award in
the form of an Option to purchase Common Stock that is identified as
an Incentive Stock Option, complies with the requirements of Code
Section 422 or any successor section. Eligible Directors shall not be
granted Incentive Stock Options.
C. Provisions Applicable to Either Nonqualified Stock Options or
Incentive Stock Options
1. Option Periods
The term of each Option granted under this Plan shall be for such
period as the Administrator shall determine, but not more than 10
years from the date of grant thereof, subject to Subsection 3 of
Subsection B hereof, or to earlier termination as herein after
provided in Subsection 3 of this Subsection C.
2. Exercise of Options
Each Option granted under this Plan may be exercised on such date
or dates during the Option Period for such number of shares as
shall be prescribed by the provisions of the Stock Option
Agreement evidencing such Option, provided that:
(a) An Option may be exercised, (i) only by the Optionee during
the continuance of the Optionee's employment by the Company or a
Subsidiary, or (ii) after termination of the Optionee's
employment by the Company or a Subsidiary in accordance with the
provisions of Subsection 3 of this Subsection C.
(b) An Option may be exercised by the Optionee or a Successor
only by written notice (in the form prescribed by the
Administrator) to the Company specifying the number of shares to
be purchased.
(c) The aggregate Option Price of the shares as to which an
Option may be exercised shall be paid in full upon exercise by
any one or any combination of the following: cash, personal
check, wire transfer, certified or cashier's check or the
transfer, either actually or by attestation, of certificates for
Mature Stock or other Common Stock which was not obtained through
the exercise of a stock option, endorsed in blank or accompanied
by executed stock powers with signatures guaranteed by a national
bank or trust company or a member of a national securities
exchange.
As soon as practicable after receipt by the Company of notice of
exercise and of payment in full of the Option Price of the shares
with respect to which an Option has been exercised and any
applicable taxes, a certificate or certificates representing such
shares shall be registered in the name of the Optionee or the
Optionee's Successor and shall be delivered to the Optionee or
the Optionee's Successor. An Optionee or Successor shall have no
rights as a stockholder with respect to any shares covered by the
Option until the Optionee or Successor shall have become the
holder of record of such shares, and, except as provided in
Section 14 hereof, no adjustments shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights in respect of such
shares for which the record date is prior to the date on which
the Optionee or Successor shall have become the holder of record
thereof.
3. Termination of Employment; Demotion
The effect of the Demotion (as "Demotion" is defined in
Subsection 2(m) of this Plan) of an Optionee by the Company or of
the termination of an Optionee's employment or, in the case of an
Eligible Director, service, with the Company or a Subsidiary
shall be as follows:
(a) Involuntary Termination or Demotion. If the employment or, in
the case of Eligible Director, the service, of an Optionee is
terminated involuntarily by the Company or a Subsidiary or if the
Optionee receives a Demotion, the right to exercise any
outstanding Options, to the extent exercisable, held by such
Optionee shall terminate, notwithstanding any other provisions
herein, on the date such Options expire or three months following
such Demotion or involuntary termination, whichever first occurs,
or such other period (not beyond the expiration date of the
Option) as determined by the Committee and set forth in the Stock
Option Agreement at the time such Option is granted or
thereafter; it being understood, however, that such right to
exercise any outstanding Options during such period shall only
exist to the extent such Options were exercisable immediately
preceding such Demotion or involuntary termination of employment
or service under the provisions of the applicable agreements
relating thereto, unless the Administrator, in its sole
discretion, specifically waives in writing the restrictions
relating to exercisability, if any, contained in such agreements.
Upon expiration of such period, all of such Optionee's rights
under any Option shall lapse and be without further force or
effect.
(b) Disability. If the employment or, in the case of an Eligible
Director, the service, of an Optionee is interrupted by reason of
a "disability," as defined in Albertson's, Inc. Employees'
Disability Benefits Plan or a successor plan or Albertson's
Southern Region Employees' Disability Benefits Plan or a
successor plan (collectively referred to herein as the
"Disability Plan") and a determination has been made by the
trustees under the Disability Plan that such Optionee is eligible
to receive disability payments thereunder (or, in the case of an
Eligible Director, would otherwise have been entitled to receive
such disability payments thereunder if he or she was an
employee)("Disability Determination"), the right to exercise any
outstanding Options, to the extent exercisable, held by such
Optionee shall terminate, notwithstanding any other provisions
herein, on the date such Options expire or within three years of
the date that the first payment is made pursuant to the
Disability Determination, whichever is the shorter period, or
such other period (not beyond the expiration date of the Option)
as determined by the Committee and set forth in the Stock Option
Agreement at the time such Option is granted or thereafter; it
being understood, however, that such right to exercise any
outstanding Options during such period shall only exist to the
extent such Options were exercisable immediately preceding the
date of the Disability Determination under the provisions of the
applicable agreements relating thereto, unless the Administrator
in its sole discretion, specifically waives in writing the
restrictions relating to exercisability, if any, contained in
such agreements. Upon expiration of such period, all of such
Optionee's rights under any Option shall lapse and be without
further force or effect.
(c) Retirement. If an Optionee's employment terminates as the
result of retirement of the Optionee under any retirement plan of
the Company or a Subsidiary or, in the case of an Eligible
Director whose service terminates on or after attaining age 65,
or age 55 with 10 years of service as a director, an Optionee
with a Nonqualified Stock Option may exercise any outstanding
Nonqualified Stock Option at any time prior to the expiration
date of the Nonqualified Stock Option, or such other period as
determined by the Committee and set forth in the Stock Option
Agreement at the time such Option is granted or thereafter, and
an Optionee with an Incentive Stock Option may exercise any
outstanding Incentive Stock Option at any time prior to the
expiration date of the Incentive Stock Option or within three
months following the effective date of the Optionee's retirement,
whichever is the shorter period; it being understood, however,
that such right to exercise Options during such applicable
periods shall only exist to the extent such Options were
exercisable on the date of such termination under the provisions
of the applicable agreements relating thereto, unless the
Administrator, in its sole discretion, specifically waives in
writing the restrictions relating to exercisability, if any,
contained in such agreements. Upon expiration of such applicable
period all of such Optionee's rights under the Option shall lapse
and be without further force or effect.
(d) Death. (i) If an Optionee shall die while an Employee or
while serving as a director or within three months after the date
that a determination is made under the Disability Plan that such
Optionee is, or in the case of an Eligible Director, would have
been, eligible to receive disability payments thereunder, the
Optionee's Option or Options may be exercised by the person or
persons entitled to do so under the Optionee's will or, if the
Optionee shall have failed to make testamentary disposition of
such Options or shall have died intestate, by the Optionee's
legal representative or representatives (such person, persons,
representative or representatives are referred to herein as the
"Successor" or "Successors" of an Optionee), in either case at
any time prior to the expiration date of such Options or within
three years of the date of the Optionee's death, whichever is the
shorter period, or such other period (not beyond the expiration
date of the Option) as determined by the Committee and set forth
in the Stock Option Agreement at the time such Option is granted
or thereafter; it being understood, however, that such right to
exercise Options during such period shall only exist to the
extent such Options were exercisable on the date of the
Optionee's death under the provisions of the applicable
agreements relating thereto, unless the Administrator, in its
sole discretion, specifically waives in writing the restrictions
relating to exercisability, if any, contained in such agreements.
Upon expiration of such period, all of such Optionee's rights
under any Option shall lapse and be without further force or
effect. (ii) If an Optionee shall die within three months after
the involuntary termination of the Optionee's employment, the
Optionee's Options may be exercised by the Optionee's Successors
at any time prior to the expiration date of such Options or
within one year of the date of the Optionee's death, whichever is
the shorter period, or such other period (not beyond the
expiration date of the Option) as determined by the Committee and
set forth in the Stock Option Agreement at the time such Option
is granted or thereafter; it being understood, however, that such
right to exercise Options during such period shall only exist to
the extent such Options were exercisable on the date of the
Optionee's retirement or termination of employment under the
provisions of the applicable agreements relating thereto, unless
the Administrator, in its sole discretion, specifically waives in
writing the restrictions relating to exercisability, if any,
contained in such agreements. Upon expiration of such period all
of such Optionee's rights under any Option shall lapse and be
without further force or effect. (iii) If an Optionee shall die
after the Optionee's retirement, the Optionee's Options may be
exercised by the Optionee's Successors in accordance with Section
7(C)(3)(c) hereof.
(e) Voluntary or Other Termination. If the employment or, in the
case of an Eligible Director, the service, of an Optionee shall
terminate voluntarily or for any reason other than as set forth
in Paragraphs (a), (b), (c) or (d) above, the Optionee's rights
under any then outstanding Options shall terminate on the date of
such termination of employment or service; provided, however, the
Administrator may, in its sole discretion, take such action as it
considers appropriate to waive in writing such automatic
termination and/or the restrictions, if any, contained in the
applicable agreements relating thereto.
(f) To the extent that an Option may be exercised during a period
designated (expressly or pursuant to an action of the
Administrator) in Subsection C3 of this Section 7, unless
exercised within such designated period, the Option shall
thereafter be null and void.
4. Other Terms
The Administrator may not reduce the exercise price of an Option
after the date of its grant. Options granted pursuant to the Plan
may contain such other terms, restrictions, provisions and
conditions not inconsistent herewith as may be determined by the
Administrator.
SECTION 8. STOCK APPRECIATION RIGHTS.
(a) A stock appreciation right or SAR is a right to receive, upon surrender
of the right, but without payment, an amount payable in cash. The amount
payable with respect to each SAR shall be equal in value to the excess, if
any, of the Fair Market Value of a share of Common Stock on the exercise
date over the exercise price of the SAR. The exercise price of the SAR
shall be determined by the Administrator and shall not be less than the
Fair Market Value of a share of Common Stock on the date the SAR is
granted.
(b) In the case of an SAR granted in tandem with an Incentive Stock Option
to an Employee who is a Ten Percent Shareholder on the date of such grant,
the amount payable with respect to each SAR shall be equal in value to the
excess, if any, of the Fair Market Value of a share of Common Stock on the
exercise date over the exercise price of the SAR, which exercise price
shall not be less than 110% of the Fair Market Value of a share of Common
Stock on the date the SAR is granted.
(c) The exercise price shall be established by the Administrator at the
time the SAR is granted. A SAR may contain such other terms, restrictions,
provisions and conditions not inconsistent herewith as may be determined by
the Administrator.
SECTION 9. RESTRICTED STOCK/DEFERRED STOCK.
(a) Restricted Stock is Common Stock of the Company that is issued to a
Participant at a price determined by the Administrator, which price may be
zero (if permitted by law), and is subject to restrictions on transfer
and/or such other restrictions on incidents of ownership as the
Administrator may determine. Restricted Stock may contain such other terms,
restrictions, provisions and conditions not inconsistent herewith as may be
determined by the Administrator.
(b) Deferred Stock is an Award of Common Stock which is made to a
Participant at a price determined by the Administrator, which price may be
zero (if permitted by law) and which is not issued to the Participant until
all the restrictions on transfer and/or such other restrictions on
incidents of ownership as the Administrator has determined have lapsed.
Deferred Stock may contain such other terms, restrictions, provisions and
conditions not inconsistent herewith as may be determined by the
Administrator.
(c) The Administrator may provide that the restrictions on shares of
Restricted Stock or any other Award shall lapse upon the achievement by the
Company of specified performance goals. Such performance goals may be
expressed in terms of one or more financial or other objective goals listed
below which may be Company-wide or otherwise, including on a division
basis, regional basis or on an individual basis. Financial goals may be
expressed in terms of sales, earnings per share, stock price, return on
equity, net earnings growth, net earnings, related return ratios, cash
flow, earnings before interest, taxes, depreciation and amortization
(EBITDA), return on assets, total stockholder return, reductions in the
Company's overhead ratio and/or expense to sales ratios, or any one or more
of the foregoing. Any criteria may be measured in absolute terms or as
compared to another company or companies. To the extent applicable, any
such performance goal shall be determined (i) in accordance with the
Company's audited financial statements and generally accepted accounting
principles and reported upon by the Company's independent accountants or
(ii) so that a third party having knowledge of the relevant facts could
determine whether such performance goal is met.
SECTION 10. OTHER STOCK-BASED INCENTIVE AWARDS.
The Administrator may from time to time grant Awards under this Plan that
provide the Participant with the right to purchase Common Stock or that are
valued by reference to the Fair Market Value of the Common Stock
(including, but not limited to, phantom securities or dividend
equivalents). Such Awards shall be in a form determined by the
Administrator, provided that such Awards shall not be inconsistent with the
terms and purposes of the Plan. The Administrator will determine the price
of any Award and may accept any lawful consideration therefor. Such Awards
may contain such other terms, restrictions, provisions and conditions not
inconsistent herewith as may be determined by the Administrator.
SECTION 11. NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the Plan nor any Awards granted under the Plan shall be deemed to
confer upon any Employee any right to continued employment by the Company
or any Subsidiary, and shall not interfere in any way with the right of the
Company or any Subsidiary to demote or discharge the Employee for any
reason at any time. Nothing contained in the Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements
may be either generally applicable or applicable only in specific cases.
SECTION 12. LISTING AND REGISTRATION OF SHARES.
If at any time the Board of Directors shall determine, in its discretion,
that the listing, registration or qualification of any of the shares
subject to Awards under the Plan upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of or in
connection with the purchase or issuance of shares thereunder, no
outstanding Awards may be exercised in whole or in part and/or shares so
purchased or issued unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors. The Board of Directors
may require any person exercising an Award to make such representations and
furnish such information as it may consider appropriate in connection with
the issuance or delivery of the shares in compliance with applicable law
and shall have the authority to cause the Company at its expense to take
any action related to the Plan that may be required in connection with such
listing, registration, qualification, consent or approval.
SECTION 13. ACCELERATION OF AWARDS UPON CHANGE IN CONTROL AND TERMINATION OF
EMPLOYMENT.
(a) Notwithstanding anything to the contrary contained elsewhere in this
Plan, unless the terms of the Award Agreement specifically provide
otherwise or unless otherwise determined by the Administrator in writing at
or after award, but prior to the occurrence of a Change in Control (as
defined below), upon a Change in Control, each outstanding Award shall
become immediately vested and/or exercisable for the total remaining number
of shares of Common Stock, SARs or Units covered by the Award.
(b) Notwithstanding anything to the contrary contained elsewhere in this
Plan or under the terms of any Award Agreement, if any Participant's
employment with the Company is terminated by the Company prior to a Change
in Control without Cause (as defined below) at the direction of a "person"
(as defined for purposes of Section 13(d) of the Act) who has entered into
an agreement with the Company the consummation of which will constitute a
Change in Control, the Award of such terminated Participant shall become
immediately exercisable, as of the date immediately preceding such date of
termination, for the total remaining number of shares of Common Stock, SARs
or Units covered by the Award. For purposes of this Section, "Cause" shall
mean (i) the willful and continued failure by the Participant to
substantially perform his or her duties with the Company (other than due to
incapacity due to physical or mental illness) or (ii) the willful engaging
by the Participant in conduct which is demonstrably and materially
injurious to the Company or its Subsidiaries.
(c) For purposes of this Section, "Change in Control" shall mean the
occurrence in a single transaction or series of transactions of any one of
the following events or circumstances: (i) merger, consolidation or
reorganization where the beneficial owners of the voting securities of the
Company immediately preceding such merger, consolidation or reorganization
beneficially own less than 80% of the securities possessing the right to
vote to elect directors or to authorize a merger, consolidation or
reorganization with respect to the survivor, after giving effect to such
merger, consolidation or reorganization, (ii) merger, consolidation or
reorganization of the Company where 20% or more of the incumbent directors
of the Company are changed, (iii) acquisition by any person or group, as
defined for purposes of Section 13(d) of the Act, other than a trustee or
other fiduciary holding voting securities of the Company under an employee
benefit plan of the Company (or a corporation owned, directly or
indirectly, by the holders of voting securities of the Company in
substantially the same proportion as their ownership of voting securities
of the Company) of beneficial ownership of 20% or more of the voting
securities of the Company (such amount to include any voting securities of
the Company acquired prior to the effective date of this Plan), (iv) during
any period of two (2) consecutive years, individuals who at the beginning
of such period constitute the Board of Directors and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clauses
(i), (ii), (iii) or (v) of this Subsection) whose election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, or (v)
approval by the stockholders of the Company of a plan of liquidation or
dissolution with respect to the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets; provided, that in the event the exact date of a Change in Control
cannot be determined, such Change in Control will be deemed to have
occurred on the earliest date on which it could have occurred. For these
purposes, the Administrator shall rely upon any notice from the Company
that concludes that a Change in Control has occurred. In the absence of
such a notice, the Administrator shall determine whether a Change in
Control has occurred and shall specify the date on which the Change in
Control occurred, or if an exact date cannot be determined, the earliest
date on which such Change in Control could have occurred. Notwithstanding
the foregoing, a Change in Control shall not include, with respect to an
individual Participant, any event, circumstance or transaction described in
clauses (i), (ii), (iii), (iv) or (v) of this Subsection which results,
within the six-month period preceding such event, circumstance or
transaction, from the action of any entity or group which includes, is
affiliated with or is wholly or partly controlled by such individual
Participant (a "Participant Group"), provided, however, that such action
shall not be taken into account for this purpose if it occurs within such
six-month period after the action of any person or group (within the
meaning of clause (iii) of this Subsection) which is not a Participant
Group.
SECTION 14. ADJUSTMENTS.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split-up, reverse stock split,
combination of shares or other change in corporate structure affecting the
Common Stock, a substitution or adjustment shall be made in (i) the
aggregate number of shares reserved for issuance under the Plan, and (ii)
the kind, number and Award Price of shares subject to outstanding Awards
granted under the Plan as may be determined by the Administrator, in its
sole discretion, provided that the number of shares subject to any Award
shall always be a whole number. Such other substitutions or adjustments
shall be made as may be determined by the Administrator, in its sole
discretion.
Upon any adjustment made pursuant to this Section 14 the Company will, upon
request, deliver to the Participant or to the Participant's Successors a
certificate of its Secretary setting forth the Award Price thereafter in
effect and the number and kind of shares or other securities thereafter
purchasable upon the exercise of such Award.
SECTION 15. USE OF PROCEEDS.
The proceeds received by the Company from the sale of shares pursuant to
Options granted under this Plan or from the exercise of other Awards shall
be available for general corporate purposes.
SECTION 16. TAX WITHHOLDING.
The Administrator may establish such rules and procedures as it considers
desirable in order to satisfy any obligation of the Company and any
Subsidiary to withhold federal income taxes or other taxes with respect to
any Award made under the Plan. Such rules and procedures may provide (i) in
the case of Awards paid in shares of Common Stock, that the person
receiving the Award may satisfy the withholding obligation by instructing
the Company to withhold shares of Common Stock otherwise issuable upon
exercise of such Award in order to satisfy such withholding obligation and
(ii) in the case of an Award paid in cash, that the withholding obligation
shall be satisfied by withholding the applicable amount and paying the net
amount in cash to the Participant.
SECTION 17. NONTRANSFERABILITY.
No Award shall be transferable by the Participant otherwise than by will or
by the laws of descent and distribution or, in the case of an Award other
than an Incentive Stock Option, pursuant to a domestic relations order
(within the meaning of Rule 16a-12 promulgated under the Act), and such
Award shall be exercisable during the lifetime of an Participant only by
the Participant or his or her guardian or legal representative.
Notwithstanding the foregoing, the Administrator may set forth in the Award
Agreement evidencing an Award (other than an Incentive Stock Option) at the
time of grant or thereafter, that the Award may be transferred to members
of the Participant's immediate family, to trusts solely for the benefit of
such immediate family members and to partnerships in which such family
members and/or trusts are the only partners, and for purposes of this Plan,
a transferee of an Award shall be deemed to be the Participant. For this
purpose, immediate family means the Participant's spouse, parents,
children, stepchildren and grandchildren and the spouses of such parents,
children, stepchildren and grandchildren. The terms of an Award shall be
final, binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Participant.
SECTION 18. INTERPRETATION, AMENDMENTS AND TERMINATION.
The Administrator may make such rules and regulations and establish such
procedures for the administration of the Plan as it deems appropriate. In
the event of any dispute or disagreement as to the interpretation of this
Plan or of any rule, regulation or procedure, or as to any question, right
or obligation arising from or related to the Plan, the decision of the
Administrator shall be final and binding upon all persons.
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights
of a Participant under any Award theretofore granted without such
Participant's consent, or that, without the approval of the Company
stockholders, would:
(a) except as provided in Section 14, increase the total number of
shares of Common Stock reserved for the purposes of the Plan;
(b) change the Employees or class of Employees eligible to participate
in the Plan; or
(c) extend the maximum period during which Awards may be granted.
Notwithstanding the foregoing, stockholder approval under this Section 18
shall be required only at such times and under such circumstances as
stockholder approval would be required under Rule 16b-3 of the Act with
respect to any material amendment to any employee benefit plan of the
Company.
The Administrator may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to Section 14 above, no such
amendment shall impair the rights of any holder without his or her consent.
The Board of Directors may, in its discretion, terminate this Plan at any
time. Termination of the Plan shall not affect the rights of Participants
or their Successors under any Awards outstanding and not exercised in full
on the date of termination.
SECTION 19. GENERAL PROVISIONS.
No Award may be exercised by the holder thereof if such exercise, and the
receipt of cash or stock thereunder, would be, in the opinion of counsel
selected by the Administrator, contrary to law or the regulations of any
duly constituted authority having jurisdiction over the Plan.
Absence on leave approved by a duly constituted officer of the Company or
any of its Subsidiaries shall not be considered interruption or termination
of service of any Employee for any purposes of the Plan or Awards granted
thereunder, except that no Awards may be granted to an Employee while he or
she is absent on leave.
No Participant shall have any rights as a stockholder with respect to any
shares subject to Awards granted to him or her under the Plan prior to the
date as of which he or she is actually recorded as the holder of such
shares upon the stock records of the Company.
Nothing contained in the Plan or in Awards granted thereunder shall confer
upon any Employee any right to continue in the employ of the Company or any
of its Subsidiaries or interfere in any way with the right of the Company
or any of its Subsidiaries to terminate his or her employment at any time.
Any Award Agreement may provide that stock issued upon exercise of any
Award may be subject to such restrictions, including, without limitation,
restrictions as to transferability and restrictions constituting
substantial risks or forfeiture as the Committee may determine at the time
such Award is granted.
SECTION 20. INDEMNIFICATION AND EXCULPATION.
Each person who is or shall have been a member of the Board of Directors or
of the Committee administering the Plan shall be indemnified and held
harmless by the Company against and from any and all loss, cost, liability
or expense that may be imposed upon or reasonably incurred by such person
in connection with or resulting from any claim, action, suit or proceeding
to which such person may be or become a party or in which such person may
be or become involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by such person in
settlement thereof (with the Company's written approval) or paid by such
person in satisfaction of a judgment in any such action, suit or
proceeding, except a judgment in favor of the Company based upon a finding
of such person's lack of good faith; subject, however, to the condition
that, upon the institution of any claim, action, suit or proceeding against
such person, such person shall in writing give the Company an opportunity,
at its own expense, to handle and defend the same before such person
undertakes to handle and defend it on such person's behalf. The foregoing
right of indemnification shall not be exclusive of any other right to which
such person may be entitled as a matter of law or otherwise, or any power
that the Company may have to indemnify or hold such person harmless.
Each member of the Board of Directors or of the Committee administering the
Plan, and each officer and employee of the Company, shall be fully
justified in relying or acting in good faith upon any information furnished
in connection with the administration of the Plan by any appropriate person
or persons other than such person. In no event shall any person who is or
shall have been a member of the Board of Directors or of the Committee
administering the Plan, or an officer or employee of the Company be held
liable for any determination made or other action taken or any omission to
act in reliance upon any such information, or for any action (including the
furnishing of information) taken or any failure to act, if in good faith.
SECTION 21. NOTICES.
All notices under the Plan shall be in writing, and if to the Company,
shall be delivered to the Secretary of the Company or mailed to its
principal office, 250 Parkcenter Blvd., Post Office Box 20, Boise, Idaho
83726, addressed to the attention of the Secretary; and if to a
Participant, shall be delivered personally or mailed to the Participant at
the address appearing in the payroll records of the Company or a
Subsidiary. Such addresses may be changed at any time by written notice to
the other party.
Exhibit 10.1.
Conformed Copy
TERMINATION AND CONSULTING AGREEMENT
This Termination and Consulting Agreement by and among American Stores
Company, a Delaware corporation (the "Company"), Albertson's, Inc., a
Delaware corporation ("Parent") and Victor L. Lund (the "Executive") is
dated as of the second day of August, 1998.
WHEREAS, the Company, Parent and Abacus Holdings, Inc. ("Sub") have
entered into an Agreement and Plan of Merger dated as of the second day of
August, 1998 (the "Merger Agreement"), pursuant to which the Company will
merge with Sub (the "Merger"), becoming a wholly owned subsidiary of
Parent; and
WHEREAS, the Executive and the Company are parties to an Amended and
Restated Employment Agreement dated as of December 9, 1997 (the "Employment
Agreement") and an Employment Agreement dated as of July 25, 1996, as
amended as of December 9, 1997 (the "Change of Control Agreement"), as well
as to various award agreements pursuant to the Company's 1997 Stock Option
and Stock Award Plan, 1989 Stock Option and Stock Award Plan, 1985 Stock
Option and Stock Award Plan and Employee Stock Purchase Plan (the "Stock
Award Agreements"), and the Executive is entitled to various benefits under
employee benefit plans, programs and policies of the Company (collectively,
the "Employee Benefits"), including without limitation the Supplemental
Executive Retirement Plan (the "SERP"); and
WHEREAS, it is acknowledged by the parties hereto that as a result of
the consummation of the Merger and the other transactions contemplated by
the Merger Agreement, as of the Effective Time (as defined in the Merger
Agreement), the Change of Control Agreement shall have become effective and
the Executive will have "Good Reason" to terminate his employment pursuant
to the Change of Control Agreement; and
WHEREAS, the Company and Parent have determined that it is in the best
interests of their respective shareholders to set forth, and the Executive
has agreed to set forth, their mutual agreement as to the rights and
entitlements of the Executive under the Employment Agreement, the Change of
Control Agreement and the Employee Benefits from and after the Effective
Time and to provide for the continuing availability to the Company and
Parent of the Executive's services and expertise following the Effective
Time, all on the terms and conditions set forth below;
NOW, THEREFORE, it is hereby agreed as follows:
1. Termination of Employment. (a) The Executive agrees not to
terminate his employment before the day after the Closing Date (as defined
in the Merger Agreement). Any termination of the Executive's employment
after the Effective Time shall be deemed to be a termination of his
employment for "Good Reason" under the Change of Control Agreement, with
the result that the Executive shall be entitled to the payments and
benefits set forth below in this Section 1. The date of such termination of
employment is hereinafter referred to as the "Date of Termination."
(b) The Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
(i) the sum of (1) the Executive's Annual Base Salary (as defined
below) through the Effective Time to the extent not theretofore paid,
and (2) the product of (x) the higher of (I) the Recent Annual Bonus
(as defined below) and (II) the Annual Bonus (as defined below) paid
or payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year consisting of
less than twelve full months or during which the Executive was
employed for less than twelve full months), for the most recently
completed fiscal year during the Employment Period, if any (such
higher amount being referred to as the "Highest Annual Bonus") and (y)
a fraction, the numerator of which is the number of days in the
current fiscal year through the Effective Time, and the denominator of
which is 365; and
(ii) the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus; and
(iii) the amount of the Executive's Special Long-Range Retirement
Plan "(SLRPP") benefit as required by Section VI-B of the Employment
Agreement, it being acknowledged that such benefit will become 100%
vested upon the consummation of the Merger and that such benefit will
be payable in a lump sum in accordance with clause 6. of said Section
VI-B.
(c) For three years after the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue to provide the Executive
and/or the Executive's family with "Welfare Benefits" (as defined below);
provided, however, that the benefits provided pursuant to this Section 1(c)
shall not duplicate any benefits required by Section 3(e) below.
(d) To the extent not theretofore paid or provided, or otherwise
specified in this Agreement, the Company shall timely pay or provide to the
Executive any other amounts or benefits required to be paid or provided or
which the Executive is eligible to receive under any plan, program, policy
or practice or contract or agreement of the Company and its affiliated
companies, including without limitation the SERP, in accordance with the
terms thereof.
2. Stock Awards. The Executive's Stock Awards shall be treated as
provided in the Merger Agreement, and in accordance with the terms of the
Stock Awards and the plans under which they were granted.
3. Post-Merger Services. (a) Parent shall cause the Executive to be
nominated to its Board of Directors (the "Board") for a term or terms
extending until the third annual meeting of Parent following the Effective
Time. While the Executive is a member of the Board, he shall serve as Vice
Chairman thereof.
(b) From the Date of Termination through the first anniversary thereof
or such shorter period as may be provided pursuant to Section 3(g) or (h)
below (the "Consulting Term"), in consideration for the compensation and
benefits provided for below, the Executive shall render one thousand hours
of service as follows: (i) the Executive shall make himself available to
Parent and the Company, at mutually convenient times and places, for such
consulting services as may be requested by the Board or the Chief Executive
Officer of Parent, in connection with long-range planning, strategic
direction, real estate strategy and integration and rationalization
matters; and (ii) the Executive shall serve as the industry representative
of Parent and the Company to the National Association of Chain Drug Stores
and CIES-The Food Business Forum.
(c) Parent shall pay the Executive a fee (the "Fee") of $70,834 per
month, payable monthly in advance, during the Consulting Term. In addition,
during the Consulting Term, the Executive shall be entitled to such other
perquisites (including expense reimbursement and transportation) as are
made available to senior executive officers of the Company in accordance
with the Company's policies and practices prevailing as of the date of this
Agreement. Without limiting the generality of the foregoing: (i) Parent
shall reimburse the Executive for all expenses incurred by him in the
performance of services hereunder, within thirty days of receipt by Parent
of invoices setting forth a description of the items for which
reimbursement is sought together with the cost or fair market value of such
items and copies of invoices, receipts, credit card statements and other
supporting documentation; (ii) during the Consulting Term, the Company's
corporate aircraft N718R shall remain based in Salt Lake City, and shall be
available for the use of the Executive and that of Company executives on a
basis consistent with the Company's practice on the date of this Agreement;
and (iii) when the Executive travels in the course of performing services
hereunder, he and Mrs. Lund shall be entitled to use such corporate
aircraft or to first-class travel by commercial airliner.
(d) As of the Date of Termination, the Company shall transfer to the
Executive title to the Company-owned vehicle that he currently uses.
(e) The Company shall purchase medical, dental, vision and
prescription drug coverage for the Executive and his spouse, Linda Lund, at
least comparable to the coverage under the plans and programs in effect for
active employees of the Company in which the Executive participates as of
the date hereof. The premiums for such coverage shall be payable by the
Company for the lifetime of the Executive and for Mrs. Lund's lifetime. To
the extent any such premiums are considered taxable income to the Executive
or to Mrs. Lund, the Company shall make a gross-up payment to the Executive
or Mrs. Lund, as applicable, to make him or her whole on an after-tax
basis. The Executive shall have the opportunity afforded to all terminating
employees of the Company to convert, to the extent permitted, any group
life or accident coverage to an individual policy or program following the
Effective Time.
(f) From the Date of Termination through October 31, 2012 (or the date
of the Executive's death, if earlier), the Company shall (i) pay the
Executive $39,000 per year, increased as of each anniversary of the Date of
Termination to reflect increases in the Consumer Price Index since the Date
of Termination or the last such anniversary, as applicable, in lieu of
providing him with an office and related occupancy expenses, as provided
for in Section VI-D of the Employment Agreement, and (ii) shall employ, and
shall provide the Executive with the full-time services of, Amy Stitt, his
current executive assistant or, if Ms. Stitt voluntarily ceases to be an
employee of the Company, with (at the Executive's election) the full-time
services of another executive secretary of comparable qualifications
employed by Parent and loaned to the Executive, or with reimbursement, on a
net after-tax basis, of the direct and indirect costs (including without
limitation for benefits) incurred by the Executive in hiring another
executive secretary to render such services. During her employment with the
Company pursuant to the preceding sentence, Ms. Stitt shall receive an
annual salary at least equal to $55,000, increased as of each anniversary
of the Date of Termination to reflect increases in the Consumer Price Index
since the Date of Termination or the last such anniversary, as applicable,
or, if greater, as necessary to provide her with increases at least equal,
on a percentage basis, to the increases provided to similarly situated
executive secretaries of Parent.
(g) If the Executive should die or become permanently disabled before
the first anniversary of the Date of Termination, the Consulting Term shall
end on the date of such death or permanent disability, Parent shall pay to
the Executive's estate or to the Executive or his legal guardian, as
applicable, any portion of the Fee and any expense reimbursements pursuant
to Section 3(c) above that remain unpaid, and the provisions of this
Section 3 shall have no further force or effect.
(h) Parent may terminate the Consulting Term for Cause, in which event
the Executive shall not be required to render any further services and no
further monthly payments of the Fee shall be made. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties under this
Section 3 (other than any such failure resulting from
incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered
to the Executive by the Board or the Chief Executive
Officer of Parent which specifically identifies the
manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and
demonstrably injurious to the Parent or the Company.
For purposes of this Section 3(h), no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted
to be done, by the Executive in bad faith or without reasonable belief that
the Executive's action or omission was in the best interests of Parent and
the Company. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or upon the instructions
of the Chief Executive Officer of Parent or based upon the advice of
counsel for Parent or the Company shall be conclusively presumed to be
done, or omitted to be done, by the Executive in good faith and in the best
interests of Parent and the Company. The Consulting Term shall not be
terminated for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after reasonable
notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.
(i) The Executive's status during the Consulting Term shall be that of
an independent contractor and not, for any purpose, that of an employee or
agent with authority to bind the Company in any respect. All payments and
other consideration made or provided to the Executive under this Section 3
shall be made or provided without withholding or deduction of any kind, and
the Executive shall assume sole responsibility for discharging, and he
hereby agrees to indemnify and defend Parent and the Company against, all
tax or other obligations associated therewith.
4. Confidentiality. The Executive shall hold in a fiduciary capacity
for the benefit of Parent and the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executive's employment by the
Company or any of its affiliated companies, and all such information,
knowledge or data relating to Parent or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the
Executive during the Executive's service as a consultant hereunder, and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this
Agreement). After termination of the Consulting Term, the Executive shall
not, without the prior written consent of Parent or as may otherwise be
required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than Parent and those
designated by it. In no event shall an asserted violation of the provisions
of this Section 4 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
5. Noncompetition. During the Consulting Term and thereafter while he
is a member of the Board, without the consent of the Board, the Executive
shall not serve as an employee, officer, director (or in any other position
of comparable function) of, or consultant to any other business or entity
engaged in the retail grocery or drug store business which is in
competition with Parent, the Company, or their respective subsidiaries;
provided, that the foregoing shall not prevent the Executive from
continuing to serve as a member of the Boards of Directors on which he
currently serves. In no event shall an asserted violation of the provisions
of this Section 5 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
6. Indemnification. Parent and the Company agree to indemnify,
protect, defend and hold the Executive and his estate, heirs, and personal
representatives, harmless from and against any actual or threatened action,
suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), and all losses, liabilities,
damages and expenses, including reasonable attorney's fees incurred by
counsel reasonably designated or approved by him, in connection with this
Agreement or his services hereunder, provided that any consulting services
giving rise to such indemnification shall have been performed by the
Executive in good faith and, to the best of his knowledge, in a lawful
manner.
7. Certain Additional Payments. (a) Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it
shall be determined that any payment or distribution by Parent, the Company
or its affiliates to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional
payments required under this Section 7) (a "Payment") would be subject to
the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 7(a), if it shall be determined that
the Executive is entitled to a Gross-Up Payment, but that the Payments do
not exceed 110% of the greatest amount (the "Reduced Amount") that could be
paid to the Executive such that the receipt of Payments would not give rise
to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all determinations
required to be made under this Section 7, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by Ernst & Young LLP or such other certified public accounting firm as
may be designated by the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations to Parent, the Company and the
Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is
requested by Parent or the Company. In the event that the Accounting Firm
is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm
shall be borne solely by Parent and the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by Parent or the
Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be
binding upon Parent, the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by Parent or the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that Parent
exhausts its remedies pursuant to Section 7(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Parent or the Company to or for the
benefit of the Executive.
(c) The Executive shall notify Parent in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment of
the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise Parent of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to Parent (or such
shorter period ending on the date that any payment of taxes with respect to
such claim is due). If Parent notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give Parent any information reasonably requested by
Parent relating to such claim,
(ii) take such action in connection with contesting
such claim as Parent shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by Parent,
(iii) cooperate with Parent in good faith in order
effectively to contest such claim, and
(iv) permit Parent to participate in any proceedings
relating to such claim;
provided, however, that Parent shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 7(c), Parent shall
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as Parent shall
determine; provided, however, that if Parent directs the Executive to pay
such claim and sue for a refund, Parent shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, Parent's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
Parent pursuant to Section 7(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to
Parent's complying with the requirements of Section 7(c)) promptly pay to
Parent the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by Parent pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any
refund with respect to such claim and Parent does not notify the Executive
in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
8. Parent Guaranty. Parent hereby irrevocably, absolutely and
unconditionally guarantees the payment by the Company of all compensation
and benefits (the "Payments") that the Company is obligated to provided to
the Executive under this Agreement. This obligation of Parent is the
primary obligation of Parent, and the Executive may enforce this guarantee
against Parent without any prior enforcement of the obligation to make the
Payments against the Company.
9. Definitions. As used in this Agreement, the following terms shall
have the meanings indicated below:
(a) "Annual Base Salary" shall mean the Executive's annual base salary
paid by the Company and its affiliated companies (including any base salary
which was earned but deferred), at the highest rate in effect in respect of
the twelve-month period immediately preceding the month in which the
Effective Time occurs, but in no event less than $850,000.
(b) "Recent Annual Bonus" shall mean the Executive's target bonus in
effect for the year in which the Effective Time occurs under the Company's
incentive plans (both annual and long-term), but in no event less than
$595,000.
(c) "Welfare Benefits" shall mean all welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other
peer executives of the Company and its affiliated companies, which such
plans, practices, policies and programs provide the Executive with benefits
shall be not less favorable, in the aggregate, than the most favorable of
such plans, practices, policies and programs in effect for the Executive at
any time during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives who remain active
employees of Parent, the Company or any of their respective subsidiaries;
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility.
10. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of Parent shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Parent, the Company and their respective successors and assigns.
(c) Parent and the Company shall each require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of their respective businesses and/or assets to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that Parent or the Company (as applicable) would be required to
perform it if no such succession had taken place. As used in this
Agreement, "Parent" and the "Company" shall mean Parent and the Company,
respectively, as hereinbefore defined and any successor to their respective
businesses and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
--------------------
Victor L. Lund
P.O. Box 58739
Salt Lake City, UT 84158
If to Parent:
Thomas R. Saldin
250 Park Center Blvd.
Boise, Idaho 83726
If to the Company:
------------------
295 South Main Street
Salt Lake City, UT 84111
Attention: General Counsel or Secretary
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision (or portion
thereof) of this Agreement shall not affect the validity or enforceability
of any other provision (or portion thereof) of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) From and after the Date of Termination, this Agreement shall
supersede any other agreement between the parties with respect to the
subject matter hereof, including without limitation the Employment
Agreement and the Change of Control Agreement.
(f) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute
but one and the same instrument.
(g) This Agreement shall be null and void, ab initio, and of no
further effect if the Merger Agreement is terminated before the Effective
Time.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from their respective Boards of
Directors, Parent and the Company have each caused these presents to be
executed in its name on its behalf, all as of the day and year first above
written.
/s/ Victor L. Lund
---------------------------------------------
Victor L. Lund
AMERICAN STORES COMPANY
By /s/ Kathleen E. McDermott
---------------------------------------
ALBERTSON'S, INC.
By /s/ Michael F. Reuling
---------------------------------------
Exhibit 23.4.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Albertson's, Inc. on Form S-4 of our report dated March 18, 1998,
incorporated by reference in the Annual Report on Form 10-K of Albertson's
for the year ended January 29, 1998 and to the reference to us under the
heading "Experts" in the Joint Proxy Statement and Prospectus, which is
part of this Registration Statement.
DELOITTE & TOUCHE LLP
Boise, Idaho
September 4, 1998
Exhibit 23.5.
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus/Proxy Statement of
American Stores Company and Albertson's, Inc. for the registration of shares
of Albertson's common stock and to the incorporation by reference therein
of our report dated March 18, 1998, with respect to the consolidated
financial statements of American Stores Company incorporated by reference
in its Annual Report (Form 10-K) for the year ended January 31, 1998, filed
with the Securities and Exchange Commission.
Ernst & Young LLP
Salt Lake City, Utah
September 3, 1998
Exhibit 23.6.
We hereby consent to the use of our opinion letter dated August 2,1998
to the Board of Directors of Albertson's, Inc. included as Appendix D to
the Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of Abacus Holdings,
Inc., a wholly owned subsidiary of Albertson's, Inc., with and into
American Stores Company and to the references to such opinion in such Proxy
Statement/Prospectus under the captioned "QUESTIONS AND ANSWERS ABOUT THE
MERGER," "THE MERGER - Background of the Merger," "THE MERGER - Reasons for
the Merger; Recommendations of the Boards of Directors - Albertson's," and
"THE MERGER - Opinions of Financial Advisors - Albertson's." In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
commission thereunder, nor do we hereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Securities Act of 1933, as amended, or
the rules and regulations of the Securities and Exchange Commission
thereunder.
MERRILL, LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
September 8, 1998
Exhibit 23.7.
[THE BLACKSTONE GROUP LETTERHEAD]
September 4, 1998
Albertson's, Inc.
250 Parkcenter Boulevard
Boise, Idaho 83726
American Stores Company
299 South Main Street
Salt Lake City, Utah 84111
Ladies and Gentlemen:
We hereby consent to the inclusion in the Registration Statement on
Form S-4 (the "Registration Statement"), relating to the proposed merger of
Abacus Holdings, Inc., a wholly owned subsidiary of Albertson's, Inc.
("Albertson's"), with and into American Stores Company ("ASC"), of our
opinion letter, dated August 2, 1998, to the Board of Directors of ASC
appearing as Appendix E to the Proxy Statement/Prospectus which comprises
part of the Registration Statement, and to the references to such opinion
and our firm's name therein. In giving such consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended (the "Securities
Act"), or the rules and regulations adopted by the Securities and Exchange
Commission (the "SEC") thereunder, nor do we thereby admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act or the rules
and regulations of the SEC thereunder.
Very truly yours,
THE BLACKSTONE GROUP L.P.
By: /s/ J. Tomilson Hill
------------------------
Exhibit 99.1
------------
September 1, 1998
Albertson's, Inc.
250 Parkcenter Boulevard
P.O. Box 20
Boise, Idaho 83726
Ladies and Gentlemen:
I hereby consent to the disclosure indicating that I will become a director
of Albertson's, Inc. ("Albertson's") contained in the Joint Proxy
Statement/Prospectus forming a part of the Registration Statement on Form
S-4 of Albertson's, to be filed with the Securities and Exchange Commission
in connection with the registration under the Securities Act of 1933, as
amended, of the shares of Common Stock of Albertson's to be issued in
connection with the Agreement and Plan of Merger, dated as of August 2,
1998, among Albertson's, Abacus Holdings, Inc. and American Stores Company.
/s/Pamela G. Bailey
--------------------------------
Pamela G. Bailey
Exhibit 99.2
------------
September 1, 1998
Albertson's, Inc.
250 Parkcenter Boulevard
P.O. Box 20
Boise, Idaho 83726
Ladies and Gentlemen:
I hereby consent to the disclosure indicating that I will become a director
of Albertson's, Inc. ("Albertson's") contained in the Joint Proxy
Statement/Prospectus forming a part of the Registration Statement on Form
S-4 of Albertson's, to be filed with the Securities and Exchange Commission
in connection with the registration under the Securities Act of 1933, as
amended, of the shares of Common Stock of Albertson's to be issued in
connection with the Agreement and Plan of Merger, dated as of August 2,
1998, among Albertson's, Abacus Holdings, Inc. and American Stores Company.
/s/Henry I. Bryant
--------------------------------
Henry I. Bryant
Exhibit 99.3
------------
September 1, 1998
Albertson's, Inc.
250 Parkcenter Boulevard
P.O. Box 20
Boise, Idaho 83726
Ladies and Gentlemen:
I hereby consent to the disclosure indicating that I will become a director
of Albertson's, Inc. ("Albertson's") contained in the Joint Proxy
Statement/Prospectus forming a part of the Registration Statement on Form
S-4 of Albertson's, to be filed with the Securities and Exchange Commission
in connection with the registration under the Securities Act of 1933, as
amended, of the shares of Common Stock of Albertson's to be issued in
connection with the Agreement and Plan of Merger, dated as of August 2,
1998, among Albertson's, Abacus Holdings, Inc. and American Stores Company.
/s/Fernando R. Gumucio
--------------------------------
Fernando R. Gumucio
Exhibit 99.4
------------
September 1, 1998
Albertson's, Inc.
250 Parkcenter Boulevard
P.O. Box 20
Boise, Idaho 83726
Ladies and Gentlemen:
I hereby consent to the disclosure indicating that I will become a director
of Albertson's, Inc. ("Albertson's") contained in the Joint Proxy
Statement/Prospectus forming a part of the Registration Statement on Form
S-4 of Albertson's, to be filed with the Securities and Exchange Commission
in connection with the registration under the Securities Act of 1933, as
amended, of the shares of Common Stock of Albertson's to be issued in
connection with the Agreement and Plan of Merger, dated as of August 2,
1998, among Albertson's, Abacus Holdings, Inc. and American Stores Company.
/s/Victor L. Lund
--------------------------------
Victor L. Lund
Exhibit 99.5
------------
September 1, 1998
Albertson's, Inc.
250 Parkcenter Boulevard
P.O. Box 20
Boise, Idaho 83726
Ladies and Gentlemen:
I hereby consent to the disclosure indicating that I will become a director
of Albertson's, Inc. ("Albertson's") contained in the Joint Proxy
Statement/Prospectus forming a part of the Registration Statement on Form
S-4 of Albertson's, to be filed with the Securities and Exchange Commission
in connection with the registration under the Securities Act of 1933, as
amended, of the shares of Common Stock of Albertson's to be issued in
connection with the Agreement and Plan of Merger, dated as of August 2,
1998, among Albertson's, Abacus Holdings, Inc. and American Stores Company.
/s/Arthur K. Smith
--------------------------------
Arthur K. Smith
