<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
-------------------------------------------
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: January 11, 1999 Commission file number: 1-6187
ALBERTSON'S, INC.
-----------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 82-0184434
- ------------------------------------ --------------------------------
(State of Incorporation) (Employer Identification Number)
250 Parkcenter Blvd., P.O. Box 20, Boise, Idaho 83726
- ----------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (208) 395-6200
--------------
<PAGE>
Item 5. Other Events.
Albertson's, Inc. has attached the Joint Proxy Statement and Prospectus
dated October 9, 1998 hereto as Exhibit 99.1.
Item 7. Exhibits.
Exhibit
No. Description
99.1 Joint Proxy Statement and Prospectus dated October 9, 1998
2
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Albertson's, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALBERTSON'S, INC.
Date: January 11, 1999 By: /s/ Thomas R. Saldin
Thomas R. Saldin
Executive Vice President, Administration
and General Counsel
3
<PAGE>
INDEX TO EXHIBITS
FILED WITH THE CURRENT REPORT
ON FORM 8-K DATED JANUARY 11, 1999
Exhibit
No. Description
99.1 Joint Proxy Statement and Prospectus dated October 9, 1998
4
<PAGE>
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
----------------
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. 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 (collectively, 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
Transactions 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 $53.88 closing price of Albertson's Common
Stock on the NYSE Composite Transactions Tape on October 8, 1998, the last
practicable trading day prior to the date of this Proxy Statement/Prospectus,
the Consideration had a value of $33.94. At the effective time of the Merger
(the "Effective Time"), the Consideration may have a market value that is
greater or less 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, as amended on
August 2, 1998 (the "Rights Agreement"), 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 17.
This Proxy Statement/Prospectus is first being mailed to the stockholders of
Albertson's and the stockholders of ASC on or about October 13, 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 OCTOBER 9, 1998
<PAGE>
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 NOVEMBER 4, 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").
ii
<PAGE>
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.
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... ii
DOCUMENTS INCORPORATED BY REFERENCE........................................ ii
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................... 1
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........................................................... 7
Record Date; Shares Entitled to Vote; Quorum............................. 7
The Merger............................................................... 7
The Stock Option Agreements.............................................. 11
The Albertson's Plan Amendments.......................................... 11
Selected Historical Consolidated Financial Data of Albertson's........... 12
Selected Historical Consolidated Financial Data of ASC................... 13
Selected Unaudited Pro Forma Combined Financial Data..................... 14
Comparative Per Share Data of Albertson's and ASC........................ 15
Market Prices and Dividends.............................................. 16
RISK FACTORS............................................................... 17
Fixed Exchange Ratio Despite Change in Relative Stock Price.............. 17
Uncertainties in Integrating ASC......................................... 17
Merger Related Costs..................................................... 17
Risks Generally Associated with Acquisitions............................. 18
Increased Leverage....................................................... 18
Regulatory Matters....................................................... 18
Computer Technologies; Year 2000......................................... 18
Certain Anti-Takeover Provisions......................................... 19
Dependence on Key Personnel.............................................. 19
THE MEETINGS............................................................... 20
Matters to Be Considered at the Meetings................................. 20
Votes Required........................................................... 20
Voting of Proxies........................................................ 20
Revocability of Proxies.................................................. 21
Record Date; Shares Entitled to Vote; Quorum............................. 21
Solicitation of Proxies.................................................. 22
THE COMPANIES.............................................................. 23
Albertson's.............................................................. 23
ASC...................................................................... 23
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE MERGER................................................................ 24
General................................................................. 24
Background of the Merger................................................ 24
Reasons for the Merger; Recommendations of the Boards of Directors...... 27
Opinions of Financial Advisors.......................................... 30
Interests of Certain Persons in the Merger.............................. 39
Accounting Treatment.................................................... 41
Certain U.S. Federal Income Tax Consequences............................ 42
Regulatory Matters...................................................... 43
No Appraisal Rights..................................................... 43
Resale Restrictions..................................................... 44
THE AGREEMENT............................................................. 45
The Merger.............................................................. 45
The Effective Time...................................................... 45
Exchange Procedures..................................................... 45
Representations and Warranties.......................................... 46
Certain Covenants....................................................... 47
No Solicitation of Transactions......................................... 48
Best Efforts............................................................ 49
Benefit Plans........................................................... 50
Governance.............................................................. 50
Indemnification and Insurance........................................... 51
Conditions.............................................................. 51
Termination............................................................. 52
Termination Fees; Expense Reimbursement................................. 53
Expenses................................................................ 54
Amendment and Waiver.................................................... 54
THE STOCK OPTION AGREEMENTS............................................... 55
The ASC Stock Option Agreement.......................................... 55
The Albertson's Stock Option Agreement.................................. 57
MANAGEMENT AND OPERATIONS AFTER THE MERGER................................ 60
THE ALBERTSON'S PLAN AMENDMENTS........................................... 62
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA............................... 67
DESCRIPTION OF ALBERTSON'S CAPITAL STOCK.................................. 75
Authorized Capital Stock................................................ 75
Albertson's Common Stock................................................ 75
Albertson's Preferred Stock............................................. 75
Preferred Stock Purchase Rights......................................... 75
COMPARATIVE RIGHTS OF STOCKHOLDERS........................................ 78
General................................................................. 78
Classified Board of Directors........................................... 78
Stockholder Rights Plan................................................. 78
Number of Directors; Removal; Filling Vacancies......................... 78
Special Meetings; Stockholder Action by Written Consent................. 79
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals.............................................................. 80
Amendment of the Certificate of Incorporation and Bylaws................ 81
Business Combinations................................................... 83
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Transactions with Interested Stockholders; Related Parties............... 84
Consideration of Other Constituencies.................................... 86
Limitation of Liability of Directors..................................... 86
Indemnification of Directors and Officers................................ 86
LEGAL MATTERS.............................................................. 87
EXPERTS.................................................................... 87
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETINGS............................. 87
</TABLE>
<TABLE>
<S> <C> <C>
APPENDIX A-- AGREEMENT AND PLAN OF MERGER......................................... A-1
APPENDIX B-- ASC STOCK OPTION AGREEMENT........................................... B-1
APPENDIX C-- 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
</TABLE>
vi
<PAGE>
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 November 12, 1998 at 10:00 a.m., local time, at the
Cascade Room, Holiday Inn, 3300 South Vista Avenue, Boise, Idaho. The ASC
Special Meeting will take place on November 12, 1998 at 8:00 a.m., local
time, at the Hyatt Westlake Plaza, 880 South Westlake Boulevard, Westlake
Village, California.
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 FOR 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
1
<PAGE>
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.
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 the completion 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 42.
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 17.
2
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
ASC STOCKHOLDERS
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
ALBERTSON'S STOCKHOLDERS
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) 395-6300
3
<PAGE>
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,"
"MANAGEMENT AND OPERATIONS AFTER THE MERGER" and "UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA," 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 businesses 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, develop new stores or complete
remodeling projects as rapidly as planned and to implement successfully 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 reengineering 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
document 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, stockholders 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 Amendments or other matters discussed in this
Proxy Statement/Prospectus.
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 October
1, 1998, Albertson's operated 967 stores in 25 western, midwestern and southern
states. These stores consisted of 847 combination food-drug stores, 87
conventional supermarkets and 33 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 and drug stores. As of August 29, 1998,
ASC operated 1,563 stores in 26 states, including 273 food and drug combination
stores, 534 supermarkets and 756 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 approved the
Agreement and unanimously 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--Albertson's."
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 ASC Board of Directors' approval of the Agreement) and values that
are in
5
<PAGE>
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--ASC."
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 full
text of the Merrill Lynch opinion (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 full
text of the Blackstone opinion (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 November 12, 1998, at 10:00
a.m., local time, at the Cascade Room, Holiday Inn, 3300 South Vista Avenue,
Boise, Idaho. The ASC Special Meeting will be held on November 12, 1998, at
8:00 a.m., local time, at the Hyatt Westlake Plaza, 880 South Westlake
Boulevard, Westlake Village, California.
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. At the Albertson's Board of
Directors meetings at which the Stock Issuance and the Albertson's Plan
Amendments were considered, the directors present at each of these meetings
unanimously approved the Stock Issuance and the Albertson's Plan Amendments.
THE ALBERTSON'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALBERTSON'S
STOCKHOLDERS VOTE FOR APPROVAL OF THE STOCK ISSUANCE AND FOR APPROVAL OF THE
ALBERTSON'S PLAN AMENDMENTS. Consummation of the Merger is not conditioned upon
stockholder approval of the Albertson's Plan Amendments; however, the
Albertson's Plan Amendments (if approved by the Albertson's stockholders) will
not become effective unless the Merger is consummated.
6
<PAGE>
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 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 September 28, 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 245,551,961 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 Common Stock at the close of business on
September 28, 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
274,570,045 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 Transactions 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 October 8, 1998, the
last practicable 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 Transactions Tape of $53.88 and the Exchange Ratio, the
Consideration had a value of $33.94. At the Effective Time, the Consideration
may have a market value that is greater or less than these amounts depending on
the market price of 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).
7
<PAGE>
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,
stating that such accountants concur with ASC management's conclusion that no
conditions exist related to ASC that would preclude Albertson's ability to
account for the Merger as a pooling of interests, and ASC has received a letter
from Albertson's independent public accountants, stating that such accountants
concur with Albertson's management's conclusion that no conditions exist that
would preclude Albertson's accounting for the Merger as a pooling of interests,
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 earlier letters. See "THE AGREEMENT-- Conditions" and "UNAUDITED
PRO FORMA COMBINED FINANCIAL DATA." 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.
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. On October 1, 1998, ASC and Albertson's received a request from
the FTC for additional information and documentary material, thereby extending
the waiting period 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 terminates the waiting period earlier. Albertson's and ASC are
taking all steps necessary to provide the information requested in a timely
manner. However, 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 is not
likely to occur until after the ASC Special Meeting and the Albertson's Special
Meeting. Any commitments required to obtain such clearance may result in a
combined
8
<PAGE>
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
promptly after the Effective Time, (ii) Victor L. Lund, Chairman and Chief
Executive Officer of ASC, 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 employment and change of control agreements that provide for
specified severance and supplemental retirement payments upon termination of
their service with ASC in anticipation of or following consummation of the
Merger, (iv) the payment of vested account balances to certain participants in
the ASC Supplemental Executive Retirement Plan, the ASC 1997 Stock Plan for
Non-Employee Directors and the ASC Non-Employee Directors' Deferred Fee Plan
may be accelerated as a result 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 outstanding at the Effective Time will be converted into
options to purchase shares of Albertson's Common Stock, and holders of such
options have the right, during a specified exercise period, to surrender all or
part of their options in exchange for shares of Albertson's Common Stock having
a value equal to the excess of the change of control price over the exercise
price (which shares will be deliverable upon the Merger), (vii) certain
restricted shares of ASC Common Stock will become vested in connection with
stockholder approval or consummation of 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 addition, in order for the Merger to qualify for pooling of
interests accounting 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."
9
<PAGE>
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) approval of the Agreement by the holders of a majority of the
outstanding shares of ASC Common Stock entitled to vote thereon and approval of
the Stock Issuance by a majority of the votes cast at the Albertson's Special
Meeting (provided that a majority of the shares of Albertson's Common Stock
entitled to vote are present in person or by proxy and are voted with respect
to the Stock Issuance); (ii) expiration or termination of the waiting period
applicable to the consummation of the Merger under the HSR Act; (iii) none of
the parties to the Agreement being subject to any order, decree or injunction
prohibiting the consummation of the Merger; (iv) no stop order with respect to
the effectiveness of the Registration Statement being in effect; and (v)
approval for listing on the NYSE of the shares of Albertson's Common Stock to
be issued pursuant to the Merger, 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 (except for such breaches which would not have a material adverse
effect); (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 a letter from ASC's independent
public accountants as to the ability of ASC to enter into a business
combination to be accounted for as a pooling of interests and receipt by ASC of
a letter 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."
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 consummates or enters into an agreement with any third
party relating to a business combination transaction 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 consummates or
enters into an agreement with any third party relating to a business
combination transaction within six months
10
<PAGE>
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. If
a party becomes entitled to a termination fee, the stock option granted by the
other party also becomes exercisable. See "THE AGREEMENT--Termination," "--
Termination Fees; Expense Reimbursement" and "THE STOCK OPTION AGREEMENTS."
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" occurs if Albertson's becomes entitled to
receive a termination fee from ASC. Albertson's profit under the ASC Stock
Option Agreement, together with any termination fees and expenses payable or
paid to Albertson's under the Agreement, is limited in the aggregate to
$265,000,000. 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" occurs if ASC becomes entitled to receive a termination fee
from Albertson's. ASC's profit under the Albertson's Stock Option Agreement,
together with any termination fees and expenses payable or paid to ASC under
the Agreement, is limited in the aggregate to $360,000,000. 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; however, the
Albertson's Plan Amendments (if approved by the Albertson's stockholders) will
not become effective unless the Merger is consummated.
11
<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, which
are 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(3)
---------------- ------------- ----------- ----------- ----------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
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
OTHER DATA: (as of the
end of the period)
Number of stores........ 916 847 878 826 764 720 676
</TABLE>
- --------
(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.
12
<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, which are
incorporated by reference 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 FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
AUGUST 1, 1998 AUGUST 2, 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
OTHER DATA: (as of the
end of the period)
Number of stores........ 1,558 1,520 1,557 1,529 1,497 1,448 1,547
</TABLE>
- --------
(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.
13
<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. 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 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 Data,
including the notes thereto, which are incorporated by reference or appear
elsewhere in this Proxy Statement/Prospectus. See "AVAILABLE INFORMATION,"
"DOCUMENTS INCORPORATED BY REFERENCE" and "UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA."
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS FISCAL YEAR FISCAL YEAR FISCAL YEAR
JULY 30, 1998(1) JULY 31, 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
obligations............ 4,671,803
Stockholders' equity.... 4,943,963
</TABLE>
- --------
(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.
14
<PAGE>
COMPARATIVE PER SHARE DATA OF ALBERTSON'S AND ASC
The following 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 Statements 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 approximately
$65 million of anticipated direct transaction costs and assume the sale of
289,000 shares of Albertson's Common Stock in order to meet pooling of
interests requirements and assume the issuance of approximately 3.9 million
shares of Albertson's Common Stock upon exercise of all outstanding limited
stock appreciation rights. 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 Data,
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 DATA."
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS FISCAL YEAR FISCAL YEAR FISCAL YEAR
JULY 30, 1998(3)(4) JULY 31, 1997(3)(5) 1997(5) 1996(6) 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)............... 11.70 -- -- -- --
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)............... 7.37 -- -- -- --
</TABLE>
- --------
(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 to represent the combined company's 26 week period ends.
(4) 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 underperforming Albertson's stores during the fiscal year.
(5) Includes non-recurring items related to ASC's 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 reengineering initiatives.
15
<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 ASC Common Stock.
All information gives effect to the ASC two-for-one stock split effected in
July 1997.
<TABLE>
<CAPTION>
ALBERTSON'S COMMON STOCK ASC COMMON STOCK
------------------------ ------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
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............. 53.688 44.000 0.17 26.875 22.750 0.09
Third Quarter (through
October 8, 1998).......... 58.125 44.500 0.17 33.250 26.063 0.09
</TABLE>
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 October 8, 1998, the
last practicable 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.
<TABLE>
<CAPTION>
ALBERTSON'S ASC ASC
COMMON STOCK COMMON STOCK EQUIVALENT PRO FORMA
------------ ------------ --------------------
<S> <C> <C> <C>
July 31, 1998 $48.000 $23.188 $30.240
October 8, 1998 $53.875 $30.438 $33.941
</TABLE>
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.
16
<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.
MERGER RELATED COSTS
The Merger will result in a charge to operations of approximately $65
million for transaction fees and costs incident to the Merger and a non-
recurring, non-cash compensation charge to the combined company's results of
operations estimated to be approximately $208 million. See "UNAUDITED PRO
FORMA COMBINED FINANCIAL DATA." Approval of the Merger by ASC stockholders
would result in ASC recognizing in the fourth fiscal quarter of 1998 a
substantial portion of this charge, whether or not the Merger is consummated.
The costs of integration of the two companies will result in additional
significant non-recurring charges to the results of operations of the combined
company; however, the actual amount of such charges cannot be determined until
the transition plan relating to the integration of operations is completed. It
is expected that such charges will have a material effect on the combined
company's results of operations for the quarter in which the charge is
recognized and additional significant charges resulting from the Merger may
also be recognized in subsequent quarters.
17
<PAGE>
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.
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. Albertson's has 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,
18
<PAGE>
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."
19
<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. At the Albertson's Board of
Directors meetings at which the Stock Issuance and Albertson's Plan Amendments
were considered, the directors present at each of these meetings unanimously
approved the Stock Issuance and the Albertson's Plan Amendments. THE
ALBERTSON'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF
ALBERTSON'S VOTE FOR APPROVAL OF THE STOCK ISSUANCE AND FOR APPROVAL OF THE
ALBERTSON'S PLAN AMENDMENTS.
Consummation of the Merger is not conditioned upon stockholder approval of
the Albertson's Plan Amendments; however, the Albertson's Plan Amendments (if
approved by the Albertson's stockholders) 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 the
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 7,926,225 shares of
Albertson's Common Stock (excluding shares which may be acquired upon exercise
of options) or approximately 3.23% 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 2,880,105 shares of ASC Common
Stock (excluding shares which may be acquired upon exercise of options) or
approximately 1.05% 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 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.
20
<PAGE>
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 that a majority of
the 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 245,551,961 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. A
list of Albertson's stockholders entitled to vote at the Albertson's Special
Meeting will be available for examination, during normal business hours, at
the principal offices of Albertson's, 250 Parkcenter Boulevard, Boise, Idaho,
for ten days prior to 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 274,570,045
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. A list of ASC stockholders entitled to vote at the ASC
Special Meeting will be available for examination, during normal business
hours, at the offices of Lucky Stores Southern California Division, 6565 Knott
Avenue, Buena Park, California, for ten days prior to the ASC Special Meeting.
21
<PAGE>
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.
22
<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 October 1, 1998, Albertson's operated 967 stores in 25 western,
midwestern and southern states. These stores consisted of 847 combination
food-drug stores, 87 conventional supermarkets and 33 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 8,000 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 and drug store
units. As of August 29, 1998, ASC operated 1,563 stores in 26 states,
including 273 food and drug combination stores, 534 supermarkets and 756
stand-alone drug stores.
23
<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
Transactions 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 October 8, 1998, the last practicable 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 Transactions Tape of $53.88
and the Exchange Ratio, the Consideration had a value of $33.94. At the
Effective Time, the Consideration may have a market value that is greater or
less than these amounts depending on the market price of 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 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., Seessel Holdings, Inc., Buttrey Food and Drug Stores Company
and 15 stores from Bruno's, Inc.
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
preliminary discussions over the next several weeks regarding such a possible
business combination transaction and shared certain business and
24
<PAGE>
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.
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 industry
consolidation, 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 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
25
<PAGE>
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 industry
consolidation, 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. 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 decision 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
26
<PAGE>
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 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) its understanding that pooling of interests accounting under GAAP
should be available for the Merger and that the Merger can be consummated
as a tax-free reorganization under the Code;
(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;
27
<PAGE>
(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 "--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.
The foregoing discussion sets forth the material information and factors
considered by the Albertson's Board of Directors in its consideration of the
Merger. In view of the wide variety of factors considered, the Albertson's
Board of Directors did not find it practicable to, and did not make specific
assessments of, quantify or otherwise attempt to assign relative weights to
the specific factors considered in reaching its determination. The
determination was made after consideration of all of the factors as a whole.
In addition, individual members of the 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.
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
28
<PAGE>
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, and
. 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 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,
29
<PAGE>
. 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"; and
(xiii) its understanding that pooling of interests accounting under GAAP
should be available for the Merger and that the Merger can be consummated
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 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
30
<PAGE>
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 on
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 financial 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
market, economic and other conditions as they existed and could be evaluated
on, and the information made available to Merrill Lynch as of August 2, 1998.
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
31
<PAGE>
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) 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
32
<PAGE>
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 1999 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 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.
33
<PAGE>
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 Merger would be accretive (excluding
Merger related costs) to Albertson's EPS 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 Appendix 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.
34
<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
35
<PAGE>
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,
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).
36
<PAGE>
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. 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.
37
<PAGE>
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
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
38
<PAGE>
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 appointed 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 and with additional cash payments if necessary to make them
whole for any taxes imposed on such benefits. Instead of providing office
space and 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 $11.0
million, based upon an assumed discount rate of 8.25%).
39
<PAGE>
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 executives whole for any excise tax on excess parachute
payments. The ASC Supplemental Executive Retirement Plan ("SERP") allows
participants, including executive officers, to elect to have their severance
benefits contributed to their SERP accounts.
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 for fiscal year 1997 ("Named Executive Officers") (other than Mr.
Lund) 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 SERP allows participants,
including the executive officers, to elect prior to a change in control
whether to receive a lump sum payout of their vested account balances upon a
change of control. Three executive officers of ASC have elected to receive
such a lump sum payout. The account balances as of September 22, 1998 for the
three executive officers electing lump sum payout aggregate $643,874. Edward
J. McManus is the only Named Executive Officer of ASC who has elected to
receive a lump sum payout. Mr. McManus' account balance as of September 22,
1998 totalled $221,216.
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 stock option and stock award plans (other than any options as to which
the optionholder has not satisfied the stock ownership requirements under the
"key executive equity program") 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 ASC 1997 Stock Option and Stock Award Plan or the
1997 Stock Plan for Non-Employee Directors (collectively, the "1997 Plans"),
upon the later of stockholder approval or regulatory approval of the Merger.
All such options outstanding at the Effective Time 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 an exercise period of up to 60 days after the occurrence of a
change of control (but prior to consummation of the Merger), to elect to
surrender all or part of their options in exchange for shares of Albertson's
Common Stock having a value equal to the excess of the change of control price
(as defined) over the exercise price (which shares will be deliverable upon
the Merger). (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 the change of control or the price paid to stockholders in the
change of control, subject to adjustment
40
<PAGE>
if the exercise period is less than 60 days.) If ASC stockholders approve the
Merger but the Agreement is terminated prior to consummation of the Merger,
option holders who exercise LSARs will receive cash in lieu of Albertson's
Common Stock.
Director Plans. Under the 1997 Stock Plan for Non-Employee Directors, the
delivery of shares of ASC Common Stock which are credited to participants
thereunder, including dividend equivalents, may be accelerated upon a change
of control, which is defined as the later of stockholder approval or
regulatory approval of the Merger. The payment of amounts deferred by non-
employee directors of ASC under the American Stores Company Non-Employee
Directors' Deferred Fee Plan may also be accelerated as a result of the
transactions contemplated by the Agreement.
New Directors of Albertson's. Albertson's has agreed to appoint five of the
current ASC directors to the Albertson's Board of Directors promptly after 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,
stating that such accountants concur with ASC management's conclusion that no
conditions exist related to ASC that would preclude Albertson's ability to
account for the Merger as a pooling of interests, and ASC has received a
letter from Albertson's independent public accountants, stating that such
accountants concur with Albertson's management's
41
<PAGE>
conclusion that no conditions exist that would preclude Albertson's accounting
for the Merger as a pooling of interests, 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 party's
independent public accountants, dated as of the Closing Date, reaffirming the
statements made in the earlier letters. See "THE AGREEMENT--Conditions" and
"UNAUDITED PRO FORMA COMBINED FINANCIAL DATA." 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, 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
42
<PAGE>
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 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 therefor.
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. On
October 1, 1998, ASC and Albertson's received a request from the FTC for
additional information and documentary material, thereby extending the waiting
period 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 terminates the waiting period earlier. Albertson's and ASC are taking all
steps necessary to provide the information requested in a timely manner.
However, 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.
43
<PAGE>
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 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 accounting 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."
44
<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
(an "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
("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
45
<PAGE>
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 of Albertson's Common Stock on the NYSE Composite
Transactions 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,
46
<PAGE>
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, 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
47
<PAGE>
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."
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.
48
<PAGE>
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 agreement 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.
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
49
<PAGE>
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 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 at the Effective Time 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 has agreed to cause Fernando R. Gumucio, Arthur K. Smith, Pamela
G. Bailey, Henry I. Bryant and Victor L. Lund, who are currently serving as
directors of ASC, to be appointed as directors of Albertson's
50
<PAGE>
promptly after 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. 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 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
51
<PAGE>
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 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
52
<PAGE>
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. If a party becomes entitled to a termination fee, the stock option
granted by the other party also becomes exercisable. See "THE STOCK OPTION
AGREEMENTS."
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.
53
<PAGE>
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.
54
<PAGE>
THE STOCK OPTION AGREEMENTS
THE ASC STOCK OPTION AGREEMENT
The following is a 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
55
<PAGE>
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 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. 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.
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
termination fees and reimbursement of expenses 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,
56
<PAGE>
(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, (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 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
57
<PAGE>
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 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 a 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
58
<PAGE>
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. 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.
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 termination fees and reimbursement of expenses 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 to
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 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 Albertson's Option and the
exercise price will be adjusted appropriately.
59
<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. 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 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 appointed 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 appointed 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 appointed
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 56, 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 64, 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.
60
<PAGE>
Stock Ownership of Designated New Directors of Albertson's
Set forth below is information concerning beneficial ownership of shares of
ASC Common Stock and options to purchase shares of ASC Common Stock held by the
designated new directors of Albertson's. All information is as of September 28,
1998.
<TABLE>
<CAPTION>
ASC
OPTIONS
THAT WILL
VEST IN
ASC ASC CONNECTION
COMMON EXERCISABLE WITH THE
NAME OF BENEFICIAL OWNER STOCK(1) OPTIONS(2) MERGER
------------------------ --------- ----------- ----------
<S> <C> <C> <C>
Pamela G. Bailey....................... 2,000 600 1,800
Henry I. Bryant........................ 8,000 600 1,800
Fernando R. Gumucio.................... 42,800 600 1,800
Victor L. Lund......................... 1,031,562 235,000 1,025,000
Arthur K. Smith........................ 42,000 600 1,800
</TABLE>
--------
(1) These totals include, pursuant to the rules of the Commission,
shares as to which sole or shared voting power or dispositive
power is possessed. These totals do not include shares of ASC
Common Stock held in book entry form pursuant to ASC's 1997 Stock
Plan for Non-Employee Directors as follows: Pamela G. Bailey
(2,031), Henry I. Bryant (8,631), Fernando R. Gumucio (10,154) and
Arthur K. Smith (9,139). See "THE MERGER -- Interests of Certain
Persons in the Merger -- ASC -- Director Plans."
(2) Includes stock options exercisable within 60 days following the
ASC Record Date.
61
<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; however, the Albertson's Plan Amendments (if
approved by the Albertson's stockholders) 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.
ONLY STOCKHOLDERS OF ALBERTSON'S ON THE ALBERTSON'S RECORD DATE ARE ENTITLED
TO VOTE ON THE ALBERTSON'S PLAN AMENDMENTS.
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 is 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 is
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 (of which options to acquire approximately 3,000,000 shares have been
granted) for purposes of the Albertson's Plan; provided,
62
<PAGE>
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 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, 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 Albertson's 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,
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; or (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
63
<PAGE>
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 (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 Amendments 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
will increase as a result of 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 Amendments 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.
64
<PAGE>
Consummation of the Merger is not conditioned upon the stockholder approval
of the Albertson's Plan Amendments; however, the Albertson's Plan Amendments
(if approved by the Albertson's stockholders) will not become effective unless
the Merger is consummated.
NEW PLAN BENEFITS
The grant of Awards under the Albertson's Plan is subject to the discretion
of the Committee. The Committee has not granted any Awards under the
Albertson's Plan since the Albertson's Board of Directors amended and restated
the Albertson's Plan (subject to stockholder approval) on August 31, 1998.
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 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
65
<PAGE>
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 continue to
administer the Albertson's Plan 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.
66
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
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 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 the actual or future financial position or results of operations that would
have or will occur upon consummation of the Merger, and should be read in
conjunction with the audited and unaudited historical consolidated financial
statements, including the notes thereto, of Albertson's and ASC incorporated
by reference or appearing elsewhere in this Proxy Statement/Prospectus. See
"AVAILABLE INFORMATION" and "DOCUMENTS INCORPORATED BY REFERENCE."
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<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 73.
67
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<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 73.
68
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR 1997
---------------------------------------------------------
ALBERTSON'S ASC COMBINED
52 WEEKS 52 WEEKS FISCAL YEAR
JANUARY 29, 1998 JANUARY 31, 1998 ADJUSTMENTS 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 73.
69
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR 1996
---------------------------------------------------------
ALBERTSON'S ASC COMBINED
52 WEEKS 52 WEEKS FISCAL YEAR
JANUARY 30, 1997 FEBRUARY 1, 1997 ADJUSTMENTS 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 73.
70
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR 1995
---------------------------------------------------------
ALBERTSON'S ASC COMBINED
52 WEEKS 53 WEEKS FISCAL YEAR
FEBRUARY 1, 1996 FEBRUARY 3, 1996 ADJUSTMENTS 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 73.
71
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<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) 422,687
(126,831)(f)
3,943 (g)
Capital in excess of
par value............. 696 272,654 15,247 (e) 54,346
(438,308)(f)
204,057 (g)
Retained earnings...... 2,314,897 2,425,033 (65,000)(c) 4,466,930
(208,000)(g)
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 73.
72
<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).
Amounts do not include shares of Albertson's Common Stock described in Notes
(e) and (g) below.
(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 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 assumed sale of 289,000 shares of 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 of ASC Common Stock held in treasury.
(g) Retained Earnings has been adjusted to reflect an estimated $208 million
non-recurring, non-cash compensation charge related to the acceleration, upon
the occurrence of a "change of control" of ASC, of the exercisability of the
rights ("LSARs") of holders of outstanding options to purchase shares of ASC
Common Stock ("ASC Options") to surrender all or part of their ASC Options in
exchange for shares of Albertson's
73
<PAGE>
Common Stock having a value equal to the excess of the "change of control
price" over the exercise price of the ASC Options. (See "THE MERGER --
Interests of Certain Persons in the Merger -- ASC -- Acceleration of Stock
Options and Restricted Stock.") The pro forma adjustment has been calculated
based on an average exercise price of the ASC Options of $20.96 and assuming a
change of control price of $33.25. Approval of the Merger by ASC stockholders
would result in ASC recognizing a minimum of $145 million of the total
estimated charge in the fourth fiscal quarter of 1998, whether or not the
Merger is consummated. The pro forma financial statements do not include
estimates for potential excise tax and income tax deductibility related to
such options, because such amounts cannot be estimated at this time.
Common Stock and Capital in Excess of Par Value have been adjusted to record
the issuance of 3,943,000 shares of Albertson's Common Stock, assuming the
exercise of all LSARs at a price per share of Albertson's Common Stock of
$52.75.
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.
74
<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 Junior 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
75
<PAGE>
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.
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
76
<PAGE>
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.
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 or (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.
77
<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. 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 between
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
78
<PAGE>
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" under the Albertson's Certificate means a
conviction of a crime involving moral turpitude, an administrative agency
determination of conduct involving moral turpitude, or a 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 excepted from mandatory
retirement.
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
79
<PAGE>
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.
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
80
<PAGE>
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.
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.
81
<PAGE>
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 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
82
<PAGE>
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 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
83
<PAGE>
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
contains such an election. It is anticipated that 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. The Albertson's Certificate contains a "fair price" provision,
requiring that 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 shares of Albertson's Common Stock unless either
(a) the Business Combination is approved by a majority of the Continuing
Directors, or (b) certain price and procedural requirements are satisfied.
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 of $1,000,000 or
more.
(iii) The issuance or transfer by Albertson's or any subsidiary of
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.
84
<PAGE>
(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, 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 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.
"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.
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 ( 2/3) 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 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.
85
<PAGE>
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
86
<PAGE>
rights conferred by 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, have delivered
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 of ASC appearing in ASC'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 Ernst & Young LLP, independent auditors, as set forth in their
report with respect thereto, included therein. Such financial statements are
incorporated herein by reference in reliance on such report given upon the
authority of such firm as experts in accounting and auditing.
Representatives of Ernst & Young LLP are expected to be present at the ASC
Special Meeting, and representatives of Deloitte & Touche LLP are expected to
be present at the Albertson's Special Meeting. In each case, such
representatives will have the opportunity to make a statement if they desire
to do so and are expected to be available to respond to appropriate questions.
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., 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., 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."
87
<PAGE>
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., 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., 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 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."
88
<PAGE>
APPENDIX A
CONFORMED COPY
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
<TABLE>
<C> <S> <C>
ARTICLE I............................................................... A-1
Section 1.1 The Merger............................................. A-1
Section 1.2 The Closing; Effective Time............................ A-2
Section 1.3 Subsequent Actions..................................... A-2
Section 1.4 Certificate of Incorporation; Bylaws; Directors and
Officers of the Surviving Corporation................. A-2
ARTICLE II.............................................................. A-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-4
Section 2.8 Options to Purchase Abacus Shares...................... A-5
Section 2.9 Appraisal Rights....................................... A-5
Section 2.10 Dividends.............................................. A-5
Section 2.11 Certain Adjustments.................................... A-5
ARTICLE III............................................................. A-6
Section 3.1 Organization and Qualification; Subsidiaries........... A-6
Section 3.2 Certificate of Incorporation and Bylaws................ A-6
Section 3.3 Capitalization......................................... A-6
Section 3.4 Power and Authority; Authorization; Valid & Binding.... A-7
Section 3.5 No Conflict; Required Filings and Consents............. A-7
Section 3.6 SEC Reports; Financial Statements...................... A-8
Section 3.7 Absence of Certain Changes............................. A-8
Section 3.8 Litigation and Liabilities............................. A-9
Section 3.9 No Violation of Law; Permits........................... A-9
Section 3.10 Employee Matters; ERISA................................ A-9
Section 3.11 Labor Matters.......................................... A-11
Section 3.12 Environmental Matters.................................. A-11
Section 3.13 Board Action; Vote Required............................ A-12
Section 3.14 Opinion of Financial Advisor........................... A-13
Section 3.15 Brokers................................................ A-13
Section 3.16 Tax Matters............................................ A-13
Section 3.17 Intellectual Property.................................. A-14
Section 3.18 Insurance.............................................. A-14
Section 3.19 Contracts and Commitments.............................. A-14
Section 3.20 Accounting and Tax Matters............................. A-14
Section 3.21 Ownership of Shares of Alphabet........................ A-15
ARTICLE IV.............................................................. A-15
Section 4.1 Organization and Qualification; Subsidiaries........... A-15
Section 4.2 Certificate of Incorporation and Bylaws................ A-15
Section 4.3 Capitalization......................................... A-15
Section 4.4 Power and Authority; Authorization; Valid & Binding.... A-16
Section 4.5 No Conflict; Required Filings and Consents............. A-16
Section 4.6 SEC Reports; Financial Statements...................... A-17
</TABLE>
A-i
<PAGE>
<TABLE>
<C> <S> <C>
Section 4.7 Absence of Certain Changes............................ A-18
Section 4.8 Litigation and Liabilities............................ A-18
Section 4.9 No Violation of Law; Permits.......................... A-18
Section 4.10 Employee Matters; ERISA............................... A-19
Section 4.11 Labor Matters......................................... A-20
Section 4.12 Environmental Matters................................. A-20
Section 4.13 Board Action; Vote Required........................... A-21
Section 4.14 Opinion of Financial Advisor.......................... A-21
Section 4.15 Brokers............................................... A-21
Section 4.16 Tax Matters........................................... A-21
Section 4.17 Intellectual Property................................. A-22
Section 4.18 Insurance............................................. A-22
Section 4.19 Contracts and Commitments............................. A-22
Section 4.20 Accounting and Tax Matters............................ A-23
Section 4.21 Ownership of Shares of Alphabet....................... A-23
Section 4.22. Rights Agreement...................................... A-23
ARTICLE V............................................................... A-23
Section 5.1 Interim Operations of Abacus.......................... A-23
Section 5.2 Interim Operations of Alphabet........................ A-25
Section 5.3 No Solicitation by Abacus............................. A-26
Section 5.4 No Solicitation by Alphabet........................... A-28
ARTICLE VI.............................................................. A-29
Section 6.1 Meetings of Stockholders.............................. A-29
Section 6.2 Filings Best Efforts.................................. A-30
Section 6.3 Publicity............................................. A-31
Section 6.4 Registration Statement................................ A-31
Section 6.5 Listing Application................................... A-31
Section 6.6 Further Action........................................ A-32
Section 6.7 Expenses.............................................. A-32
Section 6.8 Notification of Certain Matters....................... A-32
Section 6.9 Access to Information................................. A-32
Section 6.10 Review of Information................................. A-33
Section 6.11 Indemnification, Directors' and Officers' Insurance... A-33
Section 6.12 Employee Benefit Plans................................ A-33
Section 6.13 Alphabet Board of Directors........................... A-35
Section 6.14 Affiliates............................................ A-35
Section 6.15 Pooling-of-Interests.................................. A-35
Section 6.16 Tax-Free Reorganization............................... A-35
Section 6.17 Accountant's Comfort Letters.......................... A-35
Section 6.18 Accountant's Pooling Letters.......................... A-36
ARTICLE VII............................................................. A-36
Section 7.1 Conditions to Obligations of the Parties to Consummate
the Merger........................................... A-36
Section 7.2 Additional Conditions to Obligations of Alphabet and
Abacus Holdings...................................... A-36
Section 7.3 Additional Conditions to Obligations of Abacus........ A-37
ARTICLE VIII............................................................ A-38
Section 8.1 Termination........................................... A-38
Section 8.2 Effect of Termination and Abandonment................. A-39
Section 8.3 Amendment............................................. A-41
</TABLE>
A-ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE IX.............................................................. A-41
Section 9.1 Non-Survival of Representations, Warranties and
Agreements............................................. A-41
Section 9.2 Notices................................................. A-41
Section 9.3 Certain Definitions; Interpretation..................... A-42
Section 9.4 Headings................................................ A-43
Section 9.5 Severability............................................ A-43
Section 9.6 Entire Agreement; No Third-Party Beneficiaries.......... A-43
Section 9.7 Assignment.............................................. A-43
Section 9.8 Governing Law........................................... A-43
Section 9.9 Counterparts............................................ A-44
</TABLE>
A-iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
- ------------ --------
<S> <C>
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
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
- ------------ --------
<S> <C>
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
</TABLE>
A-v
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
- ------------ --------
<S> <C>
Taxable................................................................ A-13
Taxes.................................................................. A-13
Termination Date....................................................... A-38
Termination Fee........................................................ A-39
Trusts................................................................. A-26
</TABLE>
A-vi
<PAGE>
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.
A-1
<PAGE>
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.
A-2
<PAGE>
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
A-3
<PAGE>
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.
A-4
<PAGE>
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.
A-5
<PAGE>
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
A-6
<PAGE>
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
A-7
<PAGE>
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
A-8
<PAGE>
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).
A-9
<PAGE>
(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.
A-10
<PAGE>
(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.
A-11
<PAGE>
(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.
A-12
<PAGE>
(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.
A-13
<PAGE>
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
A-14
<PAGE>
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
A-15
<PAGE>
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
A-16
<PAGE>
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
A-17
<PAGE>
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
A-18
<PAGE>
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.
A-19
<PAGE>
(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.
A-20
<PAGE>
(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.
A-21
<PAGE>
(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;
A-22
<PAGE>
(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
A-23
<PAGE>
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,
A-24
<PAGE>
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
A-25
<PAGE>
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
A-26
<PAGE>
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.
A-27
<PAGE>
(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
A-28
<PAGE>
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.
A-29
<PAGE>
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;
(i) 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
A-30
<PAGE>
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.
A-31
<PAGE>
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.
A-32
<PAGE>
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
A-33
<PAGE>
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
A-34
<PAGE>
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
A-35
<PAGE>
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
A-36
<PAGE>
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.
A-37
<PAGE>
(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
A-38
<PAGE>
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
A-39
<PAGE>
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.
A-40
<PAGE>
(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
A-41
<PAGE>
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."
A-42
<PAGE>
(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
A-43
<PAGE>
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.
/s/ Michael F. Reuling
By: _________________________________
Name: Michael F. Reuling
Title: Executive Vice President,
Store Development
Abacus Holdings, Inc.
/s/ Michael F. Reuling
By: _________________________________
Name: Michael F. Reuling
Title: Vice President
American Stores Company
/s/ Victor L. Lund
By: _________________________________
Name: Victor Lund
Title: Chairman and Chief
Executive Officer
A-44
<PAGE>
APPENDIX B
CONFORMED COPY
ASC STOCK OPTION AGREEMENT
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.
B-1
<PAGE>
(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)
B-2
<PAGE>
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
B-3
<PAGE>
(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.
B-4
<PAGE>
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
B-5
<PAGE>
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.
B-6
<PAGE>
"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
B-7
<PAGE>
$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.
B-8
<PAGE>
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
B-9
<PAGE>
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
B-10
<PAGE>
APPENDIX C
CONFORMED COPY
ALBERTSON'S STOCK OPTION AGREEMENT
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").
C-1
<PAGE>
(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."
C-2
<PAGE>
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
C-3
<PAGE>
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
C-4
<PAGE>
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
C-5
<PAGE>
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
C-6
<PAGE>
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 $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
C-7
<PAGE>
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:
C-8
<PAGE>
(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
C-9
<PAGE>
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
C-10
<PAGE>
APPENDIX D
Investment Banking
Corporate and Institutional Client
Group
World-Financial Center
North Tower
New York, New York 10281-1320
[LOGO] MERRILL LYNCH 212 449 1000
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;
D-1
<PAGE>
(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 draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and an 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
D-2
<PAGE>
APPENDIX E
[LOGO] THE BLACKSTONE GROUP
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.
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.
------------------------
The Blackstone Group L.P.
345 Park Avenue
New York NY 10154
212 935 2626
Blackstone Financial Services(R)
E-1
<PAGE>
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.
E-2
<PAGE>
APPENDIX F
ALBERTSON'S, INC.
AMENDED AND RESTATED
1995 STOCK-BASED INCENTIVE PLAN
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.
F-1
<PAGE>
(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.
F-2
<PAGE>
(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.
F-3
<PAGE>
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:
F-4
<PAGE>
(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
F-5
<PAGE>
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)
F-6
<PAGE>
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.
F-7
<PAGE>
(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.
F-8
<PAGE>
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.
F-9
<PAGE>
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.
F-10
<PAGE>
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,
F-11
<PAGE>
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.
F-12
