<PAGE> 1
As filed with the Securities and Exchange Commission on March 5, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
SAFEWAY INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5411 94-3019135
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
5918 STONERIDGE MALL ROAD
PLEASANTON, CALIFORNIA 94588
(510) 467-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------
MICHAEL C. ROSS
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
SAFEWAY INC.
5918 STONERIDGE MALL ROAD
PLEASANTON, CALIFORNIA 94588
(510) 467-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
SCOTT R. HABER, ESQ. DANIEL A. NEFF, ESQ.
TRACY K. EDMONSON, ESQ. DAVID A. KATZ, ESQ.
LATHAM & WATKINS WACHTELL, LIPTON, ROSEN & KATZ
505 MONTGOMERY STREET 51 WEST 52ND STREET
SAN FRANCISCO, CALIFORNIA 94111 NEW YORK, NEW YORK 10019
(415) 391-0600 (212) 403-1000
</TABLE>
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
_______________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
Proposed Proposed
Title of each maximum maximum Amount of
class of securities Amount to be price aggregate registration
to be registered registered(1) per share offering price(2) fee(3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value . . . 45,403,683 Not applicable $2,860,380,191 $508,179
=====================================================================================================================
</TABLE>
(1) Represents the maximum amount of common stock, $.01 par value per
share ("Safeway Common Stock"), of Safeway Inc. ("Safeway") issuable
upon consummation of the Merger (as defined in this Registration
Statement), assuming (a) the exchange of each outstanding share of
common stock, $.10 par value per share, of The Vons Companies, Inc.
("Vons Common Stock") for 1.425 shares of Safeway Common Stock and (b)
the exercise of all outstanding options to acquire Vons Common Stock
and the issuance of Safeway Common Stock upon such exercise.
(2) Pursuant to Rule 457(f)(1) under the Securities Act of 1933, as
amended (the "Act"), and solely for the purpose of calculating the
registration fee, the proposed maximum aggregate offering price is
based upon $67.8125, the average of the high and low sale prices of
Vons Common Stock as reported on the New York Stock Exchange Composite
Tape on March 3, 1997. The registration fee with respect to the
shares of Safeway Common Stock issuable upon the exercise of presently
outstanding stock options to acquire Vons Common Stock has been
computed on the basis of the prices at which such options may be
exercised, in accordance with Rule 457(h) under the Act.
(3) Pursuant to Rule 457(b) of the Act, the registration fee hereunder is
offset by the fee of $358,603 previously paid in connection with the
filing on January 17, 1997 with the Commission of the preliminary
proxy materials relating to the transactions described herein.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
THE VONS COMPANIES, INC.
618 MICHILLINDA AVENUE
ARCADIA, CALIFORNIA 91007
MARCH 6, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
The Vons Companies, Inc., a Michigan corporation ("Vons"), to be held at the
Hershey Crocker Room, Hotel Inter-Continental, 251 South Olive Street, Los
Angeles, California, on April 8, 1997, at 8:00 a.m. local time (the "Special
Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger dated as of
December 15, 1996, as amended by the First Amendment to Agreement and Plan of
Merger dated as of January 8, 1997 (collectively, the "Merger Agreement"), among
Safeway Inc., a Delaware corporation ("Safeway"), SSCI Merger Sub, Inc., a
Michigan corporation and an indirect wholly owned subsidiary of Safeway ("Merger
Sub"), and Vons, and the merger of Merger Sub with and into Vons (the "Merger")
with Vons as the surviving corporation of the Merger and thereby becoming a
wholly owned subsidiary of Safeway (the "Merger Proposal"). Under the terms of
the Merger Agreement, each share of common stock of Vons ("Vons Common Stock")
which is outstanding immediately prior to the effective time of the Merger
(other than shares of Vons Common Stock owned directly or indirectly by Safeway)
will be converted into the right to receive 1.425 shares of common stock of
Safeway ("Safeway Common Stock").
A special committee of the Board of Directors of Vons consisting of five
outside directors not affiliated with Safeway (the "Special Committee"), with
the advice of its own legal and financial advisors, has unanimously recommended
the Merger to the Vons Board of Directors. In making its recommendation, the
Special Committee considered the opinion of Credit Suisse First Boston
Corporation, the Special Committee's financial advisor, stating that, as of the
date of such opinion, the exchange ratio to be offered to the holders of Vons
Common Stock in the Merger was fair from a financial point of view to such
holders (other than Safeway and its subsidiaries). After careful consideration,
the Board of Directors of Vons has unanimously determined (with the four members
of the Board affiliated with Safeway abstaining) that the proposed Merger, upon
the terms and subject to the conditions of the Merger Agreement, is advisable
to, and in the best interests of, Vons and its shareholders, has approved the
Merger Agreement and the Merger and recommends that shareholders vote for
approval and adoption of the Merger Agreement and the Merger.
Safeway beneficially owns 15,126,000 shares of Vons Common Stock, which
currently represents 34.3% of the outstanding shares of Vons Common Stock.
Pursuant to the Merger Agreement, Safeway has agreed to vote or cause to be
voted all shares of Vons Common Stock owned directly or indirectly by Safeway in
favor of the Merger, the Merger Agreement and the transactions contemplated
thereby. Under Michigan law, the affirmative vote of the holders of a majority
of the outstanding shares of Vons Common Stock entitled to vote is required to
adopt and approve the Merger Proposal. In addition, pursuant to the Merger
Agreement, it is a condition to the parties' obligations to consummate the
transactions contemplated by the Merger Agreement that the Merger Proposal be
approved by a majority of the outstanding shares of Vons Common Stock entitled
to vote and not held by Safeway or its affiliates.
Detailed information concerning the Merger Agreement and the Merger are set
forth in the Notice of the Special Meeting and accompanying Proxy
Statement/Prospectus. Please review this information carefully. WHETHER OR NOT
YOU EXPECT TO ATTEND THE SPECIAL MEETING, IT IS VERY IMPORTANT THAT YOUR SHARES
BE REPRESENTED. PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. If you attend the
Special Meeting, you may vote in person if you wish, even though you previously
have returned your proxy card.
If you have any questions about how to complete the enclosed proxy card or
how to vote your shares of Vons Common Stock, please call Georgeson & Company,
Inc. at (800) 233-2064.
Sincerely,
/s/ LAWRENCE A. DEL SANTO
LAWRENCE A. DEL SANTO
Chairman and Chief Executive Officer
<PAGE> 3
THE VONS COMPANIES, INC.
618 MICHILLINDA AVENUE
ARCADIA, CALIFORNIA 91007
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 8, 1997
------------------------
To the Shareholders of
THE VONS COMPANIES, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of The Vons Companies, Inc., a Michigan corporation ("Vons"), will be
held at the Hershey Crocker Room, Hotel Inter-Continental, 251 South Olive
Street, Los Angeles, California, on April 8, 1997, at 8:00 a.m. local time for
the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of December 15, 1996, as amended by
the First Amendment to Agreement and Plan of Merger dated as of January 8,
1997 (collectively, the "Merger Agreement"), among Safeway Inc., a Delaware
corporation ("Safeway"), SSCI Merger Sub, Inc., a Michigan corporation and
an indirect wholly owned subsidiary of Safeway ("Merger Sub"), and Vons,
and the merger of Merger Sub with and into Vons (the "Merger") with Vons as
the surviving corporation and thereby becoming a wholly owned subsidiary of
Safeway (the "Merger Proposal"). Under the terms of the Merger Agreement,
each share of Vons' common stock, $.10 par value per share ("Vons Common
Stock"), which is outstanding immediately prior to the effective time of
the Merger (other than shares of Vons Common Stock owned directly or
indirectly by Safeway) will be converted into the right to receive 1.425
shares of common stock of Safeway, $.01 par value per share ("Safeway
Common Stock"). A copy of the Merger Agreement is attached as Appendix A to
the accompanying Proxy Statement/Prospectus.
2. To consider and transact such other business as may properly come
before the Special Meeting or any adjournment or postponement thereof.
The Board of Directors of Vons has fixed the close of business on February
20, 1997 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of and to vote at the Special Meeting or any
adjournment or postponement thereof. Only shareholders of record at the close of
business on the Record Date are entitled to notice of and to vote at the Special
Meeting and any adjournments or postponements thereof. A list of such
shareholders will be available for inspection at the offices of Vons located at
618 Michillinda Avenue, Arcadia, California 91007, at least ten days prior to
the Special Meeting.
UNDER MICHIGAN LAW, THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF
THE OUTSTANDING SHARES OF VONS COMMON STOCK ENTITLED TO VOTE IS REQUIRED TO
ADOPT AND APPROVE THE MERGER PROPOSAL. IN ADDITION, PURSUANT TO THE MERGER
AGREEMENT, IT IS A CONDITION TO THE PARTIES' OBLIGATIONS TO CONSUMMATE THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT THAT THE MERGER PROPOSAL BE
APPROVED BY A MAJORITY OF THE OUTSTANDING SHARES OF VONS COMMON STOCK ENTITLED
TO VOTE AND NOT HELD BY SAFEWAY OR ITS AFFILIATES.
Whether or not you plan to attend the Special Meeting (or any adjournment
or postponement thereof), please execute, date and return promptly the enclosed
form of proxy. A return envelope is enclosed for your convenience and requires
no postage for mailing in the United States.
By Order of the Board of Directors
THE VONS COMPANIES, INC.
/s/ TERRENCE J. WALLOCK
TERRENCE J. WALLOCK
Secretary
March 6, 1997
THE BOARD OF DIRECTORS OF VONS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. FAILURE TO RETURN A
PROPERLY EXECUTED PROXY AND/OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME
EFFECT AS A VOTE "AGAINST" THE MERGER AGREEMENT AND THE MERGER.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND MAIL
IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
DO NOT SEND ANY CERTIFICATES REPRESENTING VONS COMMON STOCK AT THIS TIME.
<PAGE> 4
THE VONS COMPANIES, INC.
PROXY STATEMENT
SAFEWAY INC.
PROSPECTUS
------------------------
This Proxy Statement/Prospectus is being furnished to the shareholders of
The Vons Companies, Inc., a Michigan corporation ("Vons"), in connection with
the solicitation of proxies by the Board of Directors of Vons (the "Vons Board")
to be used at the Special Meeting of the shareholders of Vons (the "Special
Meeting") to be held at the Hershey Crocker Room, Hotel Inter-Continental, 251
South Olive Street, Los Angeles , California, on April 8, 1997, at 8:00 a.m.
local time.
At the Special Meeting, the shareholders of Vons will be asked to consider
and vote upon (i) a proposal to approve and adopt the Agreement and Plan of
Merger dated as of December 15, 1996, as amended by the First Amendment to
Agreement and Plan of Merger dated as of January 8, 1997 (the "Merger Agreement
Amendment" and collectively, the "Merger Agreement"), among Safeway Inc., a
Delaware corporation ("Safeway"), SSCI Merger Sub, Inc., a Michigan corporation
and a wholly owned subsidiary of Safeway ("Merger Sub"), and Vons, and the
merger of Merger Sub with and into Vons (the "Merger") with Vons as the
surviving corporation and thereby becoming a wholly owned subsidiary of Safeway
(the "Merger Proposal") and (ii) such other business as may properly come before
the Special Meeting or any adjournment or postponement thereof. Under the terms
of the Merger Agreement, each share of common stock of Vons, $.10 par value per
share ("Vons Common Stock"), which is outstanding immediately prior to the
effective time of the Merger (other than shares of Vons Common Stock owned
directly or indirectly by Safeway) will be converted into the right to receive
1.425 shares of common stock of Safeway, $.01 par value per share ("Safeway
Common Stock").
Under Michigan law, the affirmative vote of the holders of a majority of
the outstanding shares of Vons Common Stock entitled to vote is required to
adopt and approve the Merger Proposal. In addition, pursuant to the Merger
Agreement, it is a condition to the parties' obligations to consummate the
transactions contemplated by the Merger Agreement that the Merger Proposal be
approved by a majority of the outstanding shares of Vons Common Stock entitled
to vote and not held by Safeway or its affiliates. Safeway beneficially owns
15,126,000 shares of Vons Common Stock, which currently represents 34.3% of the
outstanding shares of Vons Common Stock. Although the Merger Agreement provides
that this condition may be waived by the parties, as of the date hereof, neither
the Board of Directors of Safeway (the "Safeway Board") nor the Special
Committee of the Board of Directors of Vons (the "Vons Board") consisting of
five outside directors not affiliated with Safeway (the "Special Committee") has
considered, nor have they determined, whether or not and under what
circumstances this condition would be waived, if it is not satisfied. See "The
Merger -- Conditions to the Merger." Pursuant to the Merger Agreement, Safeway
has agreed to vote or cause to be voted all shares of Vons Common Stock owned
directly or indirectly by Safeway in favor of the Merger Proposal.
In connection with the Merger, Safeway has entered into an Amended and
Restated Stock Repurchase Agreement (the "Repurchase Agreement") with SSI
Associates, L.P. ("SSI Associates"), an affiliate of Kohlberg Kravis Roberts &
Co. ("KKR"), for the repurchase (the "Repurchase") by Safeway of 32,000,000
shares of Safeway Common Stock for $1.376 billion ($43 per share). Following the
Merger and after giving effect to the Repurchase, SSI Associates and KKR
Partners II, L.P., an affiliate of KKR, will collectively own approximately 34%
of outstanding Safeway Common Stock. The Repurchase will be consummated
immediately following the Merger. See "Summary -- The Repurchase" and "The
Repurchase."
This Proxy Statement/Prospectus also constitutes a prospectus of Safeway
with respect to shares of Safeway Common Stock to be issued to holders of Vons
Common Stock in the Merger. Safeway Common Stock is quoted on the New York Stock
Exchange, Inc. (the "NYSE") and the Pacific Stock Exchange (the "PSE") under the
symbol "SWY." On March 4, 1997, the last reported sale price for a share of
Safeway Common Stock on the NYSE Composite Tape was $49. On March 4, 1997, the
last reported sale price for a share of Vons Common Stock on the NYSE Composite
Tape was $69. SHAREHOLDERS OF VONS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS.
This Proxy Statement/Prospectus is first being mailed to the shareholders
of Vons on or about March 7, 1997.
THE SHARES OF SAFEWAY COMMON STOCK 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 March 6, 1997.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. iii
FORWARD-LOOKING INFORMATION........................................................... iv
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................... iv
SUMMARY............................................................................... 1
THE COMPANIES......................................................................... 16
Vons................................................................................ 16
Safeway............................................................................. 16
The Combined Company................................................................ 17
VOTING AND PROXIES.................................................................... 18
Record Date......................................................................... 18
Proxies............................................................................. 18
Quorum.............................................................................. 19
Vote Required....................................................................... 19
THE MERGER............................................................................ 20
Background of the Merger............................................................ 20
Recommendation of the Special Committee and the Vons Board of Directors; Vons'
Reasons for the Merger........................................................... 26
Safeway's Reasons for the Merger.................................................... 29
Opinion of Financial Advisor to the Special Committee............................... 29
Certain Federal Income Tax Consequences............................................. 34
Interests of Certain Persons in the Merger.......................................... 36
Dividends on Safeway Common Stock................................................... 39
Accounting Treatment................................................................ 39
Dissenters' Rights.................................................................. 39
Regulatory Approvals................................................................ 39
Resale of Safeway Stock............................................................. 39
Shareholder Litigation.............................................................. 40
THE MERGER AGREEMENT.................................................................. 40
Terms of the Merger................................................................. 41
Effective Time...................................................................... 41
Conversion of Shares................................................................ 41
Treatment of Stock Options.......................................................... 42
Exchange Procedures................................................................. 42
Termination of the Exchange Fund.................................................... 43
Directors and Officers.............................................................. 43
Representations and Warranties...................................................... 43
Certain Covenants................................................................... 44
Conditions to the Merger............................................................ 46
Additional Agreements............................................................... 47
Indemnification and Insurance....................................................... 48
Termination......................................................................... 48
Fees and Expenses................................................................... 49
Amendment and Waiver................................................................ 49
THE REPURCHASE........................................................................ 49
General............................................................................. 49
Financing the Repurchase............................................................ 50
</TABLE>
i
<PAGE> 6
<TABLE>
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PAGE
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RELATIONSHIPS BETWEEN SAFEWAY AND VONS................................................ 51
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.................................... 52
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION........................... 56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SAFEWAY............. 58
DESCRIPTION OF SAFEWAY CAPITAL STOCK.................................................. 60
General............................................................................. 60
Common Stock........................................................................ 60
Preferred Stock..................................................................... 61
Dividends........................................................................... 61
Shares Eligible for Future Sale..................................................... 61
COMPARISON OF RIGHTS OF HOLDERS OF VONS COMMON STOCK AND SAFEWAY COMMON STOCK......... 62
Authorized Capital.................................................................. 62
Vote Required to Amend or Repeal the Charter and By-Laws of Vons and Safeway........ 62
Board of Directors.................................................................. 63
Committees of the Board of Directors................................................ 64
Removal of Directors................................................................ 64
Prohibition Against Stockholder Action by Written Consent: Limitations on Calling
Special Meetings................................................................. 64
Appraisal and Dissenters' Rights.................................................... 65
Dividends........................................................................... 65
Business Combinations With Substantial Stockholders, Anti-Takeover and Supermajority
Provisions....................................................................... 66
Control Stock Acquisitions.......................................................... 67
Purchase of Shares.................................................................. 68
Inspection of Books and Records..................................................... 68
Loans to Employees and Directors.................................................... 68
Consideration for Stock............................................................. 68
EXPERTS............................................................................... 68
LEGAL MATTERS......................................................................... 69
INDEPENDENT ACCOUNTANTS............................................................... 69
OTHER MATTERS......................................................................... 69
FUTURE SHAREHOLDER PROPOSALS.......................................................... 69
APPENDIX A AGREEMENT AND PLAN OF MERGER, AS AMENDED............................... A-1
APPENDIX B OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION...................... B-1
</TABLE>
ii
<PAGE> 7
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES
OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY VONS OR SAFEWAY AND NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF VONS OR SAFEWAY SINCE THE DATE HEREOF OR THAT THE INFORMATION SET
FORTH OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY
SOLICITATION.
------------------------
AVAILABLE INFORMATION
Vons and Safeway 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"). Reports, proxy
statements and other information filed by Vons and Safeway can be inspected and
copied at the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the public reference
facilities maintained by the Commission at its regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials can be
obtained from the Commission at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding registrants whom file
with the Commission and certain of Vons' and Safeway's filings are available at
such web site: http://www.sec.gov. Additionally, Vons Common Stock is listed on
the NYSE and Safeway Common Stock is listed on the NYSE and the PSE. Reports,
proxy statements and other information with respect to Vons and Safeway should
be available at the offices of the NYSE, 20 Broad Street, New York, New York
10005 and with respect to Safeway at the offices of the PSE, 301 Pine Street,
San Francisco, California 94104. Safeway intends to delist from the PSE
effective upon consummation of the Merger.
All information concerning Vons contained in this Proxy
Statement/Prospectus has been furnished by Vons and all information concerning
Safeway contained in this Proxy Statement/Prospectus has been furnished by
Safeway. Safeway has filed a Registration Statement on Form S-4 (together with
any amendments thereto, the "Registration Statement") with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of Safeway Common Stock to be issued in connection with the Merger.
This Proxy Statement/Prospectus also constitutes the Prospectus of Safeway 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, including exhibits filed thereto, are
available for inspection and copying as set forth above. Reference is hereby
made to the Registration Statement and related exhibits for further information
with respect to Safeway and the securities offered hereby. Statements contained
in this Proxy Statement/Prospectus as to the contents of any agreement or other
document referred to herein or therein are qualified by reference to the copy of
such agreement or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
iii
<PAGE> 8
FORWARD-LOOKING INFORMATION
THIS PROXY STATEMENT/PROSPECTUS CONTAINS PROJECTED FINANCIAL INFORMATION
AND CERTAIN OTHER FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, ALL OF WHICH ARE BASED ON VARIOUS
ESTIMATES AND ASSUMPTIONS. SUCH INFORMATION AND STATEMENTS ARE SUBJECT TO
INHERENT UNCERTAINTIES AND TO A WIDE VARIETY OF SIGNIFICANT BUSINESS, ECONOMIC
AND COMPETITIVE RISKS, INCLUDING, AMONG OTHERS, THOSE DESCRIBED HEREIN.
CONSEQUENTLY, ACTUAL EVENTS, CIRCUMSTANCES, EFFECTS AND RESULTS MAY VARY
SIGNIFICANTLY FROM THOSE INCLUDED IN OR CONTEMPLATED OR IMPLIED BY SUCH
PROJECTED FINANCIAL INFORMATION AND SUCH OTHER FORWARD-LOOKING STATEMENTS. THE
PROJECTED FINANCIAL INFORMATION CONTAINED HEREIN IS THEREFORE NOT NECESSARILY
INDICATIVE OF THE FUTURE FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF
SAFEWAY, VONS OR THE COMBINED ENTITY OF SAFEWAY AND VONS, WHICH MAY VARY
SIGNIFICANTLY FROM THOSE SET FORTH IN SUCH PROJECTED FINANCIAL INFORMATION.
CONSEQUENTLY, THE PROJECTED FINANCIAL INFORMATION AND OTHER FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN SHOULD NOT BE REGARDED AS REPRESENTATIONS BY
SAFEWAY, VONS OR ANY OTHER PERSON THAT THE PROJECTED CONDITION OR RESULTS CAN OR
WILL BE ACHIEVED. STATEMENTS ATTRIBUTABLE TO SAFEWAY, VONS OR PERSONS ACTING ON
THEIR BEHALF ARE EXPRESSLY QUALIFIED BY THE FACTORS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
EITHER PARTY'S EXPECTATIONS.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
(1) For Vons, its:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "1995 Vons Form 10-K");
(b) The portions of Vons' Annual Report to Shareholders for the fiscal
year ended December 31, 1995 that have been incorporated by
reference into the 1995 Vons Form 10-K;
(c) The portions of Vons' Proxy Statement on Schedule 14A for the Annual
Meeting of Shareholders held on May 8, 1996 that have been
incorporated by reference into the 1995 Vons Form 10-K;
(d) Quarterly Reports on Form 10-Q for the quarterly periods ended
October 6, 1996, June 16, 1996 and March 24, 1996;
(e) Current Report on Form 8-K dated December 15, 1996; and
(f) Description of Vons' Common Stock contained in Vons' Registration
Statement on Form 8-A filed with the Commission on March 5, 1986,
including the amendments on Form 8 dated March 30, 1989, April 30,
1991 and December 14, 1992.
(2) For Safeway, its:
(a) Annual Report on Form 10-K for the fiscal year ended December 30,
1995 (the "1995 Safeway Form 10-K");
(b) The portions of Safeway's 1995 Annual Report to Stockholders that
have been incorporated by reference into the 1995 Safeway Form 10-K;
iv
<PAGE> 9
(c) The portions of Safeway's Proxy Statement on Schedule 14A dated
March 19, 1996 that have been incorporated by reference into the
1995 Safeway Form 10-K;
(d) Quarterly Reports on Form 10-Q for the quarterly periods ended
September 7, 1996, June 15, 1996 and March 23, 1996;
(e) Current Reports on Form 8-K dated January 8, 1997, December 15, 1996
and January 25, 1996; and
(f) Description of Safeway's Common Stock contained in Safeway's
Registration Statement on Form 8-A filed with the Commission on
February 20, 1990, including the amendment on Form 8 dated March 26,
1990.
All documents filed by Vons or Safeway pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. Copies of any such documents,
other than exhibits to such documents which are not specifically incorporated by
reference therein, are available without charge to any person to whom this Proxy
Statement/Prospectus is delivered, upon written or oral request to, in the case
of documents relating to Vons, Mary McAboy, Vice President of Corporate
Communications of The Vons Companies, Inc., 618 Michillinda Avenue, Arcadia,
California, 91007, (818) 821-7897, and in the case of documents relating to
Safeway, Melissa Plaisance, Senior Vice President, Safeway Inc., 5918 Stoneridge
Mall Road, Pleasanton, California, 94588, (510) 467-3790. In order to ensure
timely delivery, any request for documents should be received by April 1, 1997.
------------------------
v
<PAGE> 10
SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Proxy Statement/Prospectus and the Appendices
and Exhibits hereto (the "Proxy Statements/Prospectus"). Reference is made to,
and this summary is qualified in its entirety by, the more detailed information
contained elsewhere or incorporated by reference in this Proxy
Statement/Prospectus. Shareholders are urged to read this Proxy
Statement/Prospectus before voting on the matters discussed herein.
As used herein, the term "Vons" refers to The Vons Companies, Inc.,
including, unless the context otherwise requires, its subsidiaries, the term
"Safeway" refers to Safeway Inc., including, unless the context otherwise
requires, its subsidiaries, and the term the "Combined Company" refers to the
operations of Safeway (including Vons) after giving effect to the Merger.
Certain capitalized terms used in the Summary are defined elsewhere in the Proxy
Statement/Prospectus.
THE COMPANIES
VONS
Vons is a Michigan corporation and the second largest supermarket chain in
southern California based on sales. Stores operate under the "Vons" and
"Pavilions" names. At December 29, 1996, Vons operated 320 supermarket and food
and drug combination stores. Vons also operates a fluid milk processing
facility, an ice cream plant, a bakery and distribution facilities for meat,
grocery, produce and general merchandise to support the store network. The
principal executive offices of Vons are located at 618 Michillinda Avenue,
Arcadia, California 91007, telephone (818) 821-7000. Vons Common Stock is traded
on the NYSE.
SAFEWAY
Safeway is a Delaware corporation, operating 1,052 stores at December 28,
1996 in the United States and Canada. U.S. retail operations are located
principally in northern California, Oregon, Washington, Colorado, Arizona and
the Mid-Atlantic region. Canadian retail operations are located principally in
British Columbia, Alberta and Manitoba/Saskatchewan. In support of its
operations, Safeway has an extensive network of distribution, manufacturing and
food processing facilities. In addition to stores operated under the Safeway
name and its existing 34.3% ownership interest in Vons, Safeway holds a 49%
interest in Casa Ley, S.A. de C.V., which operated 71 food and general
merchandise stores in Mexico at December 28, 1996. Safeway Common Stock is
traded on the NYSE and the PSE.
MERGER SUB
Merger Sub, a Michigan corporation and an indirect wholly owned subsidiary
of Safeway, was organized at the direction of Safeway to effect the Merger and
has not conducted any business other than in connection with the Merger. The
principal executive offices of Safeway and Merger Sub are located at 5918
Stoneridge Mall Road, Pleasanton, California, 94588, telephone (510) 467-3000.
THE SPECIAL MEETING
DATE, TIME AND PLACE
The Special Meeting of the shareholders of Vons will be held at the Hershey
Crocker Room, Hotel Inter-Continental, 251 South Olive Street, Los Angeles,
California, on April 8, 1997, at 8:00 a.m. local time.
RECORD DATE, SHARES ENTITLED TO VOTE
Holders of record of Vons Common Stock at the close of business on February
20, 1997 (the "Record Date") will be entitled to notice of, and to vote at, the
Special Meeting. Holders of Vons Common Stock are entitled to one vote for each
share of Vons Common Stock held by them. The presence, either in person or by
<PAGE> 11
properly executed proxies, of the holders of a majority of the outstanding
shares of Vons Common Stock is necessary to constitute a quorum at the Special
Meeting.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the shareholders of Vons will be asked (i) to
consider and vote upon the Merger Proposal and (ii) to consider and transact
such other business as may properly come before the Special Meeting or any
adjournment or postponement thereof. The Vons Board and the Special Committee
believe that the Merger, upon the terms and subject to the conditions of the
Merger Agreement, is advisable to, and in the best interests of, Vons and its
shareholders (other than Safeway or any its direct or indirect subsidiaries or
affiliates), have approved the Merger Proposal and recommend that shareholders
of Vons vote FOR the Merger Proposal.
VOTE REQUIRED
Under Michigan law, the affirmative vote of the holders of a majority of
the outstanding shares of Vons Common Stock entitled to vote is required to
adopt and approve the Merger Proposal. In addition, pursuant to the Merger
Agreement, it is a condition to the parties' obligations to consummate the
transactions contemplated by the Merger Agreement that the Merger Proposal be
approved by a majority of the outstanding shares of Vons Common Stock entitled
to vote and not held by Safeway or its affiliates. As of the Record Date,
44,091,770 shares of Vons Common Stock were issued and outstanding, of which
0.49% were beneficially owned by directors and executive officers of Vons and
34.3% were beneficially owned by Safeway. Pursuant to the Merger Agreement,
Safeway has agreed to vote or cause to be voted all shares of Vons Common Stock
owned directly or indirectly by Safeway in favor of the Merger Proposal. Vons
has been advised that all of the Vons directors and executive officers who are
shareholders intend to vote in favor of the Merger Proposal.
REVOCATIONS
When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Vons, at or before the taking of the vote at the
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares of
Vons Common Stock and delivering it to the Secretary of Vons before the taking
of the vote at the Special Meeting, or (iii) attending the Special Meeting and
voting in person (i.e., attendance at the Special Meeting will not in and of
itself constitute a revocation of a proxy). See "Voting and Proxies -- Vote
Required."
THE MERGER
On the terms and subject to the conditions of the Merger Agreement, at the
Effective Time (as hereinafter defined) of the Merger, each share of Vons Common
Stock outstanding immediately prior to the Effective Time, other than shares of
Vons Common Stock owned directly or indirectly by Safeway, will be converted
into the right to receive 1.425 shares of Safeway Common Stock (the "Exchange
Ratio"), and Merger Sub will be merged with and into Vons, with Vons as the
surviving corporation. Vons, as the surviving corporation of the Merger, is
hereinafter sometimes referred to as the "Surviving Corporation." As a result of
the Merger, among other effects, (i) Vons will become a wholly owned subsidiary
of Safeway, (ii) all the property, rights, privileges, powers and franchises of
Vons and Merger Sub will vest in the Surviving Corporation, and (iii) all debts,
liabilities and duties of Vons and Merger Sub will become the debts, liabilities
and duties of the Surviving Corporation. The Exchange Ratio is fixed at 1.425
shares of Safeway Common Stock per share of Vons Common Stock and will not be
adjusted based on changes in the price of Safeway Common Stock. Thus, the dollar
value of Safeway Common Stock to be received by the holders of Vons Common Stock
will not be determined until the Effective Time, and may be more or less than
the trading value of Safeway Common Stock as of the date of the Merger
Agreement, the Merger Agreement Amendment, this Proxy Statement/Prospectus or
the Special Meeting.
2
<PAGE> 12
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a certificate of merger
with the appropriate administrator, as provided in the Michigan Business
Corporation Act (the "MBCA"), together with any required related documents, or
at such later time as is specified in such certificate (the "Effective Time").
Such filing will be made as promptly as practicable after the requisite approval
of Vons shareholders has been obtained and all other conditions to the Merger
have been satisfied or waived. Subject to the satisfaction (or waiver) of the
other conditions to the obligations of Vons and Safeway to consummate the
Merger, it is presently expected that the Merger will be consummated immediately
following the Special Meeting or as soon thereafter as such other conditions are
satisfied or waived.
TREATMENT OF VONS OPTIONS
At the Effective Time, each outstanding option to purchase Vons Common
Stock granted under The Vons Companies, Inc. Management Stock Option Plan and
The Vons Companies, Inc. 1990 Stock Option and Restricted Stock Plan, each as
amended to date (collectively, the "Vons' Stock Option Plans"), whether vested
or unvested (a "Stock Option"), will be assumed by Safeway and constitute an
option to acquire Safeway Common Stock pursuant to the terms of the Merger
Agreement. See "The Merger Agreement -- Treatment of Stock Options."
Pursuant to The Vons Companies, Inc. Directors' Stock Option Plan (the
"Directors' Option Plan"), Vons has granted options to purchase Vons Common
Stock ("Director Stock Options") to members of the Vons Board who are not
employees of Vons ("Outside Directors") in connection with their service on the
Vons Board. In February 1997, Safeway determined to offer to replace, at the
Effective Time, all outstanding Director Stock Options with new options to
purchase Safeway Common Stock ("Replacement Options"). Each Replacement Option
will represent the right to purchase shares of Safeway Common Stock on
substantially the same terms and conditions as were applicable under the
Director Stock Option being replaced. Replacement Options will be fully
exercisable regardless of whether the Director Stock Option was exercisable
prior to the Effective Time. As of February 20, 1997, Outside Directors held
Director Stock Options to purchase an aggregate of 200,525 shares of Vons Common
Stock, which, if exchanged for Replacement Options, would represent the right to
purchase an aggregate of 285,750 shares of Safeway Common Stock. If a holder
does not elect to exchange his Director Stock Options for Replacement Options,
then pursuant to the Directors' Option Plan, such Director Stock Option will be
fully exercisable immediately prior to the Effective Time and will terminate at
the Effective Time. See "The Merger -- Interests of Certain Persons in the
Merger -- Stock Options," "Relationship Between Safeway and Vons" and "Security
Ownership of Certain Beneficial Owners and Management of Safeway."
DIRECTORS AND OFFICERS
The Merger Agreement provides that the directors of Merger Sub immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-laws of the Surviving Corporation, and the officers of Vons
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified in the manner provided in the Articles of
Incorporation and By-laws of the Surviving Corporation and in accordance with
applicable law. The Merger Agreement also provides that Vons shall cause each
director of Vons' subsidiaries which are corporations to tender his or her
resignation prior to the Effective Time, with each such resignation to be
effective as of the Effective Time.
DISSENTERS' RIGHTS
Under the MBCA, holders of Vons Common Stock are not entitled to
dissenters' rights in connection with the Merger. See "Comparison of Rights of
Holders of Vons Common Stock and Safeway Common Stock -- Dissenters' Rights."
3
<PAGE> 13
EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, a letter of transmittal and instructions
will be mailed to each holder of record of certificates that, immediately prior
to the Effective Time, represented shares of Vons Common Stock. After receipt of
such letter of transmittal, each holder of such certificates should surrender
the certificates to First Chicago Trust Company of New York (the "Exchange
Agent"), together with such letter of transmittal duly executed and completed in
accordance with the instructions thereto. In exchange therefor, each such holder
will be entitled to receive (i) certificates of Safeway Common Stock evidencing
the whole number of shares of Safeway Common Stock to which such holder is
entitled, (ii) any dividends or other distributions to which such holder is
entitled and (iii) cash in lieu of fractional shares (collectively, the "Merger
Consideration").
CERTAIN CONDITIONS TO THE MERGER; TERMINATION PROVISIONS
The obligations of Vons and Safeway to consummate the Merger are subject to
the satisfaction or waiver of certain conditions at or prior to the Effective
Time, including, without limitation, (a) approval of the Merger Proposal by a
majority of the outstanding shares of Vons Common Stock entitled to vote, as
well as, pursuant to the Merger Agreement, by a majority of the outstanding
shares of Vons Common Stock entitled to vote and not held by Safeway and its
affiliates, (b) authorization for listing on the NYSE, subject to official
notice of issuance, of the shares of Safeway Common Stock to be issued in the
Merger, and (c) the expiration or termination of all waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). In addition, the obligation of Vons to consummate the Merger is subject
to the satisfaction or waiver of certain other conditions, including, without
limitation, (a) receipt of an opinion of counsel relating to tax matters and (b)
effectiveness of the Repurchase Agreement. See "The Merger
Agreement -- Conditions to the Merger." The Merger Agreement may be terminated
at any time prior to the Effective Time by the mutual agreement of Vons and
Safeway and under certain specified circumstances by Vons or Safeway. See "The
Merger Agreement -- Termination."
With certain exceptions, in the event that (x) prior to termination of the
Merger Agreement, any person other than Safeway and its affiliates shall have
commenced, publicly proposed or communicated to Vons an Acquisition Proposal (as
hereinafter defined) and (y) within three months of the termination of the
Merger Agreement, such person, or any affiliate of such person, enters into any
definitive agreement to effect an Acquisition Proposal related to the earlier
Acquisition Proposal, then Vons shall pay to Safeway $50,000,000 in cash within
five business days following the consummation of the transaction contemplated by
the Acquisition Proposal, in addition to all documented out-of-pocket fees and
expenses actually incurred by Safeway prior to such termination in connection
with the proposed Merger and the consummation of all transactions contemplated
by the Merger Agreement (provided that the amount required to be reimbursed for
such expenses shall not exceed $5,000,000) and provided further that no fee
shall be payable by Vons if there has been a material misrepresentation by or
material breach of any material obligation of Safeway under the Merger Agreement
which would entitle Vons to terminate the Merger Agreement pursuant to its
terms. In no event will Vons be required to pay more than one such fee with
respect to termination of the Merger Agreement.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND
THE VONS BOARD OF DIRECTORS; VONS' REASONS FOR THE MERGER
At its meeting on December 13, 1996, following presentations by Vons
management and the Special Committee's financial and legal advisors, the Special
Committee determined that the proposed Merger, upon the terms and subject to the
conditions of the Merger Agreement, is advisable to and in the best interests of
Vons and its shareholders and unanimously recommended that the Vons Board of
Directors approve the Merger Agreement. Immediately following such meeting, a
meeting of the full Board of Directors was convened and, following the
recommendation of the Special Committee, the Vons Board unanimously (with the
four directors affiliated with Safeway abstaining): (i) determined that the
proposed Merger, upon the terms and subject to the conditions of the Merger
Agreement, is advisable to and in the best interests of Vons
4
<PAGE> 14
and its shareholders and approved the Merger Agreement and (ii) recommended that
holders of Vons Common Stock approve and adopt the Merger Agreement and the
proposed Merger. At its meeting on January 8, 1997, following presentations by
the Special Committee's financial and legal advisors, the Special Committee
determined that the Repurchase and the Merger Agreement Amendment were advisable
to and in the best interests of Vons and its shareholders and recommended that
the Vons Board approve the Merger Agreement Amendment. Immediately following
such meeting, a meeting of the Vons Board was convened and, following the
recommendation of the Special Committee, the Vons Board approved (with the four
directors affiliated with Safeway abstaining) the Merger Agreement Amendment and
reaffirmed its recommendation that holders of Vons Common Stock approve and
adopt the Merger Agreement and the proposed Merger. For the factors considered
by the Special Committee and the Board in their deliberations, see "The
Merger -- Recommendation of the Special Committee and the Vons Board of
Directors; Vons' Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
Credit Suisse First Boston Corporation ("Credit Suisse First Boston") has
delivered its written opinion to the Special Committee of the Board of Directors
of Vons to the effect that, as of the date of such opinion and subject to
certain matters discussed therein, the Exchange Ratio to be offered to the
shareholders of Vons in the Merger is fair to such shareholders (other than
Safeway and its subsidiaries) from a financial point of view. For information on
the assumptions made, matters considered and limits of review by Credit Suisse
First Boston, see "The Merger -- Opinion of Financial Advisor to the Special
Committee." Holders of Vons Common Stock are urged to read in its entirety the
opinion of Credit Suisse First Boston included as Appendix B to the Proxy
Statement/Prospectus.
THE REPURCHASE
In connection with the Merger, Safeway has entered into the Repurchase
Agreement with SSI Associates for the Repurchase by Safeway of 32,000,000 shares
of Safeway Common Stock from SSI Associates. The Repurchase will be consummated
immediately following the Merger. Upon the consummation of the Repurchase,
Safeway will pay SSI Associates an amount equal to $43.00 per share of Safeway
Common Stock repurchased. A committee of the Board of Directors of Safeway
comprised of the Safeway directors who are not affiliated with KKR (the "Safeway
Special Committee") approved the terms of the Repurchase. Safeway currently
expects to enter into a new credit agreement which, among other things, will
provide for an increase in its current borrowing capacity to fund the $1.376
billion purchase price and an extended maturity on the new commitments. See "The
Repurchase."
SSI Associates and KKR Partners II, L.P., a Delaware limited partnership
("KKR Partners II") (collectively, the "Common Stock Partnerships"), currently
own approximately 49% of the outstanding Safeway Common Stock. Following the
Merger and after giving effect to the Repurchase, it is expected that the Common
Stock Partnerships will own approximately 33% of the outstanding Safeway Common
Stock. See "Security Ownership of Certain Beneficial Owners and Management of
Safeway."
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase, with Safeway as acquiror,
in accordance with generally accepted accounting principles ("GAAP"). Under this
method of accounting, the purchase price will be allocated to assets acquired
and liabilities assumed based on their estimated fair values. After the Merger,
income of the Combined Company for periods prior to the Effective Time will not
include income of Vons except to the extent included because of Safeway's equity
interest in Vons' earnings based on Safeway's ownership of Vons Common Stock
prior to the Effective Time. See "The Merger -- Accounting Treatment."
5
<PAGE> 15
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of Vons' Board of Directors,
shareholders should be aware that certain members of Vons' management and Board
of Directors have certain interests in the Merger in addition to the interests
of Vons shareholders generally. As a result of the Merger, certain officers of
Vons are entitled to severance benefits under existing Vons benefits plans if
they are terminated after the Effective Time. One of the Vons Stock Option Plans
provides that all of the options granted may be exercised upon a "change of
control" of Vons, subject to a surviving corporation assuming or replacing the
options. Safeway has agreed to assume all Stock Options under the Vons Stock
Option Plans. In connection with the Merger, Safeway will offer to replace all
outstanding Director Stock Options granted to Outside Directors with fully
vested Replacement Options to purchase Safeway Common Stock. Pursuant to the
Directors' Option Plan, if a holder does not elect to exchange his Director
Stock Options for Replacement Options, then such Director Stock Options will be
fully exercisable immediately prior to the Effective Time and will terminate at
the Effective Time. The Merger Agreement also provides that Vons, Safeway and
the Surviving Corporation will indemnify each present or former director,
officer or employee of Vons against certain costs and expenses for a period of
at least six years after the date of the Merger Agreement and will, subject to
the availability thereof, maintain in effect director and officer liability
insurance. See "The Merger -- Interests of Certain Persons in the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Assuming the Merger is so treated, for federal income tax purposes, the Merger
will not result in the recognition of gain or loss to Vons, Safeway, Merger Sub
or the holders of Vons Common Stock except with respect to cash received by such
holders in lieu of fractional shares. See "The Merger -- Certain Federal Income
Tax Consequences."
VONS SHAREHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING VONS COMMON
STOCK AT THIS TIME. A LETTER OF TRANSMITTAL WILL BE MAILED AFTER THE EFFECTIVE
TIME TO EACH PERSON WHO WAS A HOLDER OF OUTSTANDING SHARES OF VONS COMMON STOCK
IMMEDIATELY PRIOR TO THE EFFECTIVE TIME. VONS SHAREHOLDERS SHOULD SEND
CERTIFICATES REPRESENTING VONS COMMON STOCK TO THE EXCHANGE AGENT ONLY AFTER
THEY RECEIVE, AND IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN THE LETTER
OF TRANSMITTAL.
6
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA OF SAFEWAY
The financial data below are derived from the audited consolidated
financial statements of Safeway, except for the financial data for the 36-week
periods ended September 7, 1996 and September 9, 1995, which are unaudited. The
selected financial data should be read in conjunction with Safeway's
consolidated financial statements and accompanying notes, which are incorporated
herein by reference. See "Incorporation of Certain Information by Reference."
The results of operations for the 36 weeks ended September 7, 1996 and September
9, 1995 contain all adjustments that are of a normal and recurring nature
necessary to present fairly the financial position and results of operations for
such periods. The results for the 36 weeks ended September 7, 1996 are not
necessarily indicative of the results expected for the full year.
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
36 WEEKS ENDED
--------------------- 52 52 52 53 52
SEPT. 7, SEPT. 9, WEEKS WEEKS WEEKS WEEKS WEEKS
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Sales..................................... $11,782.1 $11,231.2 $16,397.5 $15,626.6 $15,214.5 $15,151.9 $15,119.2
========= ========= ========= ========= ========= ========= =========
Gross profit.............................. 3,281.2 3,078.6 4,492.4 4,287.3 4,123.3 4,149.9 4,102.6
Operating and administrative expense...... (2,673.2) (2,583.1) (3,765.0) (3,675.2) (3,681.8) (3,708.3) (3,554.3)
AppleTree charge.......................... -- -- -- -- -- -- (115.0)
--------- --------- --------- --------- --------- --------- ---------
Operating profit.......................... 608.0 495.5 727.4 612.1 441.5 441.6 433.3
Interest expense.......................... (126.3) (141.3) (199.8) (221.7) (265.5) (290.4) (355.4)
Equity in earnings of unconsolidated
affiliates.............................. 34.3 17.2 26.9 27.3 33.5 39.1 45.8
Gain on common stock offering by
unconsolidated affiliate................ -- -- -- -- -- -- 27.4
Other income, net......................... 3.4 1.5 2.0 6.4 6.8 7.1 15.1
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes, extraordinary
loss and cumulative effect of accounting
changes................................. 519.4 372.9 556.5 424.1 216.3 197.4 166.2
Income taxes.............................. (210.4) (158.5) (228.2) (173.9) (93.0) (99.0) (87.2)
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary loss and
cumulative effect of accounting
changes................................. 309.0 214.4 328.3 250.2 123.3 98.4 79.0
Extraordinary loss, net of tax benefit of
$1.3, $6.7, $17.1 and $14.9............. -- -- (2.0) (10.5) -- (27.8) (24.1)
Cumulative effect of accounting changes,
net of tax benefit of $12.0............. -- -- -- -- -- (27.1) --
--------- --------- --------- --------- --------- --------- ---------
Net income................................ $ 309.0 $ 214.4 $ 326.3 $ 239.7 $ 123.3 $ 43.5 $ 54.9
========= ========= ========= ========= ========= ========= =========
Earnings per common share and common share
equivalent (fully diluted):
Income before extraordinary loss and
cumulative effect of accounting
changes................................. $ 1.29 $ 0.88 $ 1.35 $ 1.01 $ 0.50 $ 0.41 $ 0.34
Extraordinary loss...................... -- -- (0.01) (0.04) -- (0.12) (0.10)
Cumulative effect of accounting
changes............................... -- -- -- -- -- (0.11) --
--------- --------- --------- --------- --------- --------- ---------
Net income............................ $ 1.29 $ 0.88 $ 1.34 $ 0.97 $ 0.50 $ 0.18 $ 0.24
========= ========= ========= ========= ========= ========= =========
FINANCIAL STATISTICS:
Same-store sales*......................... 5.3% 4.6% 4.6% 4.4% 2.1% (1.6%) (0.3%)
Gross profit margin....................... 27.85% 27.41% 27.40% 27.44% 27.10% 27.39% 27.14%
Operating and administrative expense as a
percent of sales........................ 22.69% 23.00% 22.96% 23.52% 24.20% 24.47% 23.51%
Operating profit margin................... 5.2% 4.4% 4.4% 3.9% 2.9% 2.9% 2.9%
Capital expenditures...................... $ 323.7 $ 279.3 $ 503.2 $ 352.2 $ 290.2 $ 553.4 $ 635.0
Depreciation and amortization............. 233.5 227.7 329.7 326.4 330.2 320.3 295.9
Total assets.............................. 5,272.3 5,032.7 5,194.3 5,022.1 5,074.7 5,225.8 5,170.7
Total debt................................ 1,828.8 2,105.6 2,190.2 2,196.1 2,689.2 3,048.6 3,066.0
Stockholders' equity...................... 1,136.3 758.4 795.5 643.8 382.9 243.1 214.4
Weighted average common shares and common
share equivalents (fully diluted)(in
millions)............................... 240.1 242.4 243.5 247.1 246.9 238.0 230.4
OTHER STATISTICS:
Stores opened during the period........... 11 16 32 20 14 35 33
Stores closed or sold during the period... 20 21 35 36 39 49 37
Total stores at period-end................ 1,050 1,057 1,059 1,062 1,078 1,103 1,117
Remodels completed during the period**.... n/a n/a 108 71 45 63 77
Total retail square footage at period-end
(in millions)........................... 39.9 39.7 40.1 39.5 39.4 39.7 38.9
</TABLE>
- ---------------
* Reflects sales increases (decreases) for stores operating the entire
measurement period in both the current and prior periods and does not include
replacement stores.
** Defined as store remodel projects (other than maintenance) generally
requiring expenditures in excess of $200,000.
7
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA OF VONS
The following is a summary of selected consolidated financial data of Vons
for each of the years in the five-year period ended December 31, 1995 and the
unaudited 40-week periods ended October 6, 1996 and October 8, 1995. This
information is derived from the financial statements of Vons contained in the
1995 Vons Form 10-K and Vons' Quarterly Report on Form 10-Q for the quarterly
period ended October 6, 1996, incorporated by reference herein. See
"Incorporation of Certain Information by Reference." Financial position data as
of October 8, 1995 is derived from the financial statements of Vons contained in
Vons' Quarterly Report on Form 10-Q for the quarterly period ended October 8,
1995. The summary should be read in conjunction with and is qualified in its
entirety by reference to the foregoing financial statements. The results of
operations for the 40 weeks ended October 6, 1996 and October 8, 1995 contain
all adjustments that are of a normal and recurring nature necessary to present
fairly the financial position and results of operations for such periods. The
results for the 40 weeks ended October 6, 1996 are not necessarily indicative of
the results expected for the full year.
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF AND AS OF AND
AS OF AND FOR THE FOR THE 53 FOR THE 52
40 WEEKS ENDED AS OF AND FOR THE 52 WEEKS ENDED WEEKS WEEKS
------------------- -------------------------------- ENDED ENDED
OCT. 6, OCT. 8, DEC. 31, JAN. 1, JAN. 2, JAN 3, DEC. 29,
1996 1995 1995 1995 1994 1993 1991
-------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Sales.............................. $4,143.2 $3,847.3 $5,070.7 $4,996.6 $5,074.5 $5,595.5 $5,350.2
Restructuring charges.............. -- -- -- 33.0 56.9 -- --
Operating income................... 166.6 139.4 194.1 125.8 135.8 219.1 197.1
Interest expense, net.............. 43.4 51.9 67.3 70.8 66.0 71.5 86.4
Income before income tax
provision........................ 123.2 87.5 126.8 55.0 69.8 147.6 110.7
Income before extraordinary item
and cumulative effect of change
in accounting for retiree medical
benefits......................... 69.6 47.0 68.1 26.6 33.0 82.1 66.4
Income before cumulative effect of
change in accounting for retiree
medical benefits................. 69.6 47.0 68.1 26.6 31.6 69.3 60.1
-------- -------- -------- -------- -------- ---------- ----------
Net income......................... $ 69.6 $ 47.0 $ 68.1 $ 26.6 $ 31.6 $ 53.8 $ 60.1
======== ======== ======== ======== ======== ========= =========
Income per common and common
equivalent share before
extraordinary item and cumulative
effect of change in accounting
for retiree medical benefits..... $ 1.56 $ 1.07 $ 1.55 $ .61 $ .76 $ 1.89 $ 1.60
Income per common and common
equivalent share before
cumulative effect of change in
accounting for retiree medical
benefits......................... 1.56 1.07 1.55 .61 .73 1.60 1.45
-------- -------- -------- -------- -------- ---------- ----------
Net income per common and common
equivalent share................. $ 1.56 $ 1.07 $ 1.55 $ .61 $ .73 $ 1.24 $ 1.45
======== ======== ======== ======== ======== ========= =========
FINANCIAL POSITION:
Working capital (deficit).......... $ (265.3) $ (137.3) $ (141.1) $ (96.1) $ (69.3) $ (74.9) $ (64.2)
Total assets....................... 2,152.9 2,170.9 2,186.5 2,222.0 2,249.5 2,066.0 1,863.2
Long term debt:
Capital lease obligations.......... 51.6 54.5 53.4 58.0 62.7 56.4 42.3
Senior debt........................ 87.5 329.8 298.8 426.2 497.2 389.2 272.2
Subordinated debt, net............. 284.1 305.0 305.7 319.6 322.1 342.5 376.8
Common shareholders' equity........ 702.0 601.5 623.3 552.4 524.9 493.2 437.7
Shareholders' equity per common
share............................ $ 15.98 $ 13.83 $ 14.32 $ 12.73 $ 12.11 $ 11.38 $ 10.12
OTHER DATA:
Weighted average common shares
during period, including common
share equivalents................ 44.6 43.8 43.9 43.6 43.5 43.5 41.6
Outstanding common shares at period
end.............................. 43.9 43.5 43.5 43.4 43.3 43.3 43.2
</TABLE>
8
<PAGE> 18
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA AND PER SHARE DATA
The combined statements of operations table presents unaudited pro forma
combined financial information for Safeway and Vons for the year ended December
30, 1995 and the 36 weeks ended September 7, 1996 for Safeway and the 40 weeks
ended October 6, 1996 for Vons as if the Merger and Repurchase were each
consummated on January 1, 1995. Additionally, the balance sheet data below is
based on the combined unaudited September 7, 1996 and October 6, 1996 balance
sheets of Safeway and Vons as if the Merger and Repurchase were each consummated
on September 7, 1996. The per share financial information table presents certain
historical, pro forma combined and pro forma equivalent per share financial
information for Safeway Common Stock and Vons Common Stock, assuming the Merger
and the Repurchase had been effective during all periods presented. The pro
forma amounts included below are based on the purchase method of accounting, a
preliminary determination and allocation of the total purchase price and the
assumptions described under "Unaudited Pro Forma Combined Financial
Information." This information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and
accompanying notes of Safeway and Vons included in the documents described under
"Incorporation of Certain Information by Reference" and the pro forma combined
financial statements and accompanying discussion and notes set forth under
"Unaudited Pro Forma Combined Financial Information." The pro forma combined
amounts below are presented for informational purposes and are not necessarily
indicative of the financial position or the results of operations of the
Combined Company that would have actually occurred had the Merger and the
Repurchase been consummated as of the dates or for the periods presented. The
pro forma amounts are also not necessarily indicative of the future financial
position or future results of operations of the Combined Company.
<TABLE>
<CAPTION>
THREE QUARTERS YEAR ENDED
ENDED(1) DECEMBER 30,
-------------- ------------
PRO FORMA PRO FORMA
1996 1995
-------------- ------------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sales........................................................... $ 15,891.2 $ 21,433.4
Gross profit.................................................... 4,538.1 6,040.8
Operating profit................................................ 755.2 892.4
Income before income taxes and extraordinary loss............... 544.2 553.3
Income before extraordinary loss................................ 308.1 303.3
Earnings before extraordinary loss per common share and common
share equivalents (fully diluted)............................ $ 1.23 $ 1.20
Weighted average common and common equivalent shares (fully
diluted)..................................................... 250.8 252.9
BALANCE SHEET DATA:
Total assets.................................................... $ 8,404.1
Total debt...................................................... 3,770.3
Stockholders' equity............................................ 1,454.9
</TABLE>
- ---------------
(1) As of and for the 36 weeks ended September 7, 1996 for Safeway and for the
40 weeks ended October 6, 1996 for Vons.
9
<PAGE> 19
<TABLE>
<CAPTION>
36 WEEKS FISCAL YEAR
ENDED SEPT. 7, ENDED DECEMBER 30,
1996 1995
-------------- ------------------
<S> <C> <C>
SAFEWAY COMMON STOCK(1)
EARNINGS BEFORE EXTRAORDINARY LOSS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT (FULLY DILUTED):
Historical................................................. $ 1.29 $ 1.35
Pro forma combined(2)...................................... 1.23 1.20
BOOK VALUE PER COMMON SHARE:
Historical................................................. $ 5.20 $ 3.72
Pro forma combined(3)...................................... 6.39 N/A
</TABLE>
<TABLE>
<CAPTION>
40 WEEKS FISCAL YEAR
ENDED OCT. 6, ENDED DECEMBER 31,
1996 1995
-------------- ------------------
<S> <C> <C>
VONS COMMON STOCK(1)
EARNINGS PER COMMON SHARE:
Historical................................................. $ 1.56 $ 1.55
Pro forma equivalent combined(4)........................... 1.75 1.71
BOOK VALUE PER COMMON SHARE:
Historical................................................. $15.98 $14.32
Pro forma equivalent combined(4)........................... 9.11 N/A
</TABLE>
- ---------------
(1) Neither Safeway nor Vons has paid cash dividends for the periods presented.
(2) The pro forma combined per share data combines the financial information of
Safeway for the fiscal year ended December 30, 1995 and the 36 weeks ended
September 7, 1996 with the financial information of Vons for the fiscal year
ended December 31, 1995 and the 40 weeks ended October 6, 1996,
respectively. See "Unaudited Pro Forma Combined Financial Information."
(3) Amount is calculated by dividing total pro forma common stockholders' equity
by the sum of total outstanding shares of Safeway Common Stock plus new
shares of Safeway Common Stock to be issued in the Merger (based on the
number of shares of Vons Common Stock outstanding at period end) less the
shares reacquired by Safeway in the Repurchase.
(4) Amounts are calculated by multiplying Safeway's pro forma combined amounts
by the Exchange Ratio of 1.425.
10
<PAGE> 20
MARKET PRICES
Safeway Common Stock is quoted on the NYSE and the PSE under the symbol
"SWY." Vons Common Stock is quoted on the NYSE under the symbol "VON." The
tables below set forth, for the fiscal quarters indicated, the high and low sale
prices per share for Safeway Common Stock and Vons Common Stock as reported on
the NYSE Composite Tape. The information set forth below with respect to Safeway
has been adjusted to give effect to a stock distribution whereby each holder of
Safeway Common Stock received on January 30, 1996 one additional share of Common
Stock for each share owned as of January 16, 1996. Neither Safeway nor Vons has
paid dividends on their Common Stock for the periods presented.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
SAFEWAY
Fiscal Year ended December 30, 1995:
First Quarter............................................................. $18 $15 5/16
Second Quarter............................................................ 19 1/4 15 9/16
Third Quarter............................................................. 20 5/16 17 5/16
Fourth Quarter............................................................ 25 3/4 19 5/16
Fiscal Year ended December 28, 1996:
First Quarter............................................................. $30 1/8 $22 7/16
Second Quarter............................................................ 35 5/8 27 5/8
Third Quarter............................................................. 38 1/4 31 3/4
Fourth Quarter............................................................ 45 3/8 37 1/4
Fiscal Year ending January 3, 1998:
First Quarter (through March 4, 1997)..................................... 49 3/8 41 1/8
VONS
Fiscal Year ended December 31, 1995:
First Quarter............................................................. $20 3/4 $17 5/8
Second Quarter............................................................ 21 7/8 19 1/4
Third Quarter............................................................. 24 3/8 20 1/4
Fourth Quarter............................................................ 28 1/4 22 7/8
Fiscal Year ended December 29, 1996:
First Quarter............................................................. $33 $25
Second Quarter............................................................ 38 3/4 29 7/8
Third Quarter............................................................. 44 3/8 34
Fourth Quarter............................................................ 57 7/8 40 1/8
Fiscal Year ending December 28, 1997:
First Quarter (through March 4, 1997)..................................... 69 1/2 59
</TABLE>
The last reported sales price per share of Safeway Common Stock and Vons
Common Stock on October 29, 1996 (the last trading day preceding public
announcement that Safeway had proposed to acquire Vons) on the NYSE Composite
Tape was $43 3/8 and $43 1/8, respectively, and on December 13, 1996 (the last
trading day preceding public announcement that Safeway and Vons had signed a
definitive merger agreement) was $38 3/8 and $48 7/8, respectively. On January
8, 1997 (the last trading day preceding public announcement of the Repurchase)
the last reported sales price per share for Safeway Common Stock on the NYSE
Composite Tape was $44. On March 4, 1997, the last reported sales price per
share for Safeway Common Stock on the NYSE Composite Tape was $49. On March 4,
1997, the last reported sales price per share for Vons Common Stock on the NYSE
Composite Tape was $69.
SHAREHOLDERS OF VONS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
Safeway has not declared or paid any cash dividends on its Common Stock and
does not currently intend to declare or pay any cash dividends. Any
determination to pay dividends in the future will be at the discretion of
Safeway's Board of Directors and will be dependent upon Safeway's results of
operations, financial condition, capital expenditures, working capital
requirements, any contractual restrictions and other factors deemed relevant by
Safeway's Board of Directors. Safeway's credit agreement and certain of its
indentures contain restrictions on Safeway's ability to pay cash dividends on
Safeway Common Stock. See "The Merger -- Dividends on Safeway Common Stock."
11
<PAGE> 21
RECENT DEVELOPMENTS
VONS
On January 23, 1997, Vons announced results for the fifty-two week year
ended December 29, 1996. Net income in 1996 was $104.7 million, or $2.34 per
share, compared with $68.1 million, or $1.55 per share, a year ago. Sales in
1996 were approximately $5.41 billion compared with $5.07 billion in 1995. Same
store sales increased 4.9% in 1996. In 1996, sales per selling square foot
increased to $638 from $606 for the year earlier, a 5.3% increase. Gross margin
in 1996 was 25.5% of sales compared with 25.2% of sales in 1995. This
improvement reflects the benefits of increased sales of private brand products,
improved category management and a reduction of occupancy costs as a percent of
sales. Selling and administrative expenses in 1996 were 20.7% of sales compared
with 21.1% of sales in 1995, an improvement of 40 basis points. Selling and
administrative expenses reflect improvements in store productivity and a more
efficient mix of store labor. Total capital expenditures for 1996 were $193.5
million, of which $117.8 million were cash capital expenditures. Total capital
expenditures for new stores in 1996 were $133.9 million. During the year, Vons
opened ten new stores, of which six were replacement stores, and closed 18.
Total gross square footage at December 29, 1996, was 11,816,000 and total
selling square footage was 8,350,000. Debt as a percent of total capitalization
at year end 1996 was 40.6% compared to 52.3% at December 31, 1995.
On February 14, 1997, FMR Corp., 82 Devonshire Street, Boston,
Massachusetts 02109, and affiliated persons filed an amendment to its report on
Schedule 13G under the Exchange Act reporting that they beneficially owned, as
of December 31, 1996, 393,400 shares (or approximately 0.89% of the issued and
outstanding shares of Vons Common Stock as of the Record Date). See "Security
Ownership of Certain Beneficial Owners and Management of Safeway."
12
<PAGE> 22
THE VONS COMPANIES, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(IN MILLIONS AND AS A PERCENTAGE OF SALES, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED
-----------------------------------------
DECEMBER 29, DECEMBER 31,
1996 1995
------------------ ------------------
<S> <C> <C> <C> <C>
Sales.................................................. $5,407.4 100.0% $5,070.7 100.0%
Costs and expenses:
Cost of sales, buying and occupancy.................... 4,032.7 74.5 3,790.2 74.8
Selling and administrative expenses.................... 1,118.6 20.7 1,071.4 21.1
Amortization of excess cost over net assets required... 15.0 0.3 15.0 0.3
-------- ----- -------- -----
Operating income....................................... 241.1 4.5 194.1 3.8
Interest expense, net.................................. 55.6 1.1 67.3 1.3
-------- ----- -------- -----
Income before income tax provision..................... 185.5 3.4 126.8 2.5
Income tax provision................................... 80.8 1.5 58.7 1.2
-------- ----- -------- -----
Net income............................................. $ 104.7 1.9 $ 68.1 1.3
======= ===== ======= =====
Income per common share:
Net income............................................. $ 2.34 $ 1.55
======= =======
Weighted average common and common equivalent shares... 44.8 43.9
======= =======
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 9.3 $ 9.4
Accounts receivable.............................................. 45.0 31.7
Inventories...................................................... 335.3 350.7
Other............................................................ 75.3 60.5
-------- --------
Total current assets............................................... 464.9 452.3
Property and equipment, net........................................ 1,194.2 1,192.5
Excess of cost over net assets acquired............................ 467.8 482.8
Other.............................................................. 58.5 58.9
-------- --------
TOTAL ASSETS....................................................... $2,185.4 $2,186.5
======== ========
LIABILITIES
AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease
obligations................................................... $ 154.9 $ 25.7
Accounts payable................................................. 339.2 304.2
Accrued liabilities.............................................. 265.7 263.5
-------- --------
Total current liabilities.......................................... 759.8 593.4
Accrued self-insurance and noncurrent liabilities.................. 337.4 311.9
Senior debt and capital lease obligations.......................... 65.3 352.2
Subordinated debt, net............................................. 284.5 305.7
Shareholders' equity............................................... 738.4 623.3
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $2,185.4 $2,186.5
======== ========
</TABLE>
13
<PAGE> 23
SAFEWAY
On January 23, 1997, Safeway reported net income of $460.6 million ($1.93
per share) compared to $326.3 million ($1.34 per share) in 1995. Labor disputes
in Denver and Vancouver combined to reduce 1996 net income by an estimated $0.14
per share while a labor dispute in northern California reduced 1995 net income
by an estimated $0.025 per share. Per-share amounts for 1995 are restated to
reflect the January 1996 two-for-one stock split. Annual sales were up 5.3% to
$17.3 billion, with same-store sales (sales of stores operating the entire
measurement period in both 1996 and 1995, including stores that remained open
during strikes or lockouts) up 5.1%. British Columbia stores were closed during
the strike-lockout, and therefore are excluded from full year same-store sales.
The fourth quarter marked the fourteenth consecutive quarter that same-store
sales have exceeded 3.0%.
Gross profit was 27.65% of sales in 1996 compared to 27.40% in 1995.
Improvements in buying practices and product mix were offset primarily by
investments to rebuild sales in areas affected by strikes earlier in the year.
Increased sales combined with efforts to reduce or control expenses
continue to lower operating and administrative expense as a percentage of sales.
Operating and administrative expense was 22.48% of sales in 1996 compared to
22.96% in 1995. Safeway has reduced operating and administrative expense as a
percentage of sales from year earlier levels for fifteen consecutive quarters.
Interest expense fell to $178.5 million in 1996 from $199.8 million in 1995 due
to a combination of lower interest rates and reduced debt levels.
Safeway's equity in earnings of unconsolidated affiliates, recorded on a
one quarter delay basis, increased to $50.0 million in 1996 compared to $26.9
million in 1995. Earnings from Vons rose to $31.2 million in 1996 from $18.3
million in 1995. Earnings from Casa Ley increased to $18.8 million in 1996 from
$8.6 million in 1995. For much of 1995, Mexico suffered from high interest rates
and inflation which adversely affected Casa Ley. During 1996, interest rates and
inflation in Mexico have moderated and Casa Ley's financial results have
gradually improved.
During 1996, Safeway invested $620 million in capital expenditures, opened
30 new stores, and completed 141 remodels. Excluding any expenditures on Vons'
operations, Safeway expects to invest approximately $700 million in capital
expenditures, open 35 new stores and complete 150 remodels in 1997.
14
<PAGE> 24
SAFEWAY INC. AND SUBSIDIARIES
OPERATING RESULTS
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
Sales............................................................... $17,269.0 $16,397.5
--------- ---------
Gross Profit........................................................ 4,774.2 4,492.4
Operating and administrative expense................................ (3,882.5) (3,765.0)
--------- ---------
Operating profit.................................................... 891.7 727.4
Interest expense.................................................... (178.5) (199.8)
Equity in earnings of unconsolidated affiliates..................... 50.0 26.9
Other income, net................................................... 4.4 2.0
--------- ---------
Income before income taxes and extraordinary loss................... 767.6 556.5
Income taxes........................................................ (307.0) (228.2)
--------- ---------
Income before extraordinary loss.................................... 460.6 328.3
Extraordinary loss related to early retirement of debt,
net of income tax benefit of $1.3................................. -- (2.0)
--------- ---------
Net income.......................................................... $ 460.6 $ 326.3
--------- ---------
Fully diluted earnings per common share and common share equivalent:
Income before extraordinary loss.................................... $ 1.93 $ 1.35
Extraordinary loss.................................................. -- (0.01)
--------- ---------
Net income.......................................................... $ 1.93 $ 1.34
--------- ---------
Weighted average common shares and common share
equivalents (fully diluted)....................................... 238.4 243.5
Other statistics during the period:
Stores opened....................................................... 30 32
Stores closed....................................................... 37 35
Other statistics at year-end:
Total stores........................................................ 1,052 1,059
Total retail square footage (in millions)........................... 40.7 40.1
Square footage increase............................................. 1.5% 1.5%
</TABLE>
15
<PAGE> 25
THE COMPANIES
VONS
Vons grocery business was founded in 1906, and Vons is the second largest
supermarket chain in southern California based on sales. At December 29, 1996,
Vons operated 320 supermarket and food and drug combination stores, primarily in
southern California, under the names "Vons" and "Pavilions." Vons also operates
a fluid milk processing facility, an ice cream plant, a bakery, and distribution
facilities for meat, grocery, produce and general merchandise to support the
store network.
The Vons and Pavilions formats are designed for different customer segments
as evidenced by store location, appearance and product offerings. A key strategy
of Vons is to tailor its store and merchandise offerings to reflect its diverse
customer base. Vons supports its stores with centrally controlled marketing,
advertising, buying, real estate development, management information systems,
distribution, manufacturing, accounting and administration to maximize operating
leverage and profitability.
The vast majority of Vons stores operate under the name "Vons." These
stores offer extensive assortments of food products, including departments for
dry groceries, produce, meat, seafood, dairy, wine and liquor as well as limited
assortments of general merchandise, including greeting cards and health and
beauty care items. Most Vons stores have in-store bakeries, floral service,
service delicatessens with fresh and prepared foods and service seafood
departments. Approximately one-third of the Vons stores offer full-service
pharmacies and an expanded health and beauty care section.
Targeted to consumers interested in contemporary food selections,
"Pavilions" stores are designed for a clientele conscious of food trends who
typically spend more discretionary income on food and food-related items.
Pavilions stores offer expanded selections of food products and a variety of
service departments.
Vons stores typically carry approximately 30,000 to 40,000 items. Vons
carries a full assortment of brand name items which is complemented by an
extensive line of private brand products in all product categories. In the
perishable departments, Vons emphasizes the quality and freshness of its meat,
seafood, produce and service delicatessen departments. Vons also has
successfully introduced and managed the Vons Club, which is a loyalty card that
is used by a significant percentage of Vons customers.
SAFEWAY
Safeway was founded in 1926 and operated 1,052 stores at December 28, 1996
in the United States and Canada. U.S. retail operations are located principally
in northern California, Oregon, Washington, Colorado, Arizona and the
Mid-Atlantic region. Canadian retail operations are located primarily in British
Columbia, Alberta and Manitoba/Saskatchewan. For each of its nine retail
operating areas, Safeway believes that it holds the number one or number two
market share position for the total area served. In support of its retail
operations, Safeway has an extensive network of distribution, manufacturing and
food processing facilities.
In addition to stores operated under the Safeway name and its ownership
interest in Vons, Safeway holds a 49% interest in Casa Ley, S.A. de C.V., which
operated 71 food and general merchandise stores in western Mexico at December
28, 1996.
Safeway operates stores ranging in size from approximately 8,600 square
feet to over 60,000 square feet. Safeway's new store prototype is 55,000 square
feet, and stores opened in 1996 averaged 50,225 square feet. Most Safeway stores
offer a wide selection of both food and general merchandise and feature a
variety of specialty departments, such as bakery, deli and floral. Special
services are available in many stores, including photo processing, in-store
automatic teller machines and bank branches and video tape rentals. These
departments and services are designed to provide one-stop shopping for today's
busy shopper.
Since 1993, Safeway has introduced a line of over 650 premium private label
products under the banner "Safeway SELECT." Safeway SELECT products are designed
to offer value-conscious consumers premium quality products at prices lower than
comparable national brands and to offer items not available from national
16
<PAGE> 26
brand manufacturers. Safeway also offers a wide selection of private label
products under well-known and respected brand names such as Safeway, Lucerne and
Mrs. Wright's.
Safeway offers high quality perishables in the produce, meat, dairy,
seafood, bakery and delicatessen departments. Safeway continually refines its
merchandising strategies to identify and accommodate changing demographics,
lifestyles and product preferences of its customers.
Each of Safeway's retail operating areas is served by one or more regional
distribution centers. Safeway has 11 distribution/warehousing centers (seven in
the United States and four in Canada), which collectively provide the majority
of all products to Safeway stores.
THE COMBINED COMPANY
The Combined Company will be the second largest food and drug chain in
North America based on sales, and would have had more than $22 billion in
revenues in 1996, on a pro forma basis. On a pro forma basis, as of December 28,
1996, the Combined Company would have operated 1,372 stores. As a result of the
Merger, shareholders of Vons will become shareholders in a grocery store chain
with operations in 16 states, the District of Columbia and five Canadian
provinces. The Merger will result in Vons shareholders holding an investment
that is more geographically diverse and is therefore no longer dependent on the
economic and other factors that affect only the areas of southern California and
Nevada in which Vons operates.
Safeway has established three priorities for improving its operating
results: (1) controlling costs, (2) increasing sales and (3) improving capital
management. Vons has established similar priorities and has begun to implement
programs for improving its operating results. Following the Merger, Safeway
intends to cause the Combined Company to focus on these priorities in order to
enhance the performance of the operations of both Safeway and Vons.
There is a risk that the Combined Company may not be able to implement
programs to achieve operating improvements at Vons in a timely manner, if at
all. Moreover, the inability to achieve success in any one area of operations
may dilute success in another. Statements regarding the Combined Company's
expectations for improved operations are forward-looking statements that are
inherently uncertain and difficult to predict. See "Forward-Looking
Information." The combination of Vons and Safeway also presents certain risks
with regard to the integration of the two organizations, including risks
relating to coordinating different operations and integrating personnel and
corporate cultures. There can be no assurance that Safeway and Vons will be able
to integrate effectively or in a timely manner. If the Combined Company is not
successful in integrating the operations of the two companies, the financial
results of the Combined Company could be adversely affected.
Controlling Costs
Since 1992, Safeway has focused on controlling and reducing its cost of
sales through better buying practices, lower advertising expenses, distribution
efficiencies and manufacturing plant closures and consolidations. Safeway's
operating and administrative expense as a percentage of sales has declined 151
basis points from 24.47% in 1992 to 22.96% in 1995. Through the third quarter of
1996, operating and administrative expense as a percentage of sales has declined
for 14 consecutive quarters. Safeway's efforts to control or reduce costs have
included overhead reduction in its administrative support functions, negotiation
of competitive labor agreements, store level work simplification, consolidation
of the Company's information technology operations, elimination of corporate
perquisites and the general encouragement of a "culture of thrift" among
employees.
Safeway believes that, over time, benefits realized from economies of scale
and from the implementation of certain programs that have been successful at
Safeway will generate operating improvements and cost savings for Vons. For
example, because the Combined Company's operations will be substantially larger
than Vons' operations on a stand-alone basis, Safeway expects that the Combined
Company will have opportunities to buy certain products and services at costs
which are less than what are available to Vons and Safeway today. Similarly, the
increased size of the company is expected to present opportunities to realize
cost
17
<PAGE> 27
savings in the Combined Company's distribution and manufacturing operations.
There can be no assurance that the Combined Company will realize such operating
improvements or cost savings.
Increasing Sales
Safeway has reinvested cost savings into more competitive pricing and
improving store standards and customer service. Safeway's same-store sales
growth has exceeded 3.0% in each of the last 13 quarters. Safeway's
merchandising strategy is to provide maximum value to its customers by
maintaining high store standards and offering high quality products at
competitive prices. Safeway has introduced a line of over 650 premium private
label products under the banner "Safeway SELECT" and offers a wide selection of
private label products under well-known and respected brand names such as
Safeway, Lucerne and Mrs. Wright's. Safeway plans to continue to introduce more
Safeway SELECT items over the next few years.
Vons also has experienced significant sales growth, which Vons believes
reflects improved customer service, the "Vons is Value" marketing campaign, the
growth of the VonsClub (Vons' customer loyalty program), a strengthening economy
in southern California and a significant number of competitor closings.
Following the Merger, management intends to use the best of the sales
growth strategies that have been implemented successfully by each of Safeway and
Vons in order to continue to increase sales growth for the Combined Company. For
example, one of Vons' strategies has been to increase its private label sales.
As part of that strategy, since 1994, Vons has sold premium private label
products acquired from Safeway under the label "Pavilions SELECT," and currently
carries over 280 products under this label. The Merger will provide an
opportunity for Vons to increase the number of "Pavilions SELECT" products that
it carries. Similarly, following the Merger, the Vons operations will continue
to focus on improved customer service and to build on Vons' marketing
initiatives. In order to build on Vons' efforts in these areas, management
intends to continue to operate Vons' stores under the Vons and Pavilions names.
Improving Capital Management
Safeway's capital management has improved in two key areas: capital
expenditures and working capital. Safeway has expanded its use of standardized
layouts and central purchasing agreements for building materials, fixtures and
equipment for its new stores and remodels. As a result, Safeway's new store
prototype is less expensive to build and more efficient to operate than the
stores Safeway previously built and operated. Safeway believes that many of
these initiatives can be implemented with respect to Vons' operations in order
to improve Vons' returns on capital following the Merger. In addition, due to
its size, the Combined Company is expected to be able to purchase equipment and
materials at lower costs than Vons could on a stand-alone basis.
VOTING AND PROXIES
RECORD DATE
The Board of Directors of Vons has fixed the close of business on February
20, 1997 as the Record Date for the determination of shareholders entitled to
notice of, and to vote at, the Special Meeting. Accordingly, only holders of
record of shares of Vons Common Stock at the close of business on the Record
Date are entitled to notice of, and to vote at, the Special Meeting. As of the
Record Date, 44,091,770 shares of Vons Common Stock were outstanding and held of
record by approximately 6,311 shareholders.
PROXIES
When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a shareholder does not attend the Special Meeting and does not
return the signed proxy card, such shareholder's shares will not be voted. If a
shareholder returns a signed proxy card but does not indicate how his or her
shares are to be voted, such shares will be voted FOR approval of the Merger
Agreement and the Merger. As of the date of this Proxy Statement/Prospectus, the
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Board of Directors does not know of any other matters which are to come before
the Special Meeting. If any other matters are properly presented at the Special
Meeting for consideration, including, among other things, consideration of a
motion to adjourn the Special Meeting to another time and/or place, the persons
named in the enclosed form of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Vons, at or before the taking of the vote at the Special
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares of Vons
Common Stock and delivering it to the Secretary of Vons before the taking of the
vote at the Special Meeting, or (iii) attending the Special Meeting and voting
in person (i.e., attendance at the Special Meeting will not in and of itself
constitute a revocation of a proxy). In addition, brokers who hold shares of
Vons Common Stock as nominees will not have discretionary authorization to vote
such shares on any of the matters to be voted thereon in the absence of
instructions from the beneficial owners. Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to The Vons Companies,
Inc., 618 Michillinda Avenue, Arcadia, California 91007, Attention: Corporate
Secretary, or hand delivered to the Secretary of Vons at or before the taking of
the vote at the Special Meeting.
Vons will bear the cost of the solicitation of proxies from its
shareholders. Proxies may be solicited by means of the mails, facsimile
transmissions, telephone, telegraph or in person by Vons' directors, executive
officers and other regular employees, none of whom will receive any special or
additional compensation for their services, but may be reimbursed for
out-of-pocket expenses incurred in connection with such solicitation.
Arrangements also will be made with custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and Vons will reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the outstanding shares of Vons Common Stock is
necessary to constitute a quorum at the Special Meeting. Shares represented by
proxies that reflect abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the meeting, but with respect to
which such broker or nominee is not empowered to vote on a particular proposal)
will be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum.
VOTE REQUIRED
Vons shareholders are entitled to one vote at the Special Meeting for each
share of Vons Common Stock held of record by them on the Record Date. Under
Michigan law, the affirmative vote of the holders of a majority of the
outstanding shares of Vons Common Stock entitled to vote is required to adopt
and approve the Merger Proposal. In addition, pursuant to the Merger Agreement,
it is a condition to the parties' obligations to consummate the transactions
contemplated by the Merger Agreement that the Merger Proposal be approved by a
majority of the outstanding shares of Vons Common Stock entitled to vote and not
held by Safeway or its affiliates. Accordingly, abstentions and broker non-votes
will have the same effect as votes against the Merger Proposal. Any other
proposal to come before the Special Meeting would require the approval of a
majority of the shares of Vons Common Stock present and entitled to vote at the
Special Meeting. Therefore, as to a particular proposal, abstentions will have
the same effect as a vote against that proposal, and broker non-votes will be
treated as unvoted for purposes of determining approval of such proposal and
will not be counted as votes for or against such proposal.
As of the Record Date, Vons' directors and Vons' executive officers may be
deemed to be beneficial owners of an aggregate of 2,167,487 shares of
outstanding Vons Common Stock, or approximately 0.49% of the then outstanding
shares of Vons Common Stock. Vons has been advised that its directors and
executive
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officers who are shareholders intend to vote in favor of the Merger Proposal.
Safeway beneficially owns an aggregate of 15,126,000 shares of Vons Common
Stock, or approximately 34.3% of the outstanding shares of Vons Common Stock.
Pursuant to the Merger Agreement, Safeway has agreed to vote or cause to be
voted all shares of Vons Common Stock owned directly or indirectly by Safeway in
favor of the Merger Proposal.
THE MERGER
BACKGROUND OF THE MERGER
In August 1988, Vons purchased substantially all of the operations of
Safeway's Southern California division, consisting of 172 stores and related
distribution, administrative and manufacturing facilities (the "Safeway
Acquisition") for the payment of an aggregate of approximately $325 million in
cash and the issuance of 11.67 million shares of Vons Common Stock. As a result
of this transaction, Vons became the largest supermarket chain in southern
California and Safeway became Vons' largest shareholder, owning approximately
30% of the outstanding shares of Vons Common Stock. In connection with the
transaction, two members of the Safeway Board, Peter A. Magowan and Robert I.
MacDonnell, were elected to the Vons Board. Also in connection with the
transaction, Safeway entered into a standstill agreement with Vons (the
"Standstill Agreement"), which, among other things, prohibited Safeway from
acquiring more than 35% of the outstanding Vons Common Stock through August
1993. As permitted under the Standstill Agreement, over the next 16 months,
Safeway acquired additional shares of Vons Common Stock in the open market and
in negotiated transactions, thereby increasing its investment in Vons to
approximately 35% of the outstanding shares. From time to time thereafter,
Safeway acquired additional shares of Vons Common Stock in order to maintain
approximately the same percentage ownership in Vons. Safeway currently holds an
aggregate of 15,126,000 shares of Vons Common Stock, which represent
approximately 34.3% of the outstanding shares of Vons Common Stock. In November
1993, two additional members of the Safeway Board, Steven A. Burd and James H.
Greene, Jr., were elected to the Vons Board, which resulted in Safeway having
representation on the Vons Board which was approximately proportionate to its
share ownership.
In April 1996, Lawrence A. Del Santo, Vons' Chairman and Chief Executive
Officer, met with Mr. MacDonnell to discuss various issues relating to the Vons
Board. During the course of that conversation, Mr. MacDonnell mentioned and
discussed briefly with Mr. Del Santo the concept of a potential business
combination involving Safeway and Vons. In a meeting with Mr. Del Santo later in
April, Mr. MacDonnell and Mr. Greene inquired whether Vons management and the
members of Vons Board (other than Safeway's representatives) would be interested
in considering the concept of a potential business combination involving Safeway
and Vons. Mr. Del Santo indicated that on an initial basis he believed that the
Vons Board would prefer Vons to remain independent but would be willing to
explore such a transaction from a strategic and operational point of view, and
that he would discuss it with Richard E. Goodspeed, Vons' Chief Operating
Officer. Thereafter, Mr. MacDonnell and Mr. Greene met with Mr. Del Santo and
Mr. Goodspeed and said that if the Vons Board were willing to entertain the
concept of a potential business combination involving Vons and Safeway, they
believed Safeway might consider, on a preliminary basis, a transaction in which
Vons shareholders (other than Safeway) would receive shares of Safeway Common
Stock with a fixed value of $37 per share of Vons Common Stock, but no specific
price had been authorized or approved by Safeway. Mr. MacDonnell indicated that
as a way of facilitating such a potential transaction, Safeway would be willing
to consider a number of alternatives potentially involving the repurchase of
Safeway Common Stock in a form that would permit any potential transaction to be
tax-free to the Vons shareholders. At this meeting, Mr. Del Santo again
indicated that he believed that the Vons Board would prefer Vons to remain
independent but would be willing to explore the concept of such a potential
transaction from a strategic and operational point of view; Mr. Del Santo also
indicated that it would be necessary to consult with a financial advisor to
assess an appropriate price for such a transaction. He said that he would
discuss this conversation with other members of the Vons Board who were not
affiliated with Safeway.
On May 8, 1996, the Vons Board (other than the representatives of Safeway)
met to discuss the concept of a potential transaction involving Safeway,
including the need to establish a committee of Outside Directors who were not
affiliated with Safeway to consider any such potential transaction and that such
a committee
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would need to retain its own financial and legal advisors. In late May, the Vons
Board appointed the Special Committee, comprised of Roger E. Stangeland
(Chairman), Fritz L. Duda (Co-Chairman), John M. Lillie, Charles E.
Rickershauser, Jr. and William Y. Tauscher. The Special Committee was authorized
by the Vons Board to review and consider the relationship between Safeway and
Vons, including its effect on Vons' business strategy, to consider any proposal
for a business combination between Vons and Safeway and any alternative
strategies or transactions, and to take any and all appropriate actions that it
might deem necessary, advisable or appropriate in connection with any of the
foregoing with the intent to create the greatest value for Vons' shareholders,
including without limitation the adoption or modification of employment,
severance and other employee benefit arrangements (excluding the grant or award
of stock options or restricted stock) and the selection and retention of
financial advisors and legal counsel to advise the Special Committee and such
other professional advisors and consultants as the Special Committee deemed
appropriate. The Special Committee then retained Credit Suisse First Boston as
its financial advisor and Wachtell, Lipton, Rosen & Katz as its legal counsel.
During the next two months, the Special Committee and its legal and
financial advisors met from time to time to consider various strategic
alternatives. During this period, the Special Committee's financial and legal
advisors undertook a detailed review of Vons and Safeway in order to advise the
Special Committee regarding any potential transaction. In their review of Vons,
the Special Committee's financial and legal advisors met with members of Vons
management as well as with representatives of McKinsey & Company ("McKinsey"),
an outside consultant that Vons management had retained in February 1996 to
assist Vons in its internal strategic business review. In addition, as part of
their review, the Special Committee's financial and legal advisors met with
members of Safeway's senior management and Board of Directors to better
understand Safeway and the potential transaction Safeway might be willing to
propose. In mid-July 1996, the Special Committee approved an Amended and
Restated Severance Plan for Senior Management and Key Employees. See
"-- Interests of Certain Persons in the Merger -- Severance Plan."
On July 23, 1996, Vons reported earnings and financial results for the
first six months of 1996. In late July 1996, the Special Committee's financial
and legal advisors informed representatives of Safeway that the Special
Committee would not be receptive to considering a possible business combination
with Safeway. On August 8, 1996, the Special Committee's advisors met with
members of Safeway's senior management and Board of Directors to explain the
Special Committee's view that it was in the best interests of the Vons
shareholders for Vons to remain as an independent company and to pursue its
business plan which had been shared with Safeway. At that meeting, there was a
discussion of Vons' prospects, operating and financial performance and Vons'
strategic business plan and a presentation by McKinsey.
On September 4, 1996, the Vons Board held its regularly scheduled meeting.
At that meeting, Mr. MacDonnell asked whether the Special Committee would be
disbanded since Safeway was not expecting the Special Committee to give any
further consideration to any potential transaction at that time. No action was
taken at the meeting in that regard. In addition, at this meeting, the Vons
Board (with the four Safeway representatives voting against) also approved the
award of Stock Options, which award had been deferred at the Vons Board meeting
held in May 1996. The Stock Options awarded had an exercise price of $31.62 per
share (the average of the closing prices of Vons Common Stock on the NYSE for
the ten trading days preceding May 8, 1996), will vest beginning May 8, 1998
through May 8, 2003 and were awarded to employees and executive officers other
than Messrs. Del Santo and Goodspeed.
During September 1996, Safeway's representatives on the Vons Board
continued to be concerned that there were certain important issues that needed
to be addressed by the Vons Board, including, without limitation, the continuing
role of the Special Committee, plans for senior management succession at Vons in
light of Mr. Del Santo's retirement scheduled for April 1997 and the concurrent
expiration of Mr. Goodspeed's employment agreement, the composition of the Vons
Board and committees and Vons' capital expenditure program. In mid-October 1996,
Safeway reassessed Vons' operating performance, including the perceived
performance of Vons' capital projects. Although Vons had continued to make
progress in improving its operating results, Safeway management believed that
there were a number of operating improvements that could be achieved at Vons
through programs which Safeway had implemented successfully with respect to its
own operations and which it believed it could implement successfully at Vons. As
a result of these beliefs and concerns, Safeway senior management considered
ways in which a business combination of
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the two companies would be likely to enhance value for all Vons and Safeway
shareholders. Safeway management also believed that a business combination would
resolve the important issues at Vons described above which continued to concern
Safeway.
On October 29, 1996, the Safeway Board determined to propose to acquire the
shares of Vons Common Stock not owned by Safeway in a stock-for-stock business
combination pursuant to which Safeway would issue 1.34 shares of Safeway Common
Stock for each share of Vons Common Stock (which, based on the closing price of
Safeway Common Stock on October 28, 1996, would have had a value of $59.46 per
Vons share). In this connection, Safeway's legal advisors were Latham & Watkins
and Simpson Thacher & Bartlett and its financial advisor was Morgan Stanley &
Co. Incorporated ("Morgan Stanley"). On October 30, 1996, Mr. Burd sent the
following letter to the Vons Board which was also publicly disclosed:
------------------------
October 30, 1996
Board of Directors VIA FACSIMILE
The Vons Companies, Inc.
618 Michillinda Avenue
Arcadia, CA 91007
Gentlemen:
The Board of Directors and management of Safeway have determined that a
business combination of our companies would be extremely beneficial to the
shareholders of both Vons and Safeway. To that end, I am writing to advise you
that Safeway is hereby proposing a stock-for-stock merger in which each share of
Vons
common stock not owned by Safeway would be exchanged, tax-free, for 1.34 shares
of Safeway common stock which, based on the closing price of Safeway stock on
October 29, 1996, would have a value in excess of $58 per Vons share.
We believe that our proposed exchange ratio represents a compelling price
for your shareholders. Based on current prices for Safeway stock, the value of
our proposal reflects multiples of EBITDA and net income that are among the
highest ever paid in an acquisition of this type in our industry. Through the
second quarter, the proposal represents multiples of trailing 12-month EBITDA
and net income of 9.9x and 33.5x, respectively. The value of our proposal is
approximately 30% higher than the highest price at which Vons common stock has
ever traded, and represents a 35% premium over the closing stock price for Vons
common stock on October 29, 1996.
A combination of Safeway and Vons would offer a number of substantial
benefits:
- The combination of Safeway and Vons would result in the second largest
grocery store chain in North America, with 1,375 stores, operations in 16
states, the District of Columbia and five Canadian provinces and sales in
excess of $22.5 billion. The combined company would have the number one
or number two market share in each of its ten operating regions. The
business combination, would result in your shareholders' diversifying
their investment and no longer being vulnerable solely to economic and
other factors that affect Southern California. The combined company would
have the largest market capitalization in the industry, resulting in a
larger and more liquid public market for your shareholders.
- Safeway is a growth company. Safeway's same store sales growth has
exceeded 3.0% in each of the last 13 quarters. In addition, Safeway's
same store sales growth has led the industry based on comparisons over
periods of two years, three years and four years. Combining our sales
growth strategy with the programs that Vons has successfully implemented
under the leadership of Vons' management team would place our combined
companies at the forefront of the industry.
- Safeway is recognized as an industry leader in controlling costs and has
achieved significant improvements in its returns on its capital
investments. Our efforts to reduce or control costs have resulted in a
year-over-year decline of operating and administrative costs as a
percentage of sales for 14 consecutive quarters. No other major operator
in our industry has come close to matching that achievement.
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- At the same time, Safeway has had a significant increase in jobs and
employee hours at Safeway's stores and would anticipate having the same
experience with Vons. A successful implementation of this growth strategy
at Vons should mean a continued increase in jobs at Vons stores. In
addition, it is our intention that following the transaction, Vons will
maintain offices in Arcadia and the stores will continue to operate under
the "Vons" name.
It is our strong preference to work with you toward a negotiated
transaction. To that end, Safeway will not acquire additional shares of Vons
common stock except on a basis offered to all of your shareholders. In any
event, we want you to know that we are fully committed to completing this
transaction.
We look forward to meeting with you as soon as possible to discuss the
terms of the transaction we have proposed. We are confident that such a
transaction is in the best interests of both of our companies, and their
respective shareholders, customers, employees and communities. We are committed
to working with you to negotiate and sign a definitive agreement and to complete
this transaction as soon as practicable thereafter. As required under federal
securities laws, this proposal is being made public through a Schedule 13D
filing with the SEC, and we have issued a press release to facilitate
dissemination of the information in this letter.
Although we understand that you will need some time to consider carefully
our proposal, we would appreciate hearing from you within two weeks regarding
your willingness to negotiate the terms of our proposal.
Very truly yours,
/s/ STEVEN A. BURD
Steven A. Burd
President and Chief Executive Officer
------------------------
On October 30 and during the course of the next few days, Safeway's
representatives on the Vons Board personally contacted each of the other members
of the Vons Board to state, among other things, Safeway's belief that the
October 30 proposal was in the long-term best interests for all of Vons
shareholders. In response to the letter, Vons announced that the proposal would
be studied by the Special Committee, which would respond in due course.
On October 31, 1996, Vons released record financial results for its third
quarter and the first forty weeks of 1996.
Following the October 30, 1996 public announcement of the Safeway proposal
to acquire Vons, the Special Committee authorized Credit Suisse First Boston to
contact third parties who members of the Special Committee believed might have
an interest in pursuing a transaction with Vons as an alternative to the Safeway
proposal. Credit Suisse First Boston subsequently contacted 21 parties, only one
of whom expressed any interest in a transaction with Vons and entered into a
confidentiality agreement with Vons; no party expressed interest in pursuing a
potential acquisition of Vons.
On November 12, 1996, after Vons executed a confidentiality agreement with
Safeway, financial and legal advisors to the Special Committee met with
representatives of Safeway, including members of Safeway's senior management and
Safeway's financial and legal advisors. At that meeting, Safeway's management
described the strategic basis for a business combination of Safeway and Vons and
provided an overview of certain aspects of Safeway's financial analysis of the
proposed combination. At and following such meeting, the Special Committee's
advisors also performed a due diligence investigation of Safeway to assist them
in analyzing the proposed combination of Safeway and Vons. Subsequently, the
Special Committee authorized its advisors to make a counter-proposal to Safeway.
On November 20, 1996, financial and legal advisors to the Special Committee
again met with representatives of Safeway, including members of Safeway's senior
management. At that meeting, the Special Committee's advisors described that
Vons had increased its internal financial projections to reflect Vons' actual
results for the first nine months of 1996 and future prospects in light of such
results. During this
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meeting, the Special Committee's advisors indicated that Vons estimated it would
have earnings per share of $2.34 in fiscal 1996 and $3.02 in fiscal 1997. The
Special Committee's advisors stated that they believed that the Special
Committee would approve a transaction with Safeway with a significantly higher
exchange ratio than the 1.34 shares of Safeway Common Stock offered for each
share of Vons Common Stock in Safeway's October 30 proposal, with a mechanism
for maintaining the value of the consideration received by the Vons shareholders
in the event that the price of the Safeway Common Stock were to decrease, and in
which two current members of the Special Committee were elected to serve on the
Safeway Board following the completion of the transaction. Safeway's
representatives responded that the higher exchange ratio proposed by the Special
Committee's advisors would not be acceptable to Safeway. Safeway's
representatives stated that Safeway viewed its October 30 proposal as an
extremely attractive transaction for the Vons shareholders. Safeway's
representatives reiterated Safeway's desire to consummate a negotiated
transaction with Vons and indicated that Safeway might be willing to consider a
slight increase in the exchange ratio that it proposed, but would need to
evaluate certain financial and other information of Vons before proposing any
increased ratio. Safeway's representatives also stated that Safeway's proposal
did not contemplate any price collar or similar mechanism and did not
contemplate any changes in the membership of the Safeway Board.
During the next week, the financial advisors for the Special Committee and
Safeway had a number of discussions concerning Vons' revised internal
projections and the basis therefor. Also during that week, Safeway considered
ways that it might make its proposal more attractive to the Vons shareholders,
including ways in which Safeway could limit the number of outstanding shares of
Safeway Common Stock following the transaction by repurchasing shares at the
time of the completion of the Vons acquisition. Upon concluding that such a
repurchase would be advantageous, it was determined that restrictions in the
Safeway indentures and the requirements of tax and securities laws made the
Common Stock Partnerships the only practicable source of such shares. Safeway
discussed with representatives of KKR the possibility of purchasing shares of
Safeway Common Stock from the Common Stock Partnerships. Representatives of KKR
indicated that subject to an agreement on price, such a transaction could be
acceptable to the Common Stock Partnerships. Safeway management and the
representatives of KKR agreed that such a transaction would need to be approved
by a committee of Safeway directors not affiliated with KKR.
On November 26, 1996, the Special Committee's financial advisors met with
representatives of Safeway, including members of Safeway's senior management. At
that meeting, the Safeway representatives described how the value of the
business combination to the Vons shareholders could be enhanced significantly if
it was accompanied by a significant repurchase of outstanding shares of Safeway
Common Stock. This structure would maintain the tax-free character of the
transaction for the Vons shareholders, which Safeway believed was an important
feature of the transaction. After further discussion, the Safeway
representatives indicated that they would be prepared to support an increase in
the exchange ratio to 1.40, but only if Safeway was provided with an opportunity
to review certain financial and other information of Vons underlying the revised
Vons projections and if Safeway were satisfied with the results of its review of
such information. Based on the closing price of Safeway Common Stock on November
25, 1996, an exchange ratio of 1.40 would have had a value of $58.45 per Vons
share. In connection with such meeting, Safeway executed a confidentiality
agreement with Vons. Subsequently, the financial advisors for Safeway and the
Special Committee exchanged additional information, including information as to
why Safeway believed that a repurchase of shares of Safeway Common Stock from
the Common Stock Partnerships would improve the economics of the transaction for
the Safeway and Vons shareholders.
Subsequent to the November 26, 1996 meeting, the financial advisors to the
Special Committee presented the Special Committee with the results of its
meeting with Safeway and Safeway's financial advisors. The Special Committee
then authorized Mr. Tauscher to make a new proposal to Safeway.
On December 4, 1996, Mr. Tauscher spoke first with Mr. Greene and later
with Mr. Burd and Mr. Greene concerning Safeway's request for information and
the Special Committee's view of Safeway's proposal. Mr. Tauscher indicated that
the Special Committee would be willing to consider an exchange ratio of 1.425.
He said that the Special Committee would authorize Vons to provide the
information that Safeway had requested only if Safeway were willing to agree to
offer an exchange ratio of 1.425. After further
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discussion, Messrs. Burd and Greene indicated that, subject to Safeway's
satisfactory review of the requested information, they would be prepared to
support an exchange ratio of 1.425. Based on the closing price of Safeway Common
Stock on December 3, 1996, an exchange ratio of 1.425 would have had a value of
$58.96 per Vons share. Messrs. Burd, Greene and Tauscher also discussed the
possible repurchase of Safeway Common Stock by Safeway in connection with the
transaction. In subsequent conversations, the Special Committee's financial and
legal advisors confirmed that the Special Committee believed that a possible
business combination between Vons and Safeway would be of greater benefit to the
Vons shareholders if Safeway reduced the number of outstanding shares after the
transaction through a substantial share repurchase, but expressed their view
that a repurchase would not be acceptable so long as the price paid represented
a premium to the then-current market price of Safeway Common Stock.
On December 6, 1996, after Safeway executed another confidentiality
agreement, representatives of Safeway met with members of Vons senior management
and the Special Committee's advisors to review certain financial and other
information relating to Vons which had been requested at the November 26
meeting.
Following such meeting, Safeway's legal counsel provided a draft merger
agreement to Vons and the Special Committee's legal counsel. During the week of
December 9, 1996, representatives of Safeway and the Special Committee
negotiated the terms of a merger agreement, including the Special Committee's
request that Safeway include a repurchase of Safeway Common Stock as part of the
transaction. During the course of the negotiations, at the insistence of the
Special Committee, Safeway agreed that Vons' obligations to consummate the
Merger would be conditioned on Vons' obtaining the approval of holders of a
majority of the outstanding shares of Vons Common Stock not held by Safeway
(which vote is in addition to the vote required by Michigan law).
On December 10, 1996, the Board of Directors of Safeway met to consider the
proposed merger with Vons. As of that meeting, no agreement had been reached
between Safeway and KKR concerning whether Safeway would repurchase shares of
Safeway Common Stock from the Common Stock Partnerships. However, Safeway's
financial and legal advisors confirmed that the Special Committee's advisors had
suggested that the Special Committee would require a significant repurchase of
Safeway Common Stock as a condition to the transaction. Following the December
10 meeting, the Safeway Special Committee, comprised of Messrs. Paul Hazen and
Sam Ginn and the Common Stock Partnerships agreed on the terms of a repurchase
in which Safeway would acquire 15 million shares of Safeway Common Stock from
the Common Stock Partnerships at a price to be determined based on the future
trading values of Safeway Common Stock prior to the Merger, subject to a minimum
share price of $38.375, which was equal to the closing market price on the date
prior to the public announcement of the Merger Agreement.
On December 13, 1996, the 15 million share repurchase was approved by the
Safeway Special Committee. Later that day, the Safeway Board approved the
Merger, the issuance of shares of Safeway Common Stock in connection with the
Merger and the 15 million share repurchase.
On December 13, 1996, the Special Committee met to consider the potential
merger of Vons with Safeway. At this meeting, Vons management, as well as the
Special Committee's legal and financial advisors, made presentations regarding
the terms of the definitive merger agreement being negotiated between
representatives of Safeway and Vons, and Credit Suisse First Boston rendered its
oral opinion that the Exchange Ratio to be offered to the Vons shareholders in
the Merger is fair to such shareholders (other than Safeway and its
subsidiaries) from a financial point of view. See "-- Opinion of Financial
Advisor to the Special Committee." Based on the foregoing, the Special Committee
unanimously recommended that the Vons Board approve the terms of the Merger and
the Merger Agreement. Thereafter, the full Vons Board was convened and, upon the
recommendation of the Special Committee, unanimously determined (with the four
members of the Vons Board affiliated with Safeway abstaining) that the terms of
the proposed Merger are advisable to, and in the best interests of, Vons and its
shareholders and approved the Merger Agreement and the Merger. See
"-- Recommendation of the Special Committee and the Vons Board of Directors;
Vons' Reasons for the Merger."
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Following further negotiations, on December 15, 1996, Safeway and Vons
executed and delivered the Merger Agreement, the Common Stock Partnerships
executed and delivered the KKR Voting Agreements, and SSI Associates and Safeway
executed and delivered the agreement for the repurchase of 15 million shares on
the terms described above. The execution of the Merger Agreement was publicly
announced in a joint Vons/Safeway press release on December 16, 1996. The Merger
Agreement approved by the Vons Board stated that Vons' obligation to consummate
the Merger was conditioned on, among other things, the agreement relating to the
15 million share repurchase being in full force and effect.
On January 6, 1997, Safeway management discussed with members of the
Safeway Special Committee and representatives of KKR the possible modification
of the previously approved repurchase agreement to provide that Safeway would
increase the number of shares of Safeway Common Stock that it would repurchase
from the Common Stock Partnerships and agree to a fixed purchase price. See "The
Repurchase." Safeway management viewed the increased repurchase as a way to make
the Merger more attractive to the shareholders of Safeway and Vons because it
further reduced the number of additional shares of Safeway Common Stock that
would be outstanding following the Merger and set a fixed purchase price for the
repurchase. Following such discussion, the Safeway Special Committee and the
Common Stock Partnerships agreed on amended terms of the repurchase, increasing
the number of shares from 15 million to 32 million and fixing the price per
share at $43. On January 8, 1997, the Repurchase was approved by the Safeway
Special Committee and the Safeway Board and the Safeway Board approved the
Merger Agreement Amendment. Later that day, the Special Committee and the Vons
Board met and considered the Repurchase and approved the terms of the Merger
Agreement Amendment. The Merger Agreement Amendment provides that Vons'
obligation to consummate the Merger is conditioned on, among other things, the
Repurchase Agreement being in full force and effect. See "Recommendation of the
Special Committee and the Vons Board of Directors; Vons' Reasons for the
Merger." The Merger Agreement contains certain restrictions on Safeway's ability
to effect further repurchases prior to the Effective Time. The closing price of
Safeway Common Stock on the NYSE Composite Tape on January 7, 1997, the day
prior to the date that the Special Committee and the Board approved the
Repurchase, was $44.25 per share. On January 9, 1997, Safeway announced the
Repurchase. See "The Merger Agreement -- Certain Covenants -- Safeway Repurchase
Right."
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE VONS BOARD OF DIRECTORS; VONS'
REASONS FOR THE MERGER
At its meeting on December 13, 1996, following presentations by Vons
management and the Special Committee's financial and legal advisors, the Special
Committee determined that the proposed Merger, upon the terms and subject to the
conditions of the Merger Agreement, is advisable to and in the best interests of
Vons and its shareholders and unanimously recommended that the Vons Board of
Directors approve the Merger Agreement. Immediately following such meeting, a
meeting of the full Board of Directors was convened and, following the
recommendation of the Special Committee, the Vons Board unanimously (with the
four directors affiliated with Safeway abstaining) (i) determined that the
proposed Merger, upon the terms and subject to the conditions of the Merger
Agreement, is advisable to and in the best interests of Vons and its
shareholders and approved the Merger Agreement; (ii) recommended that holders of
Vons Common Stock approve and adopt the Merger Agreement and the proposed
Merger; and (iii) approved the Merger Agreement. As described under "
- --Background of the Merger," the Board was confronted with decisions about the
future of Vons in light of Safeway's significant stock ownership position in
Vons and Safeway's October 30, 1996 public proposal, as well as the competitive
environment in the food retailing industry generally and in southern California
in particular. The Special Committee received presentations from Vons management
regarding the condition of the food retailing industry, Vons' and Safeway's
positions in that industry and Vons' and Safeway's prospects for the future. In
addition, the Special Committee received a presentation from Credit Suisse First
Boston regarding its efforts to solicit indications of interest from third
parties to engage in a transaction with Vons as an alternative to a merger with
Safeway. The Special Committee's decision to recommend, and the Vons Board's
decision to enter into, the Merger Agreement were based, in large part, upon
balancing the risks and benefits of the proposed Merger against the risks and
benefits of the other strategic alternatives available to Vons.
At its meeting on January 8, 1997, following presentations by the Special
Committee's financial and legal advisors, the Special Committee determined that
the Repurchase and the Merger Agreement Amendment
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were advisable to and in the best interests of Vons and its shareholders and
recommended that the Vons Board approve the Merger Agreement Amendment.
Immediately following such meeting, a meeting of the Vons Board was convened
and, following the recommendation of the Special Committee, the Vons Board
approved (with the directors affiliated with Safeway abstaining) the Merger
Agreement Amendment and reaffirmed its recommendation that holders of Vons
Common Stock approve and adopt the Merger Agreement and the proposed Merger. In
this connection, Credit Suisse First Boston orally advised the Special Committee
that if the Repurchase had been in place at the time Credit Suisse First Boston
rendered its opinion on December 13, 1996, the conclusion set forth in such
opinion would not have changed. The closing price of Safeway Common Stock on the
NYSE Composite Tape on January 7, 1997, the day prior to the date that the
Special Committee and the Board approved the Repurchase, was $44.25 per share.
In its deliberations, the Special Committee and the Vons Board considered a
number of factors including, without limitation, the following:
1. The Special Committee's and the Vons Board's knowledge of the
business, operations, properties, assets, financial condition, operating
results, business strategy and prospects of Vons and their knowledge of the
business, operations, financial condition, operating results, business
strategy and prospects of Safeway, including, without limitation, their
view of Safeway management and Safeway's ability to date to successfully
reduce costs, increase sales and improve capital management;
2. The potential operational benefits that would be available to Vons
following a combination with Safeway;
3. The Special Committee's and the Vons Board's judgment as to the
future prospects of Vons in light of Vons management's analysis of the food
retailing industry and the competitive environment in Vons' markets located
primarily in southern California, as contrasted with Safeway's
geographically diverse markets;
4. The prospects for the long-term value of Vons Common Stock
contrasted with the long-term value of Safeway Common Stock giving effect
to the Merger;
5. The oral and written presentations of Credit Suisse First Boston
and the oral opinion of Credit Suisse First Boston that, as of December 13,
1996, the Exchange Ratio to be offered to the shareholders of Vons in the
Merger was fair to such shareholders (other than Safeway and its
subsidiaries) from a financial point of view. See "-- Opinion of Financial
Advisor to the Special Committee" for a discussion of the factors
considered in rendering the opinion. Such opinion was confirmed in writing
by Credit Suisse First Boston as of December 15, 1996. At the request of
the Special Committee, Credit Suisse First Boston subsequently updated its
opinion as of the date of this Proxy Statement/Prospectus to take into
consideration the January 8, 1997 amendments to the Merger Agreement and
the Repurchase Agreement. A copy of such opinion, which is subject to the
limitations, qualifications and assumptions discussed therein, is included
as Appendix B to the Proxy Statement/Prospectus, and should be read in its
entirety;
6. The terms and conditions of the Merger Agreement and the agreements
contemplated thereby, including the Repurchase Agreement, which were
negotiated at arm's length between the parties. The Special Committee
considered in particular the "no-solicitation" provision of the Merger
Agreement, the termination fee and expense reimbursement payable to Safeway
(which could require payments of up to $55 million in the aggregate) and
the termination provisions of the Merger Agreement. See "The Merger
Agreement -- Termination." The Special Committee considered the impact of
the "no-solicitation" provision of the Merger Agreement on Vons' ability to
negotiate with third parties interested in acquiring Vons, including the
fact that the Special Committee had previously authorized Credit Suisse
First Boston to solicit indications of interest from third parties. While
the Merger Agreement prohibits Vons from soliciting third-party offers, it
does not prohibit Vons from considering unsolicited third-party offers;
7. The conditions to consummation of the Merger included in the Merger
Agreement, which included the requirement that the Merger Agreement and the
Merger be approved and adopted by a majority of the outstanding Vons Common
Stock not held by Safeway or its affiliates. In this connection,
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<PAGE> 37
the Special Committee noted that Michigan law required only that the Merger
and the Merger Agreement be approved by the holders of only a majority of
the outstanding Vons Common Stock;
8. Possible alternatives to the Merger, including, without limitation,
continuing to operate Vons as an independent public company, merging with a
strategic partner in the food retailing industry (other than Safeway),
acquiring the shares of Vons' Common Stock owned by Safeway (which Safeway
had previously indicated it was not prepared to sell) or making a strategic
acquisition, as well as the impact, short-term and long-term, of such
alternatives on the value of Vons;
9. The increase of the Exchange Ratio to 1.425 (or a value of $55.58
per Vons share based on the closing price of Safeway Common Stock on
December 12, 1996) from the exchange ratio of 1.34 (or a value of $58.12
per Vons share based on the closing price of Safeway Common Stock on
October 29, 1996, the date on which such exchange ratio was first proposed,
and a value of $52.26 per Vons share based on the closing price of Safeway
Common Stock on December 12, 1996) included in Safeway's October 30, 1996
proposal;
10. The terms of the Repurchase pursuant to which Safeway will
repurchase 32 million shares of Safeway Common Stock at a price of $43.00
per share, which would cause the Merger to be more attractive on an
earnings-per-share basis for holders of Vons Common Stock and increase the
relative ownership of holders of Vons Common Stock in Safeway as the
Surviving Corporation;
11. The fact that since Safeway made public its proposal to acquire
Vons on October 30, 1996, Credit Suisse First Boston, at the Special
Committee's request, had contacted 21 third parties to solicit potential
indications of interest in alternative transactions to the proposed Safeway
merger, only one of whom was willing to enter into a confidentiality
agreement with Vons; no party expressed interest in pursuing a potential
acquisition of Vons and no party offered a transaction that the Special
Committee believed would result in greater value to the Vons shareholders
than the proposed Merger;
12. The fact that, absent the proposed Merger with Safeway, the Vons
Board would have to resolve plans for senior management succession since
Vons' Chairman and Chief Executive Officer was scheduled to retire in April
1997, which was the same time Vons' Chief Operating Officer's employment
agreement expired;
13. The historical market price of Vons Common Stock, which had ranged
from $25.00 per share to $45.00 per share during the year ended October 29,
1996, the last trading day prior to the announcement of Safeway's October
30, 1996 proposal, and from $15.375 per share to $45.00 per share during
the three-year period ended October 29, 1996;
14. The fact that the consideration to be received by Vons'
shareholders in the Merger represents an approximately 43% premium over the
closing price of Vons Common Stock of $43.125 per share on October 29, 1996
(based upon the value of the Exchange Ratio on such date), the last trading
day prior to the public announcement of Safeway's October 30, 1996 proposal
and provided significantly greater value than the initial concept discussed
with Safeway representatives in April 1996 (see "-- Background of the
Merger);
15. The fact that Safeway owned approximately 34.4% of outstanding
Vons Common Stock and had publicly stated that it was committed to
completing the merger of Vons and Safeway on the basis set forth in
Safeway's October 30, 1996 proposal; and
16. The fact that the consideration to be received by the shareholders
of Vons in the Merger will consist entirely of Safeway Common Stock and
that the Merger is intended to be tax-free to Vons shareholders.
The foregoing discussion of the information and factors considered and
given weight by the Special Committee and the Vons Board includes all material
matters considered but is not intended to be exhaustive. In view of the variety
of factors considered in connection with its evaluation of the Merger, the
Special Committee and the Vons Board did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
Special Committee and the Vons Board may have given different weights to
different factors.
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SAFEWAY'S REASONS FOR THE MERGER
At a meeting held on December 13, 1996, the Board of Directors of Safeway
unanimously approved the Merger Agreement and the issuance of Safeway Common
Stock in connection with the Merger. The General Corporation Law of the State of
Delaware (the "DGCL") does not require that Safeway stockholders approve the
Merger Agreement or the issuance of Safeway Common Stock in the Merger, and no
such approval is being sought. In addition, no Safeway stockholder approval is
required under NYSE regulations.
In reaching its conclusion to approve the Merger Agreement, the Board of
Directors of Safeway determined that the Merger is consistent with and in
furtherance of the long-term business strategy of Safeway. The Board of
Directors of Safeway believes that the Merger will provide opportunities to
enhance the performance of the operations of both Safeway and Vons and, as a
result, to enhance value for all Vons and Safeway shareholders. The Board of
Directors of Safeway believes that the Merger provides opportunities to achieve
certain operating improvements beyond what Safeway or Vons could achieve on a
stand-alone basis. See "The Companies -- The Combined Company."
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
Credit Suisse First Boston has acted as financial advisor to the Special
Committee in connection with the Merger. The Special Committee selected Credit
Suisse First Boston as its financial advisor because it is an internationally
recognized investment banking firm and has substantial experience in
transactions similar to the Merger and is familiar with Vons and the food
retailing industry in general. Credit Suisse First Boston is regularly engaged
in the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
In connection with Credit Suisse First Boston's engagement, the Special
Committee requested that Credit Suisse First Boston evaluate the fairness to the
shareholders of Vons (other than Safeway and its subsidiaries) from a financial
point of view of the Exchange Ratio to be offered to such shareholders pursuant
to the terms of the Merger Agreement. At a meeting of the Special Committee held
on December 13, 1996, Credit Suisse First Boston orally advised the Special
Committee that, as of such date and based upon and subject to certain matters
discussed with the Special Committee, the Exchange Ratio to be offered to the
shareholders of Vons in the Merger was fair to the shareholders of Vons (other
than Safeway and its subsidiaries) from a financial point of view. Such opinion
was subsequently confirmed in writing as of December 15, 1996. At the request of
the Special Committee and after taking into consideration the January 8, 1997
amendments to the Merger Agreement and the Repurchase Agreement, Credit Suisse
First Boston delivered to the Special Committee its updated opinion, dated March
5, 1997, that, as of such date and based upon and subject to the limitations,
qualifications and assumptions discussed therein, the Exchange Ratio to be
offered to the shareholders of Vons in the Merger was fair to the shareholders
of Vons (other than Safeway and its subsidiaries) from a financial point of
view. (the "Credit Suisse First Boston Opinion").
In arriving at its opinion, Credit Suisse First Boston (i) reviewed the
Merger Agreement and certain publicly available business and financial
information relating to Vons and Safeway, (ii) reviewed certain other
information, including financial forecasts provided to Credit Suisse First
Boston by Vons and Safeway, (iii) met with the management of Vons to discuss the
business and prospects of Vons, (iv) met with the management of Safeway to
discuss the business and prospects of Vons and Safeway as independent companies
and as a merged company, (v) considered certain financial and stock market data
of Vons and Safeway and compared that data with similar data for other publicly
held companies in businesses similar to those of Vons and Safeway, (vi)
considered the financial terms of certain other business combinations and other
transactions which have recently been effected, and (vii) considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which Credit Suisse First Boston deemed relevant.
At the request of the Special Committee, Credit Suisse First Boston approached
third parties to solicit indications of interest in a possible acquisition of
Vons; however, none of such parties expressed interest in pursuing a potential
transaction with Vons.
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In connection with the Credit Suisse First Boston Opinion, Credit Suisse
First Boston did not assume responsibility for independent verification of any
of the information provided to or otherwise reviewed by Credit Suisse First
Boston and relied upon its being complete and accurate in all material respects.
With respect to the financial forecasts of Vons, Credit Suisse First Boston
assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of Vons' management as to the future
financial performance of Vons. For competitive and other business reasons,
Safeway would not furnish internal financial projections of Safeway to Vons, the
Special Committee or Credit Suisse First Boston. Instead, Credit Suisse First
Boston was directed to use and rely on financial projections with respect to
Safeway's future performance which were derived from published projections
prepared by supermarket industry equity analysts compiled by Safeway and an
extrapolation from those projections, as provided to Credit Suisse First Boston
by Safeway, as well as additional information provided by Safeway in discussions
with Credit Suisse First Boston. With respect to such projections, Credit Suisse
First Boston assumed that they were reasonably prepared on bases reflecting the
best current available estimates and judgments as to the future financial
performance of Safeway. Credit Suisse First Boston also assumed, with the
consent of the Special Committee, that the Merger will qualify as a
"reorganization" under Section 368(a) of the Code, and that it will be
consummated in accordance with the Merger Agreement. In addition, Credit Suisse
First Boston did not make an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of Vons or Safeway, nor was Credit
Suisse First Boston furnished with any such evaluations or appraisals. The
Credit Suisse First Boston Opinion is necessarily based on information available
to it and financial, economic, market and other conditions as they existed and
could be evaluated on the date of the Credit Suisse First Boston Opinion.
Credit Suisse First Boston expressed no opinion as to what the value of the
Safeway Common Stock actually would be when issued to the Vons shareholders
pursuant to the Merger or the prices at which the Safeway Common Stock would
trade subsequent to the Merger. Although Credit Suisse First Boston evaluated
the fairness of the Exchange Ratio to be offered to the holders of shares of
Vons Common Stock (other than Safeway and its subsidiaries) in the Merger from a
financial point of view, the specific consideration payable in the Merger was
determined by the Special Committee and Safeway through arm's length
negotiation. No other limitations were imposed by the Special Committee on
Credit Suisse First Boston with respect to the investigations made or procedures
followed by Credit Suisse First Boston.
The full text of the Credit Suisse First Boston Opinion, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken, is attached as Appendix B to this Proxy Statement/Prospectus and is
incorporated herein by reference. Vons shareholders are urged to read the Credit
Suisse First Boston Opinion carefully in its entirety. The Credit Suisse First
Boston Opinion has been provided to the Special Committee for its information
and is directed only to the fairness of the Exchange Ratio to be offered to
shareholders of Vons (other than Safeway and its subsidiaries) in the Merger
from a financial point of view, does not address any other aspects of the Merger
or any related transaction and does not constitute a recommendation to any
shareholder as to how such shareholder should vote with respect to the proposed
Merger.
SUMMARY OF ANALYSES
The following is a summary of the material financial analyses performed by
Credit Suisse First Boston in connection with its presentation to the Special
Committee on December 13, 1996, and delivery of the Credit Suisse First Boston
Opinion, and does not purport to be a complete description of the analyses
conducted by Credit Suisse First Boston in arriving at its opinion.
Discounted Cash Flow Analysis. Credit Suisse First Boston performed a
discounted cash flow analysis of the projected unlevered free cash flows of Vons
for the period 1997 through 2006, based upon financial forecasts for the period
1996 to 2000 provided to Credit Suisse First Boston by the management of Vons
and financial forecasts for the period 2001 to 2006 developed by the management
of Vons in discussions with Credit Suisse First Boston (the "Management Case
Forecasts"). The Management Case Forecasts assumed (i) same store sales growth
of 5.2% in 1996, 4% in 1997 and 3.5% per year through 2006; (ii) 26 new store
openings and 28 replacement store openings from 1996 through 2000 and five new
store openings per year and
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five replacement store openings per year from 2001 through 2006; (iii) new store
financial performance of $375,000 of sales per week which increases by 6% in the
second year, 5% in the third year, 4% in the fourth year and grows at the chain
average for each subsequent year; (iv) gross margin improvement from 25.4% of
sales in 1996 to 26% of sales in 1998 and remaining constant thereafter as a
result of, among other things, increasing private label sales and improved
category management; and (v) labor productivity improvements totaling $33
million by 2000. The Management Case Forecasts provided to Credit Suisse First
Boston by the management of Vons which are utilized in this analysis included:
(i) projected sales of $5.4 billion in 1996, $5.6 billion in 1997, $6.1 billion
in 1998, $6.4 billion in 1999 and $6.7 billion in 2000; (ii) projected earnings
before interest and taxes ("EBIT") of $242 million in 1996, $287 million in
1997, $318 million in 1998, $335 million in 1999 and $355 million in 2000; (iii)
projected net income of $104 million in 1996, $137 million in 1997, $163 million
in 1998, $180 million in 1999 and $203 million in 2000; and (iv) projected
earnings per share of $2.34 in 1996, $3.02 in 1997, $3.57 in 1998, $3.92 in 1999
and $4.39 in 2000. With the guidance of the management of Vons, Credit Suisse
First Boston also prepared, as a part of its sensitivity analysis, a number of
cases modifying certain of the assumptions utilized to prepare the Management
Case Forecasts (the "Sensitivity Cases"). The Sensitivity Cases included (i) an
accelerated new store opening case assuming, among other things, increased store
openings in 1999 through 2003 (the "Accelerated New Store Opening Case"); (ii) a
business intensification case assuming, among other things, increased same store
sales growth, labor productivity and earnings before interest, taxes,
depreciation and amortization ("EBITDA") margins and no new store openings in
1998 and 1999 (the "Business Intensification Case"); and (iii) a recession case
assuming, among other things, a recession occurring from 2001 to 2003 with
negative same store sales growth and reduced EBITDA margins (the "Recession
Case"). Each of these cases was reviewed by the management of Vons who found
them to be reasonable.
Based upon these various financial forecasts, Credit Suisse First Boston
developed an enterprise value (share price multiplied by shares outstanding
(including in-the-money options) less in-the-money option proceeds plus total
debt less cash and cash equivalents) reference range and an equity value per
share of Vons Common Stock utilizing discount rates of 10.5% to 11.5% based on
the weighted average cost of capital of Vons and terminal value multiples of
estimated EBITDA in 2006 of 6.5x to 7.5x. Credit Suisse First Boston utilized
the Management Case, Accelerated New Store Opening Case, Business
Intensification Case and Recession Case scenarios for Vons merely as points of
reference for the Special Committee and in no way intended to suggest parameters
or forecasts as to the minimum or maximum enterprise and equity valuation ranges
for Vons. This analysis resulted in an enterprise value reference range for Vons
of $2.9 billion to $3.4 billion ($52.42 to $62.83 per share of Vons Common
Stock) for the Management Case, $3.0 billion to $3.5 billion ($53.37 to $64.53
per share of Vons Common Stock) for the Accelerated New Store Opening Case, $3.2
billion to $3.7 billion ($57.41 to $68.14 per share of Vons Common Stock) for
the Business Intensification Case and $2.2 billion to $2.6 billion ($37.01 to
$44.66 per share of Vons Common Stock) for the Recession Case.
Comparable Company Analysis. Credit Suisse First Boston performed a
comparable company analysis in which it compared certain publicly available
financial data, projections of future financial performance (reflecting a
composite of equity research analysts' estimates) and market statistics
(calculated based upon closing stock prices as of December 6, 1996) of selected
publicly traded companies in the food retailing industry considered by Credit
Suisse First Boston to be reasonably comparable to Vons with similar financial
data of Vons. Such comparable companies included: Delchamps, Inc.; Food Lion,
Inc.; Giant Food Inc.; Hannaford Bros. Co.; Quality Food Centers, Inc.; Weis
Markets, Inc.; Winn Dixie Stores, Inc.; (the "Regional Comparable Companies");
Albertson's, Inc.; American Stores Company; The Great Atlantic & Pacific Tea
Co., Inc.; Koninklijke Ahold nv; Safeway (the "Multi-Regional Comparable
Companies"); The Kroger Co.; and Smith's Food & Drug Centers, Inc. (the "Highly
Leveraged Comparable Companies" and, together with the Regional Comparable
Companies and the Multi-Regional Comparable Companies, the "Comparable
Companies"). Credit Suisse First Boston calculated the enterprise value (share
price multiplied by fully-diluted shares outstanding less exercisable option
proceeds plus total debt, preferred stock and minority interest, less cash and
cash equivalents) of the Comparable Companies as multiples of (i) estimated 1996
sales; (ii) estimated 1996 and 1997 EBITDA and (iii) estimated 1996 EBIT. Credit
Suisse First Boston also derived multiples of common stock prices per share
relative to estimated 1996 and 1997 earnings per
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share for each of Vons and the Comparable Companies. This analysis indicated
that (i) the enterprise value to estimated 1996 sales multiples ranged from 0.2x
to 0.8x with an average of 0.5x for Regional Comparable Companies, ranged from
0.2x to 0.7x with an average of 0.5x for Multi-Regional Comparable Companies,
and were 0.4x to 0.6x with an average of 0.5x for the Highly Leveraged
Comparable Companies; (ii) the enterprise value to estimated 1996 EBITDA
multiples ranged from 5.0x to 10.8x with an average of 7.7x for the Regional
Comparable Companies, ranged from 4.7x to 9.1x with an average of 7.4x for the
Multi-Regional Comparable Companies, and were 7.1x and 7.9x with an average of
7.5x for the Highly Leveraged Comparable Companies; (iii) the enterprise value
to estimated 1997 EBITDA multiples ranged from 4.5x to 8.6x with an average of
6.8x for the Regional Comparable Companies, ranged from 4.0x to 7.9x with an
average of 6.4x for the Multi-Regional Comparable Companies, and were 6.4x to
6.8x with an average of 6.6x for the Highly Leveraged Comparable Companies; (iv)
the enterprise value to estimated 1996 EBIT multiples ranged from 10.4x to 14.3x
with an average of 11.8x for the Regional Comparable Companies, ranged from
10.8x to 12.9x with an average of 11.7x for the Multi-Regional Comparable
Companies, and were 11.0x and 11.1x with an average of 11.1x for the Highly
Leveraged Comparable Companies; (v) the common stock prices to estimated 1996
earnings per share multiples ranged from 16.8x to 30.0x with an average of 20.5x
for the Regional Comparable Companies, ranged from 16.7x to 25.0x with an
average of 19.7x for the Multi-Regional Comparable Companies, and were 16.6x and
22.2x with an average of 19.4x for the Highly Leveraged Comparable Companies;
and (vi) the common stock prices to estimated 1997 earnings per share multiples
ranged from 15.6x to 24.5x with an average of 17.7x for the Regional Comparable
Companies, ranged from 13.3x to 20.4x with an average of 16.5x for the
Multi-Regional Comparable Companies, and were 13.7x and 20.0x with an average of
16.9x for the Highly Leveraged Comparable Companies. Credit Suisse First Boston
then applied these multiples of estimated 1996 and 1997 financial performance to
the appropriate benchmarks of Vons to derive an enterprise value reference range
for Vons of $2.9 billion to $3.0 billion ($51.03 to $53.90 per share of Vons
Common Stock).
Comparable Acquisitions Analysis. Using publicly available information,
Credit Suisse First Boston reviewed 22 selected business combinations which
occurred since November 1986 involving companies in the food retailing industry
(the "Acquisition Comparables"). The Acquisition Comparables included: Food
Lion, Inc./Kash 'N Karry Food Stores; Koninklijke Ahold nv/Stop & Shop
Companies, Inc.; Smith's Food & Drug Centers, Inc./Smitty's Supermarkets, Inc.;
Bruckman, Rosser, Sherrill/Jitney Jungle Stores of America, Inc.; KKR/Bruno's,
Inc.; Koninklijke Ahold nv/Mayfair Supermarkets, Inc.; Food 4 Less Holdings,
Inc./Ralphs Grocery Company; Stop & Shop Companies, Inc./Purity Supreme, Inc.;
Yucaipa Cos./Dominick's; Winn Dixie Stores, Inc./Thriftway Stores, Inc.; Quality
Food Centers, Inc./Olson's Food Stores; J. Sainsbury Plc/Giant Food Inc.;
Investcorp SA/Star Markets Co, Inc.; Hannaford Bros. Co./Boney Wiker & Sons;
Yucaipa/Smitty's Super Valu, Inc.; Cisneros Group/Pueblo International, Inc.;
Randall's Management Corporation, Inc./Cullum Companies, Inc.; Freeman Spogli &
Co., Inc./Purity Supreme, Inc.; Food 4 Less Holdings, Inc./Alpha Beta Company,
Inc.; Freeman Spogli & Co., Inc./Buttrey Foods and Drug Stores Company, Inc.;
KKR/Stop & Shop Companies, Inc.; and KKR/Safeway. For each of the Acquisition
Comparables, Credit Suisse First Boston compared the enterprise value of each
such transaction as a multiple of the publicly available latest twelve months'
("LTM") sales, EBIT and EBITDA and number of stores of the acquired company.
This analysis indicated that the enterprise value as a multiple of: (i) LTM
sales ranged from 0.16x to 0.70x; (ii) LTM EBIT ranged from 7.4x to 14.6x; (iii)
LTM EBITDA ranged from 5.1x to 9.6x; and (iv) the number of stores acquired
ranged from $1.8 million to $14.2 million. This analysis resulted in an
enterprise value reference range for Vons of $2.5 billion to $3.2 billion
($42.54 to $57.83 per share of Vons Common Stock).
Leveraged Buyout Analysis. Credit Suisse First Boston performed a leverage
buyout analysis to determine the range of potential reference values for Vons
that could be achieved in the acquisition of Vons in a leveraged buyout based
upon current market conditions. To conduct this analysis, Credit Suisse First
Boston utilized Management Case Forecasts provided by the management of Vons
and, at the instruction of Vons management, assumed $10 million in annual cost
savings. This analysis resulted in an enterprise value reference range for Vons
of $2.8 billion to $2.9 billion ($48.27 to $52.31 per share of Vons Common
Stock).
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Credit Suisse First Boston Reference Range. On the basis of the valuation
methodologies employed in the analyses described above, Credit Suisse First
Boston developed an enterprise value reference range for Vons of $3.0 billion to
$3.4 billion and an equity value reference range of $52.52 to $62.61 per share
of Vons Common Stock. Credit Suisse First Boston noted that the Exchange Ratio
to be offered to the shareholders (other than Safeway and its subsidiaries),
based upon the closing price of Safeway Common Stock on December 9, 1996 of
$40.00 per share and on October 29, 1996 (the date preceding the announcement of
Safeway's initial acquisition proposal) of $43.375 per share, the value of
Safeway Common Stock to be received by such shareholders for each share of Vons
Common Stock was $57.00 and $61.81, respectively.
Additional Information. In addition, Credit Suisse First Boston reviewed
with the Special Committee certain additional financial and other information
concerning Safeway. Such additional information included a comparison of Safeway
with other U.S. food retailers with respect to relative size in terms of number
of stores, sales and market capitalization, and historical financial performance
and stock price performance. Credit Suisse First Boston also reviewed Safeway's
historical operating and financial performance, credit statistics, and daily
stock price performance and daily trading volume for the period from November
14, 1995 through December 9, 1996, and equity research analysts' perspectives on
Safeway's financial and stock price performance.
Credit Suisse First Boston also reviewed with the Special Committee the
financial information concerning Safeway which was derived from published
projections prepared by supermarket industry equity analysts and compiled by the
management of Safeway for fiscal years 1996 through 1998 and an extrapolation
therefrom for fiscal years 1999 and 2000, as provided to Credit Suisse First
Boston by Safeway, as well as additional information provided by Safeway in
discussions with Credit Suisse First Boston (the "Safeway Case") and additional
financial information which adjusted upward the Safeway Case by using higher
earnings per share growth rates for the period from 1997 through 2000, as well
as information from discussions with Safeway (the "Safeway High Case"). Based
upon these financial projections, Credit Suisse First Boston also reviewed a per
share reference value range of Safeway with the Special Committee and compared
this reference value range with Safeway's stock price on October 12, 1996,
December 12, 1996 and as an average over this period. The per share reference
value range for Safeway was developed using a discounted cash flow analysis and
a comparable companies analysis. The discounted cash flow analysis assumed a 10%
to 11% discount rate and a 6.5x to 7.5x terminal value multiple of estimated
2006 EBITDA. This analysis resulted in a range of share prices for Safeway
Common Stock of $40.23 to $48.54 per share for the Safeway Case and $44.79 to
$53.89 per share for the Safeway High Case. The comparable companies analysis
was based on a range of industry multiples as of December 9, 1996 multiplied by
the corresponding earnings per share estimate of $2.39 for the Safeway Case and
$2.55 for the Safeway High Case. The comparable companies analysis resulted in a
range of implied share prices for Safeway Common Stock of $41.83 to $44.22 per
share for the Safeway Case and $44.63 to $47.18 per share for the Safeway High
Case.
Credit Suisse First Boston conducted a variety of relative valuation
analyses which, assuming a variety of valuation methodologies and parameters,
considered the equity values of Vons and Safeway in relation to each other (the
"Relative Valuation Analysis"). The Relative Valuation Analyses were: (i) the
Historical Stock Trading Analysis, (ii) the Discounted Cash Flow Exchange Ratio
Analysis, (iii) the Contribution Analysis and (iv) the Private Market Analysis.
Each of these analyses is summarized below.
HISTORICAL STOCK TRADING ANALYSIS. Credit Suisse First Boston reviewed
the per share daily closing market price of the Vons Common Stock and
Safeway Common Stock over the period from October 30, 1994 through
October 29, 1996 (the day preceding Safeway's initial acquisition
proposal). Credit Suisse First Boston compared the average stock prices
of Vons and Safeway over the period preceding Safeway's initial
acquisition proposal by one day, one month, six months, one year and two
years. Credit Suisse First Boston's comparison yielded implied exchange
ratios ranging from 0.9942 to 1.1040 or an equity value of $43.13 to
$47.89 per share of Vons Common Stock.
DISCOUNTED CASH FLOW EXCHANGE RATIO ANALYSIS. Credit Suisse First
Boston performed an exchange ratio analysis comparing discounted cash
flow analyses for both companies using the Management Case Forecasts
provided to Credit Suisse First Boston by the management of Vons
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which resulted in an equity value of $54.89 to $60.24 per share, the
Safeway Case which resulted in an equity value of $41.94 to $46.53 per
share and the Safeway High Case which resulted in an equity value of
$46.68 to $51.67 per share. This discounted cash flow comparison
resulted in implied exchange ratios ranging from 1.0623 to 1.4363 or an
equity value of $46.08 to $63.04 per share of Vons Common Stock.
CONTRIBUTION ANALYSIS. Credit Suisse First Boston utilized a
contribution analysis under which it examined the relative ownership by
the shareholders of Vons and Safeway in the pro forma combined company's
estimated sales, EBITDA and net income for 1997, using the Vons
Management Case Forecasts and the Safeway Case to derive an implied
exchange ratio. This analysis yielded implied exchange ratios ranging
from 1.2743 to 1.4466 or an equity value of $55.27 to $62.75 per share
of Vons Common Stock.
PRIVATE MARKET ANALYSIS. Credit Suisse First Boston performed an
exchange ratio analysis comparing private market analyses for both
companies. The private market analysis assumed 7.0x to 8.0x multiple of
LTM EBITDA for Vons and Safeway and derived the implied exchange ratios
ranging from 1.0712 to 1.4533 or an equity value of $46.46 to $63.04 per
share of Vons Common Stock.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the process
underlying the Credit Suisse First Boston Opinion. In arriving at its opinion,
Credit Suisse First Boston considered the results of all such analyses taken as
a whole. Furthermore, in arriving at its fairness opinion, Credit Suisse First
Boston did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. No company or transaction used in the
above analyses as a comparison is identical to Vons, Safeway, or the Merger. The
analyses were prepared solely for purposes of Credit Suisse First Boston
providing its opinion to the Special Committee as to the fairness of the
Exchange Ratio to be offered to the shareholders of Vons (other than Safeway and
its subsidiaries) in the Merger from a financial point of view, and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses are based upon numerous factors or events beyond the control of Vons,
Safeway, their respective advisors or any other person and are inherently
uncertain. Actual future results may be materially different from those
forecasted.
FEE AND OTHER INFORMATION
Pursuant to the terms of Credit Suisse First Boston's engagement, for its
services in connection with the Merger, Vons has agreed to pay Credit Suisse
First Boston a financial advisory fee of $1,000,000 (which is creditable against
any transaction fee) and a transaction fee of 0.4% of the aggregate
consideration to be paid in the Merger payable upon consummation of the Merger.
Based on the closing price of Safeway Common Stock on the NYSE Composite Tape on
March 4, 1997, such fee would be approximately $11 million. Vons also has agreed
to reimburse Credit Suisse First Boston for its out-of-pocket expenses,
including the reasonable fees and expenses of its counsel, and to indemnify
Credit Suisse First Boston and certain related persons against certain
liabilities, including liabilities under the federal securities laws.
In the ordinary course of business, Credit Suisse First Boston and its
affiliates may actively trade the debt and equity securities of both Vons and
Safeway for their own account and for accounts of customers and, accordingly,
may at any time hold a long or short position in such securities. In addition,
Credit Suisse First Boston advised the Special Committee of the extent of its
prior relationship with KKR.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income tax
consequences of the Merger, which has been structured so as to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. The
discussion is based on current provisions of the Code, Treasury regulations
promulgated thereunder and judicial and administrative decisions and rulings in
effect as of the date hereof. There can be no assurance
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that the Internal Revenue Service ("IRS") will not take a contrary view, and no
ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any legislative, judicial or
administrative changes or interpretations may or may not be retroactive. It is
assumed for purposes of this discussion that shares of Vons Common Stock are
held as "capital assets" within the meaning of Section 1221 of the Code.
Consequences to Vons and Vons Shareholders. The obligation of Vons to
effect the Merger is conditioned upon the delivery of an opinion to Vons from
Wachtell, Lipton, Rosen & Katz, its counsel, dated as of the Closing Date, based
upon certain customary representations and assumptions set forth therein, that
for United States federal income tax purposes the Merger will constitute a
reorganization with the meaning of Section 368(a) of the Code.
Vons has received an opinion from Wachtell, Lipton, Rosen & Katz dated as
of the date hereof, in reliance upon certain customary representations and
assumptions, that the material United States federal income tax consequences of
the Merger to Vons and its stockholders will be:
(i) no gain or loss will be recognized for federal income tax purposes by
Vons as a result of the Merger;
(ii) no gain or loss will be recognized by a holder of Vons Common Stock
upon his or her exchange of Vons Common Stock for Safeway Common Stock pursuant
to the Merger, except that a holder of Vons Common Stock who receives cash
proceeds in lieu of a fractional share interest in Safeway Common Stock will
recognize a gain or loss equal to the difference between the cash received and
the tax basis allocated to the fractional share interest;
(iii) the tax basis of Safeway Common Stock received by a holder of Vons
Common Stock who exchanges his or her Vons Common Stock for Safeway Common Stock
will be the same as such stockholder's tax basis in the Vons Common Stock
surrendered in exchange therefor (reduced by any tax basis allocable to a
fractional share interest for which cash is received); and
(iv) the holding period of the Safeway Common Stock received by a holder of
Vons Common Stock will include the period during which the Vons Common Stock
surrendered in exchange therefor was held (provided that such Vons Common Stock
was held by such holder of Vons Common Stock as a capital asset at the Effective
Date).
Consequences to Safeway and Merger Sub. Safeway believes, without reliance
on the opinion of Wachtell, Lipton, Rosen & Katz or any other opinion, that
there will be no material federal income tax consequences to Safeway or Merger
Sub as a result of the Merger.
Information Reporting and Backup Withholding. Certain noncorporate Vons
shareholders may be subject to backup withholding at a rate of 31% on cash
payments received in lieu of a fractional share interest in Safeway Common
Stock. Backup withholding will not apply, however, to a shareholder who (i)
furnishes a correct taxpayer identification number ("TIN") and certifies that he
or she is not subject to backup withholding on the substitute Form W-9 included
in the transmittal letter to be sent to Vons shareholders (see "The Merger
Agreement -- Exchange Procedures"), (ii) provides a certificate of foreign
status on Form W-8, or (iii) is otherwise exempt from backup withholding. A
stockholder who fails to provide the correct TIN on Form W 9 may be subject to a
$50 penalty imposed by the IRS.
Each Vons shareholder will be required to retain records and file with such
holder's United States federal income tax return a statement setting forth
certain facts relating to the Merger.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. THE DISCUSSION DOES NOT
ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR VONS
SHAREHOLDER SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN UNITED STATES FEDERAL
INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, FINANCIAL INSTITUTIONS,
INSURANCE COMPANIES, CERTAIN RETIREMENT PLANS, TAX-EXEMPT ORGANIZATIONS,
NON-UNITED STATES PERSONS AND SHAREHOLDERS WHO ACQUIRED VONS COMMON STOCK
PURSUANT TO THE EXERCISE OF VONS OPTIONS OR OTHERWISE AS COMPENSATION, AND DOES
NOT ADDRESS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR
FOREIGN
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JURISDICTION. MOREOVER, THE TAX CONSEQUENCES TO HOLDERS OF VONS OPTIONS ARE NOT
DISCUSSED.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of Vons' Board of Directors,
shareholders should be aware that certain members of Vons' management and Board
of Directors have certain interests in the Merger in addition to the interests
of Vons' shareholders generally.
Severance Plan
Certain officers of Vons are entitled to severance benefits under an
Amended and Restated Severance Plan for Senior Management and Key Employees
dated as of July 15, 1996 (the "Amended Plan") adopted by the Vons Board in July
1996. Under the terms of the Amended Plan, a participating executive who is
employed by Vons at the Effective Time generally will become entitled to receive
benefits if the executive's employment is terminated (i) by the executive during
a 60-day period commencing one year after the occurrence of a "Change in
Control" or (ii) by Vons without "Cause" or by the executive for "Good Reason"
within two years following a Change in Control. For purposes of the Amended
Plan, a "Change in Control" is deemed to include (i) any acquisition of stock if
the acquiring person would thereafter be the beneficial owner of 50% or more of
Vons' voting stock, (ii) a merger or consolidation of Vons resulting in the
holders of Vons' voting stock immediately prior to such transaction holding less
than 50% of the total voting common stock of the surviving corporation after
such transaction, (iii) a sale or exchange of all or substantially all of the
property and assets of Vons or (iv) any change over a two-year period or less in
a majority of the Board of Directors that is not approved by a majority of the
directors either in office at the commencement of such two-year period or who
were elected with the approval of a majority of directors in office at the
commencement of such two-year period. The Merger will constitute a Change in
Control under the Amended Plan. The term "Cause" is defined to mean the
commission of certain crimes, habitual neglect of duty if such neglect is not
cured within five days of notice, or knowing, intentional or malicious conduct
contrary to Vons' best interests that causes material harm to Vons. An
executive's termination of employment is deemed for "Good Reason" if any of the
following occurs during the six months prior to such termination without the
executive's written consent: (i) any change that is not immaterial in the
nature, or diminution in the status, of the individual's duties or position;
(ii) a reduction in the compensation or overall value of benefits provided to
the individual; (iii) relocation of the executive's place of business by more
than 35 miles; (iv) a failure to continue in effect any stock option, other
equity-based or non-equity based incentive compensation plan in effect
immediately prior to a Change in Control, or a reduction in the executive's
relative participation in such a plan, unless the executive is given an
opportunity to participate in an alternative incentive compensation plan of
reasonably equivalent value; (v) a failure to provide the executive the same
number of paid vacation days per year available to him prior to the Change in
Control, or any material reduction or elimination of any material benefit or
perquisite enjoyed by the executive immediately prior to the Change in Control;
or (vi) any breach of or failure by Vons to obtain an assumption by any
successor or assignor of Vons of any provision of the Amended Plan or of any
agreement entered into pursuant to the Amended Plan. The Amended Plan provides
that, with respect to clauses (ii), (iv) and (v), "Good Reason" will not exist
if the aggregate value of all benefits and compensation at the time of
termination is reasonably equivalent to that in effect immediately prior to the
Change in Control, or as in effect after the Change in Control if the aggregate
value of such items was increased and such increase was approved prior to the
Change in Control.
Benefits payable under the Amended Plan include a lump sum cash payment
equal to from one to two and one-half times the sum of (i) the higher of (a) the
executive's annual base salary at the time of termination or (b) the highest
annual base salary of the executive during the three fiscal years prior to the
Change in Control and (ii) the average annual short-term incentive compensation
bonus and average annual profit sharing plan contribution for the executive
during the three fiscal years preceding the executive's termination. Severance
compensation also includes: (i) up to $25,000 in appropriate outplacement
counseling (or, if so elected by the executive, $25,000 in a cash lump sum
payment); (ii) financial counseling for certain executives at a cost not to
exceed $10,000; (iii) disability, health, life and accidental death and
dismember-
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ment benefits for three years which are substantially similar to those benefits
which the executive was receiving immediately prior to the Change in Control or,
if greater, immediately prior to the date of termination; and (iv) additional
credit for from one to two and one-half years of service for all purposes under
all Vons' retirement plans other than its Profit Sharing Plan. In addition the
Merger will constitute a change of control under the Vons 401(k) Wrap-Around
Plan (the "Wrap Plan") and 1992 Supplemental Executive Retirement Plan (the
"SERP") with varying consequences under each plan. Under the Wrap Plan, among
other things, unfunded account balances will be required to be funded and
irrevocably contributed to a trust. Under the SERP, participants (all of the
officers of Vons) will, at the Effective Time, receive a lump sum payment, not
adjusted to reflect early payment, of vested benefits as defined in the plan
(increased by the additional retirement credit under the Amended Plan as
referenced above) which would otherwise only have been payable after termination
of employment and after age 55. The SERP also provides that it may not be
terminated after a change of control.
The Amended Plan also provides that if any payment received by certain of
the covered executives constitutes an excess parachute payment under Section
280G of the Code, as determined by an accounting firm designated by the
executive, the amount of the executive's payments shall be reduced to the extent
necessary such that no part of the payments constitutes an "excess parachute
payment," unless the executive would receive greater value with respect to the
payments, net of all income taxes and excise taxes under Section 4999 of the
Code, if such payments were not reduced; with respect to other covered
executives, the Amended Plan provides that Vons shall "gross-up" the executives'
payments for the amount of any excise taxes they incur under Section 4999 of the
Code, and all other excise, income and employment taxes attributable to the
gross-up of such excise tax, if an executive would receive at least $50,000 more
in after-tax proceeds if Vons were to make such a gross-up payment than if the
payments were reduced such that no part of the payments constituted an excess
parachute payment. Under Section 280G of the Code, Vons is not permitted to
deduct the amount of any "excess parachute payments" which are subject to the
excise tax imposed on the executives under Section 4999 of the Code or the
amount of any "gross-up" payments made to the executives.
In the event of their termination by Vons without cause immediately after
the Effective Time (assuming the Effective Time was April 15, 1997), Vons' Chief
Executive Officer and the four other executive officers who were the most highly
compensated executive officers of Vons for fiscal year 1996 ("Vons Named
Officers") would receive cash payments representing severance benefits and
outplacement counseling in approximately the following amounts: Lawrence A. Del
Santo, $0; Richard E. Goodspeed, $1,856,000; Terry R. Peets, $1,310,000;
Terrence J. Wallock, $965,000; and Pamela K. Knous, $906,000. In addition, Vons
would make payments representing the "gross-up" for excise taxes arising from
"excess parachute payments" in the amount of approximately $4,384,000 with
respect to the Vons Named Officers. The Vons Named Officers would also receive
financial counseling, extended disability, health, life and retirement benefits
and change of control benefits under other Vons benefit plans as described
above.
Employment Agreements
Vons has three-year employment contracts with each of Lawrence A. Del
Santo, the Chairman of the Board and Chief Executive Officer of Vons, and
Richard E. Goodspeed, the President and Chief Operating Officer of Vons, entered
into as of April 26, 1994 for terms ending, in each case, on April 30, 1997.
Mr. Del Santo's agreement provides for a base salary of $550,000, with an
annual bonus of up to 100% of base salary contingent upon the achievement by
Vons of performance goals which are to be determined by Vons' Board of
Directors. Mr. Del Santo was granted 200,000 non-qualified stock options at fair
market value on April 26, 1994 and 175,000 non-qualified stock options at 25% of
fair market value and all are exercisable 33 1/3% per year beginning one year
after grant. The agreement also provides that all of Mr. Del Santo's options
immediately vest in the event he is terminated by Vons other than for "Cause,"
as defined therein. Mr. Del Santo is also to receive upon retirement in May 1997
a monthly retirement benefit of $16,667 for the duration of his life, and, in
the event of his death before retirement, his spouse is to receive the
actuarially equivalent benefit (based on 100% joint and survivor benefit) of
such payments.
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Mr. Goodspeed's agreement provides for a base salary of $400,000 per year,
with an annual bonus of up to 100% of base salary contingent upon the
achievement by the Company of performance goals. Mr. Goodspeed was also granted
175,000 non-qualified stock options at fair market value on April 26, 1994 which
are exercisable 20% per year beginning one year after grant and 97,500
non-qualified stock options at 25% of fair market value which are exercisable 33
1/3% per year beginning one year after grant. Mr. Goodspeed is also eligible to
receive retirement benefits from a supplemental executive retirement plan, which
becomes fully vested and nonforfeitable upon a change of control of Vons and the
benefits under which do not reduce any payments received under the Amended Plan.
In the event of Mr. Goodspeed's death, his spouse will receive the actuarial
equivalent benefit (based on 100% joint and survivor benefit) of the amounts set
forth in his retirement plan. In the event of termination without "Cause" or
resignation for "Good Reason", as each term is defined in the contract, Mr.
Goodspeed shall receive a monthly retirement benefit for life, in lieu of the
above described pension benefit, in the amount of $8,333 beginning at age 65.
Stock Option Plans
The Vons Companies, Inc. 1990 Stock Option and Restricted Stock Plan, as
amended (the "1990 Stock Option Plan") provides for vesting of options under
certain circumstances upon a change of control. Specifically, the 1990 Stock
Option Plan provides that all options granted may be exercised upon a "change of
control" of Vons (defined as a sale or other transfer of 50% or more of Vons'
voting stock, or a merger or other reorganization of Vons in which the
shareholders of the corporation prior to such transaction beneficially own less
than 50% of the voting stock of Vons or a successor immediately after the
transaction, or a sale of substantially all of Vons' assets or a transaction
resulting in the delisting of Vons stock from the NYSE), subject to a surviving
corporation assuming or replacing the options. Pursuant to the 1990 Stock Option
Plan, if the options are assumed or replaced by a surviving corporation, all
options held by an optionee (whether or not otherwise then exercisable under the
1990 Stock Option Plan) would become vested and exercisable immediately upon
involuntary termination of such optionee during the two year period following
the Effective Time. Involuntary termination for executives covered by the
Amended Plan, including the Vons Named Officers, is defined as any termination
giving rise to severance compensation under the Amended Plan. Safeway has agreed
to assume all outstanding options under the 1990 Stock Option Plan, and,
consequently, in the event the Named Officers were terminated without cause
immediately after the Effective Time (assuming the Effective Time was April 15,
1997), the following number of unvested Stock Options held by the Vons Named
Officers would be accelerated to allow exercise at any time within thirty days
after termination: Mr. Del Santo, 0 shares; Mr. Goodspeed, 70,000 shares; Mr.
Peets, 62,500 shares; Mr. Wallock, 34,000 shares; and Ms. Knous, 31,663 shares.
As of the Effective Time (assuming the Effective Time was April 15, 1997), the
Vons Named Officers will hold vested Stock Options to purchase the following
number of shares of Vons Common Stock: Mr. Del Santo, 375,000; Mr. Goodspeed,
202,500; Mr. Peets, 12,500; Mr. Wallock, 44,900; and Ms. Knous, 27,287. In
addition, two directors who were formerly officers of Vons hold vested Stock
Options to purchase the following number of shares of Vons Common Stock: Roger
E. Stangeland, 150,000; William S. Davila, 5,000. See "The Merger
Agreement -- Treatment of Stock Options."
In February 1997, Safeway determined to offer to replace, at the Effective
Time, all outstanding Director Stock Options granted to Outside Directors under
the Directors' Option Plan with Replacement Options to purchase Safeway Common
Stock. Each Replacement Option will represent the right to purchase, on
substantially the same terms and conditions as were applicable under the
Director Stock Option being replaced, the number (rounded to the nearest whole
number) of shares of Safeway Common Stock as such holder of such Director Stock
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such Director Stock Option in full immediately prior to the
Effective Time (not taking into account whether such Director Stock Option was
in fact exercisable), at a price per share equal to (x) the aggregate exercise
price for Vons Common Stock otherwise purchasable pursuant to such Director
Stock Option divided by (y) the number of shares of Safeway Common Stock
purchasable pursuant to such Replacement Option. Each Replacement Option will be
fully exercisable regardless of whether the Director Stock Option was
exercisable prior to the Effective Time. The Replacement Options, like the
Directors' Stock Options generally will be exercisable until three months after
resignation (or one year in the case of a director who is over 60 years old and
has served on the Vons Board for more than three years). As of February 20,
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1997, Outside Directors held Director Stock Options to purchase an aggregate of
200,525 shares of Vons Common Stock, which, if exchanged for Replacement
Options, would represent the right to purchase an aggregate of 285,750 shares of
Safeway Common Stock.
If a holder does not elect to exchange his Director Stock Options for
Replacement Options, then pursuant to the Directors' Option Plan, such Director
Stock Options will be fully exercisable immediately prior to the Effective Time
and will terminate at the Effective Time. In that case, it would be expected
that the holder would exercise his Director Stock Options prior to the Effective
Time and receive shares of Vons Common Stock which would be converted into the
right to receive Safeway Common Stock at the Effective Time. See "Relationship
Between Safeway and Vons."
Indemnification
The Merger Agreement provides that Vons, Safeway and the Surviving
Corporation will indemnify each present or former director, officer or employee
of Vons against certain costs and expenses for a period of at least six years
after the date of the Merger Agreement and will, subject to certain exceptions
and qualifications; maintain in effect directors' and officers' liability
insurance. See "The Merger Agreement -- Indemnification and Insurance."
DIVIDENDS ON SAFEWAY COMMON STOCK
Safeway has not declared or paid any cash dividends on its Common Stock and
does not currently intend to declare or pay any cash dividends. Any
determination to pay dividends in the future will be at the discretion of the
Combined Company's Board of Directors and will be dependent upon Safeway's
results of operations, financial conditions, capital expenditures, working
capital requirements, any contractual restrictions and other factors deemed
relevant by the Combined Company's Board of Directors. Safeway's credit
agreement and certain of its indentures contain restrictions on Safeway's
ability to pay cash dividends on Safeway Common Stock. See "Description of
Safeway Capital Stock -- Dividends."
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase, with Safeway as acquiror,
in accordance with GAAP. Under this method of accounting, the purchase price
will be allocated to assets acquired and liabilities assumed based on their
estimated fair values. Income of the Combined Company will not include income of
Vons prior to the Effective Time except for Safeway's equity in Vons' earnings
based on Safeway's ownership of 34.4% of Vons Common Stock prior to the
Effective Time.
DISSENTERS' RIGHTS
Holders of Vons Common Stock are not entitled to dissenters' rights in
connection with the Merger under the MBCA. See "Comparison of Rights of Holders
of Vons Common Stock and Safeway Common Stock."
REGULATORY APPROVALS
Under the HSR Act, and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger may not 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. Vons
and Safeway filed premerger notification and report forms with the FTC and the
Antitrust Division on January 22, 1997. The waiting period expired on February
21, 1997.
Vons and Safeway are not aware of any license or regulatory permit which is
material to the businesses of Vons or Safeway and which is likely to be
adversely affected by consummation of the Merger or of any approval or other
action by any state, federal or foreign government or governmental agency (other
than routine re-licensing procedures) that would be required prior to the
Merger.
RESALE OF SAFEWAY STOCK
All shares of Safeway Common Stock received by Vons shareholders in the
Merger will be freely transferable, except that shares of Safeway Common Stock
received by persons deemed to be "affiliates" (as
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defined under the Securities Act) of Vons at the Effective Time may be resold
only in certain permitted circumstances set forth in Rules 144 and 145 under the
Securities Act. This Proxy Statement/Prospectus does not cover resales of
Safeway Common Stock received by any person who may be deemed to be an affiliate
of Vons.
The Merger Agreement requires Vons to request each of its affiliates to
execute a written agreement, substantially in the form attached as an exhibit to
the Merger Agreement, to the effect that such person will not sell, pledge,
transfer or otherwise dispose of any shares of Safeway Common Stock issued to
such person pursuant to the Merger (or the subsequent exercise of options for
Safeway Common Stock assumed by Safeway in connection therewith) except upon
delivery to Safeway of an opinion of counsel that the proposed disposition will
not violate Rule 145 under the Securities Act.
SHAREHOLDER LITIGATION
On October 30, 1996, a purported class action lawsuit was filed in the Los
Angeles Superior Court allegedly on behalf of shareholders of Vons other than
Safeway, against Vons and Vons' directors, Wilk v. Vons Companies, Inc., Case
No. BC 159956. Although Safeway is not named as a defendant, certain of the
individual defendants who are Vons' directors are also directors of Safeway. The
complaint alleges that defendants Vons and the Vons' directors have breached
their fiduciary duty to the shareholders of Vons because the October 30 proposal
was at an inadequate exchange ratio and constituted part of a plan by defendants
to enable Safeway to acquire 100% of the equity ownership of Vons for its own
benefit and at the expense of the other public shareholders of Vons. The
complaint seeks a preliminary and permanent injunction against the Merger,
rescission if the Merger is consummated, damages in an unspecified amount and
costs, including attorneys' and experts' fees.
On November 12, 1996, a second purported class action lawsuit was filed in
the Los Angeles Superior Court allegedly on behalf of the shareholders of Vons,
against the same defendants, plus Safeway, Weiner v. Safeway, Inc., Case No. BC
160702. The Weiner v. Safeway, Inc. complaint contains substantially the same
allegations made in the Wilk v. Vons Companies, Inc. complaint and also alleges
(i) breach of the defendants' fiduciary duties of loyalty, due care, good faith
and fair dealing owed to Vons' minority shareholders, and (ii) abuse of the
defendants' alleged ability to control Vons. The Weiner v. Safeway,
Inc.,complaint requests substantially the same relief requested in the Wilk v.
Vons Companies, Inc. complaint.
Counsel to the parties to these lawsuits have entered into a Memorandum of
Understanding effective January 30, 1997 the ("MOU"), pursuant to which they
have agreed to a settlement of the lawsuits. The consummation of the settlement
is subject to a number of considerations, including consummation of the Merger,
the completion by plaintiffs of appropriate discovery and final court approval
of the terms of settlement and dismissal of the lawsuits with prejudice. The MOU
will be of no further force and effect if any of the conditions are not met or
if plaintiffs' counsel determine that the settlement is not fair and reasonable.
It is expected that shareholders of record who are potential class members in
the Wilk v. Vons Companies, Inc. and Weiner v. Safeway, Inc. lawsuits will
receive a notice to be paid for by Vons setting forth the terms and conditions
of the proposed settlement. The proposed settlement of the lawsuits will not
have a material adverse effect on the financial statements of Vons taken as a
whole or on the financial statements of the Combined Company taken as a whole.
THE MERGER AGREEMENT
THE DETAILED TERMS OF AND CONDITIONS TO THE MERGER ARE CONTAINED IN THE
MERGER AGREEMENT, WHICH IS INCLUDED IN FULL AS APPENDIX A TO THIS PROXY
STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY
DESCRIPTION OF THE TERMS OF THE MERGER AGREEMENT IS QUALIFIED IN ITS ENTIRETY
BY, AND MADE SUBJECT TO, THE MORE COMPLETE INFORMATION SET FORTH IN THE MERGER
AGREEMENT. ALL VONS SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS
ENTIRETY.
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TERMS OF THE MERGER
The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement by the shareholders of Vons and the satisfaction or waiver,
if applicable, of the other conditions to the Merger, Merger Sub will be merged
with and into Vons, and Vons shall continue as the surviving corporation. As a
result of the Merger, as of the Effective Time, all the property, rights,
privileges, powers and franchises of Vons and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Vons and Merger
Sub shall become the debts, liabilities and duties of the Surviving Corporation.
The Merger will have the effects set forth in the Merger Agreement, Certificate
of Merger, and the MBCA.
EFFECTIVE TIME
The Merger will be consummated by filing a certificate of merger with the
appropriate administrator, as provided in the MBCA, together with any required
related documents, or such later time as is specified in such certificate.
Subject to the satisfaction (or waiver) of the other conditions to the
obligations of Vons and Safeway to consummate the Merger which are set forth in
the Merger Agreement, it is presently expected that the Merger will be
consummated immediately following the Special Meeting or as soon thereafter as
such other conditions set forth in the Merger Agreement are satisfied or waived.
CONVERSION OF SHARES
At the Effective Time, pursuant to the Merger Agreement, each share of Vons
Common Stock issued and outstanding immediately prior to the Effective Time
(excluding shares of Vons Common Stock that are cancelled, as discussed below)
will be converted into the right to receive 1.425 shares of Safeway Common
Stock.
Each share of Vons Common Stock held in the treasury of Vons and each share
of Vons Common Stock held by Safeway, Merger Sub or any direct or indirect
wholly owned subsidiary of Vons or Safeway immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, automatically cease to be outstanding, be cancelled and retired
without payment of any consideration therefor and cease to exist.
All shares of Vons Common Stock converted into the right to receive Safeway
Common Stock shall no longer be outstanding and shall automatically be
cancelled, retired and extinguished and shall cease to exist, and each
certificate which previously represented any such shares shall thereafter
represent the right to receive, upon proper surrender of such certificate as
described below in "-- Exchange Procedures," the number of shares of Safeway
Common Stock into which such shares have been converted. At the Effective Time,
the holders of certificates previously representing shares of Vons Common Stock
will cease to have any rights with respect to such shares of Vons Common Stock,
except the right to receive Safeway Common Stock, cash in lieu of any fractional
shares of Safeway Common Stock and any unpaid dividends or other distributions
in respect of Safeway Common Stock payable upon surrender of certificates of
Vons Common Stock, as described below. No interest will be paid or will accrue
on any cash in lieu of fractional shares or unpaid dividends or distributions
payable upon surrender of certificates of Vons Common Stock for exchange. At or
after the Effective Time, there will be no transfers on the transfer books of
Vons of shares of Vons Common Stock which were outstanding immediately prior to
the Effective Time.
The Merger Agreement provides that if Safeway effects a stock dividend,
subdivision, reclassification, recapitalization, split, combination, conversion
or exchange of shares between the date of the Merger Agreement and the Effective
Time, the Exchange Ratio will be appropriately adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination,
conversion or exchange of shares.
Approximately 41.3 million shares of Safeway Common Stock will be issued to
holders of outstanding shares of Vons Common Stock pursuant to the Merger. This
figure is calculated by taking into account that, as of February 20, 1997, there
were 28,965,770 shares of Vons Common Stock issued and outstanding (other than
shares held by Safeway and its affiliates). Immediately following the Merger,
Safeway will consummate the Repurchase, which will result in Safeway
repurchasing 32 million shares of Safeway Common Stock from SSI Associates. See
"The Repurchase."
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TREATMENT OF STOCK OPTIONS
At the Effective Time, each outstanding Stock Option, whether vested or
unvested, shall be assumed by Safeway and constitute an option to acquire, on
the same terms and conditions as were applicable under such Stock Option prior
to the Effective Time, the number (rounded to the nearest whole number) of
shares of Safeway Common Stock as the holder of such Stock Option would have
been entitled to receive pursuant to the Merger had such holder exercised such
Stock Option in full immediately prior to the Effective Time (not taking into
account whether or not such Stock Option was in fact exercisable), at a price
per share equal to (x) the aggregate exercise price for Vons Common Stock
otherwise purchasable pursuant to such Stock Option divided by (y) the number of
shares of Safeway Common Stock deemed purchasable pursuant to such Stock Option.
At and after the Effective Time, Safeway will honor all obligations with respect
to such Stock Options under the terms of such Stock Options and Vons' Stock
Option Plans as in effect on the date of the Merger Agreement. At the Effective
Time, Vons' Stock Option Plans shall be amended to require that the shares of
stock issuable and deliverable upon the exercise of a Stock Option, or any
portion thereof, shall be issued shares which then have been reacquired by
Safeway, but no other amendments shall be made except as provided herein. See
"The Merger -- Interests of Certain Persons in the Merger."
For information concerning the treatment of outstanding Director Stock
Options, see "The Merger -- Interests of Certain Persons -- Stock Options" and
"Relationships Between Safeway and Vons."
EXCHANGE PROCEDURES
Promptly after the Effective Time, a letter of transmittal and instructions
will be mailed to each holder of record of certificates that, immediately prior
to the Effective Time, represented shares of Vons Common Stock. After receipt of
such letter of transmittal, each holder of such certificates should surrender
the certificates to the Exchange Agent, together with such letter of transmittal
duly executed and completed in accordance with the instructions thereto. In
exchange therefor, each such holder will be entitled to receive (i) certificates
of Safeway Common Stock evidencing the whole number of shares of Safeway Common
Stock to which such holder is entitled, (ii) any dividends or other
distributions to which such holder is entitled and (iii) cash in lieu of
fractional shares, as discussed below. If the certificate for shares of Safeway
Common Stock is to be issued in a name other than the one in which the
certificate for shares of the Vons Common Stock surrendered in exchange therefor
is registered, documents evidencing such transfer and establishing that
applicable stock transfer taxes have been paid or are not applicable must be
presented to the Exchange Agent.
After the Effective Time, no holder of a certificate which immediately
prior to the Effective Time represented shares of Vons Common Stock will be
entitled to receive any dividend or other distribution from Safeway until the
holder surrenders the certificates for a certificate representing shares of
Safeway Common Stock. Upon such surrender, there will be paid to the holder the
amount of any dividends or other distributions (without interest), which
theretofore became payable with respect to the number of whole shares of Safeway
Common Stock into which such shares of Vons Common Stock are converted. Until
such surrender, the certificates shall be deemed to evidence only the right to
receive the appropriate Merger Consideration.
No fractional shares of Safeway Common Stock will be issued in the Merger.
A holder of Vons Common Stock who would otherwise be entitled to receive
fractional shares of Safeway Common Stock as a result of the Merger shall
receive cash in lieu thereof (without interest), rounded up to the nearest cent,
determined by multiplying (i) the closing price of Safeway Common Stock as
reported on the NYSE Composite Tape on the last trading day immediately
preceding the second business day prior to the Effective Time by (ii) the
fractional interest to which such holder would otherwise be entitled (after
taking into account all shares of Vons Common Stock then held of record by such
holder).
Neither Vons nor Safeway will be liable to any holder of shares of Vons
Common Stock for any shares of Safeway Common Stock (or dividends or
distribution with respect thereto) which have been delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
VONS SHAREHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING VONS COMMON
STOCK AT THIS TIME. A LETTER OF TRANSMITTAL WILL BE MAILED AFTER
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THE EFFECTIVE TIME TO EACH PERSON WHO WAS A HOLDER OF OUTSTANDING SHARES OF VONS
COMMON STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME. VONS SHAREHOLDERS SHOULD
SEND CERTIFICATES REPRESENTING VONS COMMON STOCK TO THE EXCHANGE AGENT ONLY
AFTER THEY RECEIVE, AND IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN THE
LETTER OF TRANSMITTAL.
TERMINATION OF THE EXCHANGE FUND
Any Safeway Common Stock or cash in lieu of fractional shares which remains
undistributed to the holders of Vons Common Stock as of the date which is
eighteen months after the Effective Time will be delivered to Safeway, upon
demand, and thereafter holders of Vons Common Stock who have not theretofore
complied with the exchange procedures in the Merger Agreement will be entitled
to look only to Safeway for payment of the Merger Consideration to which they
are entitled.
DIRECTORS AND OFFICERS
The Merger Agreement provides that the directors of Merger Sub immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-laws of the Surviving Corporation and the officers of Vons
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified in the manner provided in the Articles of
Incorporation and By-laws of the Surviving Corporation, and in accordance with
applicable law. The Merger Agreement also provides that Vons shall cause each
director of Vons' subsidiaries which are corporations to render his or her
resignation prior to the Effective Time, with each such resignation to be
effective as of the Effective Time.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, each of Vons, Safeway and Merger Sub made certain
representations and warranties, including representations and warranties
relating to: (a) due organization, qualification, authority and good standing
and similar corporate matters; (b) the existence or non-existence of
subsidiaries; (c) the ownership of equity interests in corporations,
partnerships, joint ventures or other business entities and the absence of
obligations to repurchase, redeem or otherwise acquire stock or make investments
in such subsidiaries (other than the Repurchase); (d) the accuracy and
completeness of furnished charter documents and by-laws; (e) capitalization; (f)
authorization, execution, delivery and enforceability of the Merger Agreement;
(g) the vote of shareholders required to consummate the transactions
contemplated thereby; (h) the determination of its board of directors as to the
advisability of the transactions contemplated by the Merger Agreement; (i)
required filings, consents and approvals; (j) the absence of conflicts with,
defaults under, violations of and compliance with laws, rules, regulations,
orders, judgments, decrees, its charter and by-laws and any note, bond,
mortgage, indenture, contract, lease, permit or similar instrument or obligation
to which it is a party; (j) the filing and accuracy of all forms, reports,
statements and other documents required to be filed with the Commission, and the
accuracy of the financial statements contained therein; (l) the absence of
certain changes or events since dates specified therein; (m) certain matters
regarding employee benefit plans; (n) labor matters; (o) the accuracy of
information contained in this Proxy Statement/ Prospectus and the Registration
Statement; (p) title to its property; (q) environmental matters; (r) the absence
of brokers fees or the obligation to pay any finders fees with respect to the
Merger, and (s) the receipt of fairness opinions from its financial advisors.
In addition, Vons made representations and warranties relating to the
following: (a) the inapplicability of certain provisions of Vons' Articles of
Incorporation to the Merger and the inapplicability of certain provisions of the
MBCA; (b) employee stock options and employment agreements; (c) tax matters; and
(d)the right to use the "Vons" and "Pavilions" trade names, trademarks and
service names. Safeway and Merger Sub made additional representations and
warranties relating to: (a) the ownership of Safeway Southern California, Inc.
and Merger Sub and the capitalization of Merger Sub; (b) the execution and
delivery of the Repurchase Agreement; and (c) the inapplicability of certain
provisions of the DGCL to the agreements between Vons and certain Safeway
stockholders discussed under "Relationships Between Safeway and Vons."
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The representations and warranties in the Merger Agreement shall terminate
at the Effective Time or upon termination of the Merger Agreement as described
under "-- Termination." Until such time, each of the representations and
warranties made by Vons, Safeway and Merger Sub in the Merger Agreement shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any other party to the Merger Agreement, whether prior
to or after the execution of the Merger Agreement.
CERTAIN COVENANTS
Conduct of Business of Vons Pending the Merger. Under the Merger
Agreement, Vons has agreed (and has agreed to cause its subsidiaries), among
other things, prior to the Effective Time, unless Safeway otherwise consents in
writing, to: (i) conduct its business only in the ordinary course of business
and in a manner consistent with past practice; (ii) use commercially reasonable
efforts to keep in full force and effect adequate insurance coverages consistent
with past practice and maintain and keep its properties and assets in good
repair, working order and condition, normal wear and tear excepted; and (iii)
use its reasonable efforts to preserve substantially intact its business
organization, to keep available the services of its present officers, employees
and consultants and to preserve its present relationships with customers,
suppliers and other persons with which Vons or any of its subsidiaries has
significant business relations.
Vons has further agreed, with respect to itself and its subsidiaries, not
to: (i) amend or otherwise change its articles of incorporation or by-laws; (ii)
issue, sell or pledge, dispose of or encumber, or authorize the issuance, sale,
pledge, disposition or encumbrance of, any shares of capital stock of any class,
or any options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest in Vons or
any of its subsidiaries, except for the issuance of shares of Vons Common Stock
issuable upon the exercise of Stock Options which were granted under the Vons'
Stock Option Plans and were outstanding on the date of the Merger Agreement;
(iii) with certain exceptions, sell, pledge, dispose of or encumber any real
property or other assets of Vons or any of its subsidiaries; (iv) with certain
exceptions, (a) declare, set aside, make or pay any dividend or other
distribution in respect of any of its capital stock, (b) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, (c) repurchase, redeem or otherwise acquire, or
agree to commit to repurchase, redeem or otherwise acquire, any shares of
capital stock or other equity or debt securities or equity interests of Vons or
any of its subsidiaries or (d) amend the terms, change the period of
exercisability or accelerate the exercisability of, purchase, repurchase, redeem
or otherwise acquire, or permit any subsidiary to purchase, repurchase, redeem
or otherwise acquire, any of its securities or any securities of its
subsidiaries; (v) acquire any corporation, partnership, joint venture,
association or other business organization or division thereof; (vi) with
certain exceptions, incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse or otherwise become responsible for,
the obligations of any person, or make any loans or advances, except in the
ordinary course of business consistent with past practice; (vii) with certain
exceptions, enter into or amend any material contract or agreement or any
agreement with a term longer than one year; (viii) with certain exceptions,
acquire any interest in real properties; (ix) with certain exceptions, authorize
any capital expenditures or purchase or lease of property or services exceeding
specified amounts; (x) increase the compensation payable or to become payable to
any director, officer, consultant or employee of Vons or any of its
subsidiaries, except for increases in salaries or wages of employees which are
required pursuant to collective bargaining agreements or other written
agreements entered into prior to the date of the Merger Agreement, or grant any
severance or termination pay to, or enter into any employment or severance
agreement with any director, officer (except for officers who are terminated on
an involuntary basis) or other employee of Vons or any of its subsidiaries, or
establish, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
current or former directors, officers or employees (any of the foregoing being
an "Employee Benefit Arrangement"), except, in each case, as may be required by
law or collective bargaining agreement, and with certain other exceptions; (xi)
take any action to change in any material respect accounting policies or
procedures, except as may be required by GAAP or as a result of a change in law;
(xii) with certain exceptions, make any material tax election inconsistent with
past practice or settle or compromise any material tax liability or agree to an
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extension of a statute of limitations; (xiii) with certain exceptions, pay,
discharge or satisfy any claims, liabilities or obligations; (xiv) elect to be
covered by the provisions of Section 780 of the MBCA or take any action which
could cause Vons or the shares of Vons Common Stock held by Safeway or any
direct or indirect wholly owned subsidiary of Safeway to be covered by the
provisions of Section 790 et seq. of the MBCA; (xv) adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Vons and its subsidiaries; (xvi)
adopt any resolutions of the Board of Directors which would grant dissenters'
rights to Vons' shareholders pursuant to the MBCA; or (xvii) take, or agree to
take, any of the actions described above or any action which would make any of
the representations or warranties of Vons contained in the Merger Agreement
untrue or incorrect or prevent Vons from performing or cause Vons not to perform
its covenants under the Merger Agreement or permit any of the conditions set
forth in the Merger Agreement from not being satisfied.
No Solicitation. Vons has agreed that neither it nor any of its
subsidiaries shall, nor shall it authorize any of its officers, directors,
employees, agents, investment bankers, attorneys, financial advisors or other
representatives retained by it or any of its subsidiaries to, directly or
indirectly, (i) solicit or initiate the submission of, any Acquisition Proposal;
(ii) participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action intended to
facilitate any inquiries or the making of any proposal that constitutes or would
reasonably be expected to lead to, any Acquisition Proposal; or (iii) enter into
any agreement with respect to, agree to, approve or recommend any Acquisition
Proposal; provided, however, that the Vons Board (or any committee thereof) is
permitted to (a) consider, negotiate, discuss, approve and recommend to the
shareholders of Vons a bona fide Acquisition Proposal not solicited in violation
of the Merger Agreement, provided the Vons Board determines in good faith, based
upon advice of outside legal counsel, that it is required to do so in order to
discharge properly its fiduciary duties and (b) take and disclose to Vons
shareholders a position with regard to a tender offer or exchange offer
contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act;
provided the Vons Board shall not recommend that the Vons shareholders tender
their shares in connection with such tender or exchange offer unless the Vons
Board determines in good faith, based upon advice of outside legal counsel, that
making such recommendation is required in order to discharge properly its
fiduciary duties.
Vons has agreed to notify Safeway immediately after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to Vons or any of
its subsidiaries in connection with any Acquisition Proposal or for access to
the properties, books or records of Vons or any subsidiary by any person or
entity that informs the Vons Board or such subsidiary that it is considering
making, or has made, an Acquisition Proposal.
For purposes of the Merger Agreement, an "Acquisition Proposal" means any
proposal or offer from any person (other than Safeway, Merger Sub or any other
direct or indirect wholly owned subsidiary of Safeway) relating to: (i) any
direct or indirect acquisition or purchase of any equity interest in, or a
substantial amount of assets of, Vons or its subsidiaries; (ii) any tender offer
or exchange offer; (iii) any merger, consolidation, recapitalization,
liquidation, business combination or similar transaction involving Vons other
than the transactions contemplated by the Merger Agreement; or (iv) any other
extraordinary transaction the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or materially delay the Merger.
The Merger Agreement provides that Vons shall immediately cease and cause
to be terminated any existing discussions or negotiations with any persons
(other than Safeway and Merger Sub) with respect to any such Acquisition
Proposal and Vons has agreed not to release any third party from the
confidentiality provisions of any confidentiality agreement to which Vons is a
party unless the Board of Directors of Vons determines in good faith, based upon
advice of outside legal counsel, that making such release is required in order
to discharge properly its fiduciary duties. If the Board of Directors of Vons
receives a request for material nonpublic information by a person who makes, or
indicates that it is considering making, a bona fide Acquisition Proposal, and
the Board of Directors of Vons determines in good faith that it is required to
release such information in order to discharge its fiduciary duties, then,
provided such person has executed a confidentiality agreement substantially
similar to the one in effect between Vons and Safeway, Vons may provide such
person with access to information regarding Vons.
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Conduct of Business by Safeway Pending the Merger. Under the Merger
Agreement, Safeway has agreed (and has agreed to cause its subsidiaries), among
other things, prior to the Effective Time, unless Vons consents in writing, to:
(i) conduct its business only in the ordinary course of business consistent with
past practice; (ii) use commercially reasonable efforts to keep in full force
and effect adequate insurance coverages consistent with past practice and
maintain and keep its properties and assets in good repair, working order and
condition, normal wear and tear excepted; and (iii) use its reasonable efforts
to preserve substantially intact its business organization, to keep available
the services of its present officers, employees and consultants and to preserve
its present relationships with customers, suppliers and other persons with which
Safeway or any of its subsidiaries has significant business relations.
Safeway has further agreed, with respect to itself and its subsidiaries,
not to: (i) amend or otherwise change its articles of incorporation or by-laws;
(ii) acquire or agree to acquire any business or corporation, partnership, joint
venture, association or other business organization or division thereof; (iii)
declare, set aside, make or pay any dividend or other distribution in respect of
any of its capital stock, except that a wholly owned subsidiary of Safeway may
declare and pay a dividend to its parent; (iv) take or agree to take any action
which would make any of the representations or warranties of Safeway contained
in the Merger Agreement untrue or incorrect or prevent Safeway from performing
or cause Safeway not to perform its covenants under the Merger Agreement or
permit any of the conditions set forth in the Merger Agreement from not being
satisfied; (v) take any action to change in any material respect accounting
policies or procedures, except as may be required by GAAP or as a result of a
change in law; and (vi) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of Safeway and its subsidiaries.
Safeway Repurchase Right. Except as contemplated by the Repurchase
Agreement, Safeway has agreed not to repurchase, redeem or otherwise acquire or
agree to commit to repurchase, redeem or otherwise acquire, any shares of
capital stock or other equity security of Safeway or any of its subsidiaries,
including shares of Safeway Common Stock, or other option, warrant or right,
directly or indirectly, to acquire shares of Safeway Common Stock ("Safeway
Equity Securities") prior to the Effective Time; provided, however, that Safeway
may repurchase, redeem or otherwise acquire or agree to commit to repurchase,
redeem or otherwise acquire Safeway Equity Securities so long as (i) such
repurchase or agreement to repurchase has been approved by at least two
independent members of Safeway's Board of Directors and (ii) Safeway has
received a fairness opinion from a nationally recognized investment banking firm
that, as of the date rendered, the price to be paid for such Safeway Equity
Securities is fair, from a financial point of view, to Safeway and its
stockholders. This provision will not prohibit the exercise of stock options to
purchase Safeway Common Stock through the use of Safeway Common Stock issuable
upon exercise of such stock options (or other shares of Safeway Common Stock
held by the holder of such options) to pay the exercise price or to satisfy tax
withholding obligations pursuant to the terms of such stock options in effect as
of the date of the Merger Agreement.
CONDITIONS TO THE MERGER
The respective obligations of Vons, Safeway and Merger Sub to consummate
the Merger are subject to the satisfaction of certain conditions, or, if
applicable, waiver thereof, including, without limitation: (i) the Registration
Statement shall have been declared effective by the Commission and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and no proceedings for that purpose and no similar
proceeding in respect of this Proxy Statement/Prospectus shall have been
initiated or threatened by the Commission; (ii) the Merger Agreement and the
Merger shall have been approved by (a) the requisite vote of Vons shareholders
and (b) a majority of the outstanding shares of Vons Common Stock not held by
Safeway or its affiliates; (iii) the shares of Safeway Common Stock to be issued
in the Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance; (iv) all waiting periods applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated; and (v) no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger shall
be in effect, and there shall not be any action taken, or any statute, rule,
regulation or order
46
<PAGE> 56
enacted, entered or enforced which makes the consummation of the Merger illegal.
The condition set forth in (ii)(a) above is required by the MBCA and cannot be
waived. Although the condition set forth in (ii)(b) above may be waived by the
parties, as of the date hereof, neither the Safeway Board nor the Vons Special
Committee has considered, nor have they determined, whether or not and under
which circumstances this condition would be waived, if it is not satisfied.
The obligations of Safeway and Merger Sub to effect the Merger are further
subject to the following conditions, among others, which may be waived by
Safeway and Merger Sub: (i) subject to certain exceptions, the representations
of Vons contained in the Merger Agreement shall be true and correct in all
respects on and as of the Effective Time, and Safeway and Merger Sub shall have
received a certificate to such effect signed by the President of Vons; and (ii)
Vons shall have performed or complied in all material respects with all
agreements and covenants required by the Merger Agreement to be performed or
complied with by it on or prior to the Effective Time, and Safeway and Merger
Sub shall have received a certificate to such effect signed by the President of
Vons.
The obligations of Vons to effect the Merger are further subject to
satisfaction of the following conditions, among others, which may be waived by
Vons: (i) subject to certain exceptions, the representations of Safeway and
Merger Sub contained in the Merger Agreement shall be true and correct in all
respects on and as of the Effective Time, and Vons shall have received a
certificate to such effect signed by the President of Safeway; (ii) Safeway and
Merger Sub shall have performed or complied in all material respects with all
agreements and covenants required by the Merger Agreement to be performed or
complied with by it on or prior to the Effective Time, and Vons shall have
received a certificate to such effect signed by the President of Safeway; (iii)
Vons shall have received a written opinion from Wachtell, Lipton, Rosen & Katz
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code; and (iv) the Repurchase Agreement shall
be in full force and effect in accordance with its terms and no circumstance
shall exist that would prevent the Repurchase from being consummated immediately
following the Effective Time.
ADDITIONAL AGREEMENTS
Safeway has agreed to, among other things: (i) vote or cause to be voted in
favor of approval of the Merger, the Merger Agreement and the transactions
contemplated thereby, all shares of Vons Common Stock beneficially owned by
Safeway or its subsidiaries; (ii) guarantee certain obligations of the Surviving
Corporation under the Merger Agreement; (iii) cause the Surviving Corporation to
(a) honor certain employment obligations of the Company and its subsidiaries and
(b) continue, for a specified period of time, to provide to employees of Vons
and its subsidiaries certain benefits; (iv) for a period of at least two years
after the Effective Time, operate under the "Vons" or "Pavilions" names any Vons
stores operated by Safeway or any of its subsidiaries after the Effective Time;
(v) in the event that Safeway determines to relocate the Surviving Corporation's
headquarters from Arcadia, California, use commercially reasonable efforts to
keep the headquarters in the San Gabriel Valley; (vi) use all reasonable efforts
to take, or cause to be taken, all 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 transactions contemplated by the Merger Agreement,
to obtain in a timely manner all necessary waivers, consents and approvals and
to effect all necessary registrations and filings, and otherwise to satisfy or
cause to be satisfied all conditions precedent to its obligations under the
Merger Agreement; and (vii) use its best efforts to cause the Merger to qualify,
and will not (both before and after consummation of the Merger) take any actions
which to its knowledge could reasonably be expected to prevent the Merger from
qualifying as a reorganization under the provisions of Section 368(a) of the
Code. Merger Sub has agreed to, among other things, use its reasonable efforts
to effect clauses (vi) and (vii) listed above.
Vons has agreed to, among other things: (i) call and hold the Special
Meeting as promptly as practicable and in accordance with applicable laws; (ii)
unless otherwise required under the fiduciary duties of the directors of Vons,
as determined by such directors in good faith after consultation with and based
upon the advice of their outside legal counsel, recommend that Vons stockholders
vote in favor of the approval and adoption of the Merger, the Merger Agreement
and the other transactions therein contemplated, and use all reasonable efforts
to solicit from its shareholders proxies in favor of the approval and adoption
of such
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<PAGE> 57
proposals and take all other action necessary or advisable to secure the vote or
consent of such shareholders to obtain such approval; (iii) use all reasonable
efforts to take, or cause to be taken, all 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 transactions contemplated by the Merger
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and otherwise
to satisfy or cause to be satisfied all conditions precedent to its obligations
under the Merger Agreement, and (iv) use its best efforts to cause the Merger to
qualify, and will not (both before and after consummation of the Merger) take
any actions which to its knowledge could reasonably be expected to prevent the
Merger from qualifying as a reorganization under the provisions of Section
368(a) of the Code.
INDEMNIFICATION AND INSURANCE
Each of Vons and Safeway has also agreed that the Articles of Incorporation
and By-Laws of the Surviving Corporation shall contain provisions with respect
to indemnification and exculpation no less favorable than those contained in the
Articles of Incorporation and By-Laws of Vons, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at the Effective Time were directors, officers, employees or
agents of Vons, unless such modification is required by law.
The Merger Agreement provides that Vons shall, and, after the Effective
Time, Safeway and the Surviving Corporation shall, indemnify each present and
former director, officer or employee of Vons or any of its subsidiaries
(collectively, the "Indemnified Parties") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to the transactions contemplated by
the Merger Agreement or otherwise with respect to any acts or omissions
occurring at or prior to the Effective Time, in each case for a period of six
years after the date of the Merger Agreement.
With certain exceptions and qualifications, for a period of four years
after the Effective Time, Safeway shall cause the Surviving Corporation to
maintain in effect, if available, directors' and officers' liability insurance
covering those persons who were covered by Vons' directors' and officers'
insurance policy at the time of the execution of the Merger Agreement, on terms
comparable to those applicable to such directors and officers at such time.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time: (a) by mutual written consent of Safeway and Vons; (b) by either Safeway
or Vons, if the Merger shall not have been consummated by June 30, 1997 (other
than as a result of such party's breach of the Merger Agreement or substantial
contribution to such breach); (c) by either Safeway or Vons, if a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued a nonappealable final order, decree or ruling or
taken any other action having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger (provided that such party's failure to
comply with certain of its obligations under the Merger Agreement materially
contributed to the issuance of such action); (d) by Safeway, if (i) the Vons
Board withdraws or modifies (or resolves to so withdraw or modify) its approval
of the Merger Agreement or the Merger in a manner adverse to Safeway or (ii) the
Vons Board recommends to the shareholders of Vons an Acquisition Proposal, or
(iii) a tender offer or exchange offer for 20% or more of the outstanding shares
of Vons Common Stock is commenced (other than by Safeway or an affiliate of
Safeway), and the Vons Board recommends that the shareholders of Vons tender
their shares in such tender or exchange offer; (e) by Vons, if (i) the Vons
Board determines in good faith, based upon advice of outside legal counsel, that
it is required, in order to discharge properly its fiduciary duties, to withdraw
or modify its approval or recommendation of the Merger Agreement or the Merger
in a manner adverse to Safeway or shall have resolved to do so, (ii) the Vons
Board shall have recommended to the shareholders of Vons an Acquisition
Proposal, or (iii) a tender offer or exchange offer for 20% or more of the
outstanding shares of Vons Common Stock is commenced (other than by Safeway or
an affiliate of Safeway), and the Vons Board recommends
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<PAGE> 58
that the shareholders of Vons tender their shares in such tender or exchange
offer (provided that any action by the Vons Board under (ii) or (iii) is taken
in order to discharge its fiduciary duties in good faith upon advice of counsel
and Vons has complied with its obligations discussed under "-- Certain
Covenants -- No Solicitation"); or (f) by Safeway or Vons, if a majority of the
outstanding shares of Vons Common Stock (without giving effect to the shares of
Vons Common Stock owned by Safeway and its affiliates) shall not have approved
the Merger Proposal.
With certain exceptions, in the event that, (x) prior to termination of the
Merger Agreement, any person other than Safeway and its affiliates shall have
commenced, publicly proposed or communicated to Vons an Acquisition Proposal and
(y) within three months of the termination of the Merger Agreement, such person,
or any affiliate of such person, enters into any definitive agreement to effect
an Acquisition Proposal related to the earlier Acquisition Proposal, then Vons
shall pay to Safeway $50,000,000 in cash within five business days following the
consummation of the transaction contemplated by the Acquisition Proposal, in
addition to all documented out-of-pocket fees and expenses actually incurred by
Safeway prior to such termination in connection with the proposed Merger and the
consummation of all transactions contemplated by the Merger Agreement (provided
that the amount required to be reimbursed for such expenses shall not exceed
$5,000,000 and, provided further, that no fee shall be payable by Vons if there
has been a material misrepresentation by or material breach of any material
obligation of Safeway under the Merger Agreement which would entitle Vons to
terminate the Merger Agreement pursuant to its terms). In no event will Vons be
required to pay more than one such fee with respect to termination of the Merger
Agreement.
FEES AND EXPENSES
The Merger Agreement provides that, except as described under
"-- Termination," each party thereto shall pay all fees and expenses incurred by
it in connection with the Merger Agreement and the transactions contemplated
thereby, whether or not the Merger is consummated; provided, however, that Vons
and Safeway shall share equally all fees and expenses, other than attorneys' and
accountants' fees, incurred in connection with the printing and filing of this
Proxy Statement/Prospectus and the related Registration Statement.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto by action taken
by or on behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, no amendment to the Merger Agreement shall be binding
upon Vons unless approved by the Special Committee. After approval of the Merger
Agreement by the shareholders of Vons, no amendment to the Merger Agreement may
be made which by law requires further approval by such shareholders without such
further approval. Prior to the Effective Time, any party to the Merger Agreement
may (a) extend the time for the performance of the other party's obligations or
acts; (b) waive any inaccuracies in the representations and warranties of the
other party contained in the Merger Agreement or (c) waive compliance with any
of the agreements or conditions of the other party contained in the Merger
Agreement (other than the condition that the Merger Agreement and the
transactions contemplated thereby be approved by the Vons' shareholders);
provided no extension or waiver may be granted by Vons unless approved by the
Special Committee.
THE REPURCHASE
GENERAL
In connection with the Merger, Safeway has entered into the Repurchase
Agreement with SSI Associates, an affiliate of KKR, which sets forth the terms
and conditions of the Repurchase. The Repurchase will be consummated immediately
following the Merger. Upon the consummation of the Repurchase, Safeway will pay
SSI Associates an amount equal to $43.00 per share, or $1.376 billion in the
aggregate. The Safeway Special Committee and the Safeway Board of Directors
approved the terms of the Repurchase.
SSI Associates may assign, upon five business days' written notice, to SSI
Equity Associates, L.P. ("SSI Equity Associates"), a partnership whose sole
assets consist of warrants to purchase Safeway Common Stock
49
<PAGE> 59
at an exercise price of $1.00 per share, and/or KKR Partners II, a portion of
its rights and obligations under the Repurchase Agreement. If SSI Associates
transfers any such rights or obligations to SSI Equity Associates, SSI Equity
Associates may satisfy its obligations under the Repurchase Agreement by
delivering warrants to purchase Safeway Common Stock. In the event SSI Equity
Associates delivers a warrant in lieu of shares of Safeway Common Stock, Safeway
would pay SSI Equity Associates for such warrant an amount equal to the
aggregate number of shares of Safeway Common Stock underlying such warrant
multiplied by $42.00 per share (the excess of (i) $43.00 over (ii) the $1.00
exercise price per share of such warrant). Notwithstanding any such assignment,
the aggregate shares of Safeway Common Stock (including shares represented by
warrants) to be delivered pursuant to the Repurchase Agreement shall equal
32,000,000. The information in this Proxy Statement/Prospectus assumes that SSI
Associates does not assign any of its rights or obligations under the Repurchase
Agreement.
The Common Stock Partnerships currently own approximately 49% of
outstanding Safeway Common Stock. Following the Merger and after giving effect
to the Repurchase, the Common Stock Partnerships will own approximately 33% of
outstanding Safeway Common Stock.
Pursuant to the Merger Agreement, Safeway has agreed not to repurchase,
redeem or otherwise acquire, or agree to commit to repurchase, redeem or
otherwise acquire, any additional Safeway Equity Securities, including Safeway
Common Stock, prior to the Effective Time unless (i) such repurchases have been
approved by at least two independent members of Safeway's Board of Directors and
(ii) Safeway has received a written opinion from a nationally recognized
investment banking firm that, as of the date rendered, the price to be paid for
such shares is fair from a financial point of view to Safeway and its
stockholders. Any additional repurchases of Safeway Common Stock by Safeway
after the Effective Time will be structured to preserve the tax-free nature of
the Merger.
FINANCING THE REPURCHASE
Safeway currently expects to enter into a new credit agreement which, among
other things, will provide an increase in its current borrowing capacity to $3
billion and an extended maturity on the new commitments. Safeway currently has
received commitments from four lenders to provide $2 billion of the credit
facilities. Bankers Trust Company ("Bankers Trust") has agreed to act as
administrative agent and to use its best efforts to arrange for other financial
institutions to provide the balance of the credit facilities. The willingness of
Bankers Trust to provide the financing is subject to its continuing satisfaction
with the condition (financial or otherwise), assets, business and operations of
Safeway and to the satisfaction of a number of conditions to be set forth in the
definitive credit agreement, including the consummation of the Merger. The
commitments described above will terminate if Safeway's existing bank
indebtedness has not been refinanced by June 3, 1997.
As a result of financing the Repurchase, the Combined Company will have
increased substantially its outstanding indebtedness and will continue to have
significant debt service obligations. See "Unaudited Pro Forma Combined
Financial Information." Depending on prevailing financial, economic and market
conditions, and any other factors or considerations the Board of Directors or
management of Safeway deems relevant, Safeway may incur additional indebtedness.
Accordingly, following the Repurchase and the Merger, the amount of outstanding
indebtedness may be greater than currently contemplated.
Based upon the current level of operations of Safeway and Vons, Safeway
expects cash flow from operations of the Combined Company, supplemented by
borrowings available under the new credit agreement, to be Safeway's primary
sources of liquidity. Management believes that these sources of liquidity will
be adequate to meet anticipated requirements for working capital, capital
expenditures, interest payments and scheduled principal payments. There can be
no assurance, however, that the Combined Company's business will continue to
generate cash flow at or above current levels.
The degree to which the Combined Company is leveraged could have important
consequences to holders of Safeway Common Stock, including the following: (i)
the Combined Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate purposes
or other purposes may be impaired; (ii) a substantial portion of the Combined
Company's cash flow from
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<PAGE> 60
operations must be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Combined Company for
its operations, including its capital expenditure program; and (iii) certain of
the Combined Company's borrowings are and will continue to be at variable rates
of interest, which causes the Combined Company to be vulnerable to increases in
interest rates.
RELATIONSHIPS BETWEEN SAFEWAY AND VONS
Safeway Southern California, Inc., a wholly owned subsidiary of Safeway
("SSCI"), owns 15,126,000 shares of Vons Common Stock, which currently
represents approximately 34.3% of the outstanding shares of Vons Common Stock.
In 1987, Vons entered into an Acquisition Agreement and Plan of Merger and
Reorganization, as amended, among Vons, certain Vons subsidiaries, SSCI,
Safeway, and certain subsidiaries of SSCI, in connection with the Safeway
Acquisition. At the same time, Vons entered into the Standstill Agreement with
KKR, SSCI, Safeway and certain of their affiliates (collectively, the "Safeway
Holders") with regard to the shares of Vons Common Stock that SSCI received
pursuant to the Safeway Acquisition and any additional shares that the Safeway
Holders thereafter acquired. The term of the Standstill Agreement was five years
from the date of the Safeway Acquisition, and it expired on August 29, 1993.
However, certain provisions of the Standstill Agreement relating to the election
of designees of the Safeway Holders to the Vons Board of Directors and the
registration of Vons Common Stock owned by the Safeway Holders, remain
operative. The Safeway Holders intend to terminate these surviving provisions as
of the Effective Time.
In 1996, Safeway and its affiliates sold certain inventory and other items
to Vons for an aggregate amount of approximately $25.5 million. All such sales
between the parties were on an arm's-length basis. In 1996, Vons purchased $28.4
million of certain inventory from Corporate Brands Procurement, a California
general partnership, of which Vons and Safeway are general partners. In 1996,
Vons entered into an agreement to utilize Safeway's check authorization system
and has been billed $52,900 for these services for the period from July 1996
through December 1996. Property Development Associates ("PDA") is a partnership
80% owned by Safeway and 20% owned by M&T Group, which is a subsidiary of
PacTrust, which is, in turn, an affiliate of KKR. PDA and Safeway have interests
in eight supermarket properties located in Southern California which are leased
to Vons. Rentals under such leases in 1996 totaled approximately $500,000. In
addition, Vons is contingently liable under four leases, for which the annual
minimum rental is approximately $200,000, all of which is currently being paid
by assignees. All of the leases relating to the above properties were negotiated
by Vons or its predecessors on an arm's length basis, and none of the lease
terms have been modified or amended since PDA's or Safeway's acquisition.
In connection with the Merger Agreement, the Common Stock Partnerships
agreed with Vons (i) not to sell, contract to sell or otherwise transfer or
dispose of any shares of Safeway Common Stock of which SSI Associates or KKR
Partners II is the record or beneficial owner or any interest therein or
securities convertible into Safeway Common Stock or any voting rights with
respect thereto, except as contemplated by the Merger Agreement and such
agreement, and (ii) in connection with any vote of the stockholders of Safeway
with respect to the Merger, to vote their shares for approval of the issuance of
Safeway Common Stock in connection with the Merger, and in connection with any
other matter subject to a vote of the Safeway stockholders, not to vote their
shares in any manner which could adversely impact the Merger or the other
transactions contemplated by the Merger Agreement. This agreement will terminate
upon the earlier of (i) the date the Merger Agreement is terminated and (ii) the
Effective Time.
Steven A. Burd, James H. Greene, Jr., Robert I. MacDonnell and Peter A.
Magowan, each a director of Safeway, are also directors of Vons. Although these
directors were present at the meeting at which Vons' Board of Directors approved
the Merger Agreement, they abstained from voting thereon. See "The Merger --
Background of the Merger" and "-- Recommendation of the Special Committee and
the Vons Board of Directors; Vons' Reasons for the Merger." Messrs. Burd,
Greene, MacDonnell and Magowan hold Director Stock Options to purchase 28,864,
26,105, 30,000 and 30,000 shares of Vons Common Stock, respectively. In
connection with the Merger, Safeway will issue Replacement Options to purchase
Safeway Common Stock in exchange for such Director Stock Options. Such
Replacement Options will be fully exercisable and represent the right to
purchase 41,131, 37,199, 42,750 and 42,750 shares of Safeway Common Stock,
respectively.
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<PAGE> 61
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information is based
upon the historical consolidated financial statements of Safeway and Vons which
are incorporated by reference in this Proxy Statement/Prospectus, and should be
read in conjunction with those consolidated financial statements and related
notes. The pro forma adjustments were applied to the respective historical
financial statements to reflect and account for the Merger as a purchase. Under
purchase accounting, the purchase cost will be allocated to acquired assets and
liabilities based on their relative fair values at the Effective Time based on
valuations and other studies which are not yet complete. The purchase price is
expected to exceed the fair value of the net assets acquired at the Effective
Time. This difference has been allocated to goodwill which will be amortized
over forty years. Such allocations are subject to final determination based on
real estate, leasehold and equipment valuation studies and a review of the
books, records and accounting policies of Vons. These studies are expected to be
completed after the Effective Time but before the end of fiscal 1997.
Accordingly, the final allocations will be different from the amount reflected
herein. However, based on current information, management does not presently
expect the final allocations to differ materially from the amounts presented
herein.
The unaudited pro forma combined statements of income for the year ended
December 30, 1995 (December 31, 1995 for Vons) and for the 36 weeks ended
September 9, 1996 (forty weeks ended October 6, 1996 for Vons) give the effect
to (i) the acquisition of Vons applying the purchase method of accounting and
(ii) the Repurchase of 32.0 million shares of Safeway Common Stock from the
Common Stock Partnerships as if these transactions were consummated on the first
day of fiscal 1995. See "The Repurchase".
The unaudited pro forma combined balance sheet presents the combined
financial position of Safeway and Vons as of September 7, 1996 for Safeway and
October 6, 1996 for Vons. The unaudited pro forma combined balance sheet
reflects (i) the acquisition of Vons applying the purchase method of accounting
and (ii) the Repurchase as if these transactions were consummated on September
7, 1996.
The unaudited pro forma combined financial statements are not necessarily
indicative of the results of operations or the financial position of Safeway
Inc. had the Merger with Vons or the Repurchase been consummated on the days
discussed above, nor do these statements purport to represent the expected
results for future periods. No pro forma adjustments were made to reflect any
operational efficiencies that could be derived as a result of the Merger.
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<PAGE> 62
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SAFEWAY VONS PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales................................. $ 16,397.5 $ 5,070.7 $ (34.8)(1) $ 21,433.4
Costs of goods sold................... (11,905.1) (3,790.2) 302.7(1)(2) (15,392.6)
---------- ---------- ----------- ----------
Gross profit..................... 4,492.4 1,280.5 267.9 6,040.8
Operating and administrative
expense............................. (3,765.0) (1,086.4) (297.0)(2)(3) (5,148.4)
---------- ---------- ----------- ----------
Operating profit............ 727.4 194.1 (29.1) 892.4
Interest expense...................... (199.8) (67.3) (82.6)(4) (349.7)
Equity in earnings of unconsolidated
affiliates.......................... 26.9 -- (18.3)(5) 8.6
Other income, net..................... 2.0 -- 2.0
---------- ---------- ----------- ----------
Income before income taxes and
extraordinary loss............. 556.5 126.8 (130.0) 553.3
Income taxes.......................... (228.2) (58.7) 36.9(6) (250.0)
---------- ---------- ----------- ----------
Income before extraordinary loss...... $ 328.3 $ 68.1 $ (93.1) $ 303.3
========= ======== ========= =========
Earnings per common share and common
share equivalents:
Primary............................. $ 1.36 $ 1.55 $ 1.22
========= ======== =========
Fully diluted....................... 1.35 N.A. 1.20
========= =========
Weighted average common shares and
common share equivalents:
Primary............................. 240.6 43.9 (35.8)(7) 248.7
========= ======== ========= =========
Fully diluted....................... 243.5 N.A. 9.4(7) 252.9
========= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
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<PAGE> 63
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE 36 WEEKS ENDED SEPTEMBER 7, 1996 FOR SAFEWAY INC.
AND FOR THE 40 WEEKS ENDED OCTOBER 6, 1996 FOR THE VONS COMPANIES, INC.
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SAFEWAY VONS PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales................................... $ 11,782.1 $ 4,143.2 $ (34.1)(1) $ 15,891.2
Cost of goods sold...................... (8,500.9) (3,092.4) 240.2(1)(2) (11,353.1)
--------- --------- ------- ----------
Gross profit....................... 3,281.2 1,050.8 206.1 4,538.1
Operating and administrative expense.... (2,673.2) (884.2) (225.5)(2)(3) (3,782.9)
--------- --------- ------- ----------
Operating profit................... 608.0 166.6 (19.4) 755.2
Interest Expense........................ (126.3) (43.4) (57.2)(4) (226.9)
Equity in earnings of unconsolidated
affiliates............................ 34.3 -- (21.8)(5) 12.5
Other income, net....................... 3.4 -- 3.4
--------- --------- ------- ----------
Income before income taxes......... 519.4 123.2 (98.4) 544.2
Income taxes............................ (210.4) (53.6) 27.9(6) (236.1)
--------- --------- ------- ----------
Net Income......................... $ 309.0 $ 69.6 $ (70.5) $ 308.1
========= ========= ======= ==========
Earnings per common share and common
share equivalents:
Primary............................ $ 1.29 $ 1.56 $ 1.23
========= ========= ==========
Fully Diluted...................... 1.29 N.A. 1.23
========= ==========
Weighted average common shares and
common share equivalents:
Primary............................ 239.5 44.6 (34.5)(7) 249.6
========= ========= ======= ==========
Fully Diluted...................... 240.1 N.A. 10.7(7) 250.8
========= =======
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
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<PAGE> 64
UNAUDITED PRO FORMA COMBINED
BALANCE SHEET
<TABLE>
<CAPTION>
SEPT. 7, 1996 OCT. 6, 1996
SAFEWAY VONS PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents................ $ 25.5 $ 6.3 $ 31.8
Receivable.......................... 173.5 38.7 212.2
Merchandise inventories............. 1,172.6 321.9 $ 24.3(8) 1,518.8
Prepaid expense and other........... 153.8 73.8 227.6
------------- ------------ ----------- ---------
Total Current Assets............. 1,525.4 440.7 24.3 1,990.4
Property, net......................... 2,629.8 1,182.9 3,812.7
Goodwill.............................. 315.7 471.2 1,241.4(8),(10),(11) 2,028.3
Prepaid pension....................... 326.1 7.8 (9.8)(8) 324.1
Investment in unconsolidated
affiliates.......................... 354.2 -- (277.0)(9),(10) 77.2
Other assets.......................... 121.1 50.3 171.4
------------- ------------ ----------- ---------
Total assets................ $ 5,272.3 $2,152.9 $ 978.9 $8,404.1
========= ========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
and capital lease obligations.... $ 248.2 $ 142.3 $ 390.5
Accounts payable.................... 1,013.2 284.4 25.0(11) 1,322.6
Accrued salaries and wages.......... 210.4 279.3 489.7
Other............................... 562.5 -- 562.5
------------- ------------ ----------- ---------
Total current liabilities........ 2,034.3 706.0 25.0 2,765.3
Notes, debentures and capital lease
obligations......................... 1,580.6 423.2 1,376.0(12) 3,379.8
Deferred income taxes................. 108.0 119.7 (18.6)(8) 209.1
Accrued claims and other.............. 413.1 202.0 (20.1)(8) 595.0
------------- ------------ ----------- ---------
Total liabilities................ 4,136.0 1,450.9 1,362.3 6,949.2
Contingencies
Stockholders' equity
Common stock........................ 2.2 4.4 (4.0)(11) 2.6
Additional paid in capital.......... 719.0 352.1 1,332.7(11) 2,403.8
Unexercised warrants purchased...... (196.2) -- (196.2)
Treasury stock...................... -- -- (1,376.0)(12) (1,376.0)
Cumulative translation adjustment... 17.9 -- 17.9
Retained earnings................... 593.4 345.5 (336.1)(9),(11) 602.8
------------- ------------ ----------- ---------
Total stockholders'
equity.................... 1,136.3 702.0 (383.4) 1,454.9
------------- ------------ ----------- ---------
Total liabilities and
stockholders' equity...... $ 5,272.3 $2,152.9 $ 978.9 $8,404.1
========= ========= ========= ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
55
<PAGE> 65
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
The following table sets forth the determination and preliminary allocation
of the estimated purchase price based on a market value of $38.50 per share of
Safeway common stock. This market value is based on the average of the closing
market price of Safeway common stock for three days, beginning the day before
the Merger was announced and ending the day following the Merger announcement.
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Merger exchange of shares (41.1 million shares of Safeway common stock $ 1,582.3
in exchange for 28.8 million shares of Vons common stock not owned by
Safeway as of December 15, 1996).....................................
Estimated value of Vons stock options assumed by Safeway............... 102.9
Estimated transaction costs and expenses............................... 25.0
---------
Estimated purchase price of Vons stock not previously owned by 1,710.2
Safeway..............................................................
Safeway's equity investment in Vons.................................... 286.4
---------
Estimated purchase price............................................... $ 1,996.6
=========
</TABLE>
The preliminary allocation of the estimated purchase price is as follows:
<TABLE>
<S> <C>
Current assets......................................................... $ 465.0
Property, plant and equipment.......................................... 1,182.9
Prepaid pension and other assets....................................... 48.3
Current liabilities (except current maturities of long-term debt and (563.7)
capital
lease obligations)...................................................
Notes, debentures, and capital lease obligations....................... (565.5)
Other noncurrent liabilities........................................... (283.0)
Goodwill............................................................... 1,712.6
--------
$ 1,996.6
========
</TABLE>
- ---------------
(1) To eliminate the sale of products between Safeway and Vons. In 1995 sales
from Safeway to Vons were $28.4 million and sales from Vons to Safeway were
$6.4 million. For the first 36 weeks of 1996 sales to Vons were $34.1
million.
(2) To adjust Vons' income statements to reflect the reclassification of
approximately $267.9 million of store occupancy costs for the year ended
1995 and $206.1 million for the forty weeks ended October 6, 1996 from
costs of goods sold to operating and administrative expense to be
consistent with Safeway's income statement presentation.
(3) To increase goodwill amortization resulting from the allocation of the
purchase price of Vons. Goodwill amortization is increased $29.1 million
for the year ended 1995 and $19.4 million for the 36 weeks ended September
7, 1996. Goodwill is amortized over 40 years.
(4) To reflect the pro forma impact of approximately $1,376 million in bank
borrowings at an interest rate of 6.0% to effect the Repurchase. The effect
of a 1/8 percent change in the interest rate would be approximately $1.7
million for the year ended 1995 and $1.2 million for the 36 weeks ended
September 7, 1996.
(5) To eliminate Safeway's equity in earnings of Vons. The remaining balance
represents equity in the earnings of Casa Ley, S.A. de C.V. which are
reported on a one-quarter delay basis.
(6) To record the tax effect of all pro forma adjustments except goodwill
amortization, which is not deductible.
(7) Pro forma earnings per common share and common share equivalent is computed
on the basis of Safeway's weighted average Common Stock and common stock
equivalents outstanding after giving effect to (i) the issuance of 41.1
million additional shares of Safeway Common Stock and the issuance
56
<PAGE> 66
of 300,000 common stock equivalents for Vons' stock options in order to
consummate the Merger and (ii) the Repurchase of 32.0 million shares from
affiliates of KKR.
(8) To adjust Vons balance sheet to preliminary estimates of fair value, based
on Safeway's step-acquisition of an additional 65.6% of Vons, and to
reflect purchase accounting adjustments to conform Vons accounting methods
to those of Safeway. These adjustments consist of the following: adjusting
inventory to eliminate a $24.3 million LIFO reserve, eliminating a $9.8
million unrecognized net loss on pension assets, and adjusting accrued
claims and other liabilities by $8.9 million to eliminate unrecognized net
gain on post retirement liabilities and by $11.2 million to reduce Vons'
accrued self-insurance liability to a discounted basis (consistent with
Safeway's accounting policy). Also includes a net $18.6 million adjustment
to provide deferred taxes on each of the foregoing balance sheet
adjustments as well as adjustment (10) below.
(9) To increase Safeway's equity investment in Vons to reflect Safeway's $9.4
million equity earnings in Vons' third quarter 1996 earnings. (Safeway
records equity from earnings in unconsolidated affiliates on a one quarter
delay basis).
(10) To eliminate Safeway's adjusted $286.4 million equity in Vons, including a
reclassification to increase goodwill by $44.7 million for net goodwill
included in Safeway's equity investment in Vons.
(11) To record Safeway's purchase of Vons outstanding common stock not currently
owned by Safeway, which increases common stock by $0.4 million and
additional paid in capital by $1,684.8 million, and to record an estimated
accrued liability of $25.0 million for related transaction costs. Includes
adjustments to reduce Vons' common stock, additional paid in capital and
retained earnings by $4.4 million, $352.1 million and $345.5 million,
respectively.
(12) To record the Repurchase (32.0 million shares of Safeway stock at $43.00
per share) and issuance of related debt.
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<PAGE> 67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF SAFEWAY
The following table sets forth certain information regarding the beneficial
ownership of outstanding Safeway Common Stock as of March 3, 1997, and after
giving effect to the Merger and the Repurchase, by (i) each of Safeway's
directors who is a stockholder, (ii) Safeway's Chief Executive Officer, (iii)
each of Safeway's four other most highly compensated executive officers who were
serving as executive officers at the end of fiscal 1996, (iv) all executive
officers and directors of Safeway as a group and (v) each person believed by
Safeway to own beneficially more than 5% of its outstanding shares of Common
Stock. Except as indicated by the notes to the following table, the holders
listed below have sole voting power and investment power over the shares
beneficially held by them. The address of KKR Associates, SSI Equity Associates
and SSI Partners is 9 West 57 Street, New York, New York 10019.
<TABLE>
<CAPTION>
SHARES OF SAFEWAY COMMON STOCK
BENEFICIALLY OWNED(1)
--------------------------------------------------
BEFORE THE MERGER AFTER THE MERGER AND
AND THE REPURCHASE THE REPURCHASE
----------------------- ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------ ----------- ------- ---------- -------
<S> <C> <C> <C> <C>
KKR Associates(2)............................... 109,232,263 49.2% 77,232,263 33.4%
James H. Greene, Jr.(3)....................... 35,000 * 72,199 *
Henry R. Kravis(4)............................ -- -- -- --
Robert I. MacDonnell(5)....................... -- -- 42,750 *
George R. Roberts(6).......................... -- -- -- --
Michael T. Tokarz............................. 10,000 * 10,000 *
SSI Equity Associates, L.P.(7).................. 23,405,953 9.5 23,405,953 9.2
Sam Ginn(8)................................... 85,412 * 85,412
Paul Hazen(8)................................. 85,412 * 85,412
Peter A. Magowan(9)........................... 2,253,796 1.0 2,296,546 1.0
Steven A. Burd(9)............................. 1,444,429 * 1,485,560 *
Kenneth W. Oder(9)(10)........................ 921,072 * 921,072 *
Julian C. Day(9).............................. 281,178 * 281,178 *
E. Richard Jones(9)(11)....................... 770,926 * 770,926 *
Michael C. Ross(9)............................ 311,850 * 311,850 *
All executive officers and directors as a group
(16 persons, excluding Messrs. Greene, Kravis,
Roberts, MacDonnell and Tokarz)(9)............ 7,280,305 3.2 7,540,736 3.2
FMR Corp.(12)................................... 12,946,400 5.8 13,506,995 5.8
</TABLE>
- ---------------
* Less than 1%
(1) For purposes of this table, a person or a group of persons is deemed to
have "beneficial ownership" as of a given date of any shares which such
person has the right to acquire within 60 days after such date. For
purposes of computing the percentage of outstanding shares held by each
person or group of persons named above on a given date, any shares which
such person or persons has the right to acquire within 60 days after such
date are deemed to be outstanding, but are not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person. The
percentages in the column under "Before the Merger and the Repurchase" are
based on the 222,081,192 shares of Safeway Common Stock outstanding as of
March 3, 1997. The percentages in the column under "After the Merger and
the Repurchase" are based on 222,081,192 shares of outstanding Safeway
Common Stock, plus 41,276,222 shares of Safeway Common Stock to be issued
to Vons shareholders in the Merger and less 32,000,000 shares of Safeway
Common Stock to be repurchased by Safeway pursuant to the Repurchase. See
"The Merger -- Interests of Certain Persons in the Merger -- Stock Option
Plans" and "The Repurchase."
(2) The shares are owned of record by two partnerships, the sole general
partner of each of which is KKR Associates, a New York limited partnership.
KKR Associates, in its capacity as general partner, may be
58
<PAGE> 68
deemed to beneficially own such shares. Messrs. Greene, Kravis, MacDonnell,
Roberts, Tokarz, Edward A. Gilhuly, Perry Golkin, Michael W. Michelson,
Paul E. Raether, Clifton S. Robbins and Scott Stuart, as general partners
of KKR Associates, may be deemed to share beneficial ownership of any
shares beneficially owned by KKR Associates, but disclaim any such
beneficial ownership. Messrs. Greene, Kravis, MacDonnell, Roberts and
Tokarz are members of Safeway's Board of Directors.
(3) Represents shares owned jointly by Mr. Greene and his wife and, following
the Merger, includes 37,199 shares of Safeway Common Stock issuable upon
exercise of Replacement Options which Mr. Greene will acquire in exchange
for Director Stock Options to purchase Vons Common Stock granted under the
Directors' Option Plan. Does not include 10,000 shares owned by Mrs.
Greene, as to which Mr. Greene disclaims any beneficial ownership. Does not
include 6,000 shares held in trust by Mrs. Greene for the benefit of their
children, as to which Mr. Greene disclaims any beneficial ownership.
(4) Does not include 400,000 shares held by Mr. Kravis as a trustee of an
irrevocable trust created by Mr. Roberts for the benefit of his children
(the "Roberts Trust"). As co-trustee, Mr. Kravis shares the authority to
vote and dispose of the shares, but has no economic interest in such
shares.
(5) Following the Merger, represents shares of Safeway Common Stock issuable
upon exercise of Replacement Options which Mr. MacDonnell will acquire in
exchange for Director Stock Options to purchase Vons Common Stock granted
under the Directors' Option Plan. Does not include 60,000 shares held in an
irrevocable trust created by Mr. MacDonnell for the benefit of his children
(the "MacDonnell Trust") with respect to which Mr. MacDonnell disclaims any
beneficial ownership.
(6) Does not include 60,000 shares held by Mr. Roberts as a trustee of the
MacDonnell Trust. As co-trustee, Mr. Roberts shares the authority to vote
and to dispose of the shares, but has no economic interest in such shares.
Does not include 400,000 shares held in the Roberts Trust with respect to
which Mr. Roberts disclaims any beneficial ownership.
(7) SSI Equity Associates, L.P. is a Delaware limited partnership, the sole
general partner of which is SSI Partners, L.P., a Delaware limited
partnership. SSI Partners, L.P., in its capacity as general partner, may be
deemed to own any shares beneficially owned by SSI Equity Associates, L.P.
Messrs. Kravis, MacDonnell, Raether and Roberts, as general partners of SSI
Partners, L.P., may be deemed to share beneficial ownership of any shares
beneficially owned by SSI Partners, L.P., but disclaim any such beneficial
ownership. Messrs. Kravis, MacDonnell and Roberts are members of Safeway's
Board of Directors.
(8) Includes 64,578 shares issuable upon exercise of stock options.
(9) Includes shares issuable upon exercise of stock options as follows: Mr.
Magowan, 870,000; Mr. Burd, 1,300,000; Mr. Oder, 865,000; Mr. Day, 245,000;
Mr. Jones, 237,500; Mr. Ross, 285,000; and all executive officers and
directors as a group, 4,813,166. Does not include shares issuable upon
exercise of stock options which are not vested. Following the Merger,
includes 42,750 and 41,131 shares of Safeway Common Stock issuable upon
exercise of Replacement Options which Mr. Magowan and Mr. Burd will acquire
in exchange for Director Stock Options to purchase Vons Common Stock
granted under the Directors' Option Plan.
(10) Does not include 2,568 shares held by Mr. Oder as trustee of irrevocable
trusts created by Mr. Burd for the benefit of his children. As trustee, Mr.
Oder has the authority to vote and dispose of the shares, but has no
economic interest in such shares.
(11) Does not include 10,000 shares owned by Mr. Jones' children as to which Mr.
Jones disclaims any beneficial ownership.
(12) All information regarding FMR Corp. and its affiliates is based on
information disclosed in the Schedule 13G filed by FMR Corp., Edward
Johnson 3d and Abigail Johnson on February 13, 1997 (the "Schedule 13G").
According to the Schedule 13G, (i) Fidelity Management & Research Company,
a wholly-owned subsidiary of FMR Corp., is the beneficial owner of
11,894,100 of such shares as a result of acting as investment adviser to
various investment companies, (ii) Fidelity Management Trust Company, a
wholly-owned subsidiary of FMR Corp., is the beneficial owner of 689,800 of
such shares as a result of its serving as investment manager of
institutional account(s), (iii) Fidelity International
59
<PAGE> 69
Limited is the beneficial owner of 362,500 of such shares as a result of
its providing investment advisory and management services to a number of
non-U.S. investment companies and certain institutional investors, (iv) FMR
Corp., Edward C. Johnson 3d and Abigail Johnson each has sole dispositive
power over all of such shares and (v) FMR has sole voting power over
607,600 of such shares. Following the Merger, includes 560,595 shares of
Safeway Common Stock issuable upon conversion of Vons Common Stock owned by
FMR Corp., as disclosed in the Vons Schedule 13G. The address of FMR Corp.
is 82 Devonshire Street, Boston, Massachusetts 02109.
As a result of the Common Stock Partnerships' ownership of approximately
33% of outstanding Safeway Common Stock following the Merger and the Repurchase,
the Common Stock Partnerships, KKR Associates, a New York limited partnership
and the sole general partner of each of the Common Stock Partnerships, and its
general partners, will continue to be able to exercise significant influence
over Safeway through their representatives, consisting of five of the nine
members of the Board of Directors, and by reason of their voting power with
respect to the election of directors and actions requiring stockholder approval.
SSI Associates, one of the Common Stock Partnerships, made its investment
in Safeway in 1986. The limited partnership agreement pursuant to which SSI
Associates was organized will, by its terms, expire on December 31, 1998 unless
amended by all of the limited partners to extend the term beyond such date.
There can be no assurance that KKR Associates, the general partner of SSI
Associates, will seek such amendments, or, if sought, that such amendments will
be approved by the limited partners. If such partnership agreement expires, the
limited partnership will dissolve. In the event of the dissolution and winding
up of SSI Associates, KKR Associates will have sole discretion regarding the
timing (which may be one or more years after the expiration of the partnership
agreement) and manner of the disposition of any Safeway Common Stock held by
such partnership, including public or private sales of such Safeway Common
Stock, the distribution of such Safeway Common Stock to the limited partners of
SSI Associates, as the case may be, or a combination of the foregoing.
Provisions in Safeway's Restated Certificate of Incorporation and the
ownership of Safeway Common Stock described above may have the effect of making
more difficult or discouraging a proxy contest involving Safeway, certain
mergers, a tender offer, an open market purchase program, or other purchases of
Safeway Common Stock in circumstances that may be beneficial to stockholders.
The classification of the Board of Directors provided for in Safeway's Restated
Certificate of Incorporation will make more difficult a change of control of
Safeway that is not approved by the Board of Directors. Such provision may tend
to insulate current management against the possibility of removal in a takeover
bid and may also have the effect of discouraging certain persons from purchasing
Safeway Common Stock in circumstances that would give stockholders an
opportunity to sell some or all of their Safeway Common Stock at a premium to
prevailing market prices. See "Comparison of Rights of Holders of Vons Common
Stock and Safeway Common Stock."
DESCRIPTION OF SAFEWAY CAPITAL STOCK
GENERAL
Pursuant to Safeway's Restated Certificate of Incorporation, the authorized
capital stock of Safeway consists of 750,000,000 shares of Common Stock, par
value $0.01 per share, and 25,000,000 shares of preferred stock, par value $0.01
per share. At March 3, 1997 Safeway had outstanding 222,081,192 shares of Common
Stock and no outstanding shares of preferred stock. All shares of Safeway Common
Stock are fully paid and nonassessable. As of March 3, 1997 there were
approximately 7,723 holders of record of Safeway Common Stock.
COMMON STOCK
Each holder of Safeway Common Stock is entitled to one vote for each share
owned of record on all matters voted upon by stockholders, and a majority vote
is required for all action to be taken by stockholders. In the event of a
liquidation, dissolution or winding-up of Safeway, the holders of Safeway Common
Stock are entitled to share equally and ratably in the assets of Safeway, if
any, remaining after the payment of all debts and liabilities of Safeway and the
liquidation preference of any outstanding preferred stock. The Safeway
60
<PAGE> 70
Common Stock has no preemptive rights, no cumulative voting rights and no
redemption, sinking fund or conversion provisions.
Safeway's Restated Certificate of Incorporation provides for a classified
board of directors consisting of three classes as nearly equal in size as
practicable. Each class holds office until the third annual meeting for election
of directors following the election of such class.
Safeway's By-laws provide for additional notice requirements for
stockholder nominations and proposals at annual or special meetings of Safeway.
At annual meetings, stockholders may submit nominations for directors or other
proposals only upon written notice to Safeway not less than 50 days nor more
than 75 days prior to the annual meeting.
The Safeway Common Stock is listed on the NYSE and the PSE. Safeway intends
to delist from the PSE effective upon consummation of the Merger. The transfer
agent and registrar for the Safeway Common Stock is First Chicago Trust Company
of New York.
PREFERRED STOCK
The Board of Directors of Safeway is authorized, without further
stockholder action, to divide any or all shares of the authorized preferred
stock into series and to fix and determine the designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereon, of any series so established, including
voting powers, dividend rights, liquidation preferences, redemption rights and
conversion privileges. The issuance of Preferred Stock could, among other
things, adversely affect the voting power of the holders of Safeway Common Stock
and, under certain circumstances, deter or prevent a third party from gaining
control of Safeway, discourage bids for Safeway Common Stock at a premium or
otherwise adversely affect the market price of Safeway Common Stock. As of the
date of this Prospectus, the Board of Directors of Safeway has not authorized
any series of preferred stock and there are no plans, agreements or
understandings for the issuance of any shares of preferred stock.
DIVIDENDS
Holders of Safeway Common Stock are entitled to receive dividends if, as
and when declared by the Board of Directors of Safeway out of funds legally
available therefor, subject to the dividend and liquidation rights of any
preferred stock that may be issued and subject to the dividend restrictions in
Safeway's credit agreement and the indentures relating to Safeway's senior and
senior subordinated debt securities. See "Summary -- Market Prices."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after the Effective Time, and after giving effect to the
Repurchase, it is expected that the Common Stock Partnerships will own
approximately 77.2 million shares of outstanding Safeway Common Stock, and SSI
Equity Associates will hold warrants to purchase 23,405,953 shares of Safeway
Common Stock (64.5% of which will be attributable to limited partnership
interests held by Safeway and will be cancelled by Safeway upon any event giving
rise to the exercise of such warrants). Safeway also has a stock option plan for
key employees covering up to 46,000,000 shares of Safeway Common Stock, of which
options to purchase 18,200,000 shares of Safeway Common Stock (58.3% of which
are vested) are outstanding, an Outside Director Equity Purchase Plan covering
up to 1,000,000 shares of Safeway Common Stock, under which options to purchase
162,500 shares of Safeway Common Stock (79.5% of which are vested) are
outstanding, and a stock option plan for consultants covering up to 2,000,000
shares of Safeway Common Stock, of which options to purchase 1,015,000 shares of
Safeway Common Stock (75.5% of which are vested) are outstanding. In addition,
in connection with the Merger, Safeway will assume outstanding Vons employee
stock options which, after the Merger, are expected to represent the right to
purchase approximately 3.8 million shares of Safeway Common Stock, and expects
to issue Replacement Options to purchase up to 285,750 shares of Safeway Common
Stock. If exercised, these warrants and options would result in the issuance of
a substantial number of shares of Safeway Common Stock, thereby diluting the
proportionate voting power and equity interests of the holders of Safeway Common
Stock to be issued in the Merger.
61
<PAGE> 71
The Common Stock Partnerships and SSI Equity Associates are entitled to
certain registration rights with respect to their shares of Safeway Common
Stock.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Safeway Common Stock prevailing from time to time.
Sales of substantial amounts of Safeway Common Stock, or the perception that
such sales could occur, could adversely affect prevailing market prices for
Safeway Common Stock.
COMPARISON OF RIGHTS OF HOLDERS OF VONS COMMON STOCK
AND SAFEWAY COMMON STOCK
After consummation of the Merger, Vons shareholders will become
stockholders of Safeway. The following is a summary of certain similarities and
all material differences between the rights of holders of Vons Common Stock and
the rights of holders of Safeway Common Stock.
The following is a summary discussion and is qualified in its entirety by
reference to Safeway's Restated Certificate of Incorporation and By-laws and
Vons' Restated Articles of Incorporation and By-laws.
AUTHORIZED CAPITAL
Vons' Restated Articles of Incorporation authorize 100,000,000 shares of
Common Stock, $.10 par value, and 20,000,000 shares of Preferred Stock, $.01 par
value. Safeway's Restated Certificate of Incorporation authorizes 750,000,000
shares of Common Stock, $.01 par value, and 25,000,000 shares of Preferred
Stock, $.01 par value. Under each of Vons' Restated Articles of Incorporation
and Safeway's Restated Certificate of Incorporation, the Board of Directors is
authorized, without further action by the stockholders, to issue Preferred Stock
in one or more series, from time to time, with such voting powers, and with such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations and restrictions thereof, as may be
provided by the Board of Directors.
The rights of holders of shares of Vons Common Stock are governed by the
Vons Restated Articles of Incorporation and By-laws and Michigan law, while the
rights of holders of shares of Safeway Common Stock are governed by the Safeway
Restated Articles of Incorporation and By-laws and Delaware law. The material
differences between the rights of holders of Vons Common Stock and Safeway
Common Stock are summarized below.
VOTE REQUIRED TO AMEND OR REPEAL THE CHARTER AND BY-LAWS OF VONS AND SAFEWAY
Under Michigan law, amendments to the articles of incorporation may be
adopted by the affirmative vote of a majority of the outstanding shares entitled
to vote thereon and, in addition, if any class or series of shares is entitled
to vote thereon as a class, the affirmative vote of a majority of the
outstanding shares of each such class or series, unless greater requirements are
prescribed for specific amendments in the MBCA or the Articles of Incorporation.
The Vons Restated Articles of Incorporation require an affirmative vote of
66 2/3% of the voting power of the shares of voting stock then outstanding to
amend, repeal or adopt any provisions inconsistent with certain of the articles
of the Vons Restated Articles of Incorporation, including the articles limiting
shareholder action by written consent, restricting the persons who may call
special meetings of Vons shareholders, and providing for three classes of
directors with staggered terms. All other provisions of the Vons Restated
Articles of Incorporation may be revised and amended in accordance with the
requirements of the MBCA.
Safeway's Restated Certificate of Incorporation provides that any provision
contained in the Certificate of Incorporation may be repealed, altered, amended
or rescinded in the manner prescribed by the DGCL. Under the DGCL, amendments to
the Certificate of Incorporation may be adopted by the board of directors and
the affirmative vote of a majority of the outstanding stock entitled to vote
thereon and a majority of the outstanding stock of each class entitled to vote
thereon as a class.
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<PAGE> 72
Under Michigan law, either the shareholders or the board of directors may
adopt, amend or repeal by-laws unless the articles of incorporation or by-laws
provide that the power to adopt new by-laws is reserved exclusively to the
shareholders, or that the by-laws or any particular by-law shall not be altered
or repealed by the board of directors. In the case of by-law amendments by the
shareholders, under Michigan law the articles may include greater requirements
than that by-law amendments be approved by the affirmative vote of a majority of
shares entitled to vote thereon. The Vons Restated Articles of Incorporation
require that by-law amendments relating to a business combination with an
Interested Shareholder (as defined in the Vons Restated Articles of
Incorporation) be approved by 66% of the shares entitled to vote thereon. See
"-- Business Combinations with Substantial Stockholders, Anti-Takeover and
Supermajority Provisions -- The Vons Restated Articles of Incorporation."
Under Delaware law, the power to adopt, amend or repeal by-laws is vested
in the stockholders provided that the certificate of incorporation of a Delaware
corporation may contain provisions conferring upon directors the power to amend,
alter or repeal by-laws. Under the provisions of Safeway's Restated Certificate
of Incorporation and By-laws, the power to amend, alter or repeal the By-laws is
conferred on the Board of Directors; the stockholders may also amend, alter or
repeal the By-laws by the affirmative vote of a majority of the outstanding
stock entitled to vote thereon.
BOARD OF DIRECTORS
Vons' Restated Articles of Incorporation provide for a board of directors
consisting of not less than three nor more than eighteen directors. Vons'
By-laws allow the Board of Directors to set the number of directors by
resolution within such range. The current number of directors is twelve.
Safeway's Certificate of Incorporation provides for a board of directors
consisting of not less than six nor more than twelve directors. Safeway's By-
laws currently have set the number of directors at nine. Vons' Restated Articles
of Incorporation and Safeway's Restated Certificate of Incorporation each
provide for three classes of directors, each consisting, as nearly as possible,
of one-third of the total number of directors constituting the entire Board of
Directors. At each annual meeting of stockholders, one class is elected to serve
for a three year term. Classification of the board of directors has the effect
of making it more difficult to change the membership of the board of directors
even if the reason for such a change may be dissatisfaction with the performance
of incumbent directors. At least two annual stockholder meetings would
ordinarily be required to effect a change of control of the board of directors
of either Vons or Safeway.
Each of Vons' By-Laws and Safeway's By-Laws provide that advance notice of
nominations by shareholders for the election of directors must be given in the
manner and to the extent provided in the By-Laws. In addition, both
corporations' by-laws provide for advance notice of any other business to be
properly brought before an annual meeting by a stockholder.
Safeway's Restated Certificate of Incorporation provides that a director
shall not be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director; provided, however,
that a director shall be personally liable to the extent provided by applicable
law (i) for any breach of the director's duty of loyalty to Safeway or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) pursuant to Section
174 of the DGCL (regarding willful or negligent violation of DGCL provisions
regarding dividends or stock purchases or redemptions not in compliance with the
DGCL); or (iv) for any transaction from which such director derived an improper
personal benefit. Vons' Restated Articles of Incorporation also provide that a
director shall not be personally liable to Vons or its shareholders for monetary
damages for breach of the director's fiduciary duty, provided, however, that
such provision does not eliminate or limit the liability of a director for any
of the following: (i) breach of the director's duty of loyalty to Vons or its
shareholders; (ii) acts or omissions not in good faith or that involve
intentional misconduct or knowing violation of law; (iii) a violation of Section
551(1) of the MBCA (regarding directors who vote for or concur in a declaration
of dividends or distributions contrary to the MBCA or charter provisions,
distributions to shareholders during or after corporate dissolution without
providing for debts, obligations and liabilities of the company, and loans to
directors, officers, or employees of the corporation contrary to the MBCA,
unless such director acted in good faith, with the care an ordinarily prudent
person in a like position would exercise under similar circumstances
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and in a manner such director reasonably believes to be in the best interests of
the corporation); (iv) a transaction from which the director derived an improper
personal benefit; or (v) an act or omission occurring before July 22, 1987.
COMMITTEES OF THE BOARD OF DIRECTORS
The MBCA authorizes a corporation's board of directors to establish one or
more committees, unless otherwise provided in the articles of incorporation or
by-laws. A committee so designated may exercise to the extent provided in the
by-laws or by resolution of the board of directors, all powers and authority of
the board of directors in management of the business and affairs of the
corporation, provided, however, a committee does not have power or authority to
amend the articles of incorporation or by-laws, adopt an agreement of merger or
share exchange, recommend to shareholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommend to
stockholders a dissolution of the corporation or a revocation of a dissolution,
or fill vacancies in the board. Furthermore, unless the resolution establishing
the committee, the articles or by-laws expressly so provide, a committee does
not have power or authority to declare a distribution, dividend or to authorize
the issuance of stock. Vons' By-laws contemplate the existence of such
Committees pursuant to resolutions of the Vons Board. The DGCL also authorizes a
corporation's board of directors to delegate its power and authority to one or
more committees but provides that a committee may not amend the certificate of
incorporation or by-laws, adopt an agreement of merger or consolidation,
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, or recommend to the
stockholders a dissolution of the corporation or a revocation of a dissolution.
Furthermore, unless the resolution establishing the committee, by-laws or
certificate of incorporation expressly so provide, no such committee shall have
power to declare a dividend, authorize the issuance of stock, or adopt a
certificate of ownership and merger.
REMOVAL OF DIRECTORS
Under the MBCA, the shareholders may remove one or more directors with or
without cause unless the articles of incorporation provide that directors may be
removed only for cause. The vote for removal shall be by a majority of shares
entitled to vote at an election of directors except that the articles may
require a higher vote for removal without cause. Further, under the MBCA, an
appropriate circuit court may remove a director in a proceeding commenced either
by the corporation or by its shareholders holding at least 10% of the
outstanding shares of any class if the court finds that the director engaged in
fraudulent, illegal or dishonest conduct or gross abuse of authority or
discretion with respect to the corporation and removal is in the best interest
of the corporation. Vons' Restated Articles of Incorporation do not provide that
a director may be removed only for cause.
Any director or the entire board of directors of a Delaware corporation may
be removed with or without cause by the vote of the holders of a majority of the
corporation's outstanding shares entitled to vote thereon, provided, however,
unless the certificate of incorporation otherwise provides, in the case of a
corporation whose board of directors is classified, stockholders may effect such
removal only for cause, and when a corporation has cumulative voting, if less
than the entire bond is removed, a director may not be removed without cause if
the votes cast against his removal would be sufficient to elect him if voted
cumulatively. Safeway's Restated Certificate of Incorporation provides that any
or all of Safeway's directors may be removed from office at any time, either
with or without cause, by the affirmative vote of stockholders owning a majority
in amount of the entire capital stock of Safeway issued and outstanding, and
entitled to vote.
PROHIBITION AGAINST STOCKHOLDER ACTION BY WRITTEN CONSENT: LIMITATIONS ON
CALLING SPECIAL MEETINGS
Under the MBCA, if provided for in the articles of incorporation, any
action required or permitted to be taken by shareholders of a corporation may be
taken without a meeting and without a shareholder vote if a written consent
setting forth the action to be taken is signed by the holders of shares of
outstanding stock having the requisite number of votes that would be necessary
to authorize such action at a meeting of shareholders. Vons' Restated Articles
of Incorporation provide that, subject to any rights granted to any series of
preferred stock, any action required or permitted to be taken by shareholders
must be taken at the annual or
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special meeting and may not be effected by any consent in writing of such
shareholders. The provisions of Vons' Restated Articles of Incorporation
prohibiting shareholder action by consent has the effect of giving all the
shareholders of Vons the opportunity to participate at a duly called meeting in
determining any proposed action and prevents the holders of a majority of the
voting power of Vons from using the written consent procedure to take
shareholder action. The DGCL allows such action in all cases, except as
specifically prohibited by the certificate of incorporation. Safeway's By-laws
specifically allow action by written consent of Safeway's stockholders.
The MBCA provides that special meetings of shareholders may be called by
the board of directors, or by officers, directors or shareholders as provided in
the by-laws. Vons' Restated Articles of Incorporation provide that special
meetings of the shareholders may be called by the board of directors, the
Chairman of the Board or the Vice Chairman of the Board, and may not be called
by any other person or persons. In addition, Michigan law provides that, upon
application by holders of not less than 10% of the voting shares of a
corporation, a court, for good cause shown, may order a special meeting of
shareholders.
Safeway's Restated Certificate of Incorporation provides that special
meetings of stockholders may be called at any time by the Board of Directors,
the Chairman of the Board of Directors, the President or the stockholders owning
a majority in amount of the entire capital stock of Safeway issued and
outstanding and entitled to vote.
APPRAISAL AND DISSENTERS' RIGHTS
Under the MBCA, dissenting stockholders who follow prescribed statutory
procedures are entitled to dissenters' rights in connection with any merger or
sale of substantially all the assets of a corporation and in connection with
certain reclassifications and other transactions which may adversely affect the
rights or preferences of shareholders; provided, however, that such rights are
not provided as to shares of a corporation listed on a national securities
exchange or held of record by more than 2,000 shareholders or, in a merger,
share exchange of certain asset sales in which shareholders receive cash or
shares that satisfy the foregoing requirements, or any combination of cash and
such shares.
Stockholders of Delaware corporations have the right to dissent and demand
appraisal of the fair value of their shares in certain business combination
transactions. These rights are not available for shares of stock of Delaware
corporations which are either listed on a national securities exchange or quoted
on the Nasdaq Stock Market or held of record by more than 2,000 stockholders
unless the corporation's stockholders are required to accept for such stock
anything other than (i) stock of the surviving corporation, (ii) stock of any
company either listed on a national securities exchange or quoted on the Nasdaq
Stock Market or held of record by more than 2,000 stockholders, (iii) cash in
lieu of fractional shares of corporations described in (i) and (ii) above, or
(iv) a combination of the foregoing. Delaware law does not provide dissenters'
rights in connection with sales of substantially all of the assets of a
corporation, reclassification of stock or other amendments to the certificate of
incorporation which adversely affect a class of stock.
DIVIDENDS
A Michigan corporation may not pay dividends or make any other distribution
to its shareholders if, after giving effect to the payment, the corporation
would not be able to pay its debts as they became due in the usual course of
business or the corporation's assets would be less than its liabilities, plus,
unless the articles permit otherwise, the amount required if the corporation
were to be dissolved at the time of distribution, to satisfy preferential rights
upon dissolution of stockholders whose preferential rights are superior to those
receiving the distribution. A Delaware corporation may pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which declared and/or for the preceding fiscal year.
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BUSINESS COMBINATIONS WITH SUBSTANTIAL STOCKHOLDERS, ANTI-TAKEOVER AND
SUPERMAJORITY PROVISIONS
Vons Restated Articles of Incorporation
Under Michigan law, the recommendation of the board of directors (unless
the board of directors determines that because of conflict of interest or other
special circumstances it should make no recommendation and communicates the
basis for this determination to shareholders) and the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote thereon are
required to approve a merger or sale of substantially all of the assets of a
corporation unless the articles of incorporation require a greater vote.
Vons' Restated Articles of Incorporation provide that certain business
combinations, including any merger or consolidation of Vons with any Interested
Shareholder (as hereinafter defined) require the affirmative vote of not less
than sixty-six percent (66%) of the votes entitled to be cast by the holders of
all the then outstanding shares of Voting Stock (as hereinafter defined), voting
together as a single class, as well as the affirmative vote of not less than a
majority of the votes entitled to be cast by the holders of all the then
outstanding shares of Voting Stock (excluding shares held by an Interested
Shareholder). Vons' Restated Articles of Incorporation define an "Interested
Shareholder" as any person (with certain exceptions) who (a) is or has announced
or publicly disclosed a plan or intention to become the beneficial owner of
Voting Stock representing twenty percent (20%) or more of the votes entitled to
be cast by the holders of all then outstanding shares of Voting Stock, or (b) is
an Affiliate or Associate (as defined in Rule 12b-2 under the Exchange Act as in
effect on December 30, 1986) of Vons and at any time within the two year period
immediately prior to the date in question was the beneficial owner of Voting
Stock representing twenty percent (20%) or more of the votes entitled to be cast
by the holders of all then outstanding shares of Voting Stock. "Voting Stock" is
defined in Vons' Restated Articles of Incorporation as all capital stock of Vons
authorized to be issued from time to time which may be voted on all matters
submitted to the shareholders of Vons generally. The foregoing provision does
not apply to a transaction (i) which is approved by a majority of Vons'
Continuing Directors (as hereinafter defined) or (ii) as to which all of the
specified conditions in the Restated Articles of Incorporation are satisfied,
including without limitation the following: (x) certain fairness standards are
met; (y) after the date on which the Interested Shareholder became an Interested
Shareholder, the Interested Shareholder shall not have become the beneficial
owner of any additional shares of Vons Capital Stock (except in a transaction
that would not result in an increase in the Interested Shareholder's percentage
beneficial ownership of any class or series of Vons Capital Stock); and (z) the
Interested Shareholder shall not have made any major change in Vons' business or
equity capital structure without the approval of a majority of the Continuing
Directors. Vons' Restated Articles of Incorporation define "Continuing Director"
as any member of Vons' Board of Directors, while such person is a member of the
Board of Directors, who is not an Affiliate or Associate or representative of
the Interested Shareholder and was a member of the Board of Directors prior to
the time the Interested Shareholder became an Interested Shareholder, and any
successor of a Continuing Director while such successor is a member of the Board
of Directors, who is not an Affiliate or Associate or representative of the
Interested Shareholder and is recommended or elected to succeed the Continuing
Director by a majority of the Continuing Directors.
The effect of the foregoing provision in Vons' Restated Articles of
Incorporation is to allow a minority of shareholders to block approval of a
business combination with a 20% stockholder unless a majority of the Continuing
Directors approve the transaction in advance. The Merger Agreement and the
Merger have been unanimously approved by the Vons Board of Directors, including
all Continuing Directors, rendering the above-described provisions of Vons'
Restated Articles of Incorporation inapplicable to the Merger Agreement, the
Merger and the transactions contemplated thereby.
MBCA
The MBCA provides that, in addition to a vote otherwise required by law or
the articles of incorporation, business combinations between a Michigan
corporation and a beneficial owner of 10% or more of the voting power of such
corporation generally require an advisory statement from the board of directors
and the approval of 90% of the votes of each class of stock entitled to be cast,
and not less than 2/3 of the votes of each class of stock entitled to be cast
other than voting shares owned by such 10% owner. Such requirements will not
apply
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if (i) the corporation's board of directors approves the transaction prior to
the time the 10% owner becomes such or (ii) the transaction satisfies certain
fairness standards, certain other conditions are met and the 10% owner has been
such for at least five years. Vons is not subject to these provisions due to an
exception applicable to a company having such an interested shareholder at the
time the applicable MBCA provision was adopted, unless the company's board of
directors by resolution elects to be subject, in whole or in part, to such
requirements, and because the Vons Board of Directors has not elected to be
subject to these provisions.
DGCL
The DGCL contains a business combination provision that prevents buyers who
acquire 15% or more of a target company's stock from completing a hostile
takeover for three years. A takeover can, however, be completed if the buyer,
while acquiring this 15% interest, manages to acquire at least 85% of the
outstanding stock. This 85% excludes shares owned by directors who are also
officers and certain shares held under certain employee stock plans. The
takeover can also be completed if it is approved by the target company's board
of directors prior to the date the buyer became a 15% or more stockholder or
after the date the buyer became a 15% or more stockholder if it is approved by
the target company's board of directors and two-thirds of the shares voting at
an annual or special meeting of stockholders, excluding shares held by the
buyer. The business combination provision applies automatically to Delaware
corporations except those corporations with less than 2,000 stockholders of
record or those that do not have voting stock listed on a national securities
exchange or listed for quotation with a registered national securities
association. Such a corporation may "opt in" by amending its certificate of
incorporation to adopt the provision. Any corporation may decide to "opt out" of
the statute in an amendment to either the corporation's articles of
incorporation or by-laws adopted by action of its stockholders. The foregoing
provisions are applicable to Safeway.
CONTROL STOCK ACQUISITIONS
MBCA
The MBCA provides that "control shares" of "an issuing public corporation"
acquired in a control share acquisition have no voting rights except as granted
by the shareholders of the corporation. "Control shares" are shares which, when
added to shares previously owned by a shareholder, increase such shareholder's
ownership of voting stock to more than 20% but less than 33 1/3%, more than
33 1/3% but less than a majority, or more than a majority of the outstanding
voting power of the corporation. An "issuing public corporation" must, among
other matters, have (i) its principal place of business, (ii) its principal
office, or (iii) substantial assets within Michigan. A control share acquisition
must be approved by a majority of the votes cast by holders of shares entitled
to vote excluding shares owned by the acquiror and certain officers and
directors. However, no such approval is required for gifts or other transactions
not involving consideration, for a merger to which the corporation is a party,
or certain other transactions described in the law. If a corporation's articles
of incorporation or bylaws so provide, control shares acquired in a control
share acquisition with respect to which no acquiring person statement has been
filed may be redeemed at "fair value" by the corporation at any time during the
period ending 60 days after the last control share acquisition. In addition, if,
prior to a control share acquisition, a corporation's articles of incorporation
or bylaws so provide, control shares may be redeemed at "fair value" after an
acquiring person statement has been filed and after the meeting at which the
voting rights of the control shares are submitted to stockholders if the control
shares are not accorded full voting rights. Unless otherwise provided in a
corporation's articles of incorporation or bylaws, in the event that control
shares acquired in a control share acquisition are accorded full voting rights
and the acquiring person has acquired a majority of all voting power of the
corporation, the stockholders of the corporation, other than the acquiring
person, have dissenters' rights. "Fair value" means a value not less than the
highest price paid per share by the acquiring person in the control share
acquisition. The foregoing "control share" provisions are not applicable in the
context of the Merger and the related transactions because Vons is not an
"issuing public corporation" within the meaning of the MBCA "control share"
provisions.
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DGCL
The DGCL contains no similar provision as to control share acquisitions and
thus control shares in a Delaware corporation acquired by a person will be
accorded full voting rights without stockholder approval. In cases where a
corporation may be vulnerable to takeover, the MBCA provides the management of a
corporation that is the subject of an unsolicited takeover attempt with
additional flexibility in responding to such attempt.
PURCHASE OF SHARES
Subject to any restrictions imposed by the articles of incorporation,
Michigan law permits a Michigan corporation to acquire its own shares; provided,
however, a corporation may not purchase any of its shares which are listed on a
national securities exchange from any person who holds 3% or more of its shares
unless (i) the corporation makes an offer of at least equal value to all other
shareholders, (ii) the purchase is authorized in advance by the shareholders,
(iii) the purchase meets the requirements in the articles of incorporation for
purchase of shares, (iv) the shares have been beneficially owned by the person
for not less than two years, (v) the purchase is made on the open market, or
(vi) the purchase price per share is not greater than the average market price
per share during a 30 business day period prior to the date of purchase. The
DGCL permits a corporation to repurchase its shares provided the capital of the
corporation is not impaired thereby.
INSPECTION OF BOOKS AND RECORDS
Under both the MBCA and the DGCL, upon making a demand, a stockholder of
record has the right to inspect for any proper purpose the corporation's stock
ledger, a list of its stockholders, and its other books and records. A proper
purpose is defined as a purpose reasonably related to such person's interest as
a stockholder.
LOANS TO EMPLOYEES AND DIRECTORS
Under the MBCA, a corporation may lend money to, or guarantee an obligation
of, or otherwise assist, an officer or employee of the corporation or of its
subsidiary, including an officer or employee who is a director of the
corporation or its subsidiary, when, in the judgment of the board, the loan,
guarantee or assistance may reasonably be expected to benefit the corporation,
or is pursuant to a plan authorizing loans, guarantees, or assistance, which
plan the board has reasonably determined will benefit the corporation. The loan,
guaranty or assistance may be with or without interest, and may be unsecured or
secured in the manner the board approves. The DGCL contains substantially the
same provisions with respect to loans to employees and directors as the MBCA.
CONSIDERATION FOR STOCK
Under the MBCA, a corporation's board of directors may authorize shares to
be issued for consideration consisting of any tangible or intangible property or
benefit to the corporation, including but not limited to, cash, promissory
notes, services performed, contracts for services to be performed, or other
securities of the corporation. The MBCA permits the board by resolution to adopt
and file an amendment of the articles of incorporation deleting any reference to
par value. Under the DGCL, a corporation's board of directors generally may
issue shares of the corporation's stock for consideration having a value not
less than the par value of the shares issued. Shares without par value may be
issued for such consideration as determined by the board of directors. The
consideration received may be in the form of cash, services rendered, personal
property, real property, leases of real property or a combination thereof.
EXPERTS
The consolidated financial statements of The Vons Companies, Inc. as of
December 31, 1995 and January 1, 1995 and for each of the years in the
three-year period ended December 31, 1995 have been incorporated by reference
into this Proxy Statement/Prospectus in reliance upon the report of KPMG Peat
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Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
KPMG Peat Marwick LLP has not examined, compiled or otherwise applied
procedures to the financial analyses performed by Credit Suisse First Boston or
any Vons financial forecasts referenced in the Proxy Statement/Prospectus and,
accordingly, do not express an opinion or any other form of assurance on them.
The consolidated financial statements of Safeway Inc. as of December 30,
1995 and December 31, 1994 and for each of the three fiscal years in the period
ended December 30, 1995, incorporated by reference into this Proxy
Statement/Prospectus from Safeway's Annual Report on Form 10-K for the year
ended December 30, 1995 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Safeway Common Stock to be issued pursuant to
the Merger will be passed upon by Michael C. Ross, General Counsel of Safeway.
Wachtell, Lipton, Rosen & Katz, counsel to the Special Committee and
special counsel to Vons, has rendered the opinion referred to under the caption
"Certain Federal Income Tax Consequences."
INDEPENDENT ACCOUNTANTS
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Special Meeting and will be given the opportunity to make statements if they so
desire. It is expected that they will be available to respond to appropriate
questions from the shareholders at the Special Meeting.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Board of Directors
of Vons knows of no other matters which may be presented for consideration at
the Special Meeting. However, if any other matter is presented properly for
consideration and action at the Special Meeting, or any adjournment or
postponement thereof, it is intended that the proxies will be voted with respect
thereto in accordance with the best judgment and in the discretion of the proxy
holders.
FUTURE SHAREHOLDER PROPOSALS
If the Merger is not consummated, the 1997 annual meeting of Vons
shareholders is expected to be held on or about May 7, 1997. In the event the
Merger is not consummated, or if the 1997 annual meeting of Vons shareholders is
otherwise held, the only shareholder proposals eligible to be considered for
inclusion in the proxy materials for the 1997 annual meeting of Vons will be
those which have been duly submitted to the Secretary of Vons by November 30,
1996, as provided in the 1996 Annual Meeting Proxy Statement of Vons.
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APPENDIX A
COMPOSITE
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SAFEWAY INC.,
SSCI MERGER SUB, INC.
AND
THE VONS COMPANIES, INC.
DATED AS OF DECEMBER 15, 1996
(AS AMENDED JANUARY 8, 1997)
<PAGE> 80
TABLE OF CONTENTS
<TABLE>
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ARTICLE I.
THE MERGER
SECTION 1.01. The Merger........................................................... A-1
SECTION 1.02. Effective Time....................................................... A-1
SECTION 1.03. Effect of the Merger................................................. A-2
SECTION 1.04. Articles of Incorporation; By-Laws................................... A-2
SECTION 1.05. Directors and Officers............................................... A-2
SECTION 1.06. Effect on Capital Stock.............................................. A-2
SECTION 1.07. Exchange of Certificates............................................. A-3
SECTION 1.08. Stock Transfer Books................................................. A-5
SECTION 1.09. No Further Ownership Rights in Company Common Stock.................. A-5
SECTION 1.10. Lost, Stolen or Destroyed Certificates............................... A-5
SECTION 1.11. Tax Consequences..................................................... A-5
SECTION 1.12. Taking of Necessary Action; Further Action........................... A-5
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 2.01. Organization and Qualification; Subsidiaries......................... A-5
SECTION 2.02. Articles of Incorporation and By-Laws................................ A-6
SECTION 2.03. Capitalization....................................................... A-6
SECTION 2.04. Authority Relative to this Agreement; Vote Required; State Takeover
Statutes............................................................. A-6
SECTION 2.05. No Conflict; Required Filings and Consents........................... A-7
SECTION 2.06. Compliance; Permits.................................................. A-7
SECTION 2.07. SEC Filings; Financial Statements.................................... A-8
SECTION 2.08. Absence of Certain Changes or Events................................. A-8
SECTION 2.09. [Intentionally Left Blank]........................................... A-8
SECTION 2.10. Employee Benefit Plans; Employment Agreements........................ A-8
SECTION 2.11. Labor Matters........................................................ A-10
SECTION 2.12. Registration Statement; Proxy Statement/Prospectus................... A-10
SECTION 2.13. [Intentionally Left Blank]........................................... A-10
SECTION 2.14. Title to Property.................................................... A-10
SECTION 2.15. Taxes................................................................ A-11
SECTION 2.16. Environmental Matters................................................ A-12
SECTION 2.17. Brokers.............................................................. A-12
SECTION 2.18. Intellectual Property Rights......................................... A-12
SECTION 2.19. Opinion of Financial Advisor......................................... A-12
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 3.01. Organization and Qualification; Subsidiaries......................... A-12
SECTION 3.02. Certificate of Incorporation and By-Laws............................. A-13
SECTION 3.03. Capitalization....................................................... A-13
SECTION 3.04. Authority Relative to this Agreement; Vote Required.................. A-13
SECTION 3.05. No Conflict; Required Filings and Consents........................... A-14
</TABLE>
A-i
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<TABLE>
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<S> <C> <C>
SECTION 3.06. Compliance; Permits.................................................. A-14
SECTION 3.07. SEC Filings; Financial Statements.................................... A-15
SECTION 3.08. Absence of Certain Changes or Events................................. A-15
SECTION 3.09. [Intentionally Left Blank]........................................... A-15
SECTION 3.10. Employee Benefit Plans............................................... A-15
SECTION 3.11. Labor Matters........................................................ A-15
SECTION 3.12. Registration Statement; Proxy Statement/Prospectus................... A-16
SECTION 3.13. Environmental Matters................................................ A-16
SECTION 3.14. Brokers.............................................................. A-16
SECTION 3.15. Purchase Agreement................................................... A-16
SECTION 3.16. Ownership of SSCI and Merger Sub; Capitalization of Merger Sub; No
Prior Activities..................................................... A-16
SECTION 3.17. Opinion of Financial Advisor......................................... A-17
SECTION 3.18. Takeover Statutes.................................................... A-17
ARTICLE IV.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. Conduct of Business by the Company Pending the Merger................ A-17
SECTION 4.02. No Solicitation...................................................... A-19
SECTION 4.03. Conduct of Business by Parent Pending the Merger..................... A-20
SECTION 4.04. Parent Repurchase Right.............................................. A-21
ARTICLE V.
ADDITIONAL AGREEMENTS
SECTION 5.01. HSR Act; Etc......................................................... A-21
SECTION 5.02. Proxy Statement/Prospectus; Registration Statement................... A-21
SECTION 5.03. Stockholders Meetings................................................ A-22
SECTION 5.04. Access to Information; Confidentiality............................... A-22
SECTION 5.05. Consents; Approvals.................................................. A-23
SECTION 5.06. Agreements with Respect to Affiliates................................ A-23
SECTION 5.07. Indemnification and Insurance........................................ A-23
SECTION 5.08. Notification of Certain Matters...................................... A-24
SECTION 5.09. Further Action/Tax Treatment......................................... A-24
SECTION 5.10. Public Announcements................................................. A-24
SECTION 5.11. Employee Benefit Arrangements........................................ A-24
SECTION 5.12. Use of Name; Headquarters............................................ A-25
SECTION 5.13. Listing of Shares.................................................... A-25
SECTION 5.14. Conveyance Taxes..................................................... A-25
ARTICLE VI.
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to Obligations of Each Party to Effect the Merger......... A-25
SECTION 6.02. Additional Conditions to Obligations of Parent and Merger Sub........ A-26
SECTION 6.03. Additional Conditions to Obligations of the Company.................. A-26
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE VII.
TERMINATION
SECTION 7.01. Termination.......................................................... A-27
SECTION 7.02. Effect of Termination................................................ A-28
SECTION 7.03. Fees and Expenses.................................................... A-28
ARTICLE VIII.
GENERAL PROVISIONS
SECTION 8.01. Effectiveness of Representations, Warranties and Agreements;
Knowledge, Etc....................................................... A-28
SECTION 8.02. Notices.............................................................. A-29
SECTION 8.03. Certain Definitions.................................................. A-29
SECTION 8.04. Amendment............................................................ A-30
SECTION 8.05. Extension; Waiver.................................................... A-30
SECTION 8.06. Headings............................................................. A-30
SECTION 8.07. Severability......................................................... A-31
SECTION 8.08. Entire Agreement..................................................... A-31
SECTION 8.09. Assignment........................................................... A-31
SECTION 8.10. Parties in Interest.................................................. A-31
SECTION 8.11. Failure or Indulgence Not Waiver; Remedies Cumulative................ A-31
SECTION 8.12. Governing Law........................................................ A-31
SECTION 8.13. Counterparts......................................................... A-31
SECTION 8.14. WAIVER OF JURY TRIAL................................................. A-31
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 15, 1996 (the
"Agreement"), among SAFEWAY INC., a Delaware corporation ("Parent"), SSCI MERGER
SUB, INC., a Michigan corporation and an indirect wholly owned subsidiary of
Parent ("Merger Sub"), and THE VONS COMPANIES, INC., a Michigan corporation (the
"Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
determined that it is advisable and in the best interests of their respective
stockholders for Parent and Merger Sub to enter into a business combination with
the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger of Merger Sub
with and into the Company (the "Merger"), upon the terms and subject to the
conditions set forth herein, in accordance with the applicable provisions of the
Michigan Business Corporation Act of the State of Michigan (the "MBCA"), in the
case of the Company and Merger Sub, and the Delaware General Corporation Law of
the State of Delaware (the "DGCL"), in the case of Parent;
WHEREAS, Parent, Safeway Southern California, Inc., a wholly owned
subsidiary of Parent ("SSCI"), Merger Sub and the Company intend, by approving
resolutions authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations promulgated thereunder;
and
WHEREAS, pursuant to the Merger, each outstanding share (a "Share") of the
Company's common stock, $0.10 par value (the "Company Common Stock"), shall be
converted into the right to receive the Merger Consideration (as defined in
Section 1.07(b)), upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.01. The Merger. (a) Effective Time. At the Effective Time (as
defined in Section 1.02 hereof), and subject to and upon the terms and
conditions of this Agreement and the MBCA, Merger Sub shall be merged with and
into the Company, the separate corporate existence of Merger Sub shall cease,
and the Company shall continue as the surviving corporation and as an indirect
wholly owned subsidiary of Parent. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.01, and subject to the satisfaction or waiver, if permissible, of the
conditions set forth in Article VI, the closing of the transactions contemplated
by this Agreement (the "Closing") shall take place (a) at the offices of Latham
& Watkins, 505 Montgomery St., San Francisco, California, as promptly as
practicable (and in any event within two business days) after satisfaction or
waiver, if permissible, of the conditions set forth in Article VI or (b) at such
other time, date or place as Parent and the Company may agree.
SECTION 1.02. Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by the MBCA (the "Certificate of Merger"), together with
any required
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related documents, with the appropriate administrator, as indicated in the MBCA,
in such form as required by, and executed in accordance with the relevant
provisions of, the MBCA. The Merger shall be effective at the time indicated in
such Certificate of Merger (the "Effective Time").
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the MBCA. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchise of the Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of the Company and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.04. Articles of Incorporation; By-Laws. (a) Articles of
Incorporation. At the Effective Time the Articles of Incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter duly
amended in accordance with applicable law and the terms of this Agreement.
(b) By-Laws. At the Effective Time, the By-Laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter duly amended in accordance with applicable law and
the terms of this Agreement.
SECTION 1.05. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified in the manner provided in the Articles
of Incorporation and By-laws of the Surviving Corporation and in accordance with
applicable law. The Company shall cause each director of the Company's
subsidiaries which are corporations to tender his or her resignation prior to
the Effective Time, with each such resignation to be effective as of the
Effective Time.
SECTION 1.06. Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any further action on the part of Parent, Merger Sub, the
Company or the holders of any of the following securities:
(a) Conversion of Securities. Each Share issued and outstanding immediately
prior to the Effective Time (excluding any Shares to be canceled pursuant to
Section 1.06(b)) shall be converted, subject to Section 1.06(e) and 1.06(f),
into the right to receive 1.425 (the "Exchange Ratio") of validly issued, fully
paid and nonassessable shares ("Parent Shares") of common stock, $0.01 par
value, of Parent ("Parent Common Stock").
(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, automatically cease to be outstanding, be canceled and retired without
payment of any consideration therefor and cease to exist.
(c) Assumption of Stock Options.
(i) At the Effective Time, each outstanding option to purchase Company
Common Stock (a "Stock Option") granted under the Company's 1987 Stock
Option Plan and 1990 Stock Option Plan, each as amended to date
(collectively, the "Company Stock Option Plans"), whether vested or
unvested, shall be assumed by Parent and constitute an option to acquire,
on the same terms and conditions as were applicable under such Stock Option
prior to the Effective Time, the number (rounded up to the nearest whole
number) of Parent Shares as the holder of such Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such
Stock Option in full immediately prior to the Effective Time (not taking
into account whether or not such Stock Option was in fact exercisable), at
a price per share equal to (x) the aggregate exercise price for Company
Common Stock otherwise purchasable pursuant to such Stock Option divided by
(y) the number of Parent Shares deemed
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purchasable pursuant to such Stock Option. At and after the Effective Time,
Parent will honor all obligations with respect to such Stock Options under
the terms of such Stock Options and the Company Stock Option Plans as in
effect on the date hereof. At the Effective Time, the Company Stock Option
Plans shall be amended to require that the shares of stock issuable and
deliverable upon the exercise of a Stock Option, or any portion thereof,
shall be unissued shares or issued shares which then have been reacquired
by Parent, but no other amendments shall be made except as provided herein.
(ii) As soon as practicable after the Effective Time (but in any event
within five (5) business days), Parent shall deliver to each holder of an
outstanding Stock Option an appropriate notice setting forth such holder's
rights pursuant thereto, and such Stock Option shall otherwise continue in
effect on the same terms and conditions (including antidilution provisions)
as were in effect prior to the Effective Time.
(iii) Parent has taken all corporate action necessary to reserve for
issuance a sufficient number of Parent Shares for delivery pursuant to the
terms set forth in this Section 1.06(c).
(iv) Subject to any applicable limitations under the Securities Act of
1933, as amended, and the rules and regulations thereunder (the "Securities
Act"), Parent shall file a Registration Statement on Form S-8 (or any
successor form), which may be in the form of a post-effective amendment to
the Registration Statement (as defined below), with the Securities and
Exchange Commission (the "SEC"), effective on the date of the Effective
Time, with respect to the shares of Parent Common Stock issuable upon
exercise of the Stock 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 Stock Options shall remain outstanding.
(d) Capital Stock of Merger Sub. The capitalization of Merger Sub as of the
date hereof is as set forth in Section 3.16. Each share of common stock, $0.01
par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, $0.01 par value, of the
Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock occurring after the date hereof and prior to the
Effective Time.
(f) Fractional Shares. No certificates or scrip representing fractional
shares of Parent Common Stock shall be issued in connection with the Merger, and
such fractional share interests will not entitle the owner thereof to vote or to
any rights as a stockholder of Parent. In lieu of any such fractional shares,
each holder of Company Common Stock upon surrender of a certificate (a
"Certificate") for exchange shall be paid an amount in cash (without interest),
rounded up to the nearest cent, determined by multiplying (i) the closing price
of Parent Common Stock as reported on the New York Stock Exchange ("NYSE")
Composite Tape on the last trading day immediately preceding the second business
day prior to the Effective Time by (ii) the fractional interest to which such
holder would otherwise be entitled (after taking into account all shares of
Company Common Stock then held of record by such holder).
SECTION 1.07. Exchange of Certificates. (a) Exchange Agent. At or prior to
the Effective Time, Parent shall supply, or shall cause to be supplied, to or
for the account of such bank or trust company as shall be designated by Parent
and subject to the reasonable approval of the Company (the "Exchange Agent"), in
trust for the benefit of the holders of Company Common Stock, for exchange in
accordance with this Section 1.07 through the Exchange Agent, (i) certificates
evidencing the Parent Shares issuable pursuant to Section 1.06(a) in exchange
for outstanding Shares and (ii) cash in an aggregate amount sufficient to pay
for fractional shares pursuant to Section 1.06(f) (the shares and cash so
deposited, together with any dividends or distributions with respect to such
Parent Shares payable after the Effective Time which shall also be deposited
with the Exchange Agent, being hereinafter referred to collectively as the
"Exchange Fund"). Any interest, dividends or other income earned on the
investment of cash or other property held in the Exchange Fund shall be for the
account of and payable to Parent.
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(b) Exchange Procedures. Promptly after the Effective Time, Parent will
instruct the Exchange Agent to mail to each holder of record of Certificates (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Parent may reasonably specify), and (ii)
instructions to effect the surrender of the Certificates in exchange for the
certificates evidencing Parent Shares. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor (A) certificates evidencing that number of whole Parent
Shares which such holder has the right to receive in accordance with the
Exchange Ratio in respect of the Shares formerly evidenced by such Certificate,
(B) any dividends or other distributions to which such holder is entitled
pursuant to Section 1.07(c), and (C) cash in respect of fractional shares as
provided in Section 1.06(f) (Parent Shares, dividends, distributions and cash
being, collectively, the "Merger Consideration"), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of Shares which is not registered in the transfer records of the Company as of
the Effective Time, Parent Shares, dividends and distributions may be issued and
paid in accordance with this Article I to a transferee if the Certificate
evidencing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer pursuant to this Section
1.07(b) and by evidence that any applicable stock transfer taxes have been paid.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented Shares will be deemed from and after the Effective Time, for
all corporate purposes, other than the payment of dividends and subject to
Section 1.06(f), to evidence the ownership of the number of full Parent Shares
into which such shares of the Company Common Stock shall have been so converted.
(c) Distributions With Respect to Unexchanged Parent Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to Parent Shares they are
entitled to receive until the holder of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole Parent Shares issued in exchange therefor, without interest,
at the time of such surrender, the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole Parent Shares.
(d) Transfers of Ownership. If any certificate for Parent Shares is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof
that the Certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other taxes
required by reason of the issuance of a certificate for Parent Shares in any
name other than that of the registered holder of the certificate surrendered, or
have established to the reasonable satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Company Common Stock as of the date
which is eighteen months after the Effective Time shall be delivered to Parent,
upon demand, and thereafter such holders of Company Common Stock who have not
theretofore complied with this Section 1.07 shall be entitled to look only to
Parent for payment of the Merger Consideration to which they are entitled
pursuant hereto.
(f) No Liability. Except as required by applicable law, none of Parent,
Merger Sub or the Company shall be liable to any holder of Company Common Stock
for any Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(g) Withholding Rights. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of Company Common Stock such amounts as Parent or
the Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent or the Exchange Agent,
such withheld amounts shall be treated for all
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purposes of this Agreement as having been paid to the holder of the Shares in
respect of which such deduction and withholding was made by Parent or the
Exchange Agent.
SECTION 1.08. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.
SECTION 1.09. No Further Ownership Rights in Company Common Stock. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers of Shares which were outstanding immediately
prior to the Effective Time on the records of the Surviving Corporation. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
SECTION 1.10. Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such Parent Shares as
may be required pursuant to Section 1.06; provided, however, that Parent may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against Parent or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
SECTION 1.11. Tax Consequences. It is intended by the parties hereto and
SSCI that the Merger shall constitute a reorganization within the meaning of
Section 368(a) of the Code. The parties hereto hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
SECTION 1.12. Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and the Company will take all such reasonable and lawful action as
may be necessary or appropriate in order to effectuate the Merger in accordance
with this Agreement as promptly as practicable. If, at any time after the
Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all the property, rights, privileges, power and
franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub immediately prior to the Effective Time are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that:
SECTION 2.01. Organization and Qualification; Subsidiaries. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite corporate
power and authority and is in possession of all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates, approvals
and orders ("Approvals") necessary to own, lease and operate the properties it
purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to be so organized, existing and in
good standing or to have such power, authority and Approvals would not have a
Material Adverse Effect. The Company is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would not
have a Material Adverse Effect. The Company has no significant subsidiaries. A
true and complete list of all of the Company's subsidiaries, together with the
jurisdiction of incorporation of each subsidiary, and the percentage of each
subsidiary's outstanding capital stock owned by the Company or another
subsidiary is set forth in Section 2.01 of the disclosure schedule (the "Company
Disclosure
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Schedule") prepared by the Company and delivered to Parent in connection with
the execution of this Agreement. Except as set forth in Section 2.01 of the
Company Disclosure Schedule or the Company SEC Reports (as defined in Section
2.07), the Company does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity, with respect to which interest
the Company has invested or is required to invest $1,000,000 or more.
SECTION 2.02. Articles of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of its Articles of
Incorporation and By-Laws as most recently restated and subsequently amended to
date. Such Articles of Incorporation and By-Laws are in full force and effect.
The Company is not in violation of any of the provisions of its Articles of
Incorporation or By-Laws. There are no dissenters' rights provided for in any
resolutions of the Company's Board of Directors.
SECTION 2.03. Capitalization. (a) The authorized capital stock of the
Company consists of 120,000,000 shares, consisting of 100,000,000 shares of
Company Common Stock and 20,000,000 shares of Company preferred stock, par value
$0.01 per share (the "Company Preferred Stock"). As of December 15, 1996, (i)
43,966,667 shares of Company Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable and no shares were held
in treasury, (ii) no shares of Company Preferred Stock were issued and
outstanding, (iii) no shares of Company Common Stock were held by subsidiaries
of the Company, and (iv) 3,064,584 shares of Company Common Stock were reserved
for future issuance pursuant to outstanding stock options granted under the
Company Stock Option Plans. Except as set forth in this Section 2.03 or in
Section 2.03 of the Company Disclosure Schedule, there are no options, warrants
or other rights, agreements or arrangements to which the Company is a party or
by which the Company is bound relating to the issued or unissued capital stock
of the Company or any of its subsidiaries or obligating the Company or any of
its subsidiaries to issue or sell any shares of capital stock of, or other
equity interests in, the Company or any of its subsidiaries.
(b) Except as disclosed in Section 2.03 of the Company Disclosure Schedule
or the Company SEC Reports, there are no obligations, contingent or otherwise,
of the Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire any shares of Company Common Stock or the capital stock of any
subsidiary or to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any such subsidiary or any other entity
other than guarantees of bank obligations of subsidiaries entered into in the
ordinary course of business.
SECTION 2.04. Authority Relative to this Agreement; Vote Required; State
Takeover Statutes. (a) The Company has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and (subject only, with respect to the Merger, to the approval and
adoption of this Agreement by the holders of at least a majority of the
outstanding shares of Company Common Stock entitled to vote in accordance with
the MBCA and the Company's Articles of Incorporation and By-Laws) to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company, and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than the adoption of this
Agreement by the holders of at least a majority of the outstanding shares of
Company Common Stock entitled to vote in accordance with the MBCA and the
Company's Articles of Incorporation and By-Laws). As of the date hereof, the
Board of Directors of the Company has determined that the Merger, upon the terms
and subject to the conditions of this Agreement, is advisable to and in the best
interest of the Company and its stockholders. This Agreement has been duly and
validly executed and delivered by the Company.
(b) Assuming the due authorization, execution and delivery by Parent and
Merger Sub, as applicable, this Agreement constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equitable remedies may be limited by the
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application of general principles of equity (regardless of whether such
equitable principles are applied in a proceeding at law or in equity).
(c) Subject to Section 6.01(b)(ii), the approval of the holders of a
majority of the outstanding shares of Company Common Stock is the only vote of
the holders of any class or series of the Company's capital stock necessary to
approve the Merger, this Agreement and the transactions contemplated hereby.
(d) The Board of Directors of the Company has approved the Merger, this
Agreement and the transactions contemplated hereby and such approval is
sufficient to render the provisions of Article VII of the Company's Articles of
Incorporation inapplicable to the Merger, this Agreement and the other
transactions contemplated by this Agreement.
(e) The Company had an interested shareholder as defined in Section 778(2)
of the MBCA on the effective date of Chapter 7A of the MBCA (May 29, 1984), and
the Board of Directors of the Company has not at any time after the effective
date of Chapter 7A of the MBCA (May 29, 1984), elected to be subject, in whole
or in part, as to specifically identified or unidentified interested
shareholders, to the requirements of Section 780. The Company is not an "issuing
public corporation" within the meaning of Section 793(1) of the MBCA.
SECTION 2.05. No Conflict; Required Filings and Consents. (a) Except as set
forth in Section 2.05(a) of the Company Disclosure Schedule, the execution and
delivery of this Agreement by the Company does not, and the performance of this
Agreement by the Company will not, (i) conflict with or violate the Articles of
Incorporation or ByLaws of the Company, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected, or (iii) result in any violation or breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or impair the Company's or any of its subsidiaries' rights or
alter the rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective properties is bound or affected, except in the case of clauses (ii)
or (iii) for any such conflicts, violations, breaches, defaults, or other
occurrences that would not reasonably be expected to have a Material Adverse
Effect or prevent the Company from otherwise performing its obligations under
this Agreement in any material respect.
(b) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental, judicial or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Securities Act, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), state securities laws ("Blue Sky Laws"), state
takeover laws, the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act"), the listing requirements of the NYSE and the filing
and recordation of the Certificate of Merger or other documents as required by
the MBCA, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or materially delay consummation of the Merger, or otherwise prevent or
materially delay the Company from performing its obligations under this
Agreement, or would not have a Material Adverse Effect.
SECTION 2.06. Compliance; Permits. (a) Except as disclosed in Section
2.06(a) of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
statute, rule, regulation, order, judgment, writ, injunction or decree
applicable to the Company or any of its subsidiaries or by which its or any of
their respective properties is bound or affected or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company
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or any of its subsidiaries or its or any of their respective properties is bound
or affected, except for any such conflicts, defaults or violations which would
not have a Material Adverse Effect.
(b) Except as disclosed in Section 2.06(b) of the Company Disclosure
Schedule, the Company and its subsidiaries hold all permits, licenses,
easements, variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of the
business of the Company and its subsidiaries taken as a whole as it is now being
conducted (collectively, the "Company Permits"). The Company and its
subsidiaries are in compliance with the terms of the Company Permits, except
where the failure to so comply would not have a Material Adverse Effect.
SECTION 2.07. SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports, statements and other documents required to be filed by it
with the SEC since January 1, 1995 (such forms, reports, statements and other
documents are hereinafter referred to as the "Company SEC Reports"). Except as
disclosed in Section 2.07 of the Company Disclosure Schedule, the Company SEC
Reports (i) were prepared in all material respects in accordance with the
applicable requirements of the Securities Act or the Exchange Act, as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) 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. None of the Company's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) The consolidated financial statements (including, in each case, any
related notes or schedules thereto) contained in the Company SEC Reports were
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as may be
indicated therein or in the notes thereto), and fairly presented in all material
respects the consolidated financial position of the Company and its consolidated
subsidiaries as at the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments.
SECTION 2.08. Absence of Certain Changes or Events. Except as set forth in
Section 2.08 of the Company Disclosure Schedule or the Company SEC Reports,
since October 6, 1996, the Company has conducted its business in the ordinary
course and there has not occurred: (i) any Material Adverse Effect; (ii) any
amendments or changes in the Articles of Incorporation or By-laws of the
Company; (iii) any sale of, or material pledge of or material encumbrance upon
property of the Company with a value in excess of $5,000,000; (iv) any material
change by the Company in its accounting methods, principles or practices except
as required by any change in GAAP or as a result of a change in law or (v) any
material revaluation by the Company of any of its assets, including, without
limitation, writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business.
SECTION 2.09. [Intentionally Left Blank].
SECTION 2.10. Employee Benefit Plans; Employment Agreements. (a) Section
2.10(a) of the Company Disclosure Schedule lists all employee pension plans (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), all material employee welfare plans (as defined in
Section 3(1) of ERISA), and all other material bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs and arrangements
for the benefit of, or relating to, any employee or former employee of the
Company or any trade or business (whether or not incorporated) which is a member
of a controlled group including the Company or which is under common control
with the Company (an "ERISA Affiliate") within the meaning of Section 414 of the
Code and which is maintained by or contributed to by the Company or any ERISA
Affiliate, as well as each plan with respect to which the Company or any ERISA
Affiliate could incur liability under Section 4069 (if such plan has been or
were terminated) or Section 4212(c) of ERISA (together, the "Employee Plans").
There have been made available to Parent with respect to each Employee Plan,
other than a "multiemployer plan" as such term is defined in Section 3(37) of
ERISA (a "Multiemployer Plan"), copies of (i) each such written Employee Plan
(other than those referred to in Section 4(b)(4) of ERISA), (ii) the most recent
annual report on Form 5500 series, with accompanying
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schedules and attachments, filed with respect to each such Employee Plan
required to make such a filing, and (iii) the most recent actuarial valuation
for each such Employee Plan subject to Title IV of ERISA. For purposes of this
Section 2.10(a), the term "material," used with respect to any Employee Plan or
liability shall mean that the Company or an ERISA Affiliate has incurred or may
incur obligations in an amount exceeding $1,000,000 in the aggregate with
respect to all such Employee Plans and liabilities.
(b) Except as set forth in Section 2.10(b) of the Company Disclosure
Schedule or the Company SEC Reports: (i) none of the Employee Plans, excluding
any Multiemployer Plan, promises or provides retiree medical or other retiree
welfare benefits to any person except to the extent required by Part 6 of Title
I of ERISA; (ii) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Employee Plan, excluding any Multiemployer Plan, which could result in any
material liability of the Company or any of its subsidiaries; (iii) all Employee
Plans, excluding any Multiemployer Plan, are in compliance in all material
respects with the requirements prescribed by any and all statutes (including
ERISA and the Code), orders, or governmental rules and regulations currently in
effect with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, Internal Revenue
Service (the "IRS"), Pension Benefit Guaranty Corporation or Secretary of the
Treasury), and the Company and each of its subsidiaries have performed all
material obligations required to be performed by them under, are not in any
material respect in default under or violation of, and have no knowledge of any
default or violation by any other party to, any of the Employee Plans, except
where such non-compliance, nonperformance or default could not reasonably be
expected to result in a material liability to the Company or its subsidiaries;
(iv) each Employee Plan, excluding any Multiemployer Plan, intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code is the subject of a favorable determination letter
from the IRS, and nothing has occurred which may reasonably be expected to
impair such determination, except to the extent such impairment could not
reasonably be expected to result in a material liability to the Company or its
subsidiaries; (v) all contributions required to be made by the Company or any of
its subsidiaries to any Employee Plan pursuant to Section 412 of the Code, or
the terms of the Employee Plan or any collective bargaining agreement, have been
made on or before their due dates; (vi) with respect to each Employee Plan,
excluding any Multiemployer Plan, no "reportable event" within the meaning of
Section 4043 of ERISA (excluding any such event for which the 30 day notice
requirement has been waived under the regulations to Section 4043 of ERISA) nor
any event described in Section 4062, 4063 or 4041 of ERISA has occurred; (vii)
neither the Company nor any ERISA Affiliate has incurred, nor reasonably expects
to incur, any material liability under Title IV of ERISA that has not been
satisfied (other than liability for premium payments to the Pension Benefit
Guaranty Corporation arising in the ordinary course); (viii) neither the Company
nor any ERISA Affiliate has at any time withdrawn from a Multiemployer Plan in a
"complete withdrawal" or a "partial withdrawal" as defined in Section 4203 and
4205 of ERISA, respectively, so as to result in a material liability of the
Company or any ERISA Affiliate that has not been satisfied, contingent or
otherwise (including, but not limited to, the obligations pursuant to an
agreement entered into in accordance with Section 4204 of ERISA); and (ix) if as
of the Effective Time, the Company and all ERISA Affiliates were to withdraw
from all Multiemployer Plans to which any of them has contributed or been
obligated to contribute, they would incur no material liabilities to such plans
under Title IV of ERISA.
(c) Section 2.10(c) of the Company Disclosure Schedule sets forth a list
that is true and complete in all material respects of each current or former
employee, officer or director of the Company or any of its subsidiaries who
holds (i) any option to purchase Company Common Stock as of the date hereof,
together with the number of shares of Company Common Stock subject to such
option, the option price of such option (to the extent determined as of the date
hereof), and the expiration date of such option; and (ii) any other right,
directly or indirectly, to acquire Company Common Stock, together with the
number of shares of Company Common Stock subject to such right. Section 2.10(c)
of the Company Disclosure Schedule also sets forth the total number of options
and other rights. No such option is intended to qualify as an incentive stock
option within the meaning of Section 422(b) of the Code (an "ISO"). Except as
set forth in Section 2.10(c) of the Company Disclosure Schedule, no action has
been taken which would result in the acceleration of the vesting of the Stock
Options following the consummation of the Merger (assuming the assumption of the
Stock Options as set forth in Article II).
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(d) Section 2.10(d) of the Company Disclosure Schedule sets forth a list
that is true and complete in all material respects of (i) all employment
agreements with officers of the Company or any of its subsidiaries; (ii) all
agreements with consultants who are individuals obligating the Company or any of
its subsidiaries to make annual cash payments on an amount exceeding $250,000;
(iii) all severance agreements of the Company or any of its subsidiaries with or
relating to its employees; (iv) with respect to the Amended and Restated
Severance Plan for Key Employees, the name and level of participation of each
participant therein, and for each such participant, the base salary as in effect
on the date of this Agreement and the actual annual cash bonuses paid with
respect to 1994 and 1995 and the maximum annual cash bonus payable with respect
to 1996, the amount of taxable compensation shown on Form W-2 for each of 1992
through 1995; (v) a list that is true and complete in all material respects of
all employees whose Stock Options will be subject to accelerated vesting as a
result of the Merger, for any reason other than termination of employment by the
Company or any of its subsidiaries (along with the number of shares issuable
upon exercise of such Stock Options, the exercise price and vesting dates); and
(vi) all plans, programs, agreements and other arrangements of the Company or
any of its subsidiaries with or relating to its employees which contain change
in control provisions pursuant to which the Company or any of its subsidiaries
could incur a material liability.
SECTION 2.11. Labor Matters. Except as set forth in Section 2.11 of the
Company Disclosure Schedule or the Company SEC Reports, (i) there are no claims
or proceedings pending or, to the knowledge of the Company, threatened, between
the Company or any of its subsidiaries and any of their respective employees,
which claims or proceedings have or would reasonably be expected to have a
Material Adverse Effect; (ii) neither the Company nor any of its subsidiaries is
a party to any material collective bargaining agreement or other labor union
contract applicable to persons employed by the Company or its subsidiaries, and
(iii) the Company is not aware of any strikes, slowdowns, work stoppages,
lockouts, boycotts, corporate campaigns or threats thereof, by or with respect
to any employees of the Company or any of its subsidiaries which would
reasonably be expected to have a Material Adverse Effect.
SECTION 2.12. Registration Statement; Proxy Statement/Prospectus. Subject
to the accuracy of the representations of Parent in Section 3.12, the
information supplied by the Company for inclusion in the Registration Statement
(as defined in Section 5.02) pursuant to which the Parent Common Stock to be
issued in the Merger will be registered with the SEC shall not at the time the
Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information supplied by the Company for inclusion in the Proxy
Statement/Prospectus (as defined in Section 5.02) to be sent to the stockholders
of the Company in connection with the meeting of the stockholders of the Company
to consider the Merger (the "Company Stockholders Meeting") and, if required to
satisfy the condition in Section 6.01(c) hereof, to be sent to the stockholders
of Parent in connection with the meeting of the stockholders of Parent to
consider the issuance of the Parent Common Stock in connection with the Merger
(the "Parent Stockholders Meeting"), will not, on the date the Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to the stockholders of the Company at the time of the Company
Stockholders Meeting and, if required, Parent at the time of the Parent
Stockholders Meeting, or at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to state
any material fact necessary in order to make the statements made therein not
false or misleading. If at any time prior to the Effective Time any event
relating to the Company or any of its respective affiliates, officers or
directors should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, the Company shall promptly inform Parent and Merger Sub.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Merger Sub which is
contained or incorporated by reference in any of the foregoing documents.
SECTION 2.13. [Intentionally Left Blank.]
SECTION 2.14. Title to Property. Except as set forth in Section 2.14 of the
Company Disclosure Schedule, the Company and each of its subsidiaries have good
and defensible title to all of their properties and assets, free and clear of
all liens, charges and encumbrances, except liens for taxes not yet due and
payable and
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such liens or other imperfections of title, if any, which would not have a
Material Adverse Effect; and all leases pursuant to which the Company or any of
its subsidiaries lease from others material amounts of real or personal
property, are in good standing, valid and effective in accordance with their
respective terms, and there is not under any of such leases any existing
material default or event of default (or event which with notice or lapse of
time, or both, would constitute a material default), except where the lack of
such good standing, validity and effectiveness or the existence of such default
or event of default would not have a Material Adverse Effect.
SECTION 2.15. Taxes. (a) For purposes of this Agreement, "Tax" or "Taxes"
shall mean taxes, fees, levies, duties, tariffs, premiums, assessments, imposts,
and governmental impositions or charges of any kind in the nature of (or similar
to) taxes, payable to any federal, state, local or foreign taxing (or similar)
authority, including (without limitation) (i) income, franchise, profits, gross
receipts, ad valorem, net worth, value added, sales, use, service, real or
personal property, special assessments, capital stock, license, payroll,
withholding, employment, social security, workers' compensation, unemployment
compensation, utility, severance, production, excise, stamp, occupation,
premiums, windfall profits, transfer and gains taxes, and (ii) interest,
penalties, additional taxes or amounts and additions to tax imposed with respect
thereto; and "Tax Returns" shall mean returns, reports, declarations,
information statements and other documents with respect to Taxes required to be
filed with the IRS or any other taxing (or similar) authority, domestic or
foreign, including, without limitation, consolidated, combined and unitary tax
returns.
(b) Other than as disclosed in Section 2.15(b) of the Company Disclosure
Schedule or the Company SEC Reports: The Company and its subsidiaries have filed
all United States federal income and state income or franchise Tax Returns and
all other material Tax Returns required to be filed by them, and the Company and
its subsidiaries have paid and discharged all Taxes due in connection with or
with respect to the periods or transactions covered by such Tax Returns and have
paid all other Taxes as are due from the Company and its subsidiaries or for
which they could be liable (whether to taxing authorities or to other persons or
entities), except for such Taxes as to which the failure to pay, individually or
in the aggregate, would not constitute a Material Adverse Effect. There are no
other material Taxes that would be due if asserted by a taxing authority, except
with respect to which the Company is maintaining reserves to the extent
currently required by GAAP. Neither the Company nor any of its subsidiaries has
granted any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of, any Tax.
(c) Other than as disclosed in Section 2.15(c) of the Company Disclosure
Schedule or the Company SEC Reports, neither the Company nor any of its
subsidiaries is obligated under any agreements with respect to industrial
development bonds or other obligations with respect to which the excludability
from gross income of the holder for federal or state income tax purposes would
be affected by the transactions contemplated hereunder. Neither the Company nor
any of its subsidiaries is, or has been, a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code. To the best knowledge
of the Company, neither the Company nor any of its subsidiaries owns any
property of a character, the indirect transfer of which, pursuant to this
Agreement, would give rise to any material documentary, stamp or other transfer
tax.
(d) Except as disclosed in Section 2.15 (d) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries (i) is a party to or
bound by (nor will it become a party to or become bound by) any tax-indemnity,
tax sharing or tax allocation agreement (or administrative or accounting
practice having substantially the same effect as such an agreement); (ii) has
filed a consent under Section 341(f) of the Code (or any corresponding provision
of state, local, or foreign income tax law) or agreed to have Section 341(f) of
the Code (or any corresponding provision of state, local, or foreign income tax
law) apply to any disposition of any asset owned by it; (iii) has agreed to make
or is required to make any material adjustment under Section 481(a) of the Code
by reason of a change in accounting method or otherwise; (iv) has been a member
of an affiliated group of corporations, within the meaning of Section 1504 of
the Code, other than the affiliated group of which the Company is the common
parent corporation; or (v) owns material assets that directly or indirectly
secure debt the interest on which is tax-exempt under Section 103(a) of the
Code.
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SECTION 2.16. Environmental Matters. Except as set forth in Section 2.16 of
the Company Disclosure Schedule or the Company SEC Reports, and except in all
cases as, in the aggregate, have not had and would not reasonably be expected to
have a Material Adverse Effect, the Company and each of its subsidiaries to the
best of the Company's knowledge (i) have obtained all applicable permits,
licenses and other authorization which are required to be obtained under all
applicable federal, state or local laws or any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder ("Environmental Laws") relating to pollution or protection
of the environment, including laws relating to emissions, discharges, releases
or threatened releases of pollutants, contaminants, or hazardous or toxic wastes
into ambient air, surface water, ground water, or land or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes by the Company or its subsidiaries (or their respective
agents); (ii) are in compliance with all terms and conditions of such required
permits, licenses and authorization, and also are in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in applicable Environmental
Laws; (iii) as of the date hereof, are not aware of nor have received notice of
any past or present violations of Environmental Laws or any event, condition,
circumstance, activity, practice, incident, action or plan which is reasonably
likely to interfere with or prevent continued compliance with or which could
give rise to any common law or statutory liability, or otherwise form the basis
of any claim, action, suit or proceeding, against the Company or any of its
subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, or any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by the Company or its subsidiaries (or
any of their respective agents) thereunder.
SECTION 2.17. Brokers. Except as set forth in Section 2.17 of the Company
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
SECTION 2.18. Intellectual Property Rights. The Company owns or possesses
legally enforceable rights to use the "Vons" and "Pavilions" trade names,
trademarks and service names used in the business of the Company and its
subsidiaries as currently conducted.
SECTION 2.19. Opinion of Financial Advisor. The Company has been advised by
its financial advisor, CS First Boston Corporation, that in its opinion, as of
the date hereof, the Exchange Ratio set forth herein is fair from a financial
point of view to the holders of Shares (other than Parent or any direct or
indirect wholly owned subsidiary or affiliate of Parent).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that:
SECTION 3.01. Organization and Qualification; Subsidiaries. Each of Parent
and its significant subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and is in
possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to be so organized, existing and in
good standing or to have such power, authority and Approvals would not have a
Material Adverse Effect (as defined in Section 8.03). Each of Parent and each of
its significant subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would not
have a Material Adverse Effect. A true and complete list of all of Parent's
subsidiaries, together with the jurisdiction of
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incorporation of each subsidiary and the percentage of each subsidiary's
outstanding capital stock owned by Parent or another subsidiary, is set forth in
Section 3.01 of the disclosure schedule prepared by Parent and delivered to the
Company in connection with the execution of this Agreement (the "Parent
Disclosure Schedule"). Except as set forth in Section 3.01 of the Parent
Disclosure Schedule or the Parent SEC Reports (as defined in Section 3.07),
Parent does not directly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity, with respect to which Parent has invested or is required
to invest $1,000,000 or more, excluding shares of Company Common Stock and the
equity interest in Casa Ley S.A. de C.V. and the limited partnership interests
in SSI Equity Associates L.P. held by Parent or any direct or indirect
subsidiary of Parent.
SECTION 3.02. Certificate of Incorporation and By-Laws. Parent has
heretofore furnished to the Company a complete and correct copy of its
Certificate of Incorporation and By-Laws, as amended to date. Such Certificate
of Incorporation and By-Laws are in full force and effect. Merger Sub has
heretofore furnished to the Company a complete and correct copy of its Articles
of Incorporation and By-Laws, as amended to date. Such Articles of Incorporation
and By-Laws are in full force and effect. Neither Parent nor Merger Sub is in
violation of any of the provisions of its respective Certificate or Articles of
Incorporation, as the case may be, or By-Laws.
SECTION 3.03. Capitalization. (a) As of December 10, 1996, the authorized
capital stock of Parent consisted of (i) 750,000,000 shares of Parent Common
Stock of which: 220,993,985 shares were issued and outstanding, all of which are
validly issued, fully paid and non-assessable, no shares were held in treasury,
23,405,953 shares were reserved for future issuance upon exercise of outstanding
warrants, 19,435,620 shares were reserved for future issuance upon exercise of
outstanding options to purchase Parent Common Stock granted under Parent's stock
option plans and an additional 7,184,631 shares were reserved for issuance under
Parent's stock option plans; and (ii) 25,000,000 shares of preferred stock, of
which no shares of preferred stock were issued and outstanding. No material
change in such capitalization has occurred between December 10, 1996 and the
date hereof. Except as set forth in Section 3.03 of the Parent Disclosure
Schedule or the Parent SEC Reports, there are no options, warrants or other
rights, agreements, or arrangements to which Parent is a party or by which
Parent is bound relating to the issued or unissued capital stock of Parent or
any of its subsidiaries or obligating Parent or any of its subsidiaries to issue
or sell any shares of capital stock of, or other equity interests in, Parent or
any of its subsidiaries.
(b) Except as set forth in Section 3.03 of the Parent Disclosure Schedule
or the Parent SEC Reports, or pursuant to the Purchase Agreement, there are no
obligations, contingent or otherwise, of Parent or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Parent Common Stock or the
capital stock of any subsidiary or to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any such
subsidiary other than guarantees of bank obligations of subsidiaries entered
into in the ordinary course of business. Except as set forth in Section 3.01 or
3.03 of the Parent Disclosure Schedule, all of the outstanding shares of capital
stock of each of Parent's significant subsidiaries is duly authorized, validly
issued, fully paid and nonassessable and all such shares (other than directors'
qualifying shares) are owned by Parent or another subsidiary free and clear of
all security interests, liens, claims, pledges, agreements, limitations in
Parent's voting rights, charges or other encumbrances of any nature whatsoever.
SECTION 3.04. Authority Relative to this Agreement; Vote Required. (a) Each
of Parent and Merger Sub has all necessary corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby (other than (a) any approval of the issuance of Parent
Common Stock in connection with the Merger by the holders of at least a majority
of the outstanding shares of Parent Common Stock entitled to vote in accordance
with the DGCL and Parent's Certificate of Incorporation and By-Laws which is
required to satisfy the condition in
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Section 6.01(c) hereof and (b) the adoption of this Agreement, the Merger and
the transactions contemplated hereby by SSCI, as the sole holder of the
outstanding shares of Common Stock of Merger Sub). As of the date hereof, the
Board of Directors of Parent has determined that it is advisable and in the best
interest of Parent's stockholders for Parent to enter into a business
combination with the Company upon the terms and subject to the conditions of
this Agreement. This Agreement has been duly and validly executed and delivered
by Parent and Merger Sub.
(b) Assuming the due authorization, execution and delivery by the Company,
this Agreement constitutes a legal, valid and binding obligation of Parent and
Merger Sub, enforceable against Parent and Merger Sub in accordance with its
terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equitable remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
(c) Subject to Section 6.01(c)(ii), the approval of the holders of a
majority of the shares of Parent Common Stock voting at the meeting called to
approve the issuance of the Parent Shares in the Merger is the only vote of the
holders of any class or series of Parent capital stock necessary to approve the
issuance of Parent Common Stock in connection with the Merger. The approval of
SSCI, as the sole shareholder of all capital stock of Merger Sub, is the only
shareholder approval necessary to approve the Merger, this Agreement and the
transactions contemplated hereby on behalf of Merger Sub.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) Except as set
forth in Section 3.05(a) of the Parent Disclosure Schedule, the execution and
delivery of this Agreement by Parent and Merger Sub do not, and the performance
of this Agreement by Parent and Merger Sub will not, (i) conflict with or
violate the Certificate or Articles of Incorporation, as the case may be, or
By-Laws of Parent or Merger Sub, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which its or any of their respective properties are bound or
affected, or (iii) result in any violation or breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or impair Parent's or any of its subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or its or any of their respective properties
are bound or affected, except, in the case of clauses (ii) or (iii), for any
such conflicts, violations, breaches, defaults or other occurrences that would
not reasonably be expected to have a Material Adverse Effect or otherwise
prevent Parent or Merger Sub from performing their obligations under this
Agreement in any material respect.
(b) The execution and delivery of this Agreement by Parent and Merger Sub
does not, and the performance of this Agreement by Parent and Merger Sub will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental, judicial or regulatory authority, domestic
or foreign, except (i) for applicable requirements, if any, of the Securities
Act, the Exchange Act, the Blue Sky Laws, state takeover laws, the pre-merger
notification requirements of the HSR Act, the listing requirements of the NYSE
and the filing and recordation of the Certificate of Merger or other documents
as required by the MBCA, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or materially delay consummation of the Merger, or otherwise
prevent or materially delay Parent or Merger Sub from performing their
respective obligations under this Agreement, and would not have a Material
Adverse Effect.
SECTION 3.06. Compliance; Permits. (a) Except as disclosed in Section
3.06(a) of the Parent Disclosure Schedule, neither Parent nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
statute, rule, regulation, order, judgment, writ, injunction or decree
applicable to Parent or any of its subsidiaries or by which its or any of their
respective properties is bound or affected or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to
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which Parent or any of its subsidiaries is a party or by which Parent or any of
its subsidiaries or its or any of their respective properties is bound or
affected, except for any such conflicts, defaults or violations which would not
reasonably be expected to have a Material Adverse Effect.
(b) Except as disclosed in Section 3.06(b) of the Parent Disclosure
Schedule, Parent and its subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, orders and approvals from
governmental authorities which are material to the operation of the business of
Parent and its subsidiaries taken as a whole as it is now being conducted
(collectively, the "Parent Permits"). Parent and its subsidiaries are in
compliance with the terms of Parent Permits, except where the failure to so
comply would not reasonably be expected to have a Material Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) Parent has filed all
forms, reports, statements and other documents required to be filed by it with
the SEC since January 1, 1995 (such forms, reports, statements and other
documents are hereinafter referred to as the "Parent SEC Reports"). Except as
disclosed in Section 3.07 of the Parent Disclosure Schedule, the Parent SEC
Reports (i) were prepared in all material respects in accordance with the
applicable requirements of the Securities Act or the Exchange Act, as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) 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. None of Parent's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) The consolidated financial statements (including, in each case, any
related notes and schedules thereto) contained in the Parent SEC Reports were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly presented in all material respects the consolidated financial
position of Parent and its consolidated subsidiaries as at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments.
SECTION 3.08. Absence of Certain Changes or Events. Except as set forth in
Section 3.08 of the Parent Disclosure Schedule or the Parent SEC Reports, since
September 7, 1996, Parent has conducted its business in the ordinary course and
there has not occurred (i) any Material Adverse Effect; (ii) any amendments or
changes in the Certificate of Incorporation or By-Laws of Parent; (iii) any sale
of a material amount of assets of Parent; (iv) any material change by Parent in
its accounting methods, principles or practices except as required by any change
in GAAP or as a result of a change in law; or (v) any material revaluation by
Parent of any of its assets, including without limitation, writing down the
value of inventory or writing off notes or accounts receivable other than in the
ordinary course of business.
SECTION 3.09. [Intentionally Left Blank.]
SECTION 3.10. Employee Benefit Plans. Except as provided in the Parent SEC
Reports or as would not have a Material Adverse Effect, (i) all employee benefit
plans or programs maintained for the benefit of the current or former employees
or directors of Parent or any subsidiary of Parent that are sponsored,
maintained or contributed to by Parent or any subsidiary of Parent, or with
respect to which Parent or any subsidiary of Parent has any liability, including
any such plan that is an "employee benefit plan" as defined in Section 3(3) of
ERISA, are in compliance with all applicable requirements of law, including
ERISA and the Code, and (ii) neither Parent nor any subsidiary of Parent has any
liabilities or obligations with respect to any such employee benefit plans or
programs, whether accrued, contingent or otherwise, except liabilities or
obligations incurred in the ordinary course.
SECTION 3.11. Labor Matters. Except as set forth in Section 3.11 of the
Parent Disclosure Schedule or the Parent SEC Reports, (i) there are no claims or
proceedings pending or, to the knowledge of Parent, threatened, between Parent
or any of its subsidiaries and any of their respective employees, which claims
or proceedings have or would reasonably be expected to have a Material Adverse
Effect and (ii) Parent is not aware of any strikes, slowdowns, work stoppages,
lockouts, boycotts, corporate campaigns or threats thereof,
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by or with respect to any employees of Parent or any of its subsidiaries which
would reasonably be expected to have a Material Adverse Effect.
SECTION 3.12. Registration Statement; Proxy Statement/Prospectus. Subject
to the accuracy of the representations of the Company in Section 2.12, the
Registration Statement shall not, at the time the Registration Statement
(including amendments or supplements thereto) is declared effective by the SEC,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements included therein not misleading.
The information supplied by Parent for inclusion in the Proxy
Statement/Prospectus will not, on the date the Proxy Statement/Prospectus is
first mailed to the stockholders of the Company and, if required, Parent at the
time of the Company Stockholders Meeting and, if required, the Parent
Stockholders Meeting and at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to state
any material fact necessary in order to make any statement made therein not
false or misleading. If at any time prior to the Effective Time any event
relating to Parent, Merger Sub or any of their respective affiliates, officers
or directors should be discovered by Parent or Merger Sub which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Parent or Merger Sub will promptly inform the Company.
Notwithstanding the foregoing, Parent and Merger Sub make no representation or
warranty with respect to any information supplied by the Company which is
contained or incorporated by reference in any of the foregoing documents.
SECTION 3.13. Environmental Matters. Except as set forth in Section 3.13 of
the Parent Disclosure Schedule or the Parent SEC Reports, and except in all
cases as, in the aggregate, have not had and would not reasonably be expected to
have a Material Adverse Effect, Parent and each of its subsidiaries to the best
of Parent's knowledge (i) have obtained all applicable permits, licenses and
other authorization which are required to be obtained under all applicable
Environmental Laws by Parent or its subsidiaries (or their respective agents);
(ii) are in compliance with all terms and conditions of such required permits,
licenses and authorization, and also are in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in applicable Environmental
Laws; (iii) as of the date hereof, are not aware of nor have received notice of
any past or present violations of Environmental Laws, or any event, condition,
circumstance, activity, practice, incident, action or plan which is reasonably
likely to interfere with or prevent continued compliance with or which would
give rise to any common law or statutory liability, or otherwise form the basis
of any claim, action, suit or proceeding, against Parent or any of its
subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by Parent or its subsidiaries (or any of
their respective agents) thereunder.
SECTION 3.14. Brokers. Except as set forth in Section 3.14 of the Parent
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Merger Sub.
SECTION 3.15. Purchase Agreement. Parent and SSI Associates, L.P. have
entered into an Amended and Restated Stock Repurchase Agreement, dated as of
January 8, 1997 and substantially in the form of Exhibit A hereto (the "Purchase
Agreement"), for the purchase by Parent of an aggregate of 32,000,000 shares of
Parent Common Stock (or warrants to purchase Parent Common Stock) (the
"Repurchase").
SECTION 3.16. Ownership of SSCI and Merger Sub; Capitalization of Merger
Sub; No Prior Activities. SSCI is a direct wholly owned subsidiary of Parent. As
of the date hereof, the authorized capital stock of Merger Sub consists of 1,000
shares of common stock, all of which are issued and outstanding and held by
SSCI. Merger Sub was formed solely for the purpose of engaging in the
transaction contemplated by this Agreement. As of the date hereof and the
Effective Time, except for obligations or liabilities incurred in connection
with its incorporation or organization and the transactions contemplated by this
Agreement and except for this Agreement and any other agreement or arrangements
contemplated by this Agreement, Merger
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Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
SECTION 3.17. Opinion of Financial Advisor. Parent has been advised by its
financial advisor, Morgan Stanley & Co. that in its opinion, as of the date
hereof, the Exchange Ratio set forth herein is fair from a financial point of
view to Parent.
SECTION 3.18. Takeover Statutes. Parent has taken all action necessary so
that the restrictions set forth in Section 203 of the General Corporation Law of
the State of Delaware will not and do not apply to the Support/Voting Agreements
dated as of the date hereof between the Company and certain Parent stockholders.
ARTICLE IV.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. Conduct of Business by the Company Pending the Merger. During
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, the Company covenants
and agrees that, unless Parent shall otherwise agree in writing, (i) the Company
shall conduct its business and shall cause the businesses of its subsidiaries to
be conducted only in, and the Company and its subsidiaries shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice; (ii) the Company shall, and shall cause its subsidiaries to,
use commercially reasonable efforts to keep in full force and effect adequate
insurance coverages consistent with past practice and maintain and keep its
properties and assets in good repair, working order and condition, normal wear
and tear excepted; and (iii) the Company shall use its reasonable efforts to
preserve substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, except as
contemplated by this Agreement, neither the Company nor any of its subsidiaries
shall, during the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, directly
or indirectly do, or propose to do, any of the following without the prior
written consent of Parent:
(a) amend or otherwise change its Articles of Incorporation or By-laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock of any
class, or any options, warrants, convertible securities or other rights of any
kind to acquire any shares of capital stock, or any other ownership interest
(including, without limitation, any phantom interest) in the Company or any of
its subsidiaries, except for the issuance of shares of Company Common Stock
issuable upon the exercise of Stock Options which were granted under the Company
Stock Option Plans and are outstanding on the date hereof;
(c) except as set forth on Schedule 4.01(c) of the Company Disclosure
Schedule, sell, pledge, dispose of or encumber any real property (whether a fee
or leasehold interest) or any other assets of the Company or any of its
subsidiaries, except for (i) sales of non-real property assets in the ordinary
course of business and in a manner consistent with past practice or (ii)
dispositions of obsolete or worthless assets;
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iii) repurchase, redeem or otherwise acquire, or agree to commit
to repurchase, redeem or otherwise acquire, any shares of capital stock or other
equity or debt securities or equity interests of the Company or any of its
subsidiaries or (iv) amend the terms, change the period of
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exercisability or accelerate the exercisability of, purchase, repurchase, redeem
or otherwise acquire, or permit any subsidiary to purchase, repurchase, redeem
or otherwise acquire, any of its securities or any securities of its
subsidiaries, including, without limitation, shares of Company Common Stock or
any Stock Option or other option, warrant or right, directly or indirectly, to
acquire shares of Company Common Stock, or propose to do any of the foregoing;
provided that clauses (iii) and (iv) shall not prohibit the exercise of Stock
Options through the use of Company Common Stock issuable upon exercise of Stock
Options (or other shares of Company Common Stock held by the holder of such
Option) to pay the exercise price or to satisfy tax withholding obligations
pursuant to the terms of Stock Options in effect as of the date hereof.
(e) (i) acquire (by merger, consolidation, or acquisition of stock, equity
securities, interests or assets) any corporation, partnership, joint venture,
association or other business organization or division thereof; (ii) except as
set forth in Schedule 4.01(e) of the Company Disclosure Schedule, incur any
indebtedness for borrowed money (including draw downs on lines of credit or
letters of credit) or issue any debt securities or assume, guarantee (other than
borrowings under the Company's bank debt or entered into in the ordinary course
of business consistent with past practice) or endorse or otherwise as an
accommodation become responsible for, the obligations of any person, or make any
loans or advances, except in the ordinary course of business consistent with
past practice or pursuant to the VAT Partnership or VAT II Partnership described
in Section 2.01(a) of the Company Disclosure Schedule; (iii) other than leases
or contracts to purchase real property as set forth in clause (iv) below or as
described in Section 4.01(e) of the Company Disclosure Schedule, enter into or
amend any material contract or agreement or any agreement with a term longer
than one year; (iv) except as described in Section 4.01(e) of the Company
Disclosure Schedule, acquire any interest in real properties; or (v) except as
described in Section 4.01(e) of the Company Disclosure Schedule or in order to
fulfill its obligations under a written agreement, contract or arrangement to
which the Company or a subsidiary is a party or by which it is bound, authorize
any capital expenditures or purchase or lease of property or services (other
than purchasing or merchandising product in the ordinary course of business
consistent with past practice) (A) which are in the aggregate for any individual
store, distribution center, office, warehouse or other Company facility (a
"Facility"), in excess of $500,000, (B) which are in the aggregate for any
single vendor (including any affiliates thereof) in excess of $1,000,000 over
the term of the contract or (C) from any single vendor (including any affiliates
thereof) which property or services are to be employed at or provided to more
than five Facilities.
(f) increase the compensation payable or to become payable to any director,
officer, consultant or employee of the Company or any of its subsidiaries,
except for increases in salaries or wages of employees which are required
pursuant to collective bargaining agreements or other written agreements entered
into prior to the date hereof, or grant any severance or termination pay to, or
enter into any employment or severance agreement with any director, officer
(except for officers who are terminated on an involuntary basis) or other
employee of the Company or any of its subsidiaries, or establish, adopt, enter
into or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any current or former
directors, officers or employees (any of the foregoing being an "Employee
Benefit Arrangement"), except, in each case, as may be required by law or
collective bargaining agreement, and except as set forth on Schedule 4.01(f) of
the Company Disclosure Schedule;
(g) take any action to change in any material respect accounting policies
or procedures, except as may be required by GAAP or as a result of a change in
law;
(h) except as set forth on Schedule 4.01(h) of the Company Disclosure
Schedule, make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations, except to the extent the
amount of any such settlement has been reserved for in the financial statements
contained in the Company SEC Reports filed prior to the date of this Agreement;
(i) except as set forth on Schedule 4.01(i) of the Company Disclosure
Schedule, pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent
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with past practice of liabilities reflected or reserved against in the financial
statements contained in the Company SEC Reports filed prior to the date of this
Agreement or incurred in the ordinary course of business and consistent with
past practice;
(j) elect, pursuant to Section 783 of the MBCA, to be covered by the
provisions of Section 780 of the MBCA or take any action which could cause the
Company or the shares of Company Common Stock held by Parent or any direct or
indirect wholly owned subsidiary of Parent to be covered by the provisions of
Section 790 et seq. of the MBCA;
(k) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company and its subsidiaries;
(l) adopt any resolutions of the Board of Directors which would grant the
Company's stockholders dissenters' rights pursuant to the MBCA; or
(m) take, or agree (in writing or otherwise) to take, any of the actions
described in Sections 4.01(a) through (l) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder or permit any of the
conditions set forth in Article VI from not being satisfied.
SECTION 4.02. No Solicitation. (a) Neither the Company nor any of its
subsidiaries shall, nor shall it authorize any of its officers, directors,
employees, agents, investment bankers, attorneys, financial advisors or other
representatives retained by it or any of its subsidiaries (collectively,
"Company Representatives") to, directly or indirectly, (i) solicit or initiate
the submission of, any Acquisition Proposal (as defined in Section 4.02(c)),
(ii) participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action intended to
facilitate any inquiries or the making of any proposal that constitutes or would
reasonably be expected to lead to, an Acquisition Proposal or (iii) enter into
any agreement with respect to, agree to, approve or recommend any Acquisition
Proposal. Nothing in this Section 4.02(a) shall prevent the Board of Directors
of the Company (or any committee thereof) from considering, negotiating,
discussing, approving and recommending to the stockholders of the Company a bona
fide Acquisition Proposal not solicited in violation of this Agreement, provided
the Board of Directors of the Company determines in good faith, based upon
advice of outside legal counsel, that it is required to do so in order to
discharge properly its fiduciary duties. Nothing contained in this Section
4.02(a) shall prevent the Board of Directors of the Company from taking and
disclosing to the Company's stockholders a position with regard to a tender
offer or exchange offer contemplated by Rules 14d-9 and 14e-2(a) promulgated
under the Exchange Act and making such disclosure to the stockholders of the
Company as may be required under applicable law; provided, that the Board of
Directors of the Company shall not recommend that the stockholders of the
Company tender their shares of Company Common Stock in connection with such
tender or exchange offer unless the Board of Directors of the Company determines
in good faith, based upon advice of outside legal counsel, that making such
recommendation is required in order to discharge properly its fiduciary duties.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company or
any of its subsidiaries in connection with an Acquisition Proposal or for access
to the properties, books or records of the Company or any subsidiary by any
person or entity that informs the Board of Directors of the Company or such
subsidiary that it is considering making, or has made, an Acquisition Proposal.
(c) As used in this Agreement, "Acquisition Proposal" shall mean any
proposal or offer from any person (other than Parent, Merger Sub or any other
direct or indirect wholly owned subsidiary of Parent) relating to (i) any direct
or indirect acquisition or purchase of any equity interest in, or a substantial
amount of assets of, the Company or its subsidiaries, (ii) any tender offer or
exchange offer (including a self-tender offer), (iii) any merger, consolidation,
recapitalization, liquidation, business combination or similar transaction
involving the Company other than the transactions contemplated by this Agreement
or (iv) any other
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extraordinary transaction the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or materially delay the Merger.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from the confidentiality
provisions of any confidentiality agreement to which the Company is a party
unless the Board of Directors of the Company determines in good faith, based
upon advice of outside legal counsel, that making such release is required in
order to discharge properly its fiduciary duties. If the Board of Directors of
the Company receives a request for material nonpublic information by a person
who makes, or indicates that it is considering making, a bona fide Acquisition
Proposal, and the Board of Directors determines in good faith and upon the
advice of outside legal counsel that it is required to cause the Company to act
as provided in this Section 4.02(d) in order to discharge properly the
directors' fiduciary duties, then, provided such person has executed a
confidentiality agreement substantially similar to the one then in effect
between the Company and Parent, the Company may provide such person with access
to information regarding the Company.
(e) The Company shall advise the Company Representatives of the
restrictions described in this Section 4.02.
SECTION 4.03. Conduct of Business by Parent Pending the Merger. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and agrees
that, unless the Company shall otherwise agree in writing, (i) Parent shall
conduct its business and shall cause the businesses of its subsidiaries to be
conducted only in, and Parent and its subsidiaries shall not take any action
except in, the ordinary course of business and in a manner consistent with past
practice; (ii) Parent shall, and shall cause its subsidiaries to, use
commercially reasonable efforts to keep in full force and effect adequate
insurance coverages consistent with past practice and maintain and keep its
properties and assets in good repair, working order and condition, normal wear
and tear excepted; and (iii) Parent shall use its reasonable efforts to preserve
substantially intact the business organization of Parent and its subsidiaries,
to keep available the services of the present officers, employees and
consultants of Parent and its subsidiaries and to preserve the present
relationships of Parent and its subsidiaries with customers, suppliers and other
persons with which Parent or any of its subsidiaries has significant business
relations. By way of amplification and not limitation, except as contemplated by
this Agreement, neither Parent nor any of its subsidiaries shall, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, directly or indirectly do,
or propose to do, any of the following without the prior written consent of the
Company:
(a) amend or otherwise change Parent's Certificate of Incorporation or
By-Laws;
(b) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets of any other person, which, in any such case, would prevent
or materially delay the consummation of the transactions contemplated by this
Agreement;
(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of Parent may
declare and pay a dividend to its parent;
(d) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause Parent
not to perform its covenants hereunder or prevent any of the conditions set
forth in Article VI not being satisfied;
(e) take any action to change in any material respect accounting policies
or procedures, except as may be required by GAAP or as a result of a change in
law; or
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(f) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of Parent
and its subsidiaries.
SECTION 4.04. Parent Repurchase Right. Except as contemplated by the
Purchase Agreement during the period from the date of this Agreement and
continuing through the earlier termination of this Agreement or the Effective
Time, Parent will not, directly or indirectly, repurchase, redeem or otherwise
acquire or agree to commit to repurchase, redeem or otherwise acquire, directly
or indirectly any shares of capital stock or other equity security of Parent or
any of its subsidiaries, including, without limitation, shares of Parent Common
Stock, or other option, warrant or right, directly or indirectly, to acquire
shares of Parent Common Stock ("Parent Equity Securities"); provided, however,
that Parent may repurchase, redeem or otherwise acquire or agree to commit to
repurchase, redeem or otherwise acquire Parent Equity Securities so long as (i)
such repurchase or agreement to repurchase has been approved by at least two
independent members of Parent's Board of Directors and (ii) Parent has received
a written opinion from a nationally recognized investment banking firm that, as
of the date rendered, the price to be paid for such Parent Equity Securities is
fair from a financial point of view to Parent and its stockholders (which, if
relevant for purposes of such opinion, shall not be deemed to include any
stockholder, or any affiliate of any stockholder, who is selling Parent Equity
Securities in the transaction); provided further that this Section 4.04 shall
not prohibit the exercise of stock options to purchase Parent Common Stock
through the use of Parent Common Stock issuable upon exercise of such stock
options (or other shares of Parent Common Stock held by the holder of such
options) to pay the exercise price or to satisfy tax withholding obligations
pursuant to the terms of such stock options in effect as of the date hereof.
ARTICLE V.
ADDITIONAL AGREEMENTS
SECTION 5.01. HSR Act; Etc. As promptly as practicable after the date of
the execution of this Agreement, the Company and Parent shall file notifications
under and in accordance with the HSR Act. The Company and Parent shall respond
as promptly as practicable to any inquiries received from the Federal Trade
Commission and the Antitrust Division of the Department of Justice for
additional information or documentation and shall respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other governmental authority (foreign or domestic) in connection with
antitrust matters.
SECTION 5.02. Proxy Statement/Prospectus; Registration Statement. (a) As
promptly as practicable after the execution of this Agreement, (i) the Company
shall prepare and file with the SEC (with appropriate requests for confidential
treatment) under the Exchange Act a proxy statement/prospectus and a form of
proxy (or, to the extent a Parent Stockholders Meeting, as defined below, is
required to be held, the Company and Parent shall prepare and file with the SEC
under the Exchange Act a joint proxy statement/prospectus and forms of proxies)
(such proxy statement/prospectus or joint proxy statement/prospectus, as the
case may be, together with any amendments thereof or supplements thereto, in
each case in the form or forms delivered to the stockholders of the Company and,
if applicable, the stockholders of Parent, the "Proxy Statement/Prospectus")
relating to the Company Stockholders Meeting and the vote of the stockholders of
the Company with respect to the Merger (and, if applicable, the Parent
Stockholders Meeting and the vote of the stockholders of Parent with respect to
the issuance of Parent Common Stock in connection with the Merger) and (ii)
following clearance by the SEC of the Proxy Statement, Parent shall prepare and
file with the SEC under the Securities Act a registration statement on Form S-4
or any other form as may be appropriate (such registration statement, together
with any amendments thereof or supplements thereto, the "Registration
Statement") with respect to the Parent Common Stock to be issued by Parent in
connection with the Merger, which Registration Statement shall include the Proxy
Statement/Prospectus as a prospectus. Parent and the Company will cause the
Registration Statement and the Proxy Statement/Prospectus to comply in all
material respects with the Securities Act, the Exchange Act and the rules and
regulations thereunder. Each of Parent and the Company shall use all reasonable
efforts to have or cause the Registration Statement to become effective
(including clearing the Proxy Statement/Prospectus with the SEC) as promptly as
practicable thereafter, and shall take any and all actions required under any
applicable federal or state
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securities or Blue Sky Laws in connection with the issuance of shares of Parent
Common Stock pursuant to the Merger. Without limiting the generality of the
foregoing, each of Parent and the Company agrees to use all reasonable efforts,
after consultation with the other such party, to respond promptly to any
comments made by the SEC with respect to the Proxy Statement/Prospectus
(including each preliminary version thereof) and the Registration Statement
(including each amendment thereof and supplement thereto). Each of Parent and
the Company shall, and shall cause its respective representatives to, fully
cooperate with the other such party and its respective representatives in the
preparation of the Proxy Statement/Prospectus and the Registration Statement,
and shall, upon request, furnish the other such party with all information
concerning it and its affiliates, directors, officers and stockholders as the
other may reasonably request in connection with the preparation of the Proxy
Statement/Prospectus and the Registration Statement. As promptly as practicable
after the Registration Statement shall have become effective, the Company and,
if applicable, Parent shall cause the Proxy Statement/Prospectus to be mailed to
their respective stockholders.
(b) Without limiting the generality of the foregoing (i) the Company and
Parent shall each notify the other as promptly as practicable upon becoming
aware of any event or circumstance which should be described in an amendment of,
or a supplement to, the Proxy Statement/Prospectus or the Registration
Statement, and (ii) the Company and Parent shall each notify the other as
promptly as practicable after the receipt by it of any written or oral comments
of the SEC on, or of any written or oral request by the SEC for amendments or
supplements to, the Proxy Statement/Prospectus or the Registration Statement,
and shall promptly supply the other with copies of all correspondence between it
or any of its representatives and the SEC with respect to any of the foregoing
filings.
SECTION 5.03. Stockholders Meetings. The Company and, if required to
satisfy the condition set forth in Section 6.01(c), Parent shall call and hold
the Company Stockholders Meeting and the Parent Stockholders Meeting,
respectively, as promptly as practicable and in accordance with applicable laws
for the purpose of voting upon the approval of the Merger and the adoption of
this Agreement, in the case of the Company Stockholders Meeting, and the
issuance of Parent Common Stock in connection with the Merger, in the case of
any required Parent Stockholders Meeting. The Company and, if required, Parent
shall use all reasonable efforts to hold their respective stockholders meetings
as soon as practicable after the date on which the Registration Statement
becomes effective and, if a Parent Stockholders Meeting is required, on the same
day (and at the same time of such day). Unless otherwise required under the
applicable fiduciary duties of the respective directors of the Company and
Parent, as determined by such directors in good faith after consultation with
and based upon the advice of their respective outside legal counsel, the Company
and, if required to satisfy the condition set forth in Section 6.01(c), Parent
shall (a) recommend, in the case of the Company, that the Company stockholders
vote in favor of the approval and adoption this Agreement, the Merger and the
other transactions contemplated herein and, in the case of Parent, that Parent's
stockholders vote in favor of the issuance of Parent Common Stock in connection
with the Merger, and include in the Proxy Statement/Prospectus each such
recommendation and (b) use all reasonable efforts to solicit from their
respective stockholders proxies in favor of the approval and adoption of the
proposals recommended by them in subclause (a) above and take all other action
necessary or advisable to secure the vote or consent of stockholders to obtain
such approval. At the Company Stockholders Meeting, Parent agrees to vote or to
cause to be voted in favor of approval of the Merger, this Agreement and the
transactions contemplated hereby, all shares of Company Common Stock for which
the beneficial owner is Parent or its subsidiaries.
SECTION 5.04. Access to Information; Confidentiality. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject (from which such party shall use reasonable efforts
to be released), the Company and Parent shall each (and shall cause each of
their subsidiaries to) afford to the officers, employees, accountants, counsel
and other representatives of the other, reasonable access, during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, the Company and Parent each
shall (and shall cause each of their subsidiaries to) furnish promptly to the
other all information concerning its business, properties and personnel as such
other party may reasonably request, and each shall make available to the other
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either Parent or the Company may reasonably request. Each party shall keep
such
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information confidential in accordance with the terms of the respective
confidentiality letters, dated November 11, 1996, November 25, 1996 and December
5, 1996 (the "Confidentiality Letters"), between Parent and the Company.
SECTION 5.05. Consents; Approvals. The Company and Parent shall each use
its reasonable efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all United States and
foreign governmental and regulatory rulings and approvals), and the Company and
Parent shall make all filings (including, without limitation, all filings with
United States and foreign governmental or regulatory agencies) required in
connection with the authorization, execution and delivery of this Agreement by
the Company and Parent and the consummation by them of the transactions
contemplated hereby.
SECTION 5.06. Agreements with Respect to Affiliates. The Company shall
request each person who is identified by the Company as being an "affiliate" of
the Company at the time of the Company Stockholders Meeting for purposes of Rule
145 under the Securities Act ("Rule 145") to deliver to Parent, prior to the
Effective Time, a written agreement in connection with restrictions on
affiliates under Rule 145 in the form attached hereto as Exhibit B.
SECTION 5.07. Indemnification and Insurance. (a) The Articles of
Incorporation and By-Laws of the Surviving Corporation shall contain provisions
with respect to indemnification and exculpation no less favorable than those set
forth in the Articles of Incorporation and By-Laws of the Company, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
(b) The Company shall, to the fullest extent permitted under applicable law
or under the Company's Articles of Incorporation or By-Laws and regardless of
whether the Merger becomes effective, indemnify and hold harmless, and, after
the Effective Time, Parent and the Surviving Corporation shall, to the fullest
extent permitted under applicable law or under the Surviving Corporation's
Articles of Incorporation or By-Laws, indemnify and hold harmless, each present
and former director, officer or employee of the Company or any of its
subsidiaries (collectively, the "Indemnified Parties") against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, (x) arising out of or pertaining to the transactions contemplated
by this Agreement or (y) otherwise with respect to any act or omissions
occurring at or prior to the Effective Time, in each case for a period of six
years after the date hereof. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) any counsel retained by the Indemnified Parties for any period after
the Effective Time shall be reasonably satisfactory to the Surviving
Corporation, (ii) after the Effective Time, the Surviving Corporation shall pay
the reasonable fees and expenses of such counsel, promptly after statements
therefor are received, and (iii) the Surviving Corporation will cooperate in the
defense of any such matter; provided, however, the Surviving Corporation shall
not be liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld); and provided, further, that, in the
event that any claim or claims for indemnification are asserted or made within
such six-year period, all rights to indemnification in respect of any such claim
or claims shall continue until the disposition of any and all such claims. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to any single action unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties in which case this limitation shall not
apply.
(c) For a period of four years after the Effective Time, Parent shall cause
the Surviving Corporation to maintain in effect, if available, directors' and
officers' liability insurance covering those persons who are currently covered
by the Company's directors' and officers' insurance policy (a copy of which has
been made available to Parent) on terms comparable to those now applicable to
directors and officers of the Company; provided, however, (i) that Parent and
the Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions that are no less
advantageous to such covered persons) or provide for such coverage under
Parent's directors' and officers' liability insurance policy (a copy
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of which has been made available to the Company) if Parent's policy provides at
least the same coverage and amounts on terms and conditions that are no less
favorable to covered persons than the Company's current policy; and (ii) that in
no event shall Parent or the Surviving Corporation be required to expend in
excess of $1,070,000 for such coverage; and provided further, that if the
premium for such coverage exceeds such amount, Parent or the Surviving
Corporation shall purchase a policy with the greatest coverage available for
such amount.
(d) From and after the Effective Time, Parent shall guarantee the
obligations of the Surviving Corporation under this Section 5.07.
(e) This Section 5.07 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
the Surviving Corporation and shall be enforceable by the Indemnified Parties.
SECTION 5.08. Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence
of which would be likely to cause any representation or warranty contained in
this Agreement to be materially untrue or inaccurate, or (ii) any failure of the
Company, Parent or Merger Sub, as the case may be, materially to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.08 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and provided further that failure
to give such notice shall not be treated as a breach of covenant for the
purposes of Sections 6.02(b) or 6.03(b) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 5.09. Further Action/Tax Treatment. Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all 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 transactions contemplated by this
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and otherwise
to satisfy or cause to be satisfied all conditions precedent to its obligations
under this Agreement. Each of Parent, Merger Sub and the Company shall use its
best efforts to cause the Merger to qualify, and will not (both before and after
consummation of the Merger) take any actions which to its knowledge could
reasonably be expected to prevent the Merger from qualifying as a reorganization
under the provisions of Section 368(a) of the Code.
SECTION 5.10. Public Announcements. Parent and the Company shall consult
with each other before issuing any press release with respect to the Merger or
this Agreement and shall not issue any such press release or make any such
public statement without the prior consent of the other party, which shall not
be unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may upon the advice of outside legal counsel be required by
applicable law or the rules and regulations of the NYSE, if it has used all
reasonable efforts to consult with the other party and its counsel and allow
such other party and its counsel to comment thereon.
SECTION 5.11. Employee Benefit Arrangements. Parent agrees that the Company
will honor and, from and after the Effective Time, Parent will cause the
Surviving Corporation to honor, all obligations under Employee Benefit
Arrangements to which the Company or any of its subsidiaries is presently a
party which are listed in Section 5.11 of the Company Disclosure Schedule. Until
December 31, 1997, Parent shall cause the Surviving Corporation to continue to
provide to employees of the Company and its subsidiaries (excluding employees
covered by collective bargaining agreements), as a whole, Employee Benefits (as
defined below) which, in the aggregate, have a value which is substantially
comparable to the value of such Employee Benefits provided to such employees as
of the date hereof; and from January 1, 1998 until December 31, 1998, Parent
shall cause the Surviving Corporation to provide to employees of the Company and
its subsidiaries (excluding employees covered by collective bargaining
agreements), as a whole, Employee Benefits which, in the aggregate, have a value
which is substantially comparable to the value of such Employee Benefits
provided by Parent to its employees employed in Parent's Northern California
Division; provided, that nothing in this
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sentence shall be deemed to limit or otherwise affect the right of the Surviving
Corporation to terminate employment or change the place of work,
responsibilities, status, designation or employee benefits of any employee or
group of employees as the Surviving Corporation may determine in the exercise of
its business judgment and in compliance with applicable laws. For all Employee
Benefits (including without limitation plans or programs of Parent and its
affiliates after the Effective Time), all service with the Company or any of its
subsidiaries prior to the Effective Time of employees (excluding employees
covered by collective bargaining agreements) shall be treated as service with
Parent and its affiliates for eligibility and vesting purposes, but not for the
purpose of benefit accrual, to the same extent that such service is taken into
account by the Company and its subsidiaries as of the date hereof, except to the
extent such treatment will result in duplication of benefits. "Employee
Benefits" means only the following benefits: any medical, health, dental, life
insurance, long-term disability, severance, pension, retirement or savings plan,
policy or arrangement, whose coverage is not generally limited to officers or a
select group of highly compensated employees of the Company or any of its
subsidiaries. This Section 5.11 is not intended to be for the benefit of and
shall not be enforceable by any employee, former employee or dependent or
beneficiary thereof or any collective bargaining representative thereof.
SECTION 5.12. Use of Name; Headquarters. (a) With respect to Company stores
that Parent or its subsidiaries operate after the Effective Time, Parent agrees
that for a period of at least two years from and after the Effective Time,
Parent and/or its subsidiaries will operate such stores under the "Vons" or
"Pavilions" names.
(b) Parent's present intention is to maintain a division headquarters for
the Surviving Corporation's operations in Arcadia, California for two years
following the Effective Time; provided that if Parent determines to relocate the
headquarters, it will use commercially reasonable efforts during such two-year
period to keep the headquarters in the San Gabriel Valley.
SECTION 5.13. Listing of Shares. The Company shall use its best efforts to
continue the listing of the Company Common Stock on the NYSE during the term of
this Agreement and Parent shall use its best efforts to cause the Parent Shares
to be issued in the Merger to be listed, upon official notice of issuance, on
the NYSE prior to the Effective Time.
SECTION 5.14. Conveyance Taxes. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time.
ARTICLE VI.
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of the Registration Statement. The Registration Statement
shall have been declared effective by the SEC. No stop order suspending the
effectiveness of the Registration Statement shall have been issued by the SEC
and no proceedings for that purpose and no similar proceeding in respect of the
Proxy Statement/Prospectus shall have been initiated or threatened by the SEC;
(b) Company Stockholder Approval. This Agreement, the Merger and the
transactions contemplated hereby shall have been approved and adopted by (i) the
requisite vote of the stockholders of the Company and (ii) a majority of the
outstanding shares of Company Common Stock not held by Parent or its affiliates;
(c) Parent Stockholder Approval. Either (i) the issuance of Parent Common
Stock in the Merger pursuant to this Agreement shall have been approved by the
requisite vote of the stockholders of Parent or
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(ii) Parent and the Company, upon the advice of outside legal counsel, shall
have determined that the approval by Parent's stockholders of the issuance of
the Parent Common Stock in the Merger pursuant to the terms of this Agreement is
not required by the Policies and Procedures of the NYSE;
(d) Listing. The shares of Parent Common Stock to be issued in the Merger
shall have been authorized for listing on the NYSE, subject to official notice
of issuance;
(e) HSR Act. All waiting periods applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated; and
(f) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger, shall be in effect; and there shall not be any
action taken, or any statute, rule, regulation or order enacted, entered or
enforced which makes the consummation of the Merger illegal.
SECTION 6.02. Additional Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement (other than those set forth in Sections
2.03(a) and 2.04(a), (c), (d) and (e)) shall be true and correct in all respects
on and as of the Effective Time, except for (i) changes contemplated by this
Agreement, (ii) those representations and warranties which address matters only
as of a particular date (which shall have been true and correct as of such date)
and (iii) where the failure or failures of such representations and warranties
to be so true and correct, individually or in the aggregate, does not result or
would not reasonably be expected to result in a Material Adverse Effect, and the
representations and warranties of the Company set forth in Sections 2.03(a) and
2.04(a), (c), (d) and (e) shall be true and correct in all material respects,
subject to clauses (i) and (ii) above. Parent and Merger Sub shall have received
a certificate to such effect signed by the President of the Company;
(b) Agreements and Covenants. The Company 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 prior to the Effective
Time, and Parent and Merger Sub shall have received a certificate to such effect
signed by the President of the Company.
SECTION 6.03. Additional Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties of
the Parent and Merger Sub contained in this Agreement (other than those set
forth in Sections 3.03(a) and 3.04(a) and (c)) shall be true and correct in all
respects on and as of the Effective Time, except for (i) changes contemplated by
this Agreement, (ii) those representations and warranties which address matters
only as of a particular date (which shall have been true and correct as of such
date) and (iii) where the failure or failures of such representations and
warranties to be so true and correct, individually or in the aggregate, does not
result or would not reasonably be expected to result in a Material Adverse
Effect, and the representations and warranties of Parent and Merger Sub set
forth in Sections 3.03(a) and 3.04(a) and (c) shall be true and correct in all
material respects, subject to clauses (i) and (ii) above. The Company shall have
received a certificate to such effect signed by the President of Parent;
(b) Agreements and Covenants. Parent and Merger Sub 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 them on or prior to the
Effective Time, and the Company shall have received a certificate to such effect
signed by the President of Parent;
(c) Tax Opinion. The Company shall have received a written opinion of
Wachtell, Lipton, Rosen & Katz (addressed to the Company and the Company's
stockholders) in form and substance reasonably satisfactory to the Company to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code; and
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(d) Purchase Agreement. The Purchase Agreement shall be in full force and
effect in accordance with its terms and no circumstance shall exist that would
prevent the Repurchase from being consummated immediately following the
Effective Time.
ARTICLE VII.
TERMINATION
SECTION 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company or Parent:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and the Company; or
(b) by either Parent or the Company, if the Merger shall not have been
consummated by June 30, 1997 (provided that the right to terminate this
Agreement under this Section 7.01(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
a substantial contributor to the failure of the Merger to occur on or before
such date); or
(c) by either Parent or the Company, if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger (provided that the right to terminate this Agreement under this
Section 7.01(c) shall not be available to any party who has not complied with
its obligations under Section 5.09 and such noncompliance materially contributed
to the issuance of any such order, decree or ruling or the taking of such
action);
(d) by Parent, if (i) the Board of Directors of the Company shall withdraw,
modify or change its approval or recommendation of this Agreement or the Merger
in a manner adverse to Parent or shall have resolved to do so; or (ii) the Board
of Directors of the Company shall have recommended to the stockholders of the
Company an Acquisition Proposal (as defined in Section 4.02(c)); or (iii) a
tender offer or exchange offer for 20% or more of the outstanding shares of
Company Common Stock is commenced (other than by Parent or an affiliate of
Parent) and the Board of Directors of the Company recommends that the
stockholders of the Company tender their shares in such tender or exchange
offer;
(e) by the Company, if (i) the Board of Directors of the Company shall
determine in good faith, based upon advice of outside legal counsel, that it is
required, in order to discharge properly its fiduciary duties, to withdraw,
modify or change its approval or recommendation of this Agreement or the Merger
in a manner adverse to Parent or shall have resolved to do so; (ii) the Board of
Directors of the Company shall have recommended to the stockholders of the
Company an Acquisition Proposal (as defined in Section 4.02(c)); or (iii) a
tender offer or exchange offer for 20% or more of the outstanding shares of
Company Common Stock is commenced (other than by Parent or an affiliate of
Parent) and the Board of Directors of the Company recommends that the
stockholders of the Company tender their shares in such tender or exchange
offer; provided, that, the Company shall not be entitled to exercise any
termination rights under clause (ii) or (iii) of this Section 7.01(e) unless (x)
any action of the Board of Directors in order to discharge its fiduciary duties
in good faith upon advice of counsel and (y) the Company has complied with its
obligations in Section 4.02; or
(f) by Parent or the Company, if, at a duly held meeting of the
stockholders of the Company (including any adjournment thereof) held for the
purpose of voting on the Merger, this Agreement and the consummation of the
transactions contemplated hereby, the holders of a majority of the outstanding
shares of Company Common Stock (without giving effect to the shares of Company
Common Stock owned by Parent and its affiliates) shall not have approved the
Merger, this Agreement and the consummation of the transactions contemplated
hereby;
(g) by the Company, if, at a duly held meeting of the stockholders of
Parent (including any adjournment thereof) held for the purpose of voting on the
issuance of the Parent Common Stock in connection with the Merger, the requisite
vote of a majority of the holders of the outstanding shares of Parent Common
Stock shall not have approved such issuance.
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SECTION 7.02. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 7.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.03 and Section 8.01 hereof, and (ii) nothing herein shall relieve any
party from liability for any breach hereof.
SECTION 7.03. Fees and Expenses. (a) Except as set forth in this Section
7.03, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that
Parent and the Company shall share equally all fees and expenses, other than
attorneys' and accountants' fees, incurred in connection with the printing and
filing of the Proxy Statement/Prospectus (including any preliminary materials
related thereto) and the Registration Statement (including financial statements
and exhibits) and any amendments or supplements thereto.
(b) In order to induce Parent to enter into this Agreement, the Company
agrees that if: (x) prior to termination of this Agreement, any person other
than Parent and its affiliates shall have commenced, publicly proposed or
communicated to the Company an Acquisition Proposal (a "Pre-Termination
Acquisition Proposal") and (y) within three months of the termination of this
Agreement, such person, or any affiliate of such person, enters into any
definitive agreement to effect a transaction contemplated by an Acquisition
Proposal (which is related to such Pre-Termination Acquisition Proposal), then
the Company shall pay to Parent within five business days following the
consummation of the transaction that was contemplated by the Acquisition
Proposal a fee (the "Fee") of $50,000,000 in cash; provided, however, that in no
event shall the Company be obligated to pay more than one such fee with respect
to all such occurrences and provided further, no such fee shall be payable if
there has been a material misrepresentation by or material breach of any
material obligation of Parent hereunder which would entitle the Company to
terminate this Agreement under Section 7.01.
(c) If a Fee is payable to Parent pursuant to Section 7.03(b), then the
Company shall also reimburse Parent (not later than five business days after
submission of statements therefor) for all documented out-of-pocket (not
including allocation of overhead) fees and expenses ("Expenses") actually
incurred by it prior to such termination in connection with the proposed Merger
and the consummation of all transactions contemplated by this Agreement
(including fees and expenses of counsel, investment banking firms, accountants,
experts and consultants); provided, that the aggregate amount of Expenses
required to be reimbursed pursuant to this Section 7.03(c) shall not exceed
$5,000,000.
ARTICLE VIII.
GENERAL PROVISIONS
SECTION 8.01. Effectiveness of Representations, Warranties and Agreements;
Knowledge, Etc. (a) Except as otherwise provided in this Section 8.01, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.01, as the case may be, except that the agreements set
forth in Article I, Section 5.07 and Section 5.11 shall survive the Effective
Time indefinitely and those set forth in Section 7.03 shall survive termination
indefinitely. The Confidentiality Letters shall survive termination of this
Agreement as provided therein.
(b) Any disclosure made with reference to one or more Sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall be deemed
disclosed with respect to each other section therein as to which such disclosure
is relevant provided that such relevance is reasonably apparent.
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SECTION 8.02. 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 if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to Parent or Merger Sub:
Safeway Inc.
5918 Stoneridge Mall Road
Pleasanton, California 94588-3229
Telecopier No.: (510) 208-5863
Telephone No.: (510) 467-3000
Attention: President
With a copy to:
Latham & Watkins
505 Montgomery St.
San Francisco, California
Telecopier No.: (415) 395-8095
Telephone No.: (415) 391-0600
Attention: Scott R. Haber, Esq.
(b) If to the Company:
The Vons Companies, Inc.
618 Michillinda Avenue
Arcadia, California 91007
Telecopier No.: (818) 821-7594
Telephone No.: (818) 821-2596
Attention: Chairman and Chief Executive Officer
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopier No.: (212) 403-1000
Telephone No.: (212) 403-2000
Attention: Daniel A. Neff, Esq.
David A. Katz, Esq.
SECTION 8.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliates" 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;
(b) "beneficial owner" with respect to any shares of Company Common Stock
means a person who shall be deemed to be the beneficial owner of such shares (i)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 of the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares;
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(c) "business day" means any day other than a day on which banks in New
York are required or authorized to be closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "Material Adverse Effect," when used in connection with the Company or
any of its subsidiaries, or Parent or any of its subsidiaries, as the case may
be, means any change, effect or event that, individually or when taken together
with all other such changes, effects or events that have occurred prior to the
date of determination of the occurrence of the Material Adverse Effect, is
materially adverse to the business, assets (including intangible assets),
financial condition or EBITDA (considered on an annual basis) of the Company and
its subsidiaries or Parent and its subsidiaries, as the case may be, in each
case taken as a whole; provided, however, that "Material Adverse Effect" when
used in connection with the Company or any of its subsidiaries shall exclude (i)
items disclosed in the Company SEC Reports prior to the date hereof and (ii)
departures of officers, directors, consultants, employees or agents of the
Company resulting from the announcement or expectation of the Merger; and
provided further, that "Material Adverse Effect" when used in connection with
Parent or any of its subsidiaries shall exclude items disclosed in the Parent
SEC Reports prior to the date hereof.
(f) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act); and
(g) "significant subsidiary" or "significant subsidiaries" of the Company,
the Surviving Corporation, Parent or any other person means any subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such regulation
is in effect on the date hereof.
(h) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
more than 50% 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 other
legal entity.
SECTION. 8.04 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, no amendment
shall be binding upon the Company unless also approved by the Special Committee
of the Company's Board of Directors, and provided further, that after approval
of the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION. 8.05 Extension; Waiver. At any time prior to the Effective Time,
any party hereto may with respect to any other party hereto (a) extend the time
for the performance of any of the obligations or other acts, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (c) subject to Section 8.04, waive
compliance with any of the agreements or conditions (other than the condition
set forth in Section 6.01(b)(i)) contained herein; provided, however, that, no
extension or waiver set forth in subclauses (a), (b) or (c) above may be granted
by the Company hereunder unless approved by the Special Committee of the
Company's Board of Directors. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 8.06. 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.
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SECTION 8.07. 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
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto 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 transactions contemplated hereby are fulfilled to the extent possible.
SECTION 8.08. Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Letters and the Support/Voting Agreements), both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and, except as otherwise expressly provided herein.
SECTION 8.09. Assignment. This Agreement shall not be assigned by operation
of law or otherwise, except that Parent and Merger Sub may assign all or any of
their rights hereunder to Parent or any direct or indirect wholly owned
subsidiary of Parent provided that no such assignment shall release the
assigning party of its obligations hereunder. Parent guarantees the full
performance by Merger Sub of all the obligations hereunder of Merger Sub or any
such assignees.
SECTION 8.10. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation, other than
Section 5.07 (which is intended to be for the benefit of the Indemnified Parties
and may be enforced by such Indemnified Parties) and Section 1.06(c).
SECTION 8.11. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 8.12. Governing Law. Except to the extent that the laws of the
jurisdiction of organization of any party hereto, or any other jurisdiction, are
mandatorily applicable to the Merger or to matters arising under or in
connection with this Agreement, this Agreement shall be governed by the laws of
the State of New York.
SECTION 8.13. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 8.14. WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SAFEWAY INC.
By: /s/ MICHAEL C. ROSS
------------------------------------
Name: Michael C. Ross
Title: Senior Vice President,
Secretary and
General Counsel
SSCI MERGER SUB, INC.
By: /s/ MICHAEL C. ROSS
------------------------------------
Name: Michael C. Ross
Title: Vice President and Secretary
THE VONS COMPANIES, INC.
By: /s/ LAWRENCE A. DEL SANTO
------------------------------------
Name: Lawrence A. Del Santo
Title: Chairman and Chief Executive
Officer
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<PAGE> 115
APPENDIX B
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
March 5, 1997
Special Committee of the
Board of Directors
The Vons Companies, Inc.
618 Michillinda Avenue
Arcadia, California 91007
Dear Sirs:
You have asked us to advise you with respect to the fairness to the stockholders
of The Vons Companies, Inc. (the "Company"), other than Safeway Inc. (the
"Acquiror") and its subsidiaries, from a financial point of view of the exchange
ratio to be offered to such stockholders pursuant to the terms of the Agreement
and Plan of Merger, dated as of December 15, 1996, as amended by the First
Amendment to the Agreement and Plan of Merger, dated as January 8, 1997 (the
"Merger Agreement"), among the Acquiror, SSCI Merger Sub, Inc., an indirect
wholly owned subsidiary of the Acquiror (the "Sub"), and the Company. The Merger
Agreement provides for the merger (the "Merger") of the Sub with and into the
Company pursuant to which (i) the Company will become an indirect wholly owned
subsidiary of the Acquiror, (ii) each outstanding share of common stock, $0.10
par value (the "Company Common Stock"), of the Company (other than shares of
Company Common Stock held in the treasury of the Company or owned directly or
indirectly by the Acquiror or any of its subsidiaries or any subsidiary of the
Company) will be converted into 1.425 shares of common stock, $0.01 par value
(the "Acquiror Common Stock"), of the Acquiror, and (iii) each outstanding
option to purchase the Company Common Stock granted under the Company's 1987 and
1990 Stock Option Plans, whether vested or unvested, will be assumed by the
Acquiror and constitute an option to acquire, on the same terms and conditions
as were applicable to such option, the number of shares of Acquiror Common Stock
the holder of such option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
effectiveness of the Merger, at a price per share equal to (i) the aggregate
exercise price for the Company Common Stock otherwise purchasable pursuant to
such option divided by (ii) the number (rounded up to the nearest whole number)
of shares of Acquiror Common Stock purchasable pursuant to such option. In
connection with the Merger, the Acquiror and SSI Associates, L.P., a Delaware
limited partnership ("SSI") and an affiliate of Kohlberg Kravis Roberts & Co.,
entered into the Amended and Restated Stock Repurchase Agreement, dated as of
January 8, 1997, which provides that, immediately following the effectiveness of
the Merger, the Acquiror will repurchase from SSI 32 million shares of Acquiror
Common Stock for a purchase price equal to $43.00 per share.
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to the Company and the Acquiror, as well as
the Merger Agreement. We have also reviewed certain other information, including
financial forecasts, provided to us by the Company and the Acquiror, have met
with the Company's management to discuss the business and prospects of the
Company, and have met with the Acquiror's management to discuss the business and
prospects of the Company and the Acquiror.
We have also considered certain financial and stock market data of the Company
and the Acquiror, and we have compared that data with similar data for other
publicly held companies in businesses similar to those of the Company and the
Acquiror, and we have considered the financial terms of certain other business
combinations and other transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With
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Special Committee of the
Board of Directors
March 5, 1997
Page 2
respect to the financial forecasts, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the Company's and the Acquiror's managements as to the future
financial performance of the Company and the Acquiror. In addition, we have
assumed, with your consent, that the Merger will qualify as a "reorganization"
under Section 368(a) of the Internal Revenue Code of 1986, as amended, and that
it will be consummated in accordance with the terms set forth in the Merger
Agreement. We have not made an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of the Company or the Acquiror, nor
have we been furnished with any such evaluations or appraisals. Our opinion is
necessarily based upon financial, economic, market and other conditions as they
exist and can be evaluated on the date hereof. We are not expressing any opinion
as to what the value of the Acquiror Common Stock actually will be when issued
to the Company's stockholders pursuant to the Merger or the prices at which such
Acquiror Common Stock will trade subsequent to Merger. In connection with our
engagement, we approached third parties to solicit indications of interest in a
possible acquisition of the Company; however, none of such parties expressed
interest in pursuing a potential transaction with the Company.
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with the Merger and will receive a fee
for our services, a significant portion of which is contingent upon the
consummation of the Merger.
In the ordinary course of our business, Credit Suisse First Boston Corporation
and its affiliates may actively trade the debt and equity securities of both the
Company and the Acquiror for their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is for the information of the Special
Committee of the Board of Directors of the Company in connection with its
consideration of the Merger, does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the proposed Merger and is
not to be quoted or referred to, in whole or in part, in any registration
statement, prospectus or proxy statement, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without Credit Suisse First Boston Corporation's
prior written consent. Notwithstanding the foregoing, this letter may be
included in its entirety in any communication by the Company, the Special
Committee of the Board of Directors or the Board of Directors of the Company to
the stockholders of the Company; provided, however, that Credit Suisse First
Boston Corporation has had the opportunity to review such communication prior to
its filing with the Securities and Exchange Commission and prior to its
dissemination to stockholders. Based upon and subject to the foregoing, it is
our opinion that, as of the date hereof, the exchange ratio to be offered the
stockholders of the Company in the Merger is fair to such stockholders, other
than the Acquiror and its subsidiaries, from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, Safeway's
Restated Certificate of Incorporation provides that a director of Safeway will
not be personally liable to Safeway or its stockholders for monetary damages
for any breach of fiduciary duty as a director, except for liability (i) for
breach of the duty of loyalty to Safeway 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 Delaware General
Corporation Law (governing distributions to stockholders), or (iv) for any
transaction for which a director derives an improper personal benefit. In
addition, Section 145 of the Delaware General Corporation law and Article III,
Section 13 of Safeway's By-laws, under certain circumstances, provide for the
indemnification of Safeway's officers, directors, employees and agents against
liabilities which they may incur in such capacities. A summary of the
circumstances in which such indemnification is provided for is contained
herein, but that description is qualified in its entirety by reference to
Article III, Section 13 of Safeway's By-laws.
In general, any officer, director, employee or agent will be
indemnified against expenses, including attorney's fees, fines, settlements or
judgments, which were actually and reasonably incurred, in connection with a
legal proceeding, other than one brought by or on behalf of Safeway, to which
he was a party as a result of such relationship, if he acted in good faith, and
in the manner he believed to be in or not opposed to Safeway's best interest
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. If the action is brought by or on behalf
of Safeway, the person to be indemnified must have acted in good faith and in a
manner he reasonably believed to be in or not opposed to Safeway's best
interest, but no indemnification will be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to Safeway
unless and only to the extent that the Court of Chancery of Delaware, or the
court in which such action was brought, determines upon application that,
despite adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expense which such Court of Chancery or such other court shall deem proper.
Any indemnification under the previous paragraphs (unless ordered by a
court) will be made by Safeway only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper under the circumstances because he has met the applicable standard of
conduct set forth above. Such determination will be made (i) by Safeway's
board of directors by a majority vote of a quorum of disinterested directors
who were not parties to such actions, (ii) if such quorum is not obtainable or,
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
To the extent that a director, officer, employee or agent of Safeway is
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in the previous paragraph, he will be indemnified
against expenses (including attorney's fees) actually and reasonably incurred
by him in connection therewith.
Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by Safeway in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it is ultimately determined that he is not entitled to be indemnified by
Safeway as
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authorized by Safeway's By-laws. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Safeway
board of directors deems appropriate.
The indemnification and advancement of expenses provided by, or
granted pursuant to, Section 13 of the By-laws is not deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any by-laws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office. If a
claim for indemnification or payment of expenses under Section 13 of Safeway's
By-laws is not paid in full within ninety (90) days after a written claim
therefor has been received by Safeway, the claimant may file suit to recover
the unpaid amount of such claim and, if successful in whole or in part, shall
be entitled to be paid the expense of prosecuting such claim. In any such
action, Safeway has the burden of proving that the claimant was not entitled to
the requested indemnification or payment of expenses under applicable law.
Safeway's board of directors may authorize, by a vote of a majority of
a quorum of Safeway's board of directors, Safeway to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of Safeway, or is or was serving at the request of the company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not Safeway would have the power to indemnify him against such
liability under the provisions of Section 13 of the By-laws. Safeway's board
of directors may authorize Safeway to enter into a contract with any person who
is or was a director, officer, employee or agent of Safeway or is or was
serving at the request of Safeway as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
providing for indemnification rights equivalent to or, if Safeway's board of
directors so determines, greater than those provided for in Section 13 of
Safeway's By-laws.
Safeway has also purchased insurance for its directors and officers
for certain losses arising from claims or charges made against them in their
capacities as directors and officers of Safeway.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of December 15, 1996, by and
among Safeway Inc., SSCI Merger Sub, Inc. and The Vons Companies,
Inc., as amended on January 8, 1997 (included as Appendix A to the
Proxy Statement/Prospectus included herein).
2.2 Amended and Restated Stock Repurchase Agreement, dated as of January
8, 1997 by and between Safeway Inc. and SSI Associates, L.P.
(incorporated by reference to Exhibit 2.1 to Safeway, Inc.'s Current
Report on Form 8-K dated January 8, 1997).
4.1 Restated Certificate of Incorporation of Safeway Inc. as filed with
the Secretary of State of Delaware on February 23, 1990 (incorporated
by reference to Exhibit 3.1 to Registration Statement No. 33-33388
filed on February 12, 1990).
</TABLE>
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<TABLE>
<S> <C>
4.2 Form of By-Laws of Safeway Inc. as amended (incorporated by reference
to Exhibit 3.2 to Registration Statement No. 33-33388) and Amendment
to the By-Laws of Safeway Inc. effective March 8, 1993 (incorporated
by reference to Exhibit 3.2 to the Safeway's Form 10-K for the fiscal
year ended January 2, 1993).
4.3 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4(i).1 to Registration Statement No. 33-333388).
4.4 Indenture dated as of November 20, 1991 among Safeway Inc. and The
Bank of New York, as Trustee, relating to Safeway Inc.'s Senior
Subordinated Debt Securities (incorporated by reference to Exhibit 4.1
of Safeway Inc.'s Form 8-K dated November 13, 1991).
4.5 Form of Officers' Certificate establishing the terms of the 10% Senior
Subordinated Notes due December 1, 2001, including the form of Note
(incorporated by reference to Exhibit 4.4 of Safeway Inc.'s Form 8-K
dated November 13, 1991).
4.6 Form of Officers' Certificate establishing the terms of the 9.65%
Senior Subordinated Debentures due January 15, 2004, including the form
of Debenture (incorporated by reference to Exhibit 4.1 of Safeway
Inc.'s Form 8-K dated January 15, 1992).
4.7 Indenture dated as of February 1, 1992 between Safeway Inc. and The
First National Bank of Chicago, as Trustee, relating to Safeway Inc.'s
9.30% Senior Secured Debentures due 2007, including the form of
Debenture and the forms of Deed of Trust and Environmental Indemnity
Agreement attached as exhibits thereto (incorporated by reference to
Exhibit 4(i).14 of Safeway Inc.'s Form 10-K for the year ended December
28, 1991).
4.8 Indenture dated as of March 15, 1992 between Safeway Inc. and Harris
Trust and Savings Bank, as Trustee, relating to Safeway Inc.'s Senior
Subordinated Debt Securities (incorporated by reference to Exhibit 4.1
of Safeway Inc.'s Form 8-K dated March 17, 1992).
4.9 Form of Officers' Certificate establishing the terms of the 9.35%
Senior Subordinated Notes due March 15, 1999 and the 9.875% Senior
Subordinated Debentures due March 15, 2007, including the form of Note
and form of Debenture (incorporated by reference to Exhibit 4.2 of
Safeway Inc.'s Form 8-K dated March 17, 1992).
4.10 Indenture dated as of September 1, 1992 between Safeway Inc. and The
Chase Manhattan Bank (National Association), as Trustee, relating to
Safeway Inc.'s Debt Securities (incorporated by reference to Exhibit
4.1 of Safeway Inc.'s Form 8-K dated September 16, 1992).
4.11 Form of Officers' Certificate relating to Safeway Inc.'s Fixed Rate
Medium-Term Notes and Safeway Inc.'s Floating Rate Medium-Term Notes,
form of Fixed Rate Note and form of Floating Rate Note (incorporated by
reference to Exhibits 4.2, 4.3 and 4.4 of Safeway Inc.'s Form 8-K dated
September 16, 1992).
4.12 Form of Officers' Certificate establishing the terms of a separate
series of Safeway Inc.'s Medium-Term Notes entitled 10% Senior Notes
due November 1, 2002, including the form of Note (incorporated by
reference to Exhibits 4.1 and 4.2 of Safeway Inc.'s Form 8-K dated
November 5, 1992).
4.13 Form of Officers' Certificate establishing the terms of a separate
series of Safeway Inc.'s Medium-Term Notes entitled Medium-Term Notes
due June 1, 2003 (Series OPR-1), including the form of Note
(incorporated by reference to Exhibits 4.1 and 4.2 of Safeway Inc.'s
Form 8-K dated June 1, 1993).
4.14 Commitment Letter from Bankers Trust Company dated February 10, 1997.
4.15 Commitment Letter from The Chase Manhattan Bank dated February 11,
1997.
4.16 Commitment Letter from the Bank of Nova Scotia dated February 19, 1997.
4.17 Commitment Letter from Bank of America dated February 21, 1997.
4.18 The Registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of instruments defining the
rights of holders of long-term debt of the Registrant and all of its
subsidiaries for which consolidated financial statements are required
to be filed with the Securities and Exchange Commission.
5.1 Opinion of Michael C. Ross, General Counsel to Safeway Inc.
8.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding certain tax
matters.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG Peat Marwick, LLP.
23.3 Consent of Michael C. Ross, General Counsel to Safeway Inc. (included
in his opinion filed as Exhibit 5.1).
23.4 Consent of Wachtell, Lipton, Rosen & Katz (included in its opinion
filed as Exhibit 8.1).
24.1 Powers of Attorney (included on Page II-5 of this Registration
Statement).
99.1 Consent of Credit Suisse First Boston Corporation.
99.2 Form of Proxy Card for the Special Meeting of Vons Shareholders.
</TABLE>
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ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) The undersigned registrant hereby further undertakes to respond
to requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(6) The undersigned registrant hereby further undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
(7) The undersigned registrant hereby, undertakes:
(1) To file, during any period which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
II-4
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pleasanton, State of
California, on March 5, 1997.
SAFEWAY INC.
By /s/ Steven A. Burd
------------------------------------
Steven A. Burd
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears on the signature page to this Registration Statement constitutes and
appoints Julian C. Day and Michael C. Ross, and each of them, his true and
lawful attorneys-in-fact and agents, and each of them, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, and grants unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or each of them, or his substitute, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Steven A. Burd President, Chief Executive Officer March 5, 1997
- --------------------------------- and Director (Principal Executive
Steven A. Burd Officer)
/s/ Julian C. Day Executive Vice President March 5, 1997
- --------------------------------- and Chief Financial Officer
Julian C. Day (Principal Financial and
Accounting Officer)
/s/ Peter A. Magowan Chairman of the Board March 5, 1997
- ---------------------------------
Peter A. Magowan
/s/ Sam Ginn Director March 5, 1997
- ---------------------------------
Sam Ginn
/s/ James H. Greene, Jr. Director March 5, 1997
- ---------------------------------
James H. Greene, Jr.
/s/ Paul Hazen Director March 5, 1997
- ---------------------------------
Paul Hazen
</TABLE>
II-5
<PAGE> 122
<TABLE>
<S> <C> <C>
/s/ Henry R. Kravis Director March 5, 1997
- --------------------------------
Henry R. Kravis
/s/ Robert I. MacDonnell Director March 5, 1997
- --------------------------------
Robert I. MacDonnell
/s/ George R. Roberts Director March 5, 1997
- --------------------------------
George R. Roberts
/s/ Michael T. Tokarz Director March 5, 1997
- --------------------------------
Michael T. Tokarz
</TABLE>
II-6
<PAGE> 123
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- --- ----------- ---
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of December 15, 1996, by and among
Safeway Inc., SSCI Merger Sub, Inc. and The Vons Companies, Inc., as amended
on January 8, 1997 (included as Appendix A to the Proxy Statement/Prospectus
included herein).
2.2 Amended and Restated Stock Repurchase Agreement, dated as of January 8, 1997
by and between Safeway Inc. and SSI Associates, L.P. (incorporated by
reference to Exhibit 2.1 to Safeway, Inc.'s Current Report on Form 8-K dated
January 8, 1997).
4.1 Restated Certificate of Incorporation of Safeway Inc. as filed with the
Secretary of State of Delaware on February 23, 1990 (incorporated by
reference to Exhibit 3.1 to Registration Statement No. 33-33388 filed on
February 12, 1990).
4.2 Form of By-Laws of Safeway Inc. as amended (incorporated by reference to
Exhibit 3.2 to Registration Statement No. 33-33388) and Amendment to the By-
Laws of Safeway Inc. effective March 8, 1993 (incorporated by reference to
Exhibit 3.2 to the Safeway's Form 10-K for the fiscal year ended January 2,
1993).
4.3 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4(i).1 to Registration Statement No. 33-333388).
4.4 Indenture dated as of November 20, 1991 among Safeway Inc. and The
Bank of New York, as Trustee, relating to Safeway Inc.'s Senior
Subordinated Debt Securities (incorporated by reference to Exhibit 4.1
of Safeway Inc.'s Form 8-K dated November 13, 1991).
4.5 Form of Officers' Certificate establishing the terms of the 10% Senior
Subordinated Notes due December 1, 2001, including the form of Note
(incorporated by reference to Exhibit 4.4 of Safeway Inc.'s Form 8-K
dated November 13, 1991).
4.6 Form of Officers' Certificate establishing the terms of the 9.65%
Senior Subordinated Debentures due January 15, 2004, including the form
of Debenture (incorporated by reference to Exhibit 4.1 of Safeway
Inc.'s Form 8-K dated January 15, 1992).
4.7 Indenture dated as of February 1, 1992 between Safeway Inc. and The
First National Bank of Chicago, as Trustee, relating to Safeway Inc.'s
9.30% Senior Secured Debentures due 2007, including the form of
Debenture and the forms of Deed of Trust and Environmental Indemnity
Agreement attached as exhibits thereto (incorporated by reference to
Exhibit 4(i).14 of Safeway Inc.'s Form 10-K for the year ended December
28, 1991).
4.8 Indenture dated as of March 15, 1992 between Safeway Inc. and Harris
Trust and Savings Bank, as Trustee, relating to Safeway Inc.'s Senior
Subordinated Debt Securities (incorporated by reference to Exhibit 4.1
of Safeway Inc.'s Form 8-K dated March 17, 1992).
4.9 Form of Officers' Certificate establishing the terms of the 9.35%
Senior Subordinated Notes due March 15, 1999 and the 9.875% Senior
Subordinated Debentures due March 15, 2007, including the form of Note
and form of Debenture (incorporated by reference to Exhibit 4.2 of
Safeway Inc.'s Form 8-K dated March 17, 1992).
4.10 Indenture dated as of September 1, 1992 between Safeway Inc. and The
Chase Manhattan Bank (National Association), as Trustee, relating to
Safeway Inc.'s Debt Securities (incorporated by reference to Exhibit
4.1 of Safeway Inc.'s Form 8-K dated September 16, 1992).
4.11 Form of Officers' Certificate relating to Safeway Inc.'s Fixed Rate
Medium-Term Notes and Safeway Inc.'s Floating Rate Medium-Term Notes,
form of Fixed Rate Note and form of Floating Rate Note (incorporated by
reference to Exhibits 4.2, 4.3 and 4.4 of Safeway Inc.'s Form 8-K dated
September 16, 1992).
4.12 Form of Officers' Certificate establishing the terms of a separate
series of Safeway Inc.'s Medium-Term Notes entitled 10% Senior Notes
due November 1, 2002, including the form of Note (incorporated by
reference to Exhibits 4.1 and 4.2 of Safeway Inc.'s Form 8-K dated
November 5, 1992).
4.13 Form of Officers' Certificate establishing the terms of a separate
series of Safeway Inc.'s Medium-Term Notes entitled Medium-Term Notes
due June 1, 2003 (Series OPR-1), including the form of Note
(incorporated by reference to Exhibits 4.1 and 4.2 of Safeway Inc.'s
Form 8-K dated June 1, 1993).
4.14 Commitment Letter from Bankers Trust Company dated February 10, 1997.
4.15 Commitment Letter from The Chase Manhattan Bank dated February 11,
1997.
4.16 Commitment Letter from the Bank of Nova Scotia dated February 19, 1997.
4.17 Commitment Letter from Bank of America dated February 21, 1997.
4.18 The Registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of instruments defining the
rights of holders of long-term debt of the Registrant and all of its
subsidiaries for which consolidated financial statements are required
to be filed with the Securities and Exchange Commission.
5.1 Opinion of Michael C. Ross, General Counsel to Safeway Inc.
8.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding certain tax matters.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG Peat Marwick, LLP.
</TABLE>
II-7
<PAGE> 124
<TABLE>
<S> <C>
23.3 Consent of Michael C. Ross, General Counsel to Safeway Inc. (included in his
opinion filed as Exhibit 5.1).
23.4 Consent of Wachtell, Lipton, Rosen & Katz (included in its opinion filed as
Exhibit 8.1).
24.1 Powers of Attorney (included on Page II-5 of this Registration Statement).
99.1 Consent of Credit Suisse First Boston Corporation.
99.2 Form of Proxy Card for the Special Meeting of Vons Shareholders.
</TABLE>
II-8
<PAGE> 1
EXHIBIT 4.14
February 10, 1997
Safeway Inc.
5918 Stoneridge Mall Road
Pleasanton, CA 94588
Attention: Mr. Julian Day
Chief Financial Officer
Gentlemen:
Bankers Trust Company ("Bankers") is pleased to confirm that
it is willing to provide to Safeway Inc. (the "Company") and its subsidiaries,
The Vons Companies, Inc. ("Vons" and, together with the Company, the "Domestic
Borrowers"), and Canada Safeway Limited (the "Canadian Borrower"), up to
$500,000,000 of the credit facilities outlined in this letter and the attached
Summary of Terms (the "Credit Facilities"). The Credit Facilities will consist
of a $2,000,000,000 five year revolving credit facility (the "Tranche A
Facility") and a $1,000,000,000 364 day revolving credit facility convertible
into a two year term facility as provided in the Summary of Terms attached
hereto (the "Tranche B Facility"). The Tranche A Facility and the Tranche B
Facility will be available for borrowings by the Domestic Borrowers (such
facilities available to the Domestic Borrowers, the "Domestic Facilities").
$400,000,000 of the Tranche A Facility will be available for borrowings by the
Canadian Borrower (such facility available to the Canadian Borrower, the
"Canadian Facility"). The aggregate amount of the Credit Facilities will be
$3,000,000,000. Certain of the terms of each of the Credit Facilities are set
forth in the Summary of Terms attached hereto.
Bankers understands that the Credit Facilities will be used to
refinance the existing bank indebtedness of the Domestic Borrowers and the
Canadian Borrower (the "Refinancing"), to pay fees and expenses to effect such
Refinancing, to purchase certain common stock of the Company upon the closing
of the Credit Facilities and thereafter as provided in the Summary of Terms
attached hereto and for general corporate purposes.
Bankers will use its best efforts to arrange for other banks,
financial institutions or other "accredited investors" (as defined in SEC
Regulation D; each such bank, financial institution and accredited investor,
including Bankers, being a
<PAGE> 2
Safeway Inc.
February 10, 1997 Page 2
"Lender" and collectively, the "Lenders") to provide the balance of the Credit
Facilities, and Bankers will act as administrative agent for the Lenders.
Bankers' willingness to provide the financing described in
this letter is subject to its continuing satisfaction with the condition
(financial or otherwise), assets, business and operations of the Company and
its subsidiaries and to the satisfaction of the conditions to be set forth in
the definitive documentation relating to the Credit Facilities including,
without limitation, those conditions set forth in the attached Summary of
Terms. In the event that Bankers' continuing review of the Company and its
subsidiaries discloses information relating to conditions or events not
previously disclosed to Bankers which Bankers believes have a material adverse
impact on the condition, assets, business or operations of the Company and its
subsidiaries taken as a whole or the Canadian Borrower and its subsidiaries
taken as a whole or any such conditions set forth in such definitive
documentation are not satisfied, Bankers may, in its sole discretion, suggest
alternative financing amounts or structures that ensure adequate protection for
the Lenders or decline to participate in the proposed financing.
The costs and expenses (including the fees and expenses of
counsel to Bankers and reasonable out-of-pocket expenses of Bankers) arising in
connection with the preparation, execution and delivery of this letter and the
definitive financing agreements and syndication of the Credit Facilities shall
be for your account and you agree jointly and severally to indemnify and hold
harmless each of the Lenders (including Bankers) and each director, officer,
employee and affiliate thereof (each an "indemnified person") in connection
with any losses, claims, damages, liabilities or other expenses to which a
Lender or such indemnified persons may become subject, insofar as such losses,
claims, damages, liabilities (or actions or other proceedings commenced or
threatened in respect thereof) or other expenses arise out of or in any way
relate to or result from the actions of the Company or any of its Subsidiaries
in connection with the Refinancing or from any of the statements contained in
this letter or relating to the extension of the financing contemplated by this
letter, or in any way arising from any use or intended use of the proceeds of
any of the loans contemplated by this letter, and to reimburse each of the
Lenders and each indemnified
<PAGE> 3
Safeway Inc.
February 10, 1997 Page 3
person for any legal or other expenses incurred in connection with
investigating, defending or participating in any such loss, claim, damage,
liability or action or other proceeding (whether or not such Lender or any such
person is a party to any action or proceeding out of which any such expenses
arise); provided, however, that the indemnity contained herein shall not apply
to the extent that such losses, claims, damages, liabilities or other expenses
result from the gross negligence or willful misconduct of such Lender or
indemnified person. The obligations to indemnify each Lender and such
indemnified persons and pay such expenses shall remain effective regardless of
whether a definitive financing agreement is executed. Neither Bankers nor any
other Lender shall be responsible or liable to the other party or any other
person for consequential damages which may be alleged as a result of this
letter.
Bankers' offer will terminate on February 21, 1997, unless on
or before that date you sign and return an enclosed counterpart of this letter
together with an executed copy of the accompanying letter concerning certain
fee arrangements. The Credit Facilities referred to herein shall in no event
be available unless the Refinancing has been consummated on or prior to June 3,
1997.
This letter agreement shall be construed in accordance with
the internal laws of the State of New York. This letter agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
<PAGE> 4
Safeway Inc.
February 10, 1997 Page 4
Bankers appreciates having been given the opportunity by you
to be involved in this transaction.
Very truly yours,
BANKERS TRUST COMPANY
By: /s/ Bruce D. Classon
-----------------------------
Title: Senior Managing Director
--------------------------
AGREED AND ACCEPTED THIS
20th day of February, 1997
SAFEWAY INC.
By: /s/ Julian C. Day
---------------------------
Title: Chief Financial Officer
------------------------
<PAGE> 1
EXHIBIT 4.15
[CHASE LETTERHEAD]
February 11, 1997
Mr. Harvey K. Naito
Vice President - Treasurer
Safeway Inc.
5918 Stoneridge Mall Road
Pleasanton, CA 94588-3299
Dear Harvey:
We refer to the Summary of Terms and Conditions of February 10, 1997 for
Safeway Inc., The Vons Companies Inc., and Canada Safeway Limited ("Safeway").
Subject to satisfactory documentation, we are pleased to commit $500,000,000 to
the Credit Facilities.
Sincerely,
/s/ Neil R. Boylan
<PAGE> 1
EXHIBIT 4.16
[SCOTIABANK LETTERHEAD]
February 19, 1997
Mr. Harvey K. Naito
Vice President & Treasurer
Safeway Inc.
5918 Stoneridge Mall Road
Pleasanton, CA 94588-3299
Dear Harvey,
The Bank of Nova Scotia ("Scotiabank") is pleased to commit up to U.S.
$500 million as Documentation Agent to the U.S. $3 billion in Credit Facilities
for Safeway Inc. ("Safeway") on the terms and conditions as set forth in the
Summary of Terms contained in the Confidential Information Memorandum dated
February 1997. Our commitment is subject to our satisfaction with all relevant
documentation and our final allocation among the Credit Facilities. We would
expect our final allocation among the various Credit Facilities to be in
proportion to the size of the U.S. and Canadian facilities.
We are very pleased to be able to assist Safeway in this transaction
and look forward to a successful close.
Sincerely,
/s/ John A. Quick
John A. Quick
<PAGE> 1
EXHIBIT 4.17
[BANK OF AMERICA LETTERHEAD]
February 21, 1997
VIA FACSIMILE: 510-467-3125
(Confirmed by First Class Mail)
Mr. Harvey K. Naito
Vice President - Treasurer
Safeway Inc.
5918 Stoneridge Mall Road
Pleasanton, CA 94588-3299
Re: $3,000,000,000 Revolving Credit Facilities ("Facilities")
Dear Harvey:
Bank of America National Trust and Savings Association ("Bank of America") is
pleased to advise you that it is willing, subject to the terms and conditions
contained in the Term Sheet for Safeway Inc. included in the Confidential
Information Memorandum dated February 1997, to commit up to $500,000,000 to the
new Facilities and to act in the capacity as Co-Arranger and Documentation
Agent.
We are very excited about this opportunity and look forward to working with you
toward the successful completion of this financing and on other important
capital raising activities in the future.
Should you have any questions, please contact me at the above number.
Very truly yours,
Bank of America National Trust and Savings Association,
as Co-Arranger
/s/ James Johnson
James P. Johnson
Managing Director
cc: James MacGregor
<PAGE> 1
EXHIBIT 5.1
March 5, 1997
Safeway Inc.
5918 Stoneridge Mall Road
Pleasanton, California 94558
Re: Safeway Inc. Registration Statement on Form S-4
Ladies and Gentlemen:
In connection with the registration of 45,403,683 shares (the
"Shares") of common stock, par value $.01 per share ("Common Stock") of Safeway
Inc., a Delaware corporation (the "Company"), on Form S-4 (the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, you have requested my opinion with respect
to the matters set forth below. Pursuant to the Agreement and Plan of Merger
(the "Merger Agreement") dated as of December 15, 1996, as amended by the First
Amendment to Agreement and Plan of Merger dated as of January 8, 1997, among
the Company, SSCI Merger Sub, Inc., a Michigan corporation and an indirect and
wholly owned subsidiary of the Company ("Merger Sub"), and The Vons Companies,
Inc., a Michigan corporation ("Vons"), (i) 41,276,222 of the Shares (the
"Exchange Shares") are issuable upon exchange of common stock, par value $.10
per share, of Vons ("Vons Common Stock"), (ii) 3,841,711 of the Shares (the
"Option Shares") are issuable upon exercise of stock options (the "Stock
Options") issued pursuant to The Vons Companies, Inc. Management Stock Option
Plan and The Vons Companies, Inc. 1990 Stock Option and Restricted Stock Plan,
as such plans will be amended pursuant to the Merger Agreement (collectively,
the "Vons' Stock Option Plans") and (iii) 285,750 of the Shares (the
"Replacement Shares") are issuable upon exercise of stock options (the
"Replacement Options") to be issued pursuant to the Stock Option Agreements to
be entered into between the Company and current or former members of the board
of directors of Vons (the "Replacement Option Agreements").
<PAGE> 2
Safeway Inc.
March 5, 1997
Page 2
I am General Counsel for the Company. In that capacity, I
have acted as counsel for the Company in connection with such registration, I
am familiar with the proceedings taken and proposed to be taken by the Company
in connection with the authorization and issuance of the Shares, and for the
purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, I, or members of my
staff, have made such legal and factual examinations and inquiries, including
an examination of originals or copies certified or otherwise identified to my
satisfaction of such documents, corporate records and instruments as I have
deemed necessary or appropriate for purposes of this opinion.
In my examination, I have assumed the genuineness of all
signatures, the authenticity of all documents submitted to me as originals, and
the conformity to authentic original documents of all documents submitted to me
as copies.
I am opining herein as to the effect on the subject
transaction only of the General Corporation Law of the State of Delaware, and I
express no opinion with respect to the applicability thereto, or the effect
thereon, of the laws of any other jurisdiction or, in the case of Delaware, any
other laws, or as to any matters of municipal law or the laws of any other
local agencies within any state.
Subject to the foregoing and the other matters set forth
herein, it is my opinion that:
(1) The Exchanged Shares have been duly authorized, and, upon
issuance and delivery thereof in accordance with the Merger Agreement, will be
validly issued, fully paid and nonassessable.
(2) The Option Shares have been duly authorized, and, upon
issuance, delivery and payment therefor in the manner contemplated by the Vons'
Stock Option Plans and, assuming the Company completes all actions and
proceedings required on its part to be taken prior to the issuance and delivery
of the Option Shares pursuant to the terms of the Vons' Stock Option Plans, the
Option Shares will be validly issued, fully paid and nonassessable.
(3) The Replacement Shares have been duly authorized and,
upon issuance, delivery and payment therefor in the manner contemplated by the
Replacement Option Agreements and assuming the Company completes all actions
and proceedings required on its
<PAGE> 3
Safeway Inc.
March 5, 1997
Page 3
part to be taken prior to the issuance and delivery of the Replacement Shares
pursuant to the terms of the Replacement Option Agreements, the Replacement
Shares will be validly issued, fully paid and nonassessable.
I consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to me contained under the heading
"Legal Matters" in the Proxy Statement/Prospectus included therein.
Very truly yours,
/s/ Michael C. Ross
Michael C. Ross, Esq.
Senior Vice President,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 8.1
[Wachtell, Lipton, Rosen & Katz letterhead]
March 5, 1997
The Vons Companies, Inc.
618 Michillinda Avenue
Arcadia, California 91007
Ladies and Gentlemen:
We have acted as special counsel to The Vons Companies, Inc., a
Michigan corporation ("Vons") in connection with the proposed merger (the
"Merger") of SSCI Merger Sub, Inc. ("Merger Sub"), a Michigan corporation and an
indirect wholly owned subsidiary of Safeway Inc., a Delaware corporation
("Safeway"), with and into Vons, upon the terms and conditions set forth in the
Agreement and Plan of Merger (the "Merger Agreement") dated as of December 15,
1996 by and among Safeway, Merger Sub and Vons, as amended. At your request, we
are rendering our opinion concerning the material federal income tax
consequences of the Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of Vons, Safeway and Merger Sub, upon the accuracy and completeness of
the statements and representations (which statements and representations we have
neither investigated nor verified) contained, respectively, in the certificates
of the officers of Vons and Safeway (copies of which are attached hereto and
which are incorporated herein by reference), and we have assumed that such
certificates will be complete and accurate as of the Effective Time. Any
capitalized term used and not defined herein has the meaning given to it in the
Joint Proxy Statement/Prospectus of Vons and Safeway, dated March 6, 1997 which
is part of the Registration Statement of Form S-4 (the "Registration Statement")
of Safeway relating to the proposed Merger (the "Joint Proxy Statement/
Prospectus").
We have also assumed that the transactions contemplated by the Merger
Agreement will be consummated in accordance with the Merger Agreement and as
described in the Joint Proxy Statement/Prospectus and that the Merger will
qualify as a merger under the applicable laws of the State of Michigan.
<PAGE> 2
The Vons Companies, Inc.
March 5, 1997
Page 2
Based upon and subject to the foregoing, it is our opinion that under
currently applicable law, the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and
that accordingly the following will be the material federal income tax
consequences of the Merger:
(i) No gain or loss will be recognized by holders of Vons Common
Stock upon their receipt of Safeway Common Stock for Vons Common
Stock pursuant to the Merger, except that a holder of Vons Common
Stock who receives cash proceeds in lieu of a fractional share
interest in Safeway Common Stock will recognize a gain or loss
equal to the difference between the cash received and the tax
basis allocated to the fractional share interest.
(ii) The tax basis of the Safeway Common Stock received by a holder of
Vons Common Stock will be the same as such stockholder's tax basis
in the Vons Common Stock surrendered in exchange therefor (reduced
by any tax basis allocable to fractional share interests for which
cash is received).
(iii) The holding period of the Safeway Common Stock received in the
Merger will include the period for which the Vons Common Stock
surrendered in exchange therefor was held (provided that the Vons
Common Stock is held as a capital asset at the time of the
Merger).
(iv) Vons will not recognize gain or loss as result of the Merger.
This opinion does not address the various state, local and foreign tax
consequences that may result from the Merger. In addition, no opinion is
expressed as to any federal income tax consequences of the Merger except as
specifically set forth herein, and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein.
We consent to the use of this opinion as Exhibit 8.1 to the
Registration Statement and to the reference to our firm under the heading "THE
MERGER -- Certain Federal Income Tax Consequences to Vons and Vons
Stockholders" in the Proxy Statement/Prospectus that is part of the Registration
Statement. In giving such consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Safeway Inc. on Form S-4 of our report dated March 8, 1996, incorporated by
reference in the Annual Report on Form 10-K of Safeway Inc. for the year ended
December 30, 1995 and to the reference to US Under the heading "Experts" in the
Prospectus, which is a part of this Registration Statement.
Deloitte & Touche LLP
San Francisco, CA
March 4, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
The Vons Companies, Inc.:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
Los Angeles, California
March 5, 1997
<PAGE> 1
EXHIBIT 99.1
[CREDIT SUISSE FIRST BOSTON CORPORATION LETTERHEAD]
CONSENT
OF
CREDIT SUISSE FIRST BOSTON CORPORATION
We hereby consent to the inclusion of (i) our opinion letter to the Special
Committee of the Board of Directors of The Vons Companies, Inc. (the "Company")
as Annex B to the Proxy Statement/Prospectus which forms a part of the
Registration Statement on Form S-4 relating to the proposed merger of SSCI
Merger Sub, Inc., an indirect wholly-owned subsidiary of Safeway, Inc., with
and into the Company and (ii) references made to our firm and such opinion in
the Proxy Statement/Prospectus under the captions entitled "SUMMARY - Opinion
of Financial Advisor to the Special Committee" and "THE MERGER - Background of
the Merger, Recommendation of the Special Committee and the Vons Board of
Directors; Vons' Reasons for the Merger, and Opinion of Financial Advisor to
the Special Committee". In giving such consent, we do not admit that we come
within the category of persons whose consent is required under, nor do we admit
that we are "experts" for purposes of, the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ Steven Koch
Name: Steven Koch
Title: Managing Director
March 5, 1996
<PAGE> 1
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PROXY
THE VONS COMPANIES, INC.
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS
OF VONS
FOR THE SPECIAL MEETING OF SHAREHOLDERS ON APRIL 8, 1997
The undersigned hereby appoints Lawrence A. Del Santo and Terrence
J. Wallock, and each of those with full power of substitutions in
each, as Proxies, and hereby authorizes them to represent and to
vote, as designated below, all shares of Common Stock of The Vons
Companies, Inc. ("Vons") which the undersigned may be entitled to
vote at the Special Meeting of Shareholders to be held on April 8,
1997, and any and all adjournments or postponements thereof.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO CONTRARY INSTRUCTIONS
IS INDICATED, THIS PROXY WILL BE VOTED FOR THE MERGER PROPOSAL AS
ENUMERATED IN PROPOSAL 1.
The Board of Directors recommends that you vote FOR the Merger
Proposal as enumerated in Proposal 1.
1. Proposal to approve and adopt the Agreement and Plan of Merger,
dated as of December 15, 1996, as amended by the First
Amendment to Agreement and Plan of Merger, dated as of January
8, 1997, among Safeway Inc., a Delaware corporation, SSCI
Merger Sub, Inc., a Michigan corporation and an indirect wholly
owned subsidiary of Safeway ("Merger Sub"), and Vons, and the
merger of Merger Sub with and into Vons with Vons continuing as
the surviving corporation.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
(Continued and to be Signed on the Reverse Side)
(Continued From Other Side)
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL
MEETING AND ADJOURNMENTS OR POSTPONEMENTS THEREOF.
ANY PREVIOUS PROXY EXECUTED BY
THE UNDERSIGNED IS HEREBY
REVOKED.
RECEIPT OF THE NOTICE OF THE
SPECIAL MEETING AND THE PROXY
STATEMENT/PROSPECTUS IS HEREBY
ACKNOWLEDGED.
Dated: , 1997
SIGNATURE OF SHAREHOLDER
NOTE: PLEASE SIGN EXACTLY AS
ADDRESSED HEREON. JOINT OWNERS
SHOULD EACH SIGN. EXECUTIVE,
ADMINISTRATORS, TRUSTEES,
GUARDIANS AND ATTORNEYS SHOULD SO
INDICATE WHEN SIGNING. ATTORNEYS
SHOULD SUBMIT POWERS OF ATTORNEY.
CORPORATIONS AND PARTNERSHIPS
SHOULD SIGN IN FULL CORPORATE OR
PARTNERSHIP NAME BY AN AUTHORIZED
OFFICER.
PLEASE MARK, SIGN, DATE AND
RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
