<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 1999
REGISTRATION NO. 333-84749
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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
(925) 467-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MICHAEL C. ROSS, ESQ.
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
SAFEWAY INC.
5918 STONERIDGE MALL ROAD
PLEASANTON, CALIFORNIA 94588
(925) 467-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
COPIES TO:
SCOTT R. HABER, ESQ.
TRACY EDMONSON, ESQ.
LATHAM & WATKINS
505 MONTGOMERY STREET
SUITE 1900
SAN FRANCISCO, CALIFORNIA 94111
(415) 391-0600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
------------------------
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.
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- --------------------------------------------------------------------------------
<PAGE> 2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Pleasanton,
California, on August 11, 1999.
SAFEWAY INC.
By: /s/ MICHAEL C. ROSS
-----------------------------------
Michael C. Ross
Senior Vice President, Secretary
and
General Counsel
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by each of the following persons in
the capacities indicated on August 11, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
* Chairman, President and Chief
- ------------------------------------ Executive Officer
Steven A. Burd
* Executive Vice President,
- ------------------------------------ Chief Financial Officer
David G. Weed (Principal Financial Officer
and Principal Accounting
Officer)
Director
- ------------------------------------
James H. Greene, Jr.
</TABLE>
<TABLE>
* Director
- -------------------------------------
Paul Hazen
<S> <C> <C>
* Director
- ------------------------------------
Henry R. Kravis
Director
- ------------------------------------
Robert I. MacDonnell
* Director
- ------------------------------------
Peter A. Magowan
</TABLE>
II-5
<PAGE> 3
<TABLE>
* Director
- -------------------------------------
George R. Roberts
<S> <C> <C>
Director
- ------------------------------------
Rebecca A. Stirn
* Director
- ------------------------------------
William Y. Tauscher
*By: /s/ MICHAEL C. ROSS
------------------------------
Michael C. Ross
Attorney-In-Fact
</TABLE>
II-6
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of July 22, 1999,
among Safeway Inc., SI Merger Sub, Inc. and Randall's Food
Markets, Inc. (incorporated by reference to Exhibit 2 to the
Company's Current Report on Form 8-K filed on August 4,
1999)
2.2 Voting Agreement, dated as of July 22, 1999, among RFM
Acquisition LLC, Safeway Inc. and SI Merger Sub, Inc.
(incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K filed on August 4, 1999)
2.3 Voting Agreement, dated as of July 22, 1999, among Onstead
Interests, Ltd., Safeway Inc. and SI Merger Sub, Inc.
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed on August 4, 1999)
2.4 Voting Agreement, dated as of July 22, 1999, among R.
Randall Onstead, Jr. , Safeway Inc. and SI Merger Sub, Inc.
(incorporated by reference to Exhibit 99.3 to the Company's
Current Report on Form 8-K filed on August 4, 1999)
4.1 Restated Certificate of Incorporation of the Company and
Certificate of Amendment of Restated Certificate of
Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended and Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 20, 1998)
4.2 Form of By-Laws of the Company as amended (incorporated by
reference to Exhibit 3.2 to Registration Statement No.
33-33388), Amendment to the Company's By-Laws effective
March 8, 1993 (incorporated by reference to Exhibit 3.2 to
the Company's Form 10-K for the Fiscal year ended January 2,
1993), Amendment to the Company's By-Laws effective March
10, 1998 (incorporated by reference to Exhibit 3.2 to the
Company's Form 10-Q for the quarterly period ended June 19,
1999) and Amendment to the Company's By-Laws effective May
11, 1999 (incorporated by reference to Exhibit 3.2 to the
Company's Form 10-Q for the quarterly period ended June 19,
1999)
4.3 Specimen Common Stock Certificate (incorporated by reference
to Exhibit 4(I).1 to Registration Statement No. 33-33388)
4.4 Registration Rights Agreement dated as of November 25, 1986
by and between Safeway Stores Holdings Corporation
(predecessor to the Company) and certain limited
partnerships (incorporated by reference to Exhibit 4(I).4 to
Registration Statement No. 33-33388)
*4.5 Amendment to Registration Rights Agreement dated as of July
22, 1999 by and between the Company, certain limited
partnerships and RFM Acquisition LLC
*5.1 Opinion of Michael C. Ross, General Counsel to the Company
*8.1 Opinion of Simpson Thacher & Bartlett regarding certain tax
matters
*15.1 Letter in lieu of consent of Deloitte & Touche LLP,
independent accountants
*23.1 Consent of Deloitte & Touche LLP -- San Francisco
*23.2 Consent of Deloitte & Touche LLP -- Houston
*23.3 Consent of Arthur Andersen LLP
*23.4 Consent of Michael C. Ross, General Counsel to the Company
(included in the opinion filed as Exhibit 5.1)
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*23.5 Consent of Simpson Thacher & Bartlett (included in the
opinion filed as Exhibit 8.1)
*23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated
*24.1 Powers of Attorney
99 Proxy Materials to shareholders of Randall's Food Markets,
Inc.
</TABLE>
- -------------------------
* Previously filed.
<PAGE> 1
[Randalls Logo]
, 1999
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders of
Randall's Food Markets, Inc. which we will hold at a.m., local time, on
, 1999, at the offices of Randall's, 3663 Briarpark, Houston, Texas
77042.
As you may know, on July 22, 1999, Randall's entered into a merger
agreement with Safeway Inc. and a wholly owned subsidiary of Safeway pursuant to
which Randall's will be merged with and into that wholly owned subsidiary. The
purpose of this special meeting is to approve the merger agreement, including
the merger transaction described in the merger agreement, and certain severance
and stock option arrangements related to the merger.
In the merger, each of your shares of Randall's common stock will be
converted into the right to receive $25.05 in cash and .3204 of a share of
Safeway common stock. If, however, all conditions to the merger are satisfied or
waived except for the conditions that Randall's and Safeway each receive an
opinion of counsel that the merger constitutes a reorganization for purposes of
the Internal Revenue Code, the amount of cash will be reduced and the fraction
of a share of Safeway common stock will be increased so that those conditions
can be met. Any adjustment to the merger consideration will not change the
aggregate value of the cash and stock consideration, based on the closing price
of the Safeway common stock on the New York Stock Exchange on the trading day
before the date the merger becomes final.
On , 1999, the Safeway common stock, which is listed on the New
York Stock Exchange under the symbol "SWY", closed at $ per share.
Approval of the merger agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of Randall's common stock.
Pursuant to voting agreements entered into with Safeway, holders of
approximately 83% of the outstanding shares of Randall's common stock have
agreed to vote in favor of the approval of the merger agreement. In addition,
approval of the severance and stock option arrangements requires a separate vote
and approval by the affirmative vote of the holders of 75% of the outstanding
shares of Randall's common stock who are not entitled to receive those benefits
or who are not lineally related to, or the spouse of, the persons who are
entitled to receive those benefits. RFM Acquisition LLC, who holds more than 75%
of the shares eligible to approve these arrangements, has informed Randall's
that it intends to vote its shares in favor of the approval of these
arrangements.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF RANDALL'S AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU APPROVE THE
MERGER AGREEMENT WITH SAFEWAY. YOUR BOARD OF DIRECTORS ALSO RECOMMENDS THAT YOU
APPROVE THE SEVERANCE AND STOCK OPTION ARRANGEMENTS. PLEASE REVIEW CAREFULLY
THIS ENTIRE DOCUMENT.
Whether or not you plan to attend the special meeting, please complete,
sign and date the enclosed proxy card and return it in the accompanying
postage-paid envelope.
Sincerely,
R. Randall Onstead, Jr.
Chairman of the Board and
Chief Executive Officer
This document is dated , 1999 and was first mailed to
shareholders on or about , 1999.
<PAGE> 2
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1999
We will hold a special meeting of shareholders of Randall's Food Markets,
Inc. at a.m., local time, on , 1999, at the
offices of Randall's, 3663 Briarpark, Houston, Texas 77042 for the following
purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of July 22, 1999, among Safeway Inc., SI Merger
Sub, Inc. and Randall's, as the same may be amended from time to time. In
the merger, Randall's will become a wholly owned subsidiary of Safeway and
all outstanding shares of Randall's common stock, other than shares held by
Safeway, Randall's, any of their subsidiaries and any dissenting
shareholders, will be converted into the right to receive $25.05 in cash
and a fraction of a share of Safeway common stock equal to .3204, subject
to adjustment as provided in the merger agreement.
2. To consider and vote upon a proposal to approve, pursuant to
Section 280G(b)(5)(A)(ii) of the Internal Revenue Code, the enhanced
severance arrangements and the adjustment of the terms of options to
purchase Randall's common stock to provide for their accelerated vesting or
exercisability.
3. To consider and take action on any other business that may properly
come before the meeting or any adjournment or postponement thereof.
Shareholders of record at the close of business on , 1999 are
entitled to notice of the meeting and to vote their shares at the special
meeting and any adjournments or postponements of it.
For more information about the merger, please review the entire proxy
statement and the accompanying prospectus of Safeway, including the Annexes to
Safeway's prospectus.
PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. THE
ACCOMPANYING ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU
MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU DECIDE TO ATTEND THE SPECIAL
MEETING.
Please do not send in any stock certificates at this time.
By action of the Board of Directors,
Lee E. Straus, Secretary
, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Overview of the Merger...................................... 1
What You Will Receive in the Merger....................... 1
Treatment of Stock Options in the Merger.................. 2
Exchange of Share Certificates............................ 3
Safeway Inc................................................. 3
Cautionary Statement Regarding Forward Looking Statements... 3
The Special Meeting......................................... 4
General................................................... 4
Date, Time and Place...................................... 4
Matters to be Considered at the Special Meeting; Vote
Required............................................... 4
Record Date............................................... 7
How Shares Will be Voted at the Special Meeting........... 7
Voting Shares Held by the ESOP............................ 8
How to Revoke a Proxy..................................... 8
Solicitation of Proxies................................... 8
The Merger.................................................. 9
Background of the Merger.................................. 9
Recommendation of the Randall's Board; Reasons for the
Merger................................................. 12
Opinion of Randall's Financial Advisor.................... 13
ESOP Valuation............................................ 13
Interests of Members of Randall's Board of Directors and
Management in the Merger............................... 13
Material United States Federal Income Tax Consequences of
the Merger............................................. 14
FIRPTA Withholding........................................ 14
Dissenters' Rights........................................ 14
Accounting Treatment...................................... 15
Description of the Merger Agreement and the Voting
Agreements................................................ 15
Conditions to the Completion of the Merger................ 15
Termination............................................... 15
Voting Agreements......................................... 15
Other Matters............................................... 16
</TABLE>
i
<PAGE> 4
OVERVIEW OF THE MERGER
On July 22, 1999, Safeway Inc., SI Merger Sub, Inc., a wholly owned
subsidiary of Safeway, and Randall's Food Markets, Inc. entered into a merger
agreement. Under the merger agreement, Randall's will be merged with and into SI
Merger Sub.
This proxy statement contains certain information regarding the proposed
merger of Randall's with a wholly owned subsidiary of Safeway Inc. and the
special meeting of Randall's shareholders to be held to approve the merger
agreement and the proposal relating to the severance arrangements and stock
option acceleration described in this document. This proxy statement does not
contain all of the information that is important to you. Accompanying this proxy
statement is a prospectus of Safeway which describes in greater detail
information related to the merger and the merger agreement and the related
agreements. Safeway has attached to its prospectus complete copies of the merger
agreement and the related agreements as well as additional information about
Randall's and Safeway. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents referred to in this document, including the
accompanying Safeway prospectus and the documents attached to that prospectus.
WHAT YOU WILL RECEIVE IN THE MERGER
As a result of the merger, each share of Randall's common stock outstanding
immediately before the effective time of the merger, other than shares for which
dissenters' rights have been exercised and shares held by Safeway or Randall's
or any of their wholly owned subsidiaries, will be converted into the right to
receive $25.05 in cash and .3204 shares of Safeway common stock. We refer to the
.3204 number as the "exchange ratio" in this proxy statement, and the cash
payment and shares of Safeway common stock together as the "merger
consideration" in this proxy statement. If all conditions to the merger are
satisfied or waived except for the condition that Safeway and Randall's each
receive an opinion of counsel that the merger constitutes a reorganization for
purposes of the Internal Revenue Code, the merger consideration will be adjusted
to decrease the cash payment and increase the exchange ratio so that the merger
consideration will consist of
- cash and Safeway common stock with an aggregate value equal to the
aggregate value of the merger consideration, before any adjustment, based
on the closing price of Safeway common stock on the New York Stock
Exchange on the trading day before the closing of the merger, and
- the minimum number of shares of Safeway common stock necessary in order
for the conditions related to the delivery of tax opinions to be
satisfied.
So long as the value of the stock portion of the merger consideration, on the
trading day immediately before the closing date, represents at least 42% of the
aggregate value of the merger consideration, including cash paid for fractional
shares and cash paid or to be paid to dissenters, no adjustment will be made to
the exchange ratio or the cash portion of the merger consideration. Based on the
closing price of Safeway stock on the New York Stock Exchange on August 4, 1999
of $54.75 per share, and assuming that none of the Randall's shareholders
exercise their dissenters' rights, the merger consideration would be adjusted so
that each share of Randall's common stock would be converted into the right to
receive $24.70 in cash and approximately .3267 shares of Safeway common stock.
Since the exchange ratio consists of a fixed number of shares of Safeway
common stock that will not be adjusted unless the conditions with respect to the
delivery of the opinions as to the tax treatment of the merger described above
are not satisfied, the value of the merger consideration that you will receive
upon the closing of the merger will fluctuate with changes in the Safeway common
stock price. Changes in the business, operations or prospects of Safeway,
general market and economic conditions, or other factors may affect the price of
Safeway common stock. Most of these factors are beyond Safeway's control. In
addition, the prices of the Safeway common stock at the closing may vary from
its price on the date of this proxy statement and on the date of the special
meeting. RANDALL'S SHAREHOLDERS ARE URGED TO OBTAIN AND REVIEW CURRENT MARKET
QUOTATIONS FOR SAFEWAY COMMON STOCK.
1
<PAGE> 5
In addition, since the closing may occur after the special meeting, you may
not know the value of the merger consideration at the time of the special
meeting or how that consideration will be divided between cash and Safeway
common stock. You will not be able to vote against the approval of the merger
agreement if the Safeway stock price decreases after the special meeting.
Safeway will not issue fractional shares of Safeway common stock. You will
instead be paid cash equal to the fractional share interest to which you would
otherwise be entitled multiplied by the closing price for a share of Safeway
common stock on the New York Stock Exchange on the last trading day immediately
before the closing date of the merger.
As an example, if you own 100 shares of Randall's common stock at the
effective time of the merger, and assuming no adjustment to the cash amount and
the exchange ratio, your shares would be converted into $2,505 and 32.04 shares
of Safeway common stock. Since cash will be paid instead of fractional shares,
in addition to the cash amount, you would receive 32 shares of Safeway common
stock and a check for the fraction of a share.
The Safeway prospectus contains a more detailed description of the merger
consideration under the heading "The Merger Agreement -- Merger Consideration."
TREATMENT OF STOCK OPTIONS IN THE MERGER
Pursuant to the merger agreement, each outstanding Randall's stock option
will either become an option to purchase Safeway common stock or be canceled in
exchange for cash and Safeway common stock. Subject to the approval of Randall's
shareholders with respect to some options described below under "The Special
Meeting -- Matters to be Considered at the Special Meeting; Vote Required," all
options will become immediately exercisable as a result of the merger. Randall's
options that will be converted into Safeway stock options will become options to
purchase a number of shares of Safeway common stock equal to
(1) the per share value of one share of Safeway common stock,
determined using the closing price of Safeway common stock on the New York
Stock Exchange on the trading day before the merger is completed, divided
into
(2) the product of (a) the per share value of the per share merger
consideration, based on the closing price of Safeway common stock,
determined using the closing price of Safeway common stock on the New York
Stock Exchange on the trading day before the merger is completed,
multiplied by (b) the total number of shares of Randall's common stock
subject to the Randall's stock option that is to be converted.
The exercise price of the new Safeway stock option will be equal to (1) the
product of (A) the per share exercise price of Randall's common stock subject to
the original Randall's stock option and (B) the closing price of Safeway common
stock, determined using the closing price of Safeway common stock on the New
York Stock Exchange on the trading day before the merger is completed, divided
by (2) the per share value of the merger consideration, based on the closing
price of Safeway common stock on the trading day before the merger is completed,
with the exercise price of the new Safeway option rounded down to the nearest
cent.
Each Randall's stock option that is not converted into a Safeway stock
option will be canceled and exchanged for a payment equal in value to the
product of (x) the total number of shares of Randall's common stock subject to
the Randall's stock option and (y) the excess of $41.75 over the exercise price
per share of the Randall's common stock subject to the Randall's stock option.
This amount (less applicable withholding taxes) will be paid in Safeway common
stock and cash in the same proportion as Safeway common stock and cash is paid
to shareholders of Randall's in the merger.
For further information about the treatment of Randall's stock options, see
"Interests of Members of Randall's Board of Directors and Management in the
Merger -- Options" in the Safeway prospectus.
2
<PAGE> 6
EXCHANGE OF SHARE CERTIFICATES
You should not send your Randall's share certificates to the Company at
this time. As soon as practicable after the merger, First Chicago Trust Company
of New York, the exchange agent, or another bank or trust company acting as
exchange agent, chosen by Safeway and reasonably satisfactory to Randall's, will
send you a letter of transmittal and instructions as to how to obtain the merger
consideration for your Randall's shares. For more information on the procedures
relating to the exchange of shares, see "The Merger Agreement -- Conversion of
Shares; Procedures for Exchange of Certificates" in the Safeway prospectus.
SAFEWAY INC.
Safeway is one of the largest food and drug retailers in North America,
with 1,528 stores at June 19, 1999. Safeway's U.S. retail operations are located
principally in northern California, southern California, Oregon, Washington,
Alaska, Colorado, Arizona, the Chicago metropolitan area and the Mid-Atlantic
region. Safeway's Canadian retail operations are located primarily in British
Columbia, Alberta and Manitoba/ Saskatchewan. In support of its retail
operations, Safeway has an extensive network of distribution, manufacturing and
food processing facilities. Safeway has made a number of acquisitions in the
last two years: the acquisition of The Vons Companies, Inc. in 1997, Dominick's
Supermarkets, Inc. in late 1998 and Carr-Gottstein Foods Co. in 1999. Safeway
also holds a 49% interest in Casa Ley, S.A. de C.V. which, as of June 19, 1999,
operated 83 food and general merchandise stores in western Mexico.
The Safeway prospectus accompanying this proxy statement contains a
description of, among other things:
- the Safeway capital stock, including the shares of common stock that you
will receive in the merger (see "Description of Safeway Capital Stock"),
and
- certain differences between the rights of shareholders of Randall's, a
Texas corporation, under Texas law and Randall's articles of
incorporation and by-laws and the rights of shareholders of Safeway, a
Delaware corporation, under Delaware law and Safeway's certificate of
incorporation and by-laws (see "Comparison of Rights of Holders of
Safeway Common Stock and Randall's Common Stock").
In addition, Annexes H, I, J and K to the Safeway prospectus include the
Annual Report on Form 10-K of Safeway for the fiscal year ended January 2, 1999,
the Quarterly Report on Form 10-Q of Safeway for the quarter ended March 27,
1999, the Quarterly Report on Form 10-Q of Safeway for the quarter ended June
19, 1999 and the Proxy Statement for Safeway's 1999 Annual Meeting of
Stockholders, respectively. You should review those documents in their
entireties.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This proxy statement and the documents we refer you to contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to risks and
uncertainties and are based on the beliefs and assumptions of management of
Randall's and Safeway, based on information currently available to each
company's management. These statements relate to, among other things, capital
expenditures, cost reduction, cash flow and operating improvements and Safeway
and Randall's use words or phrases such as "anticipate," "estimate," "plans,"
"projects," "continuing," "ongoing," "expects," "management believes," "the
Company believes," "the Company intends," "we believe," "we intend" and similar
words or phrases to identify these statements. The principal factors that could
cause actual results to differ materially from the forward-looking statements
include the following factors: general business and economic conditions in
operating regions, including the rate of inflation, population, employment and
job growth in our markets; pricing pressures and other competitive factors,
which include pricing strategies, store openings and remodels; results of
programs to reduce costs; the ability to integrate any acquired companies and
achieve operating improvements at those companies; increases in labor costs and
relations with union bargaining units representing our employees; issues arising
from addressing year 2000 information technology issues; expansion, renovation
and opening of new stores by competitors; failure to obtain new customers or
3
<PAGE> 7
retain existing customers; inability to carry out strategies to accelerate new
store development and remodeling programs, differentiate products and services,
leverage frequent shopper programs and increase private label sales; loss or
retirement of key executives; higher selling, general and administrative
expenses occasioned by the need for additional advertising, marketing,
administrative or management information systems expenditures; adverse publicity
and news coverage; opportunities or acquisitions that either company pursues;
and the availability and terms of financing.
You should understand that these factors, in addition to those discussed
elsewhere in this proxy statement and the documents we refer you to, could
affect the future results of Safeway, Randall's and the combined entity of
Safeway and Randall's, and could cause those results to be materially different
from those expressed in the forward-looking statements. Safeway and Randall's do
not undertake any obligation to update any forward-looking statements to reflect
events or circumstances arising after the date of this proxy statement.
THE SPECIAL MEETING
GENERAL
We are furnishing this proxy statement to holders of Randall's common stock
in connection with the solicitation by the board of directors of Randall's of
proxies to be voted at the special meeting of Randall's shareholders and any
adjournments or postponements of the meeting.
DATE, TIME AND PLACE
We will hold a special meeting of Randall's shareholders on
, 1999, at , local time, at the offices of
Randall's, 3663 Briarpark, Houston, Texas, subject to any adjournments or
postponements thereof.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING; VOTE REQUIRED
At the Randall's special meeting, Randall's shareholders will be asked to
consider and vote on:
1. The merger proposal. A proposal to approve the merger agreement.
The affirmative vote by holders of a majority of the outstanding shares of
Randall's common stock is required in order to approve the merger agreement.
As of the record date for the special meeting, RFM Acquisition LLC, an
affiliate of Kohlberg Kravis Roberts & Co. ("KKR"), owned 18,579,686 shares of
Randall's common stock, Onstead Interests, Ltd., an entity controlled by Robert
R. Onstead, a director and Chairman Emeritus of Randall's, owned 6,009,470
shares of Randall's common stock and R. Randall Onstead, Jr., Chairman and Chief
Executive Officer of Randall's, owned 203,336 shares of Randall's common stock,
together representing approximately 83% of the outstanding shares of Randall's
common stock as of that date. Each of those shareholders has entered into a
voting agreement with Safeway and the acquisition subsidiary pursuant to which,
among other things, such shareholder has agreed to vote its or his shares of
Randall's common stock in favor of the approval of the merger proposal and
against other proposals to acquire Randall's. As a result, we expect the merger
proposal to be approved, whether or not any other shareholder of Randall's votes
in favor of the proposal. These voting agreements are described briefly under
the heading "Description of the Merger Agreement and the Voting
Agreements -- Voting Agreements" in this document and more fully in the Safeway
prospectus accompanying this proxy statement under the heading "The Voting
Agreements". In addition, complete copies of the voting agreements are attached
as Annexes B, C and D to the Safeway prospectus. We encourage you to read these
documents in their entireties.
2. The benefits proposal. A proposal to approve certain severance and stock
option matters related to the merger.
4
<PAGE> 8
Pursuant to the merger agreement, the effectiveness of the enhanced
severance arrangements and the acceleration of the vesting of certain Randall's
stock options, as described below, are subject to, among other things, approval
of the benefits proposal.
In the merger, specified executives of Randall's will become entitled to
enhanced severance arrangements as a result of new severance agreements to be
entered into by those executives and Randall's before the closing of the merger.
These executives, including R. Randall Onstead, Jr. ("Mr. Onstead"), will not
become entitled to the enhanced severance arrangements unless and until they
agree to give up their rights to severance under the existing Randall's
Severance Pay Plans and, in the case of Mr. Onstead, unless he agrees to
terminate his existing employment agreement. That agreement is included as
Exhibit 10.6 to Randall's Annual Report on Form 10-K for the fiscal year ended
June 27, 1998.
The new severance agreements increase the amount of severance payable and,
in certain circumstances, the number of years during which certain executives
are entitled to health and other benefits provided by Randall's. For a
description of these severance arrangements, as well as a description of the
acceleration of the vesting of certain outstanding Randall's stock options
(discussed below), among other things, see "The Merger -- Interests of Members
of Randall's Board of Directors and Management in the Merger" in the
accompanying Safeway prospectus. The cost of the cash severance arrangements
described in the accompanying Safeway prospectus and subject to shareholder
approval as described below is as follows:
- In the event that the top eight executives become entitled to severance
under the enhanced severance arrangements described in the Safeway
prospectus, each of Mr. Onstead, Michael M. Calbert, Douglas G.
Beckstett, J. Russell Robinson and D. Mark Prestidge will be entitled to
cash severance payments equal to $3,493,269, $1,175,962, $940,770,
$940,770, and $999,328, respectively, with an aggregate amount for all
eight executives equal to $10,372,409;
- In the event that all 28 of the vice presidents become entitled to
severance under the enhanced severance arrangements described in the
Safeway prospectus, the aggregate amount of severance pay to which these
vice presidents will be entitled will equal $5,341,758; and
- In the event that all 34 of the director-level employees become entitled
to severance under the enhanced severance arrangements described in the
Safeway prospectus, the aggregate amount of severance pay to which these
director-level employees will be entitled will equal $1,911,391.
In addition to the foregoing, in the merger, each outstanding Randall's
stock option, whether or not then exercisable, will become exercisable in full,
subject to shareholder approval with respect to some stock options as described
below. The majority of these stock options were granted under the 1997 Stock
Purchase and Option Plan for Key Employees of Randall's and its Subsidiaries
(the "Plan") pursuant to a non-qualified stock option agreement, which Plan and
form of option agreement are included as Exhibits 10.13 and 10.15, respectively,
to Randall's Annual Report on Form 10-K for the fiscal year ended June 27, 1998.
The exercise prices for those options range from $12.11 to $13.57 per share.
Some of the stock options granted under the Plan vest over time, which we will
refer to as "Time Options", and other stock options granted under the Plan vest
over time if certain Randall's performance targets are met (but in any event
will vest in full seven years and eleven months after the date the options were
granted), which we will refer to as "Performance Options". By their terms, the
Time Options and some Performance Options automatically become exercisable in
full upon the closing of the merger and, pursuant to the Plan, the remaining
Performance Options may become exercisable in full, subject to acceleration by
the board of directors of Randall's. It is this acceleration that requires
shareholder approval. The number of shares subject to Performance Options that
will become exercisable only if the benefits proposal is approved, is as
follows:
- With respect to the top eight executives, the aggregate number of shares
underlying the Performance Options held by each of them that will become
exercisable only if the benefits proposal is approved, is as follows: (1)
for Mr. Onstead, 111,479 shares at a per share exercise price of $12.11
and 66,667 shares at a per share exercise price of $12.96; (2) for Mr.
Calbert, 20,438 shares at a per share exercisable price of $12.11, 186
shares at a per share exercise price of $12.61, and 23,333 shares at a
per share exercise price of $12.96; (3) for each of Messrs. Beckstett,
Prestidge and Robinson, and
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Frank Lazaran, Joe R. Rollins and Lee E. Straus, 15,483 shares at a per
share exercise price of $12.11; (4) for Messrs. Beckstett, Robinson,
Rollins and Straus, 13,333 shares at a per share exercise price of
$12.96; and (5) for Messrs. Lazaran and Prestidge, 20,000 shares at a per
share exercise price of $12.96; with an aggregate number of shares
underlying Performance Options held by the top eight executives equal to
408,333 at an average per share exercise price of $12.49;
- The aggregate number of shares underlying Performance Options held by the
28 vice presidents that will become exercisable only if the benefits
proposal is approved, equals 147,888 at an average per share exercise
price of $12.68; and
- The aggregate number of shares underlying Performance Options held by the
31 director-level employees who hold Performance Options that will become
exercisable only if the benefits proposal is approved, equals 63,829 at
an average per share exercise price of $12.80.
The total number of shares underlying stock options that will become
exercisable, including the number of shares subject to Performance Options
described above that will become exercisable only if the benefits proposal is
approved, equals 1,834,927.
Under Section 280G of the Internal Revenue Code of 1986, the severance
payments and the accelerated vesting of the stock options, as described above,
could be treated as "parachute payments" made in connection with a "change in
control" of Randall's (as that term is defined in Section 280G of the Internal
Revenue Code and which definition the merger would meet). This treatment could
cause Randall's the loss of a compensation expense deduction for these payments
and for the value of the option acceleration and could result in the imposition
of a 20% excise tax on a portion of these payments and on the value of the
option acceleration, which tax would be payable by the affected employees. Set
forth below is a more detailed description of Section 280G of the Internal
Revenue Code and the excise tax and the manner in which the excise tax and the
loss of the tax deductions may be avoided through shareholder approval of the
arrangements described above.
Excise Taxes and Loss of Tax Deductions. Sections 280G and 4999 of the
Internal Revenue Code provide that if an individual receives aggregate Parachute
Payments (as defined below) which equal or exceed 300% of the individual's Base
Amount (as defined below), then the payor is denied a deduction for, and the
recipient is liable for a twenty percent (20%) excise tax on, the amount by
which the aggregate Parachute Payments exceed the individual's Base Amount,
unless the payments constitute reasonable compensation for services rendered. A
"Parachute Payment" is any payment in the nature of compensation to an employee
or independent contractor who is also an officer, stockholder or highly
compensated individual (a "Disqualified Individual") if (1) such payment is
contingent on a change in ownership or effective control of a corporation or in
the ownership of a substantial portion of the assets of a corporation and (2)
the aggregate present value of all such payments that have been made or will be
made (other than payments for reasonable compensation for personal services to
be rendered on or after the date of such change in ownership or effective
control) equals or exceeds 300% of the Disqualified Individual's Base Amount.
For purposes of valuing a Parachute Payment, the portion of an accelerated
payment taken into account generally is limited to the total of (1) the present
value of the acceleration and (2) in the case of a payment that has not been
wholly earned at the time of the change in ownership or effective control, an
amount reflecting the lapse of the obligation to continue to perform services.
The "Base Amount" equals the Disqualified Individual's average annual taxable
compensation payable by the corporation with respect to which the change in
ownership occurs, or by a predecessor or related entity, during the five most
recent taxable years ending before the date on which the change in ownership or
effective control occurs.
Section 280G Exemption: Disclosure and Shareholder Approval. Section 280G
of the Internal Revenue Code will not apply to payments made to Disqualified
Individuals with respect to a corporation which, immediately before the change
in control, has no stock which is readily tradable on an established securities
market or otherwise, if (1) such payments are approved by a separate vote of the
shareholders of the corporation as described below and (2) adequate disclosure
of all material facts concerning such payments is made to all shareholders who
will not directly benefit from the approval of the payments.
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The proposed regulations under Section 280G of the Internal Revenue Code
provide that the shareholder approval must determine a Disqualified Individual's
right to receive the payment or, if the Disqualified Individual has already
received the payment, the right to retain the payment. It is insufficient for
such shareholder vote to "ratify" payments which the corporation is already
unconditionally obligated to make.
Randall's has identified individuals who may potentially be Disqualified
Individuals for whom the severance arrangements and/or the option acceleration
may constitute Parachute Payments. In order to avoid the application of Sections
280G and 4999 of the Internal Revenue Code to any potential Parachute Payments
under the severance arrangements and the option acceleration described above,
the severance arrangements (including the severance provisions of Mr. Onstead's
new employment agreement) provide that the requisite shareholder approval (as
described below) is a condition to Randall's obligations to make such payments.
In addition, the board resolution approving the acceleration of option vesting
provides that with respect to those individuals who may potentially be
Disqualified Individuals, such acceleration will only be effective if such
approval is obtained.
To the extent that the requisite Randall's shareholder approval (as
described below) is obtained, the severance payments and option acceleration
will be exempt from inclusion in the amount that is subject to the excise tax
provisions under Section 4999 of the Internal Revenue Code, and Randall's will
be able to deduct the full amount of those payments as compensation expense.
Thus approval of the benefits proposal is beneficial to both Randall's and the
affected employees by avoiding both the payment of excise taxes by the affected
employees and the increased cost to Randall's that the lost deductions would
involve.
The affirmative vote of more than seventy-five percent of all shareholders
who (a) are not receiving the severance benefits described above, (b) do not
hold Randall's stock options that would become fully exercisable as a result of
the acceleration of vesting described above, or (c) are not lineally related to,
or the spouse of, any individual who would either receive the severance benefits
described above or whose stock options would become fully exercisable as a
result of the acceleration of vesting described above is required in order to
approve the benefits proposal. Even though all shareholders will vote on the
proposal, only the votes of shareholders who are described in this paragraph
will count for purposes of calculating whether the proposal has been approved.
As of the record date for the special shareholders meeting, RFM Acquisition
owns more than seventy-five percent of the shares of Randall's common stock
required to approve these arrangements, and has informed Randall's that it
intends to vote for the approval of the benefits proposal. As a result,
Randall's expects the benefits proposal to become effective whether or not any
other shareholder approves it.
In order to satisfy the requirements of the Section 280G exemption
described above, Randall's is providing disclosure, in this document and in the
accompanying Safeway prospectus, with respect to payments under the severance
arrangements and the option acceleration that might constitute Parachute
Payments to Disqualified Individuals to be made in connection with the merger
(or upon a possible termination of employment upon or following the merger). The
board believes that approval of payments under the severance arrangements and
the option acceleration are in the best interests of Randall's and its
shareholders.
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RECORD DATE
Only holders of record of Randall's common stock at the close of business
on , 1999, the record date, will be entitled to receive notice and
to vote at the Randall's special meeting. As of Randall's record date, there
were outstanding shares of Randall's common stock.
HOW SHARES WILL BE VOTED AT THE SPECIAL MEETING
Each share of Randall's common stock is entitled to one vote. Holders of a
majority of the shares entitled to vote at the Randall's special meeting,
present in person or by proxy, will constitute a quorum for the transaction of
business at the Randall's special meeting. Randall's will count a properly
executed proxy marked "ABSTAIN" as present for purposes of determining whether
there is a quorum at the Randall's special meeting.
All shares of Randall's common stock represented by properly executed
proxies received before or at the Randall's special meeting, and not revoked,
will be voted as specified in the proxies. Properly executed proxies that do not
contain voting instructions will be voted FOR the approval of the merger
agreement and FOR the approval of the severance and stock option matters.
If you fail to submit a proxy or if you abstain from voting, it will have
the effect of a vote against the merger proposal and the benefits proposal.
The shareholders present at the Randall's special meeting, in person or by
proxy, may by a majority vote adjourn the meeting despite the absence of a
quorum. In the event of an absence of a quorum, Randall's expects that the
meeting will be adjourned or postponed to solicit additional proxies. The people
named as proxies by a shareholder may propose and vote for one or more
adjournments of the Randall's special meeting to permit further solicitations of
proxies in favor of approval of the merger proposal and the approval of the
benefits proposal; except that no proxy which is voted against the approval of
the merger proposal or the approval of the benefits proposal will be voted in
favor of any adjournment.
VOTING SHARES HELD BY THE ESOP
The shares of Randall's common stock held by the Randall's Food Markets,
Inc. ESOP/401(k) Savings Plan, which we will refer to as the "ESOP", will be
voted by the trustee for the ESOP, who we will refer to as the "ESOP Trustee".
With respect to the merger proposal before this special meeting, the ESOP
provides that each participant of the ESOP is entitled to direct the ESOP
Trustee as to the voting of shares of Randall's common stock allocated to his or
her account. As provided by the ESOP, the ESOP Trustee will vote such allocated
shares in accordance with participant directions unless the ESOP Trustee is
required, under the Employee Retirement Income Security Act of 1974, to vote
otherwise in accordance with certain fiduciary duties. Under the terms of the
ESOP, the ESOP Trustee will vote, in accordance with its discretion, all
unallocated shares held by the ESOP and all allocated shares for which
participant instructions are not timely received by the ESOP Trustee.
With respect to the benefits proposal before this special meeting, as
provided by the ESOP, only the ESOP Trustee is entitled to vote, in accordance
with its discretion and with its fiduciary duties, all allocated and unallocated
shares held by the ESOP. Therefore, the benefits proposal has not been included
as a proposal on the Directions to Trustee cards on which the participants are
entitled to direct the ESOP Trustee as to the voting of shares of Randall's
common stock.
The ESOP Trustee will vote all shares allocated to the accounts of
participants in accordance with the directions set forth on the Directions to
Trustee cards which are timely received by the ESOP Trustee from participants
unless such instructions are contrary to the requirements of the Employee
Retirement Income Security Act of 1974. Directions which are not received by the
ESOP Trustee by 5:00 o'clock p.m., New York City time, , 1999, will
not be tabulated. Randall's will bear the cost of soliciting "Directions to
Trustee" from participants.
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HOW TO REVOKE A PROXY
Your grant of a proxy on the enclosed proxy card does not prevent you from
voting in person or otherwise revoking your proxy.
You may revoke your proxy at any time before its use by delivering to the
Corporate Secretary of Randall's a signed notice of revocation or a later-dated
signed proxy or by attending the Randall's special meeting and voting in person.
Attendance at the Randall's special meeting will not itself constitute the
revocation of a proxy.
SOLICITATION OF PROXIES
Randall's will pay the cost of solicitation of proxies for the Randall's
special meeting. We urge you to send in your proxies as soon as possible.
THE MERGER
BACKGROUND OF THE MERGER
RANDALL'S
Randall's was founded by Robert R. Onstead, R. C. Barclay and Norman N.
Frewin in Houston, Texas in 1966 with the purchase of two existing grocery
stores. Since then, Randall's has expanded its operations through internal
growth and acquisition. In 1992, Randall's acquired Cullum Companies, Inc., a
company that operated 62 stores in Dallas and Austin under the Tom Thumb banner.
In 1994, Randall's acquired 15 stores from AppleTree Markets, Inc. Today,
Randall's operates 117 stores located in Houston, Dallas/Fort Worth and Austin.
In April 1997, Randall's entered into a transaction pursuant to which, in
June 1997 RFM Acquisition LLC, a limited liability company formed at the
direction of KKR, acquired 18,579,686 shares of Randall's common stock (which
represents approximately 62% of the outstanding Randall's shares) and an option
to purchase 3,606,881 shares of Randall's common stock at an exercise price of
$12.11 per share. Five executives of KKR, Nils P. Brous, James H. Greene, Jr.,
Henry R. Kravis, Paul E. Raether and George R. Roberts, are members of the
Randall's board of directors. Each of those individuals owns 5,000 shares of
Randall's common stock directly.
SAFEWAY
Safeway began operations in 1926 and today is one of the largest food and
drug retailers in North America, with 1,528 stores. In 1986, a corporation
formed at the direction of KKR acquired Safeway. In recent years, affiliates of
KKR have sold a substantial portion of their Safeway stock. KKR Associates, an
affiliate of KKR, owns 30,348,647 shares of Safeway common stock (which
represents approximately 6% of the issued and outstanding Safeway shares). Four
executives of KKR, Messrs. Greene, Kravis and Roberts and Robert I. MacDonnell,
are members of the Safeway board of directors.
BACKGROUND OF THE MERGER
Over the past few years, Safeway has pursued a growth strategy which has
focused on acquisitions. In April 1999, Steven A. Burd, Chairman, President and
Chief Executive Officer of Safeway, telephoned R. Randall Onstead, Jr., Chairman
and Chief Executive Officer of Randall's, to explore whether Randall's might be
interested in pursuing such a transaction. In early May, Messrs. Burd and
Onstead met to discuss further whether an acquisition of Randall's might be
attractive to both companies. On about May 20, 1999, Safeway and Randall's
executed a confidentiality agreement covering information to be furnished to
Safeway by Randall's. During May 1999, Mr. Burd met with Mr. Onstead on several
occasions to discuss operational and financial information about Randall's. In
late May, members of Safeway management met with members of
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Randall's management, and Randall's furnished Safeway with certain non-public
information regarding Randall's.
At a regularly scheduled board meeting in May 1999, the Randall's board was
briefed on the conversations that had taken place with Safeway and discussed the
possibility of a transaction with Safeway. In early June, members of Safeway
management had a preliminary meeting with representatives of Randall's to
discuss a potential valuation of Randall's and the issue of whether Safeway
would pay cash or stock to the Randall's shareholders. The parties did not reach
agreement on the appropriate valuation or form of consideration. Shortly
thereafter, Safeway and Randall's suspended discussions concerning a possible
transaction and Safeway returned the information provided by Randall's.
Later in June, representatives of Safeway and Randall's discussed a
possible structure for an acquisition that would permit Safeway to pay as much
as 60% of the consideration in cash. Safeway's management believed that paying a
portion of the consideration in cash would be more accretive to Safeway's
earnings in the long-term than issuing shares of stock for the total
consideration. In addition, under a part cash and part stock structure,
Randall's shareholders could receive the shares of Safeway stock on a
tax-deferred basis. These discussions led to further negotiations regarding
value. In early July 1999, representatives of Safeway and Randall's agreed on an
enterprise value for Randall's of $1.8 billion. The parties agreed to a
structure in which the merger consideration would consist of approximately 60%
cash and 40% stock, subject to applicable tax considerations necessary to make
the transaction a reorganization under the Internal Revenue Code so that the
stock portion of the consideration would be tax-deferred, and the Safeway shares
would be valued at $49 7/8 per share for purposes of determining the stock
portion of the consideration. This valuation was subsequently increased to
$52 1/8, as part of the negotiations described below.
On July 7, 1999, Safeway's board of directors met by telephone conference
to discuss the possible acquisition of Randall's. At this meeting, Safeway's
senior management described the status of the negotiations and provided an
overview of the proposed structure of the transaction. In light of the fact that
four executives of KKR served on the Safeway board of directors, the ownership
interests in Randall's and Safeway of affiliates of KKR, the role of KKR as
financial advisor to, and a representative of, Randall's in the negotiations
with Safeway, the Safeway board established a special committee of outside
directors who are not affiliated with KKR. The special committee was comprised
of Paul Hazen, Rebecca Stirn and William Tauscher. The Safeway board authorized
the special committee to review and approve or disapprove the proposed
acquisition of Randall's, and, if approved, to recommend the transaction to the
Safeway board. Immediately following the board meeting, the special committee
met. At that meeting, senior management presented in more detail its view of the
benefits to Safeway of acquiring Randall's. Management stated its view that
while Randall's was a strong operator, management believed there would be
opportunities for Safeway to implement programs at Randall's to save costs and
improve operations. The special committee determined that it would retain an
independent financial advisor to assist it in its review of the financial
aspects of the proposed acquisition.
Over the next two weeks representatives of Randall's and Safeway negotiated
a definitive merger agreement. Those negotiations covered all aspects of the
merger agreement, including the scope of the representations and warranties, the
circumstances under which the parties would have the right to terminate the
agreement and the amount of a termination fee, the conditions to Safeway's
obligations to consummate the merger, the treatment of Randall's employee
benefit plans following the merger, and the restrictions on the operations of
Randall's and Safeway pending completion of the merger. During that time,
Safeway insisted, as a condition to signing the definitive agreement, that RFM
Acquisition LLC and Messrs. Robert R. Onstead and R. Randall Onstead, Jr.
execute agreements pursuant to which they would agree to vote shares of
Randall's stock that they owned in favor of the merger and against competing
proposals. The parties engaged in extensive negotiations over the terms of the
voting agreements, including the termination provisions. In connection with its
entering into a voting agreement, RFM Acquisition LLC requested that Safeway
expand the existing registration rights agreement with its affiliate, KKR
Associates, to include the Safeway shares that would be issued in the merger.
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During July, Safeway and its advisors conducted a financial and legal due
diligence investigation of Randall's. As a portion of the proposed consideration
would be Safeway common stock, Randall's and its representatives informed
Safeway that they would need to conduct due diligence regarding Safeway. On or
about July 12, 1999, Safeway and Randall's executed a new confidentiality
agreement covering information to be furnished to Randall's by Safeway, and
Safeway provided certain legal and financial information to Randall's and its
representatives.
During the week of July 12, 1999, those directors of Randall's who are not
executives of KKR and who will be referred to as the independent directors began
working directly with Merrill Lynch, Pierce, Fenner & Smith Incorporated and
provided Merrill Lynch certain publicly available information and other
financial information and projections relating to Randall's prepared by
Randall's management. The independent directors requested Merrill Lynch to
review the information provided and the proposed terms of the merger and perform
a financial analysis in order to determine if the consideration proposed to be
paid by Safeway in the merger was fair from a financial point of view to
Randall's shareholders, other than Safeway and its affiliates. The independent
directors also requested Merrill Lynch to make a presentation to the independent
directors and the full board to discuss the underlying analyses performed by
Merrill Lynch regarding its opinion. The independent directors also began
working directly with Vinson & Elkins so that Vinson & Elkins could aid the
independent directors in evaluating the proposed transaction from a legal point
of view. On July 16, 1999, the Randall's independent directors were informally
updated as to the status of the negotiations with Safeway.
On July 19, 1999, the Safeway special committee met to review the proposed
acquisition. Senior management and the special committee's financial advisors
presented their analysis of the operations and financial condition of Randall's.
Senior management also provided the special committee with an update on the
negotiations and reported the results of Safeway's due diligence review of
Randall's. Safeway's management informed the special committee of several
important issues that the parties needed to resolve before definitive agreements
could be finalized.
On July 20, 1999, at a regular meeting of the Safeway board of directors,
the board expanded the authority of the special committee. The Safeway board
authorized the special committee to approve the transaction and authorize the
issuance of the Safeway shares in the merger, without any further action of the
Safeway board. Later that day, members of Safeway management, representatives of
Randall's and KKR and counsel further negotiated provisions of the draft merger
agreement and the voting agreements. Over the next two days, representatives of
Safeway and Randall's continued to negotiate in an effort to reach a definitive
agreement.
On July 21, 1999, the Randall's board of directors held a special meeting
by telephone conference to discuss the proposed acquisition of Randall's by
Safeway. At this meeting, the full board of directors received a presentation
concerning the board's legal duties and, in particular, the role of the
independent directors in light of the representation on both the Randall's and
Safeway boards of directors of KKR executives, the ownership interest in both
Randall's and Safeway of affiliates of KKR and the role of KKR as a financial
advisor to, and a representative of, Randall's in the negotiations with Safeway
(and the proposed payment by Randall's of a fee of $8.5 million in consideration
for those advisory services). The Randall's board of directors also received a
detailed presentation of the terms of the proposed transaction and of the
remaining unresolved issues. Following a discussion of these matters, the full
Randall's board of directors delegated to the independent directors the right to
engage their own financial and legal advisors. Immediately after the meeting of
the full board of directors, the independent directors met among themselves and
formally retained Vinson & Elkins as their legal advisor and Merrill Lynch as
their financial advisor to render an opinion as to the fairness from a financial
point of view of the consideration to be received by Randall's shareholders in
the merger, other than Safeway and its affiliates. The independent directors had
been working with their legal advisor and their financial advisor since July 12,
1999. The independent directors then conferred among themselves and their
advisors before adjourning.
On July 22, 1999, the independent directors met in person with Vinson &
Elkins and Merrill Lynch. The other members of the Randall's board of directors
were not present at this meeting. During this meeting,
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Merrill Lynch reviewed with the independent directors the analyses performed by
Merrill Lynch underlying its conclusion that the proposed consideration to be
received by Randall's shareholders in the merger was fair from a financial point
of view to the Randall's shareholders (other than Safeway and its affiliates).
Merrill Lynch informed the independent directors that it was prepared to render
a written opinion to this effect. The independent directors also discussed the
terms of the transaction with Vinson & Elkins. Following the meeting of the
independent directors, the remaining Randall's directors joined the board
meeting by teleconference so that the entire board of directors could be given a
report as to the final proposed terms of the transaction and hear a review of
the analyses performed by Merrill Lynch. During these meetings, Merrill Lynch
orally rendered its opinion described above to the independent directors and to
the full board, which opinion was subsequently confirmed by writing. After this
discussion and presentation, the members of the Randall's board of directors who
are executives of KKR left the meeting. Following their departure and after
further discussion, the Randall's independent directors unanimously voted to
approve (1) the merger agreement, the merger and the other transactions and
agreements contemplated by the merger agreement, including the voting
agreements, and (2) the arrangements between KKR and its affiliates and
Randall's, including an engagement letter with KKR for advisory services
providing for the payment by Randall's of a fee of $8.5 million, payable at the
effective time of the merger, and an indemnification agreement with RFM
Acquisition LLC, Onstead Interests, Ltd. and R. Randall Onstead, Jr. related to
the voting agreements. Following the deliberations of and actions by the
Randall's independent directors, the full board of Randall's reconvened and was
given a report as to the actions taken by the Randall's independent directors.
The full board then discussed the transactions contemplated by the merger
agreement and all of the directors present voted unanimously to approve the
merger agreement, the merger and the other transactions and agreements
contemplated by the merger agreement.
On July 22, 1999, the Safeway special committee met and reviewed with
counsel the terms of the merger agreement, the voting agreements and the
amendment to the KKR registration rights agreement in substantially final form.
After discussion with and questions to senior management and its financial
advisor, the special committee unanimously approved the merger agreement, the
merger and the other transactions and agreements contemplated by the merger
agreement.
On July 22, 1999, representatives of Safeway and Randall's executed the
merger agreement, voting agreements and amendment to registration rights
agreement. The parties publicly announced the execution of the merger agreement
in a joint press release early the next morning.
RECOMMENDATION OF THE RANDALL'S BOARD; REASONS FOR THE MERGER
Randall's board of directors believes that the merger is fair to you and in
your best interests and recommends that you vote FOR the proposal to approve the
merger agreement. The Randall's board of directors also recommends a vote FOR
the proposal to approve the enhanced severance arrangements and stock option
matters.
In reaching its decision to approve the merger agreement and the merger,
the Randall's board of directors, including the directors unaffiliated with KKR
acting separately, considered a number of factors, including, without
limitation, the following material factors:
- the amount of consideration to be received by the shareholders of
Randall's in the merger;
- the historical and projected information concerning the business,
financial performance and operations of Randall's and Safeway;
- a review of the possible strategic and financial alternatives available
to Randall's, including the possibility of continuing to operate
Randall's as an independent entity, as well as the risks and
uncertainties associated with those alternatives;
- the current trend towards consolidation in the supermarket industry,
which increases the competitive risks facing Randall's;
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- the opportunity for Randall's shareholders to participate, as holders of
Safeway common stock, in a larger, more diversified company, including
participation in the value that may be generated through the combination
of Randall's and Safeway;
- the historical market prices and trading information with respect to
Safeway common stock and current financial market conditions;
- the fact that the holders of approximately 83% of the shares of Randall's
common stock (including a majority of the shares of Randall's common
stock held by holders unaffiliated with KKR) were prepared to commit to
vote their shares in favor of the approval of the merger agreement;
- the written opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
that, on the basis and subject to the assumptions and limitations set
forth in the opinion, the merger consideration was fair from a financial
point of view to the holders of Randall's common stock, other than
Safeway and its affiliates, and the financial presentation made by
Merrill Lynch to the Randall's board of directors in connection with the
delivery of its opinion;
- the ability under the merger agreement of Randall's, subject to specified
conditions, to (a) respond to an unsolicited acquisition proposal and (b)
terminate the merger agreement if the Randall's board of directors
approves a superior proposal, subject to the payment of a termination fee
in an amount which the Randall's board of directors believed would not
meaningfully impair the possibility of a more favorable competing
transaction; and
- the other terms and conditions of the merger agreement, including the
relatively limited number of closing conditions which provides increased
certainty that the merger will be completed.
This discussion of the information and factors considered by the Randall's
board of directors is not intended to be exhaustive. In view of the variety of
material factors considered in connection with its evaluation of the merger, the
Randall's board of directors 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
Randall's board of directors may have given different weights to different
factors. For a discussion of the interests of some members of management of
Randall's and the Randall's board of directors, see "Interests of Members of
Randall's Board of Directors and Management in the Merger" in this document and
in the Safeway prospectus.
OPINION OF RANDALL'S FINANCIAL ADVISOR
Merrill Lynch, Pierce, Fenner & Smith Incorporated rendered an opinion
dated July 22, 1999 to the board of directors of Randall's regarding the
fairness from a financial point of view, as of that date, to the holders of
Randall's common stock, other than Safeway and its affiliates, of the merger
consideration to be received by such shareholders pursuant to the merger. The
opinion is not a recommendation to any Randall's shareholder as to how to vote.
A description of the analyses performed by Merrill Lynch in connection with its
opinion is contained in the Safeway prospectus accompanying this proxy statement
under the heading "The Merger -- Opinion of Financial Advisor". A complete copy
of the Merrill Lynch opinion is also attached to the Safeway prospectus as Annex
F. WE ENCOURAGE YOU TO READ THE OPINION IN ITS ENTIRETY.
ESOP VALUATION
U.S. Trust Company of California, the trustee for the ESOP, has hired
Houlihan Lokey Howard & Zukin to conduct the independent valuation of the
Randall's common stock held by the ESOP. The most recent valuation of Randall's
common stock performed by Houlihan Lokey for the ESOP produced a valuation, as
of April 3, 1999, of $18.03 per share.
INTERESTS OF MEMBERS OF RANDALL'S BOARD OF DIRECTORS AND MANAGEMENT IN THE
MERGER
When you consider the recommendation of the Randall's board of directors
that you vote for the approval of the merger agreement and for the approval of
the benefits proposal, you should be aware that certain
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directors and officers of Randall's have interests in the merger in addition to
their interests generally as Randall's shareholders. These interests may create
potential conflicts of interest. These interests include:
- some Randall's officers and directors are parties to severance and
employment agreements with Randall's which provide for enhanced benefits
in the event of termination of employment under specified circumstances
following the merger; these enhanced severance arrangements are subject
to the approval of Randall's shareholders, as described above;
- subject to the approval of the Randall's shareholders with respect to
some options as described above, all stock options held by directors and
employees of Randall's will become immediately exercisable in full;
- KKR will receive an $8.5 million fee upon completion of the merger for
its advisory services in connection with the merger;
'- in consideration for RFM Acquisition LLC, Onstead Interests, Ltd. and
R. Randall Onstead, Jr. entering into voting agreements to, among
other things, vote in favor of the approval of the merger agreement,
Randall's has agreed to indemnify each of those shareholders against
any liabilities which they may incur arising out of a claim that that
person, in his or its capacity as shareholder, has breached a
fiduciary obligation to other Randall's shareholders by entering into
or performing his or its obligations under those agreements; and
- Safeway has granted RFM Acquisition LLC registration rights with respect
to the shares of Safeway common stock it will acquire in the merger.
For additional information concerning these interests, see "The
Merger -- Interests of Members of Randall's Board of Directors and Management in
the Merger" in the accompanying Safeway prospectus.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
We expect the merger to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. Assuming the merger is so treated,
for federal income tax purposes, upon the exchange of Randall's common stock for
a combination of Safeway common stock and cash in the merger, a holder of
Randall's common stock generally will recognize capital gain, but not any loss,
in an amount equal to the lesser of
- the amount of gain realized by the holder or
- the amount of cash received by the holder.
No gain or loss will be recognized by Safeway, the merger subsidiary or
Randall's as a result of the merger.
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisor for a full understanding of the tax consequences of the merger to you.
For a general discussion summarizing material United States federal income tax
consequences of the merger to holders of Randall's common stock who hold their
Randall's common stock as a capital asset, see "The Merger -- Material United
States Federal Income Tax Consequences" in the Safeway prospectus.
FIRPTA WITHHOLDING
Randall's has not determined whether or not its common stock is a "United
States real property interest." As a result, Safeway will be required to
withhold 10% of the sum of the cash plus the fair market value of the Safeway
common stock received by a holder of Randall's common stock in the merger unless
the holder timely provides a certificate, completed and signed under penalties
of perjury, in the form entitled "Certification of Non-Foreign Status" which is
enclosed with this proxy statement. Any amount of tax withheld by Safeway will
be allowed as a credit against the holder's United States federal income tax
liability. IN ORDER TO AVOID THE WITHHOLDING, PLEASE PROPERLY COMPLETE AND
EXECUTE THE ENCLOSED CERTIFICATE AND RETURN THE EXECUTED CERTIFICATE WITH YOUR
PROXY CARD. If you are an individual, complete the [blue] certificate marked
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"Certification of Non-Foreign Status -- Individual Transferor." If you are not
an individual, complete the [green] certificate marked "Certification of
Non-Foreign Status -- Entity Transferor." You only need to complete one
certificate.
If the stock of Randall's is a "United States real property interest," a
foreign holder would be subject to United States income tax on the merger. A
foreign holder of Randall's common stock is, therefore, urged to consult with
his or her tax advisor concerning the tax consequences of the merger.
DISSENTERS' RIGHTS
In considering whether to vote to approve the merger agreement, you should
be aware that, under Texas law, you are entitled to dissenters' rights in the
merger. For a summary of these rights, see "The Merger -- Dissenters' Rights of
Appraisal" in the accompanying Safeway prospectus. Also, attached to the
prospectus as Annex G is the text of Articles 5.11 through 5.13 of the Texas
Business Corporation Act, which concern dissenters' rights. We encourage you to
read those materials in their entirety.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting.
See "The Merger -- Accounting Treatment" in the accompanying Safeway prospectus.
DESCRIPTION OF THE MERGER AGREEMENT AND THE VOTING AGREEMENTS
The merger agreement and the voting agreements are described in detail in
the Safeway prospectus under the headings "The Merger Agreement" and "The Voting
Agreements". We urge you to read those descriptions in their entireties as well
as the complete agreements, copies of which are attached to the Safeway
prospectus as Annexes A, B, C and D.
CONDITIONS TO THE COMPLETION OF THE MERGER
The completion of the merger depends on meeting a number of conditions,
including
- the approval of the merger agreement by the holders of a majority of
Randall's outstanding shares of common stock;
- the absence of any new law or any injunction that effectively prohibits
the merger;
- the termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act;
- the effectiveness of the registration statement relating to the shares of
Safeway common stock to be issued in the merger; and
- the receipt of legal opinions regarding material tax consequences of the
merger.
TERMINATION
The merger agreement may be terminated before the effective time of the
merger
(1) by mutual written consent of Safeway and Randall's;
(2) by either Safeway or Randall's if
- the merger is not completed on or before December 31, 1999;
- any governmental entity prohibits the merger; or
- Randall's shareholders do not approve the merger agreement at a
meeting of Randall's shareholders;
(3) by Safeway if the Randall's board
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- withdraws or modifies in any adverse manner its recommendation that
the Randall's shareholders approve the merger agreement or
- recommends a superior proposal to acquire Randall's; and
(4) by Randall's, if the Randall's board approves a superior proposal
to acquire Randall's.
If the merger agreement is terminated because of the reasons described in (3) or
(4), or if either Randall's or Safeway terminates the merger agreement because
the required vote of Randall's shareholders is not obtained at a meeting of
Randall's shareholders and, under specified circumstances, Randall's enters into
a business combination within the following 12 months, Randall's must pay
Safeway a termination fee of $45 million.
VOTING AGREEMENTS
Concurrently with the execution of the merger agreement, Safeway entered
into voting agreements with RFM Acquisition LLC, Onstead Interests, Ltd. and R.
Randall Onstead, Jr. Together, these shareholders hold approximately 83% of
Randall's outstanding common stock.
Pursuant to the voting agreements, these shareholders have agreed, among
other things, to vote in favor of approval of the merger agreement and against
other proposals to acquire Randall's. These shareholders also have agreed that
if the merger agreement is terminated under specified circumstances, and the
shareholder sells its or his shares under specified circumstances within 12
months after termination of the voting agreement, each shareholder will pay 50%
of the consideration received in excess of $41.75 per share less transaction
costs, to Safeway.
The voting agreements terminate on the earlier of the completion of the
merger and 60 days after the date on which the merger agreement is terminated.
OTHER MATTERS
The Board of Directors knows of no matters, other than those referred to
herein, to be presented at the special meeting. However, if other matters are
properly brought before the special meeting or any adjournment thereof, the
person or persons voting the proxies will vote them in accordance with their
judgment on such matters.
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RANDALL'S FOOD MARKETS, INC.
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS
___________ __, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Randall's Food Markets, Inc. (the
"Company") hereby appoints R. Randall Onstead, Jr. or Michael Calbert, or either
of them, as proxies, each with power to act without the other and with full
power of substitution, for the undersigned to vote the number of shares of
Common Stock of the Company that the undersigned would be entitled to vote if
personally present at the Special Meeting of Shareholders of the Company to be
held on ________ __, 1999, at ___ a.m. Houston time, at 3663 Briarpark, Houston,
Texas, at any adjournment or postponement thereof, on the following matters that
are more particularly described in the Proxy Statement of the Company dated ____
__, 1999:
1. To approve the Agreement and Plan of Merger, dated as of July
22, 1999, among Safeway Inc., SI Merger Sub, Inc. and Randall's
(as the same may be amended from time to time). In the merger,
Randall's will become a wholly owned subsidiary of Safeway and
each outstanding share of Randall's common stock, other than
shares held by Safeway, Randall's, any of their wholly-owned
subsidiaries and any dissenting shareholder, will be converted
into the right to receive $25.05 in cash and a fraction of a
share of Safeway common stock equal to .3204, subject to
adjustment as provided in the merger agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve, pursuant to Section 280G(b)(5)(A)(ii) of the
Internal Revenue Code, the enhanced severance arrangements and
the adjustment of the terms of options to purchase the Company's
common stock to provide for their accelerated vesting or
exercisability.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To consider and take action on any other business that may
properly come before the meeting or any adjournment or
postponement thereof.
This proxy, when properly executed, will be voted in the manner
described herein by the undersigned shareholder. If no direction is made, this
proxy will be voted "FOR" approval and
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adoption of items 1 and 2 above. Receipt of the Company's Proxy Statement dated
__________ __, 1999 is hereby acknowledged.
-----------------------------
Signature of Shareholder
-----------------------------
Printed Name of Shareholder
Date: ________________, 1999.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
USING THE ENCLOSED ENVELOPE.
