CAPITAL STOCK

Stockholder Rights Plan On June 13, 2014, the Company's Board of Directors amended the stockholder rights plan to accelerate the expiration date to June 19, 2014, terminating the plan and the rights issued under the plan as of that date. The stockholder rights plan was originally scheduled to expire on September 15, 2014.

Share-based Compensation Expense The Company recognized a credit for share-based compensation expense of $9.9 million in the second quarter of 2014 and expense of $10.4 million in the second quarter of 2013 as a component of operating and administrative expense. The Company recognized essentially no share-based compensation expense for the first 24 weeks of 2014 and expense of $21.9 million in the first 24 weeks of 2013 as a component of operating and administrative expense.

In 2014, 2013 and 2012, Safeway granted performance share awards to certain executives. These performance share awards, covering a target of approximately 2.7 million shares, vest over three years. The 2014 performance share awards are subject to the achievement of specified levels of revenue growth and return on invested capital, as modified based on our total stockholder return. The 2013 and 2012 performance share awards are subject to the achievement of earnings per share goals determined on a compound annual growth rate basis relative to the S&P 500. The Company recorded expense related to the 2014, 2013 and 2012 awards based on the then expected achievement of the performance targets. As of the second quarter of 2014, the Company no longer believes that achievement of the performance targets related to the 2013 and 2012 awards is probable and, accordingly, reversed $18.8 million of previously recorded expense on unvested performance shares.

Under the terms of the awards, all unvested performance shares will vest upon the closing of the Merger. However, in accordance with generally accepted accounting principles, Safeway did not consider the probability of the Merger occurring in recording stock-based compensation expense.

The Company determines fair value of stock option awards using the Black-Scholes option pricing model. The weighted-average assumptions used to value Safeway’s grants of stock options through the second quarter, by year, are as follows:



	2014	2013
Expected life (in years)	6.25	6.25	-	6.50
Expected stock volatility	27.9%	31.6%	-	33.0	%
Risk-free interest rate	2.0%	1.1%	-	1.3%
Expected dividend yield during the expected term	2.8%	3.8%