CONTINGENCIES

Legal Matters

The Company is subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits involving trade practices, lawsuits alleging violations of state and/or federal wage and hour laws (including alleged violations of meal and rest period laws and alleged misclassification issues), real estate disputes and other matters. Some of these suits purport or may be determined to be class actions and/or seek substantial damages.

Note P to the Company's consolidated financial statements in its 2013 Annual Report on Form 10-K, as amended, provides information on certain litigation in which the Company is involved under the caption "Legal Matters." Except as noted in subsequent Quarterly Reports on Form 10-Q and below, there have been no subsequent material developments to these matters.

Following the announcement of the Merger, 14 purported class action complaints were filed by alleged stockholders of the Company against the Company, the individual directors of the Company, and against Cerberus Capital Management, L.P., AB Acquisition, Albertsons Holdings, Albertson’s LLC and/or Merger Sub. Seven lawsuits were filed in the Delaware Court of Chancery, captioned Barnhard v. Safeway Inc., et al., C.A. No. 9445-VCL (March 13, 2014); Morales v. Safeway Inc., et al., C.A. No. 9455-VCL (March 18, 2014); Ogurkiewicz v. Safeway Inc., et al., C.A. No. 9454-VCL (March 18, 2014); Pipefitters Local 636 Defined Benefit Fund and Oklahoma Firefighters Pension and Retirement System v. Safeway Inc., et al., C.A. No. 9461-VCL (March 20, 2014); Cleveland Bakers and Teamsters Pension and Health & Welfare Funds v. Safeway Inc., et al., C.A. No. 9466-VCL (March 24, 2014); KBC Asset Management NV, Erste-Sparinvest Kapitalanlagegesellschaft m.b.H., Louisiana Municipal Police Employees’ Retirement System, and Bristol County Retirement System v. Safeway Inc., et al., C.A. No. 9492-VCL (March 31, 2014); and The City of Atlanta Firefighters’ Pension Fund v. Safeway Inc., et al., C.A. No. 9495-VCL (April 1, 2014), which have been consolidated by order of the Court as In Re Safeway Inc. Stockholders Litigation, Consol. C.A. 9445-VCL (the “Delaware Action”).

Four other lawsuits were filed in the Superior Court of the State of California, County of Alameda, and are captioned Lopez v. Safeway Inc., et al., Case No. HG14716651 (March 7, 2014); Groen v. Safeway Inc., et al., Case No. RG14716641 (March 7, 2014); Ettinger v. Safeway Inc., et al., Case No. RG14716842 (March 11, 2014); and Brockton Ret. Board v. Edwards, et. al., Case No. RG 14720450 (April 7, 2014), which were consolidated by order of the court (the “Consolidated California State Action”). On May 7, 2014, an amended complaint was filed in the Consolidated California State Action. On May 14, 2014, the court in the above-referenced actions entered an order dismissing the Consolidated California State Action, finding that the plaintiffs were contractually obligated to bring their claims against defendants in the Delaware Court of Chancery in light of the forum selection clause in the Company’s By-Laws.

Three other lawsuits were filed in the United States District Court for the Northern District of California, and are captioned Steamfitters Local 449 Pensions Fund v. Safeway Inc., et al., Case No. 4:14-cv-01670 (April 10, 2014); Romaneck v. Safeway Inc., et al., Case No. 4:14-cv-02015 (May 1, 2014); and Templeton v. Safeway Inc., et al., Case No. 3:14-cv-02412 (May 23, 2014) (collectively, the “Federal Court Actions”). An amended complaint was filed in the Steamfitters action on May 15, 2014.

Each of the cases is purportedly brought on behalf of the Company stockholder class. Collectively, the actions generally allege that the members of the Board breached their fiduciary duties in connection with the Merger because, among other things, the Merger involves an unfair price, a flawed sales process and preclusive deal protection devices. The actions allege that the Company and various combinations of the Albertsons entities aided and abetted those alleged breaches of fiduciary duty. The amended complaint in the dismissed Consolidated California State Action further alleged that the proxy statement for the Company's Annual Meeting of Stockholders failed to disclose material information relating to, among other things, the fairness opinions of Goldman, Sachs and Co. and Greenhill & Co., LLC, the Company’s financial projections, analyses concerning the intrinsic value of Blackhawk, and the background of the proposed transaction. The Federal Court Actions also allege that the defendants violated Sections 14 and 20(a) of the Exchange Act because the proxy statement failed to disclose material information relating to, among other things, the background of the proposed transaction, the fairness opinions of Goldman Sachs and Greenhill and the Company’s financial projections. Among other remedies, the lawsuits seek to enjoin the Merger, or in the event that an injunction is not entered and the Merger closes, rescission of the Merger or unspecified money damages, costs and attorneys’ and experts’ fees.

On June 13, 2014, the defendants reached an agreement-in-principle providing for a settlement of all of the claims in the Delaware Action on the terms and conditions set forth in a Memorandum of Understanding (the “Memorandum of Understanding”). Pursuant to the Memorandum of Understanding:

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the Board amended the Merger Agreement (which such amendments are incorporated into Amendment No. 2 to the Merger Agreement) to (i) change the terms of the PDC CVR Agreement so that, among other things, the holders would, instead of not receiving any value for any PDC assets that remain unsold at the end of the PDC Sale Deadline (as defined in the Merger Agreement), be entitled to the fair market value of the unsold PDC assets, after the payment of certain fees, expenses and debt repayments, and net of certain assumed taxes (based on a 39.25% rate) and (ii) change the terms of the Casa Ley CVR Agreement to, among other things, (A) reduce the Casa Ley Sale Deadline (as defined in the Merger Agreement) from four years to three years and (B) provide that in the event that any equity interests of Casa Ley owned by the Company remain unsold as of the Casa Ley Sale Deadline, the fair market value determination to be made either mutually by the Company and the Shareholder Representative (as defined in the Merger Agreement) or by an independent investment banking firm shall exclude any minority, liquidity or similar discount regarding such equity interests relative to the value of Casa Ley in its entirety;


•	the Board adopted an amendment to the Company's Stockholder Rights Plan to accelerate the expiration date; and


•	the Company made certain changes to the Proxy Statement for the Annual Meeting of Stockholders.

The plaintiffs in the Federal Court Actions have reached an agreement with the plaintiffs in the Delaware Action whereby they will participate in the settlement, and the parties in the Federal Court Actions have entered into stipulations staying the Federal Court Actions pending resolution of the Delaware Action. On July 14, 2014, the parties presented a negotiated stipulation of settlement to the Delaware Court of Chancery for approval. On September 2, 2014, the plaintiffs in the Delaware Action filed a motion for final approval of the proposed settlement and award of attorneys’ fees and expenses with the Delaware Court of Chancery. On September 17, 2014, the Delaware court approved the settlement, including an award of attorneys’ fees in the amount of $8.95 million and an expense reimbursement in the amount of $0.2 million to plaintiffs’ counsel, entered final judgment and dismissed the case. The settlement will become effective upon, among other things, the closing of the Merger. In October 2014, Safeway received $3.5 million from insurance coverage.

In the second quarter of 2014, the Company received two subpoenas from the Drug Enforcement Administration ("DEA") concerning the Company’s record keeping, reporting and related practices associated with the loss or theft of controlled substances. The Company is cooperating with the DEA on this matter.

It is management's opinion that although the amount of liability with respect to certain of the above matters cannot be ascertained at this time, any resulting liability of these and other matters, including any punitive damages, will not have a material adverse effect on the Company's financial statements taken as a whole.

Guarantees

Note S to the Company’s consolidated financial statements, under the caption “Guarantees” of the 2013 Annual Report on Form 10-K, as amended, provides information on guarantees.