-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, XGQOCE7qI4wqb4EmlelPX0jYssNH/+ruE2ZBPIpxehmgJdky4bBw1ICSifoEsF3F Cu5YMdgqW+fiLTHSjUXDDg== 0000950149-94-000225.txt : 19941026 0000950149-94-000225.hdr.sgml : 19941026 ACCESSION NUMBER: 0000950149-94-000225 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19940910 FILED AS OF DATE: 19941021 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAFEWAY INC CENTRAL INDEX KEY: 0000086144 STANDARD INDUSTRIAL CLASSIFICATION: 5411 IRS NUMBER: 943019135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00041 FILM NUMBER: 94554282 BUSINESS ADDRESS: STREET 1: FOURTH & JACKSON STS CITY: OAKLAND STATE: CA ZIP: 94660 BUSINESS PHONE: 5108913000 MAIL ADDRESS: STREET 1: FOURTH & JACKSONS STS CITY: OAKLAND STATE: CA ZIP: 94660 FORMER COMPANY: FORMER CONFORMED NAME: SAFEWAY STORES INC DATE OF NAME CHANGE: 19900226 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 10, 1994 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) --- OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 10, 1994 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _____ Commission file number 1-41 SAFEWAY INC. (Exact name of registrant as specified in its charter) Delaware 94-3019135 -------- ---------- (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) Fourth and Jackson Streets Oakland, California 94660 ------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (510) 891-3000 --------------
Not Applicable -------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __. As of October 14, 1994, there were issued and outstanding 103,735,094 shares of the registrant's common stock. 2 SAFEWAY INC. AND SUBSIDIARIES INDEX
PART I FINANCIAL INFORMATION (UNAUDITED) Page - - ------ --------------------------------- ---- ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of September 10, 1994 and January 1, 1994 3 Condensed Consolidated Statements of Income for the 12 and 36 weeks ended September 10, 1994 and September 11, 1993 5 Condensed Consolidated Statements of Cash Flows for the 36 weeks ended September 10, 1994 and September 11, 1993 6 Notes to the Condensed Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 PART II OTHER INFORMATION - - ------- ----------------- ITEM 1. LEGAL PROCEEDINGS 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
2 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements - - ------- -------------------- SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In millions) (Unaudited)
September 10, January 1, 1994 1994 ------------- ---------- ASSETS - - ------ Current assets: Cash and equivalents $ 58.4 $ 118.4 Receivables 136.5 119.5 Merchandise inventories 1,057.1 1,128.1 Prepaid expenses and other current assets 91.7 98.0 -------- -------- Total current assets 1,343.7 1,464.0 -------- -------- Property 4,279.8 4,207.3 Less accumulated depreciation and amortization 1,798.5 1,647.2 -------- -------- Property, net 2,481.3 2,560.1 Goodwill, net of amortization of $92.5 and $86.2, respectively 336.6 347.6 Prepaid pension costs 313.8 307.1 Investments in unconsolidated affiliates 324.2 303.4 Other assets 87.7 92.5 -------- -------- Total assets $4,887.3 $5,074.7 ======== ========
(Continued) 3 4 SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (In millions, except per share amounts) (Unaudited)
September 10, January 1, 1994 1994 ------------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY - - ------------------------------------ Current liabilities: Current maturities of notes and debentures $ 155.5 $ 188.6 Current obligations under capital leases 19.2 19.3 Accounts payable 910.5 880.5 Accrued salaries and wages 200.4 216.3 Other accrued liabilities 464.4 406.7 -------- -------- Total current liabilities 1,750.0 1,711.4 -------- -------- Long-term debt: Notes and debentures 1,890.7 2,287.7 Obligations under capital leases 182.4 193.6 -------- -------- Total long-term debt 2,073.1 2,481.3 Deferred income taxes 141.8 145.5 Accrued claims and other liabilities 372.7 353.6 -------- -------- Total liabilities 4,337.6 4,691.8 -------- -------- Stockholders' equity: Common stock: par value $.01 per share; 300 shares authorized; 103.3 and 101.5 shares outstanding, respectively 1.0 1.0 Additional paid-in capital 642.6 624.5 Cumulative translation adjustments 33.3 39.0 Accumulated deficit (127.2) (281.6) -------- -------- Total stockholders' equity 549.7 382.9 -------- -------- Total liabilities and stockholders' equity $4,887.3 $5,074.7 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 5 SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) (Unaudited)
12 Weeks Ended 36 Weeks Ended ----------------------- ----------------------- Sept. 10, Sept. 11, Sept. 10, Sept. 11, 1994 1993 1994 1993 --------- --------- --------- --------- Sales $ 3,631.8 $ 3,558.9 $10,736.3 $10,512.9 Cost of goods sold (2,635.9) (2,592.0) (7,799.9) (7,660.5) --------- --------- --------- --------- Gross profit 995.9 966.9 2,936.4 2,852.4 Operating and administrative expenses (847.4) (845.8) (2,523.8) (2,572.2) --------- --------- --------- --------- Operating profit 148.5 121.1 412.6 280.2 Interest expense (48.1) (61.5) (156.6) (187.9) Equity in earnings of unconsolidated affiliates 4.4 12.4 22.8 35.7 Other income, net 2.0 2.0 4.9 6.1 --------- --------- --------- --------- Income before income taxes and extraordinary loss 106.8 74.0 283.7 134.1 Income taxes (43.1) (31.9) (119.2) (57.7) --------- --------- --------- --------- Income before extraordinary loss 63.7 42.1 164.5 76.4 Extraordinary loss related to early retirement of debt, net of income tax benefit of $1.7 and $6.5, respectively (2.7) - (10.1) - --------- --------- --------- --------- Net income $ 61.0 $ 42.1 $ 154.4 $ 76.4 ========= ========= ========= ========= Earnings per common share and common share equivalent: Primary Income before extraordinary loss $ 0.52 $ 0.35 $ 1.35 $ 0.64 Extraordinary loss (0.02) - (0.08) - --------- --------- --------- --------- Net income $ 0.50 $ 0.35 $ 1.27 $ 0.64 ========= ========= ========= ========= Fully diluted Income before extraordinary loss $ 0.52 $ 0.34 $ 1.34 $ 0.63 Extraordinary loss (0.02) - (0.08) - --------- --------- --------- --------- Net income $ 0.50 $ 0.34 $ 1.26 $ 0.63 ========= ========= ========= ========= Weighted average common shares and common share equivalents: Primary 122.1 121.3 121.5 119.9 ========= ========= ========= ========= Fully diluted 122.5 122.3 122.5 122.3 ========= ========= ========= =========
See accompanying notes to the condensed consolidated financial statements. 5 6 SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)
36 Weeks Ended ----------------------------- September 10, September 11, 1994 1993 ------------- ------------- CASH FLOW FROM OPERATIONS: Net income $ 154.4 $ 76.4 Reconciliation to net cash flow from operations: Extraordinary loss related to early retirement of debt, before income tax benefit 16.6 - Depreciation and amortization 225.5 229.0 LIFO expense 6.9 7.7 Equity in undistributed earnings of unconsolidated affiliates (22.8) (35.7) Other 37.1 14.6 Change in working capital items: Receivables and prepaids (7.1) 10.8 Inventories at FIFO cost 50.1 107.2 Payables and accruals 87.5 27.8 ------- ------- Net cash flow from operations 548.2 437.8 ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Cash paid for property additions (181.6) (153.6) Proceeds from sale of property 27.6 8.3 Other (27.0) (34.6) ------- ------- Net cash flow used by investing activities (181.0) (179.9) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Additions to short-term borrowings 93.9 26.0 Payments on short-term borrowings (43.6) (44.9) Additions to long-term borrowings 345.4 267.6 Payments on long-term borrowings (821.8) (486.3) Premiums paid on early retirement of debt (12.7) - Net proceeds from sale of common stock 10.5 3.2 Other 1.1 2.0 ------- ------- Net cash flow used by financing activities (427.2) (232.4) ------- ------- Increase (decrease) in cash and equivalents (60.0) 25.5 CASH AND EQUIVALENTS: Beginning of period 118.4 96.6 ------- ------- End of period $ 58.4 $ 122.1 ======= =======
See accompanying notes to condensed consolidated financial statements. 6 7 SAFEWAY INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Safeway Inc. and subsidiaries ("Safeway" or the "Company") for the 12 and 36 weeks ended September 10, 1994 and September 11, 1993 are unaudited and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary to present fairly the financial position and results of operations for such periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's 1993 Annual Report to Stockholders. The results of operations for the 12 and 36 weeks ended September 10, 1994 are not necessarily indicative of the results expected for the full year. NOTE B - INVENTORY The results of operations reflect the application of the LIFO method of valuing certain domestic inventories, based upon estimated annual inflation ("LIFO Indices"). LIFO expense was $2.3 million in the third quarter of 1994 and $1.2 million in the third quarter of 1993. Actual LIFO Indices are calculated during the fourth quarter of the year based upon a statistical sampling of inventories. NOTE C - INVESTMENTS IN AFFILIATES Investments in affiliates consist of a 35% interest in The Vons Companies, Inc. ("Vons") which operates 344 supermarkets located mostly in southern California, and a 49% interest in Casa Ley, S.A. de C.V. which operates 61 stores in western Mexico. The Company's recorded investment in Vons at September 10, 1994 was $235.7 million, including unamortized goodwill of $47.3 million that is being amortized over a 40 year life. Income from Safeway's equity investment in Vons, recorded on a one-quarter delay basis, was $1.3 million and $10.4 million for 12 and 36 weeks ended September 10, 1994 compared to $5.9 million and $20.6 million for the same periods in 1993. Based on the September 9, 1994 closing price for Vons' common stock as quoted on the New York Stock Exchange, the Company's 15.1 million shares of Vons' common stock had an aggregate market value of $236.3 million. 7 8 SAFEWAY INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE C - INVESTMENTS IN AFFILIATES (CONTINUED) Summarized financial information derived from Vons' financial reports to the Securities and Exchange Commission is as follows (in millions):
June 19, January 2, FINANCIAL POSITION 1994 1994 ------------------ --------- ---------- Current assets $ 441.8 $ 473.4 Property and capital leases 1,223.2 1,215.6 Other assets 567.6 560.5 -------- -------- Total assets $2,232.6 $2,249.5 ======== ======== Current liabilities $ 494.4 $ 542.7 Long-term obligations 1,199.7 1,181.9 Shareholders' equity 538.5 524.9 -------- -------- Total liabilities and shareholders' equity $2,232.6 $2,249.5 ======== ========
12 Weeks Ended 36 Weeks Ended -------------------------- -------------------------- June 19, June 20, June 19, June 20, RESULTS OF OPERATIONS 1994 1993 1994 1993 --------------------- --------- --------- --------- --------- Sales $ 1,160.2 $ 1,175.3 $ 3,474.7 $ 3,729.1 Cost of sales and other expenses (1,155.7) (1,157.6) (3,442.3) (3,667.9) --------- --------- --------- --------- Income before extraordinary item 4.5 17.7 32.4 61.2 Extraordinary item - - - (0.1) --------- --------- --------- --------- Net income $ 4.5 $ 17.7 $ 32.4 $ 61.1 ========= ========= ========= =========
As of December 31, 1993, Casa Ley had total assets of $411.9 million based on financial information provided by Casa Ley. Sales and net income were $781.3 million and $25.4 million for the 36 weeks ended June 30, 1994, and $704.9 million and $30.7 million for the 36 weeks ended June 30, 1993. 8 9 SAFEWAY INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE D - FINANCING Notes and debentures were composed of the following at September 10, 1994 and January 1, 1994 (in millions):
September 10, 1994 January 1, 1994 ---------------------- ---------------------- Long-term Current Long-term Current --------- ------- --------- ------- Bank Credit Agreement, secured $ 93.0 $ 35.0 Working Capital Credit Agreement, secured 249.8 340.3 9.30% Senior Secured Debentures due 2007 70.7 100.0 10% Senior Notes due 2002, unsecured 60.6 74.0 10% Senior Subordinated Notes due 2001, secured 241.4 300.0 9.875% Senior Subordinated Debentures due 2007, secured 110.0 150.0 9.65% Senior Subordinated Debentures due 2004, secured 228.2 300.0 9.35% Senior Subordinated Notes due 1999, secured 182.5 250.0 Mortgage notes payable, secured 436.8 $ 49.1 494.5 $ 72.8 Other notes payable, unsecured 217.7 22.1 243.9 81.8 Other bank borrowings, unsecured - 84.3 - 34.0 -------- ------ -------- ------ $1,890.7 $155.5 $2,287.7 $188.6 ======== ====== ======== ======
Note B to the Company's consolidated financial statements on pages 25 through 27 of the 1993 Annual Report to Stockholders and the information appearing under the caption "Terms of Outstanding Indebtedness" in Item 1 of the Company's 1993 Form 10-K describe all of the material restrictive covenants of the Company's indebtedness. During the second and third quarters of 1994, the Company revised the Bank Credit Agreement and Working Capital Credit Agreement (together the "Bank Agreements"). The revisions extend the maturity of the Bank Agreements by one year to 1998. The revisions also include a $250 million voluntary reduction of the borrowing capacity under the Bank Agreements, which decreases the annual commitment fees by approximately $0.5 million and leaves remaining commitments of $1.15 billion. The revisions permit the Company to purchase Senior Subordinated Debt of up to $300 million per year or $500 million over the life of the Bank Agreements. During the first three quarters of 1994, Safeway retired $42.7 million of Senior Debt and $237.9 million of Senior Subordinated Debt. Safeway purchased the long-term debt primarily with proceeds from floating rate bank borrowings. While these transactions resulted in extraordinary losses of $2.7 million and $10.1 million after estimated tax benefit for the 12 and 36 weeks ended September 10, 1994, estimated annual interest expense savings will be approximately $11 million, subject to fluctuations in short-term interest rates. The extraordinary losses consist primarily of premiums paid to purchase debt and the write-off of related deferred finance costs. Depending on market conditions, Safeway may continue to purchase and retire long-term debt. 9 10 SAFEWAY INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE E - CONTINGENCIES LEGAL MATTERS Note H to the Company's consolidated financial statements, under the caption "Legal Matters" on pages 32 and 33 of the 1993 Annual Report to Stockholders, provides information on significant claims and litigation in which the Company is involved. In part, Note H provides information on certain claims arising from the July 1988 Richmond, California warehouse fire. The Company's excess insurance carrier asserted that its liability policy does not cover third-party claims against the Company arising from the fire, and the Company filed suit against the carrier to establish coverage. The court ordered that the claim be arbitrated in London in accordance with the policy's arbitration clause. A panel of arbitrators in London has rendered a decision in Safeway's favor in the arbitration proceeding between the Company and the insurance carrier. Under the panel's decision, Safeway is entitled to be indemnified by the carrier under the policy. Safeway believes that coverage under the policy will be sufficient for resolution of all remaining third-party claims arising out of the fire. Note H also provides information regarding two class action employment discrimination lawsuits filed against the Company. In June 1994, the court gave final approval to a voluntary consent decree in settlement of the lawsuits. The settlement covers over 20,000 current and former employees at more than 200 store locations in Northern California and provides for a fund of $5.0 million for payments to certain class members and an additional payment of $2.5 million in attorneys' fees and costs. The consent decree includes provisions for enhancing the Company's equal opportunity programs by setting additional affirmative action goals for certain retail positions, tracking the distribution of hours of work and training opportunities, and continuing a system for posting job vacancies. This settlement did not have a material impact on the Company's financial position or results of operations, and is not expected to have a significant impact on future results. 10 11 SAFEWAY INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Safeway's income before extraordinary loss for the third quarter ended September 10, 1994 was $63.7 million ($0.52 per share) compared to net income of $42.1 million ($0.34 per share) for the third quarter of 1993. Net income of $61.0 million ($0.50 per share) in the third quarter of 1994 included an extraordinary loss of $2.7 million ($0.02 per share) for the early retirement of debt. For the first 36 weeks of 1994, income before extraordinary loss was $164.5 million ($1.34 per share) compared to net income of $76.4 million ($0.63 per share) in the same period of 1993. Net income for the first 36 weeks of 1993 included a $30.2 million after-tax charge ($0.25 per share) for a voluntary employee buyout program in Safeway's Alberta, Canada division. Sales were $3.6 billion in the third quarter and $10.7 billion for the first 36 weeks of 1994 compared to $3.6 billion and $10.5 billion for the same periods of 1993. Same-store sales increased 3.7% in the third quarter of 1994, continuing a seven-quarter trend of same-store sales increases. Same-store sales for the first 36 weeks of 1994 increased 4.0%. Despite low food price inflation, Safeway achieved sales growth in the first 36 weeks of 1994. The Company has simplified work methods in the stores, streamlined the support functions at corporate headquarters and retail division offices, achieved labor cost parity through competitive labor contracts signed in Alberta, and improved inventory management. The savings from these efforts to lower the Company's fundamental cost of doing business were reinvested into sales growth through improved service and more competitive pricing. Gross profit was 27.4% and 27.3% of sales in the 12 and 36 weeks ended September 10, 1994, respectively, compared to 27.2% and 27.1% for the same periods of 1993. LIFO expense decreased to $6.9 million for the first 36 weeks of 1994 from $7.7 million for the same period of 1993, reflecting the Company's expectation of low inflation for the year. Operating and administrative expense for the third quarter fell to 23.33% of sales in 1994 from 23.76% in 1993. Included in operating and administrative expense for the third quarter of 1994 is an $18 million reserve for the future write-off of capitalized software. This reserve resulted from the identification of duplicate and obsolete systems as part of the previously announced reorganization of Safeway's information technology group. The elimination of these systems is expected to be largely completed during 1995. Higher sales, programs to control expenses, and insurance recoveries combined to offset the software write-off and reduce operating and administrative expense as a percent of sales in the third quarter of 1994. Programs to control expenses include the previously announced reorganizations of administrative support functions in the United States and Canada, which are generating estimated annual savings of $25 million. In the first 36 weeks of the year, operating and administrative expense decreased to 23.51% in 1994 from 24.47% in 1993. Excluding the $54.9 million pre-tax charge for the Alberta buyout in 1993, operating and administrative expense for the first 36 weeks of 1993 would have been 23.94%. Interest expense for the third quarter fell to $48.1 million in 1994 compared to $61.5 million in 1993. For the first 36 weeks of the year, interest expense was $156.6 million in 1994 compared to $187.9 million in 1993. The decreases during 1994 were primarily due to overall debt reductions resulting from Safeway's strong cash flow from operations in excess of capital expenditures and the replacement of higher rate long-term debt with short-term floating rate debt. Equity in earnings of unconsolidated affiliates, recorded on a one-quarter delay basis, was $4.4 million for the third quarter of 1994, compared to $12.4 million the same period of 1993. Vons reported that its net income reflected the impact of price reductions and promotional programs initiated in early 1994, as well as a same-store sales decrease of 3.2% for its quarter ended June 19, 1994. For the first 36 weeks of the year, equity in earnings of unconsolidated subsidiaries fell to $22.8 million in 1994 from $35.7 million in 1993. 11 12 SAFEWAY INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND FINANCIAL RESOURCES During the second and third quarters of 1994, the Company revised the Bank Credit Agreement and Working Capital Credit Agreement (together the "Bank Agreements"). The revisions extend the maturity of the Bank Agreements by one year to 1998. The revisions also include a $250 million voluntary reduction of the borrowing capacity under the Bank Agreements, which decreases the annual commitment fees by approximately $0.5 million and leaves remaining commitments of $1.15 billion. The revisions permit the Company to purchase Senior Subordinated Debt of up to $300 million per year or $500 million over the life of the Bank Agreements. During the first three quarters of 1994, Safeway retired $42.7 million of Senior Debt and $237.9 million of Senior Subordinated Debt. Safeway purchased the long-term debt primarily with proceeds from floating rate bank borrowings. While these transactions resulted in extraordinary losses of $2.7 million and $10.1 million after estimated tax benefit for the 12 and 36 weeks ended September 10, 1994, estimated annual interest expense savings will be approximately $11 million, subject to fluctuations in short-term interest rates. The extraordinary losses consist primarily of premiums paid to purchase debt and the write-off of related deferred finance costs. Depending on market conditions, Safeway may continue to purchase and retire long-term debt. Operating cash flow, as presented below, provides a measure of the Company's ability to generate cash to pay interest and fixed charges, and facilitates the comparison of Safeway's results of operations with those of companies having different capital structures. Safeway's computation of operating cash flow is as follows (dollars in millions):
12 Weeks Ended 36 Weeks Ended ---------------------- ---------------------- Sept. 10, Sept. 11, Sept. 10, Sept. 11, 1994 1993 1994 1993 --------- --------- --------- --------- Income before income taxes and extraordinary loss $106.8 $ 74.0 $283.7 $134.1 LIFO expense 2.3 1.2 6.9 7.7 Interest expense 48.1 61.5 156.6 187.9 Depreciation and amortization 75.4 76.6 225.5 229.0 Equity in earnings of unconsolidated affiliates (4.4) (12.4) (22.8) (35.7) ------ ------ ------ ------ Operating cash flow $228.2 $200.9 $649.9 $523.0 ====== ====== ====== ====== As a percent of sales 6.28% 5.65% 6.05% 4.97% ===== ===== ===== ===== As a multiple of interest expense 4.74x 3.27x 4.15x 2.78x ===== ===== ===== =====
Excluding the $54.9 million Alberta buyout charge, operating cash flow for the 36 weeks ended September 11, 1993 was 5.50% of sales, and was 3.08 times interest expense. Cash flow from operations supplemented by credit available under the Bank Agreements are the Company's primary sources of short-term liquidity. At September 10, 1994, the Company had available unused borrowing capacity of $663.2 million under the Bank Agreements. Management believes that this amount is adequate to meet the Company's requirements. 12 13 SAFEWAY INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL EXPENDITURE PROGRAM A key component of the Company's long-term strategy is its capital expenditure program. Safeway scaled back its capital expenditure program in 1993 in order to focus on near-term operating challenges, enhance the quality of projects and lower their cost. During 1993, Safeway invested $290.2 million to open 14 stores and complete 45 major remodels. The Company expects to spend about $350 million in 1994 to open 20 new stores and remodel between 50 and 60 stores. The expected cost of capital expenditures for 1994 has been reduced from earlier estimates without changing the number of expected store openings or remodels. This was possible due to the consolidation of information technology systems earlier this year, which reduced expenditures for capitalized computer software, and due to store design improvements which have lowered the cost of new stores and remodels. For the first 36 weeks of 1994, capital expenditures totaled $185.6 million. Safeway expects to increase its level of capital expenditures gradually over time. 13 14 SAFEWAY INC. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Note H to the Company's consolidated financial statements, under the caption "Legal Matters" on pages 32 and 33 of the 1993 Annual Report to Stockholders, provides information on significant claims and litigation in which the Company is involved. In part, Note H provides information on certain claims arising from the July 1988 Richmond, California warehouse fire. The Company's excess insurance carrier asserted that its liability policy does not cover third-party claims against the Company arising from the fire, and the Company filed suit against the carrier to establish coverage. The court ordered that the claim be arbitrated in London in accordance with the policy's arbitration clause. A panel of arbitrators in London has rendered a decision in Safeway's favor in the arbitration proceeding between the Company and the insurance carrier. Under the panel's decision, Safeway is entitled to be indemnified by the carrier under the policy. Safeway believes that coverage under the policy will be sufficient for resolution of all remaining third-party claims arising out of the fire. Note H also provides information regarding two class action employment discrimination lawsuits filed against the Company. In June 1994, the court gave final approval to a voluntary consent decree in settlement of the lawsuits. The settlement covers over 20,000 current and former employees at more than 200 store locations in Northern California and provides for a fund of $5.0 million for payments to certain class members and an additional payment of $2.5 million in attorneys' fees and costs. The consent decree includes provisions for enhancing the Company's equal opportunity programs by setting additional affirmative action goals for certain retail positions, tracking the distribution of hours of work and training opportunities, and continuing a system for posting job vacancies. This settlement did not have a material impact on the Company's third quarter 1994 financial position or results of operations, and is not expected to have a significant impact on future results. 14 15 SAFEWAY INC. AND SUBSIDIARIES ITEM 6(A). EXHIBITS Exhibit 4(i).1 Form of Warrant Agreement between the Company and The First National Bank of Boston as Warrant Agent relating to Warrants to purchase shares of common stock of the Company (incorporated by reference to Exhibit 4.5 to Registration Statement No. 33-9913) and Amendment to the Warrant Agreement between the Company and The First National Bank of Boston as Warrant Agent relating to Warrants to purchase shares of common stock of the Company (incorporated by reference to Exhibit 4(i).6 to Registrant's Form 10-K for the year ended December 30, 1989). Exhibit 4(i).2 Specimen Warrant (incorporated by reference to Exhibit 4(i).5 to Registration Statement No. 33-33388). Exhibit 4(i).3 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4(i).2 to Registration Statement No. 33-33388). Exhibit 4(i).4 Registration Rights Agreement dated November 25, 1986 between the Company and certain limited partnerships (incorporated by reference to Exhibit 4(i).4 to Registration Statement No. 33-33388). Exhibit 4(i).5 Indenture dated as of November 20, 1991 among the Company and The Bank of New York as Trustee relating to the Company's Senior Subordinated Debt Securities (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated November 13, 1991). Exhibit 4(i).6 Form of Officers' Certificate establishing the terms of the 10% Senior Subordinated Notes due December 1, 2001, including the form of Note (incorporated by reference to Exhibit 4.4 of Registrant's Form 8-K dated November 13, 1991). Exhibit 4(i).7 Form of Officers' Certificate establishing the terms of the 9.65% Senior Subordinated Debentures due January 15, 2004, including the form of Debenture (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated January 15, 1992). Exhibit 4(i).8 Indenture dated as of February 1, 1992 between the Company and The First National Bank of Chicago as Trustee relating to the Company's 9.30% Senior Secured Debentures due 2007, including the form of Debenture and the forms of Deed of Trust and Environmental Indemnity Agreement attached as exhibits thereto (incorporated by reference to Exhibit 4(i).14 to Registrant's Form 10-K for the year ended December 28, 1991). Exhibit 4(i).9 Indenture dated as of March 15, 1992 between the Company and Harris Trust and Savings Bank as Trustee relating to the Company's Senior Subordinated Debt Securities (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).10 Form of Officers' Certificate establishing the terms of the 9.35% Senior Subordinated Notes due March 15, 1999 and the 9.875% Senior Subordinated Debentures due March 15, 2007, including the form of Note and form of Debenture (incorporated by reference to Exhibit 4.2 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).11 Indenture dated as of September 1, 1992 between the Company and The Chase Manhattan Bank (National Association), as Trustee relating to the Company's Debt Securities (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated September 16, 1992). 15 16 SAFEWAY INC. AND SUBSIDIARIES ITEM 6(A). EXHIBITS (CONTINUED) Exhibit 4(i).12 Form of Officers' Certificate relating to the Company's Fixed Rate Medium-Term Notes and the Company's Floating Rate Medium-Term Notes, form of Fixed Rate Note and form of Floating Rate Note (incorporated by reference to Exhibits 4.2, 4.3 and 4.4 of Registrant's Form 8-K dated September 16, 1992). Exhibit 4(i).13 Form of Officers' Certificate establishing the terms of a separate series of Safeway Inc.'s Medium-Term Notes entitled 10% Senior Notes due November 1, 2002, including the form of Note (incorporated by reference to Exhibits 4.1 and 4.2 of Registrant's Form 8-K dated November 5, 1992). Exhibit 4(i).14 Form of Officers' Certificate establishing the terms of a separate series of Safeway Inc.'s Medium-Term Notes entitled Medium-Term Notes due June 1, 2003 (Series OPR-1), including the form of Note (incorporated by reference to Exhibits 4.1 and 4.2 of Registrant's Form 8-K dated June 1, 1993). Exhibit 4(i).15 Company Pledge Agreement dated as of November 24, 1986 between the Company and Bankers Trust Company, as collateral agent, form of First Amendment thereto dated as of June 12, 1990, and form of Second Amendment thereto dated as of November 8, 1991 (incorporated by reference to Exhibit 4.5 of Registrant's Form 8-K dated November 13, 1991) and Third Amendment dated as of January 28, 1992 to Company Pledge Agreement between the Company and Bankers Trust Company, as collateral agent and interest rate exchanger (incorporated by reference to Exhibit 4.3 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).16 Trademark Security Agreement and Conditional Assignment dated as of November 24, 1986 between the Company and Bankers Trust Company, as collateral agent, form of First Amendment thereto dated as of June 12, 1990, and form of Second Amendment thereto dated as of November 8, 1991 (incorporated by reference to Exhibit 4.6 of Registrant's Form 8-K dated November 13, 1991) and Third Amendment dated as of January 28, 1992 to Safeway Pledge Agreement between the Company and Bankers Trust Company, as collateral agent and interest rate exchanger (incorporated by reference to Exhibit 4.4 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).17 Pledge and Security Agreement dated as of November 26, 1986 between the Company and Bankers Trust Company, as collateral agent, form of First Amendment thereto dated as of June 12, 1990, and form of Second Amendment thereto dated as of November 8, 1991 (incorporated by reference to Exhibit 4.7 of Registrant's Form 8-K dated November 13, 1991) and Third Amendment dated as of January 28, 1992 to Company Pledge and Security Agreement (Inventory) between the Company and Bankers Trust Company, as collateral agent and interest rate exchanger (incorporated by reference to Exhibit 4.5 of Registrant's Form 8-K dated March 17, 1992). 16 17 SAFEWAY INC. AND SUBSIDIARIES ITEM 6(A). EXHIBITS (CONTINUED) Exhibit 4(i).18 Intercreditor Agreement (Company Pledge) dated as of November 24, 1986 among the Company, Bankers Trust Company, as agent and collateral agent, Harris Trust and Savings Bank, and Norwest Bank Minneapolis, N.A., and form of First Amendment thereto dated as of November 8, 1991 (incorporated by reference to Exhibit 4.8 of Registrant's Form 8-K dated November 13, 1991) and Second Amendment dated as of January 28, 1992 to Intercreditor Agreement (Company Pledge), among the Company, Bankers Trust Company, as agent, collateral agent and interest rate exchanger, Harris Trust and Savings Bank, Norwest Bank Minneapolis, N.A., and The Bank of New York (incorporated by reference to Exhibit 4.6 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).19 Intercreditor Agreement (Substitute Collateral) dated as of November 24, 1986 among the Company, Bankers Trust Company, as agent and collateral agent, Harris Trust and Savings Bank and Norwest Bank Minneapolis, N.A., and form of First Amendment thereto dated as of November 8, 1991 (incorporated by reference to Exhibit 4.9 of Registrant's Form 8-K dated November 13, 1991) and Second Amendment dated as of January 28, 1992 to Intercreditor Agreement (Substitute Collateral) among the Company, Bankers Trust Company, as agent, collateral agent and interest rate exchanger, Harris Trust and Savings Bank, Norwest Bank Minneapolis, N.A., and The Bank of New York (incorporated by reference to Exhibit 4.7 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).20 Form of Second Amended and Restated Credit Agreement dated as of June 12, 1990 incorporating changes through the Third Amendment dated as of August 7, 1991, the Fourth Amendment dated November 8, 1991 and the Fifth Amendment dated January 28, 1992 among the Company, the banks listed therein, and Bankers Trust Company as Lead Manager and Agent (incorporated by reference to Exhibit 4(i).19 to Registrant's Form 10-K for the year ended January 2, 1993), and the Extension Agreement and Sixth Amendment dated March 31, 1994 (incorporated by reference to Exhibit 4(i).20 of the Registrant's Form 10-Q for the quarterly period ended March 26, 1994), and Seventh Amendment dated as of August 19, 1994. Exhibit 4(i).21 Form of Second Amended and Restated Working Capital Credit Agreement dated as of June 14, 1990 incorporating changes through the Third Amendment dated as of August 7, 1991, the Fourth Amendment dated November 8, 1991 and the Fifth Amendment dated January 28, 1992 among the Company, the Banks listed therein and Bankers Trust Company as Lead Manager and Agent (incorporated by reference to Exhibit 4(i).20 to Registrant's Form 10-K for the year ended January 2, 1993), the Extension Agreement and Sixth Amendment dated March 31, 1994 (incorporated by reference to Exhibit 4(i).21 of the Registrant's Form 10-Q for the quarterly period ended March 26, 1994), and Seventh Amendment dated as of August 19, 1994. Exhibit 4(iii) Registrant agrees to provide the Securities and Exchange Commission, upon request, copies of instruments defining the rights of holders of long-term debt of Registrant and all of its subsidiaries for which consolidated financial statements are required to be filed with the Securities and Exchange Commission. Exhibit 10(iii).1* Safeway Inc. Outside Director Equity Purchase Plan (incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-36753) and First Amendment to the Safeway Inc. Outside Director Equity Purchase Plan dated as of July 5, 1994. __________________ * Management contract, or compensatory plan or arrangement 17 18 SAFEWAY INC. AND SUBSIDIARIES ITEM 6(A). EXHIBITS (CONTINUED) Exhibit 10(iii).2* Share Appreciation Rights Plan of Canada Safeway Limited (incorporated by reference to Exhibit 10(iii).17 to Registrant's Form 10-K for the year ended December 29, 1990) and Amendment No. 1 thereto dated December 13, 1991 (incorporated by reference to Exhibit 10(iii).17 to Registrant's Form 10-K for the year ended December 28, 1991). Exhibit 10(iii).3* Share Appreciation Rights Plan of Lucerne Foods Ltd. (incorporated by reference to Exhibit 10(iii).18 to Registrant's Form 10-K for the year ended December 29, 1990) and Amendment No. 1 thereto dated December 13, 1991 (incorporated by reference to Exhibit 10(iii).18 to Registrant's Form 10-K for the year ended December 28, 1991). Exhibit 10(iii).4* Letter Agreement dated March 24, 1993 between the Company and Peter A. Magowan (incorporated by reference to Exhibit 10(iii).6 to Registrant's Form 10-Q for the quarterly period ending June 19, 1993). Exhibit 10(iii).5* Settlement Agreement and General Release of Claims dated October 6, 1993 between the Company and Robert H. Kinnie (incorporated by reference to Exhibit 10(iii).8 to Registrant's Form 10-Q for the quarterly period ending September 11, 1993). Exhibit 10(iii).6* Stock Option Plan for Consultants of Safeway Inc. (incorporated by reference to Exhibit 10(iii).7 to Registrant's Form 10-Q for the quarterly period ending June 19, 1993). Exhibit 10(iii).7* First Amendment to the Stock Option Plan for Consultants of Safeway Inc. (incorporated by reference to Exhibit 10(iii).7 to Registrant's Form 10-K for the year ended January 1, 1994). Exhibit 10(iii).8* 1994 Amended and Restated Stock Option and Incentive Plan for Key Employees of Safeway Inc. (incorporated by reference to Exhibit 10(iii).8 to Registrant's Form 10-K for the year ended January 1, 1994). Exhibit 10(iii).9* Operating Performance Bonus Plan for Executive Officers of Safeway Inc. (incorporated by reference to Exhibit 10(iii).9 to Registrant's Form 10-K for the year ended January 1, 1994). Exhibit 10(iii).10* Capital Performance Bonus Plan (incorporated by reference to Exhibit 10(iii).10 to Registrant's Form 10-K for the year ended January 1, 1994). Exhibit 10(iii).11* Retirement Restoration Plan of Safeway Inc. (incorporated by reference to Exhibit 10(iii).11 to Registrant's Form 10-K for the year ended January 1, 1994). Exhibit 11.1 Computation of Earnings Per Common Share and Common Share Equivalent. Exhibit 27 Financial Data Schedule. _______________ * Management contract, or compensatory plan or arrangement ITEM 6(B). REPORTS ON FORM 8-K. On August 11, 1994 the Company filed a Form 8-K listing under Item 7 (Exhibits) its Computation of Ratio of Earnings to Fixed Charges for the second quarter of 1994. 18 19 SAFEWAY INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: October 20, 1994 \s\ Steven A. Burd ------------------ ------------------ Steven A. Burd President and Chief Executive Officer Date: October 20, 1994 \s\ Julian C. Day ------------------ ----------------- Julian C. Day Executive Vice President and Chief Financial Officer 19 20 SAFEWAY INC. AND SUBSIDIARIES INDEX TO EXHIBITS FILED Exhibit 4(i).20 Seventh Amendment to Second Amended and Restated Credit Agreement Dated as of August 19, 1994. Exhibit 4(i).21 Seventh Amendment and Consent Dated as of August 19, 1994 to Second Amended and Restated Working Capital Credit Agreement. Exhibit 10(iii).1 First Amendment to the Safeway Inc. Outside Director Equity Purchase Plan Dated as of July 5, 1994. Exhibit 11.1 Computation of Earnings Per Common Share and Common Share Equivalent. Exhibit 27 Financial Data Schedule. EX-4.(I).20 2 AMENDED AND RESTATED CREDIT AGREEMENT 1 Exhibit 4(i).20 SAFEWAY INC. SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF AUGUST 19, 1994 This SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of August 19, 1994 (this "Amendment") to the Second Amended and Restated Credit Agreement dated as of June 12, 1990, as amended by a First Amendment dated as of March 22, 1991, a Second Amendment dated as of June 7, 1991, a Third Amendment dated as of August 7, 1991, a Fourth Amendment and Consent to Documents dated as of November 8, 1991, a Fifth Amendment and Consent to Documents dated as of January 28, 1992 and an Extension Agreement and Sixth Amendment dated as of March 31, 1994 (as so amended, the "Credit Agreement"), is by and among Safeway Inc., a Delaware corporation ("Company"), the financial institutions named on the signature pages hereof ("Banks"), Bankers Trust Company ("Bankers"), as Lead Manager and Agent for Banks ("Agent"), the Managers named on the signature pages hereof ("Managers"), the Co-Managers named on the signature pages hereof ("Co-Managers"), the Guarantors named on the signature pages hereof ("Guarantors") and the Pledgors named on the signature pages hereof ("Pledgors"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Company proposes to reduce voluntarily the Commitments by $50,000,000 and Company and Canadian Borrowers propose to reduce voluntarily the Working Capital Commitments by $50,000,000; WHEREAS, in connection with such commitment reductions, Company and Banks have agreed, subject to the terms and conditions of this Amendment, to amend the Credit Agreement (i) to modify the amount of commitment fees and interest payable under the Credit Agreement, (ii) to eliminate those provisions of the Credit Agreement relating to Additional Pro Rata Shares or requiring further reductions of the Commitments on the First Commitment Reduction Date and the Second Commitment Reduction Date, and (iii) to make certain other modifications to the Credit Agreement as set forth herein; WHEREAS, Guarantors desire expressly to consent to this Amendment and to reaffirm the effectiveness of the 2 First Tier Guaranty, the Second Tier Guaranty, the Guaranty and Assumption Agreement and the Contribution Agreement; and WHEREAS, Pledgors desire expressly to consent to this Amendment and to reaffirm the effectiveness of the Company Pledge Agreement, the Safeway Pledge Agreement, the Inventory Pledge Agreement, the First Tier Pledge Agreements and the Second Tier Pledge Agreements. AGREEMENT NOW, THEREFORE, in consideration of the terms and conditions herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT. A. Subsection 1.1 of the Credit Agreement is hereby amended by deleting the defined term "Second Commitment Reduction Date" therefrom in its entirety and by adding thereto the following defined terms in the appropriate alphabetical order: "'CONSOLIDATED ADJUSTED EBITDA' means, for any period, net income adjusted to eliminate the impact of: (a) income taxes, (b) extraordinary items, (c) the cumulative effect of accounting changes, (d) any LIFO provision, (e) Consolidated Interest Expense, (f) amortization expense, (g) depreciation expense and (h) equity in earnings of unconsolidated affiliates, all as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP." "'CONSOLIDATED INTEREST EXPENSE' means, for any period, interest expense with respect to all outstanding Indebtedness (including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, net costs under Interest Rate Agreements and any such expense attributable to Capital Leases in accordance with GAAP) of Company and its Subsidiaries for such period determined on a consolidated basis in conformity with GAAP." "'COVERAGE LEVEL' means, for the purposes of determining the Eurodollar Margin or Usage Fee Rate as of any date of determination on or after the Seventh Amendment Effective Date, Coverage Level I, Coverage Level II, Coverage Level III, or Coverage Level IV, as applicable, determined by reference to Company's Interest Coverage Ratio as set forth in the most recent Level Determination Certificate delivered by Company at 2 3 least one Business Day before such date of determination, as follows: Coverage Level I: Company's Interest Coverage Ratio is greater than or equal to 4.25 to 1.00; Coverage Level II: Company's Interest Coverage Ratio is less than 4.25 to 1.00 but greater than or equal to 3.75 to 1.00; Coverage Level III: Company's Interest Coverage Ratio is less than 3.75 to 1.00 but greater than or equal to 3.00 to 1.00; Coverage Level IV: Company's Interest Coverage Ratio is less than 3.00 to 1.00; provided, however, that if Company fails to deliver a Level Determination Certificate pursuant to subsection 5.1(xiii) setting forth Company's Interest Coverage Ratio as of the last day of any fiscal quarter within 75 days or, in the case of the fourth fiscal quarter of any fiscal year only, 120 days of the end of such fiscal quarter, the Coverage Level shall thereafter be deemed to be Coverage Level IV until such time as Company delivers such Level Determination Certificate. The Coverage Level shall change to the extent necessary to reflect changes in Company's Interest Coverage Ratio, as demonstrated by the delivery of a Level Determination Certificate, on the next Business Day following Company's delivery of such Level Determination Certificate." "'EURODOLLAR MARGIN' means (A) as of any date of determination prior to the Seventh Amendment Effective Date, .75% per annum or (B) as of any date of determination on or after the Seventh Amendment Effective Date, the percentage (per annum) set forth in the table below which corresponds to Company's Rating Level and Coverage Level as in effect on such date of determination: Eurodollar Margins
Coverage Levels -------------------------------------- Level I Level II Level III Level IV ------- -------- --------- --------- Rating Levels ------------- Level A .4375% .4375% .4375% .4375% Level B .4375% .50% .50% .50% Level C .4375% .50% .625% .625% Level D .4375% .50% .625% .75%
3 4 If any determination of the Eurodollar Margin is erroneous by reason of any error in the determination of the Rating Level or Coverage Level by Company, and as the result of such error, the Eurodollar Margin during any period is set below or above the Eurodollar Margin that should, in the absence of such error, have been effective during such period, Company or Banks, as the case may be, shall promptly make payments, or adjust the amount of future payments, to Banks or Company, as the case may be, to the extent necessary to correct for such error." "'INTEREST COVERAGE RATIO' means, as at any date of determination, the ratio of (i) Consolidated Adjusted EBITDA to (ii) Consolidated Interest Expense for the four fiscal quarter period ending with the most recently completed fiscal quarter of Company." "'LEVEL DETERMINATION CERTIFICATE' means an Officers' Certificate of Company, delivered on the Seventh Amendment Effective Date and thereafter delivered pursuant to subsection 5.1(xiii) with the financial statements required pursuant to subsections 5.1(ii) and 5.1(iii), setting forth in reasonable detail the calculation of the Interest Coverage Ratio and Company's credit ratings from Moodys and S&P." "'MOODYS' means Moody's Investors Service, Inc." "'RATING LEVEL' means, for the purposes of determining the Eurodollar Margin or Usage Fee Rate as of any date of determination on or after the Seventh Amendment Effective Date, Rating Level A, Rating Level B, Rating Level C, or Rating Level D, as applicable, determined by reference to the highest debt rating assigned to Company's Senior Debt by S&P or Moodys as in effect on such date of determination as follows: Rating Level A: (a) Company's Senior Debt is rated Baa2 or better by Moodys or BBB or better by S&P; Rating Level B: Company's Senior Debt is rated Baa3 by Moodys or BBB- by S&P; Rating Level C: Company's Senior Debt is rated Ba1 by Moodys or BB+ by S&P; Rating Level D: Company's Senior Debt or subordinated debt is not rated by S&P or Moodys or Company's Senior Debt is rated Ba2 or lower by Moodys or BB or lower by S&P. 4 5 For the purposes of determining Company's Rating Level at any time that Company's Senior Debt is not rated by S&P or Moodys but Company's long-term subordinated debt is rated by S&P or Moodys, Company's Senior Debt shall be deemed to have received from S&P or Moodys, as applicable, the second highest rating above the rating received from such rating agency on Company's long-term subordinated debt. The Rating Level shall change as of the opening of business on the earlier of (a) the fifth Business Day following any day that S&P or Moodys, as the case may be, changes the rating it assigns to Company's long-term senior or subordinated debt to the extent such change in the Rating Level is necessary to reflect such rating change or (b) the Business day following the date Company, pursuant to subsection 5.1(xiii), delivers notice of such a rating change." "'SENIOR DEBT' means Company's 9.30% Senior Secured Debentures due 2007, at any time such debentures are outstanding, or any other long-term senior secured debt of Company outstanding at any other time; provided if Company shall use other long-term senior secured debt to determine its Rating Level, the rating on such debt from S&P or Moodys, as applicable, shall not be higher than the next highest rating over the rating assigned by such rating agency to Company's senior unsecured long-term debt." "'SEVENTH AMENDMENT' means the Seventh Amendment to the Second Amended and Restated Credit Agreement dated as of August 19, 1994, by and among Company, the Guarantors listed therein, the Pledgors listed therein, Banks, Managers, Co-Managers and Agent." "'SEVENTH AMENDMENT EFFECTIVE DATE' means the date the Seventh Amendment becomes effective in accordance with its terms." "'S&P' means Standard & Poors Corporation." "'USAGE FEE RATE' means (a) as of any date of determination prior to the Seventh Amendment Effective Date, .375% per annum or (b) as of any date of determination on or after the Seventh Amendment Effective Date, the applicable percentage rate (per annum) set forth in the table below which corresponds to Company's Rating Level and Coverage Level as in effect on such date of determination: 5 6 Usage Fee Rates
Coverage Levels --------------------------------------- Level I Level II Level III Level IV ------- -------- --------- --------- Rating Levels ------------- Level A .1375% .1375% .1375% .1375% Level B .15% .15% .15% .15% Level C .15% .20% .225% .225% Level D .15% .20% .25% .375%
If any determination of the Usage Fee Rate is erroneous by reason of any error in the determination of the Rating Level or Coverage Level by Company, and as the result of such error, the Usage Fee Rate during any period is set below or above the Usage Fee Rate that should, in the absence of such error, have been effective during such period, Company or Banks, as the case may be, shall promptly make payments, or adjust the amount of future payments, to Banks or Company, as the case may be, to the extent necessary to correct for such error." B. Subsection 1.1 of the Credit Agreement is hereby further amended by amending and restating the definitions of "Additional Pro Rata Share", "Commitment Termination Date", "Pro Rata Share", "Reallocation Date" and "Working Capital Commitment Reduction Amount" in their entirety as follows: "'ADDITIONAL PRO RATA SHARE' means, with respect to each Bank, as of any date of determination prior to Seventh Amendment Effective Date, the percentage designated as such Bank's Additional Pro Rata Share as set forth on SCHEDULE B of this Agreement, as in effect prior to the Seventh Amendment Effective Date, as any such Additional Pro Rata Share may be adjusted from time to time prior to the Seventh Amendment Effective Date as a result of bank assignments pursuant to subsection 9.2A hereof, it being agreed and understood that no Bank shall have an Additional Pro Rata Share on or after the Seventh Amendment Effective Date." "'COMMITMENT TERMINATION DATE' means August 7, 1998, which date reflects a one year extension requested by Company pursuant to subsection 2.12 and shall not be subject to any further extension thereunder." "'PRO RATA SHARE' means with respect to each Bank and unless otherwise indicated herein, the percentage set forth opposite the name of such Bank as such Bank's Pro Rata Share on SCHEDULE B of this Agreement, as any such Pro Rata Share may be adjusted from time to time 6 7 pursuant to subsections 2.6F and 9.2A hereof; provided, however, that the 'Pro Rata Share' of any Bank with respect to any amount of commitment fees that is accrued but unpaid immediately prior to the Seventh Amendment Effective Date shall be determined by reference to the 'Pro Rata Share' of such Bank immediately prior to the Seventh Amendment Effective Date." "'REALLOCATION DATE' means a date which may not occur after giving effect to the Seventh Amendment, it being agreed and understood that all references to the Reallocation Date or its occurrence shall be disregarded on and after the Seventh Amendment Effective Date." "'WORKING CAPITAL COMMITMENT REDUCTION AMOUNT' means the aggregate amount by which the Working Capital Commitments are reduced in connection with Company's or a Canadian Borrower's incurrence of any Refinancing Indebtedness, which amount shall be zero unless Company, in a written notice delivered to Agent and Canadian Administrative Agent at least three Business Days prior to the date of such reduction, indicates that the Working Capital Commitments are to be reduced and specifies the amount of such reduction; provided, however, that, notwithstanding any such notice from Company, if an Event of Default or Potential Event of Default shall have occurred and be continuing, the Working Capital Commitment Reduction Amount shall equal (1) the sum of the amounts set forth in clauses (a) and (b) of the definition of Required Refinancing Commitment Reduction multiplied by (2) a fraction having the Working Capital Commitments as its numerator and the sum of the Working Capital Commitments and Revolving Commitments as its denominator." C. Subsection 2.1A of the Credit Agreement is hereby amended by: (i) amending and restating the first paragraph of such subsection in its entirety as follows: "A. REVOLVING COMMITMENTS. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Company herein set forth, each Bank hereby severally agrees to lend to Company from time to time to and including the Commitment Termination Date, its Pro Rata Share of the aggregate Revolving Commitments (as defined below) to be used for the purposes identified in subsection 2.7A, subject to adjustment as provided herein. 7 8 Each Bank's commitment to make Revolving Loans to Company pursuant to this subsection 2.1A is herein called its 'Revolving Commitment' and such commitments of all Banks in the aggregate are herein called the 'Revolving Commitments.' The amount of each Bank's Revolving Commitment as of the Seventh Amendment Effective Date is set forth opposite its name on SCHEDULE B annexed hereto, and the aggregate amount of the Revolving Commitments as of the Seventh Amendment Effective Date is $750,000,000. Each Bank's Revolving Commitment shall expire on the Commitment Termination Date then in effect and all Revolving Loans and all other amounts owed hereunder shall be paid in full no later than that date. The amount of Revolving Commitments shall be reduced by the amount of all reductions thereof made pursuant to subsection 2.6F through the date of determination. In no event shall the aggregate principal amount of the Revolving Loans from any Bank outstanding plus the Letter of Credit Usage allocable to such Bank at any time exceed its Revolving Commitment then in effect nor shall the Total Utilization of Commitments exceed the aggregate amount of Revolving Commitments then in effect." (ii) deleting the second proviso from the second paragraph thereof; (iii) by deleting the phrase "clause (c) of" from clause (i) of the third paragraph thereof; (iv) by deleting the semicolon and the word "and" from the end of clause (ii) of the third paragraph thereof and substituting a period therefor; and (v) deleting clause (iii) from the third paragraph thereof in its entirety. D. Subsection 2.1E of the Credit Agreement is hereby deleted in its entirety from the Credit Agreement, it being agreed and understood that all cross references in the Credit Agreement to subsection 2.1E shall be disregarded. E. Subsection 2.4A of the Credit Agreement is hereby amended by deleting from clause (iii) thereof the phrase ".75% per annum" therefrom and substituting therefor the phrase "the applicable Eurodollar Margin". F. Subsection 2.4B of the Credit Agreement is hereby amended by amending and restating clause (v) thereof in its entirety as follows: 8 9 "(v) [Intentionally Omitted];" G. Subsection 2.5A of the Credit Agreement is hereby amended by amending and restating clauses (i), (ii) and (iii) in their entirety as follows: "(i) Company agrees to pay to Agent for distribution to each Bank in proportion to that Bank's Pro Rata Share, commitment fees, for the period from and including the Seventh Amendment Effective Date to but excluding the date the Revolving Commitments terminate or expire, equal to the average of the daily unused portion of the Revolving Commitments multiplied by the applicable Usage Fee Rate. Notwithstanding anything to the contrary contained in this Agreement, for the purposes of calculating the commitment fees payable pursuant to this subsection 2.5A(i), the 'unused portion' of the Revolving Commitments shall, for any date of determination be an amount equal to the aggregate Revolving Commitments (as reduced pursuant to subsection 2.6F) minus the aggregate principal amount of all outstanding Revolving Loans. (ii) [Intentionally Omitted] (iii) [Intentionally Omitted]" H. Subsection 2.6F of the Credit Agreement is hereby amended by deleting the fourth, fifth and sixth sentences of the second paragraph of clause (i) thereof and substituting therefor the following sentence: "Any partial reduction of the Revolving Commitments shall reduce the Revolving Commitment of each Bank proportionately in accordance with its Pro Rata Share on the date of such partial reduction." Subsection 2.6F of the Credit Agreement is hereby further amended by amending and restating clause (ii) thereof in its entirety as follows: "(ii) Mandatory Reductions of Revolving Commitments. The Revolving Commitments shall be permanently reduced as follows: if Company or any Canadian Borrower incurs any Refinancing Indebtedness pursuant to subsection 6.1(xiv) that does not constitute Subordinated Indebtedness, then on the earlier of the day Company or such Canadian Borrower prepays Revolving Loans with the proceeds of such Refinancing Indebtedness or the fifth Business Day following the day Company or such Canadian Borrower incurs such Refinancing Indebtedness, the Revolving Commitments shall be reduced by an aggregate amount 9 10 equal to the Required Refinancing Commitment Reduction. Any partial reduction of the Revolving Commitments shall reduce the Revolving Commitment of each Bank proportionately in accordance with its Pro Rata Share on the date of such partial reduction." I. Subsection 2.10F of the Credit Agreement is hereby amended (a) by amending and restating clause (i) thereof in its entirety as follows: "(i) with respect to each Standby Letter of Credit, an administrative fee equal to .125% per annum of the maximum amount available from time to time to be drawn under such Letter of Credit and a commission payable at a rate equal to (a) the Eurodollar Margin, as in effect from time to time, minus (b) the Usage Fee Rate, as in effect from time to time, on the maximum amount available from time to time to be drawn under such Letter of Credit, in each case payable in arrears on and through the last day of each fiscal quarter of Company and calculated on the basis of a 360-day year and the actual number of days elapsed;" and (b) by deleting the reference to ".125%" from the last paragraph thereof. J. Subsection 2.12 of the Credit Agreement is hereby amended (i) by deleting the phrase "each of the First Commitment Reduction Date, the Second Commitment Reduction Date and" and the phrase "the First Commitment Reduction Date, the Second Commitment Reduction Date and" therefrom, and (ii) by deleting the last paragraph in its entirety therefrom. K. Subsection 5.1 of the Credit Agreement is hereby amended by amending and restating clause (xiii) in its entirety as follows: "(xiii) together with each delivery of consolidated financial statements of Company and its Subsidiaries pursuant to clauses (ii) and (iii) above (commencing with the financial statements to be delivered in relation to Company's fiscal quarter ended in September 1994) and, in any event, not more often than quarterly, a Level Determination Certificate setting forth Company's Interest Coverage Ratio as of the last day of the most recently ended fiscal quarter, and promptly upon, and in any event not later than five Business Days after, Company's receipt of notice that S&P or Moodys, as the case may be, is increasing or reducing the credit rating assigned to the senior or subordinated debt of Company, notice of such increase or reduction;" 10 11 L. Subsection 6.1(xiv) of the Credit Agreement is hereby amended by deleting the term "subsection 2.6F(c)" therefrom and substituting therefor the term "subsection 2.6F". SECTION 2. AMENDMENTS TO SCHEDULE B TO THE CREDIT AGREEMENT. Schedule B to the Credit Agreement (Banks, Revolving Commitments and Pro Rata Shares) is hereby amended by deleting such Schedule in its entirety from the Credit Agreement and by substituting in lieu thereof Schedule B as annexed to this Amendment. SECTION 3. REDUCTION OF COMMITMENTS. Company and Banks hereby agree that concurrent with the effectiveness of this Amendment, the Revolving Commitments shall, pursuant to subsection 2.6F(i), automatically be reduced by $50,000,000 so as to equal $750,000,000, such reduction to be applied to reduce the Commitments of Banks in accordance with their respective Additional Pro Rata Shares as in effect immediately prior to the effectiveness of this Amendment. SECTION 4. REALLOCATION OF LOANS OUTSTANDING ON SEVENTH AMENDMENT EFFECTIVE DATE. On the Seventh Amendment Effective Date (as defined below), the outstanding Loans shall be reallocated based on the assumption that Company shall, as of the opening of business on such day, have repaid all Loans then outstanding in accordance with the respective Pro Rata Shares of Banks, as in effect immediately prior to giving effect to this Amendment, and shall have thereafter reborrowed Loans in the same principal amount from Banks in accordance with their respective Pro Rata Shares as in effect immediately after giving effect to this Amendment. Agent shall advise each Bank as to the net amount of payments to be received by, or Loans to be advanced by, such Bank on the Seventh Amendment Effective Date. SECTION 5. REPRESENTATIONS AND WARRANTIES. In order to induce Banks to enter into this Amendment, Company represents and warrants to each Bank that: A. No event would result from the execution of this Amendment and, after giving effect to this Amendment, no event has occurred or is continuing which 11 12 constitutes an Event of Default or Potential Event of Default; B. After giving effect to this Amendment, the representations and warranties of Company contained in the Credit Agreement, as amended by this Amendment (the "Amended Credit Agreement") are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof, except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under the Credit Agreement; C. This Amendment, the Amended Credit Agreement, and the consummation of the transactions contemplated hereby or thereby do not and will not (i) violate any provisions of law applicable to Company or any of its Subsidiaries, the Certificate of Incorporation or Bylaws of Company or any of its Subsidiaries, or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, or (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, the indentures pursuant to which any outstanding Subordinated Indebtedness (including, without limitation, the Senior Subordinated Debt) has been issued (the "Indentures") or any term of any other material agreement or instrument to which Company or any of its Subsidiaries is a party or by which any of their properties or assets are bound; D. If the Commitments were fully utilized as of the date hereof, all Indebtedness of Company with respect to the Loans under the Amended Credit Agreement would be within the definition of "Senior Indebtedness" contained in the Indentures, the definition of "Senior Secured Obligations" contained in the Company Pledge Agreement, the Inventory Pledge Agreement and the Safeway Pledge Agreement, the definition of "Secured Obligations" contained in the First Tier Pledge Agreements and the Second Tier Pledge Agreements and the definition of "Guarantied Obligations" contained in the First Tier Guaranty, the Second Tier Guaranty, the Guaranty and the Assumption Agreement and the Contribution Agreement; E. Each Loan Party has performed in all material respects all agreements and satisfied all conditions which the Credit Agreement and this Amendment provide shall be performed by it on or before the date hereof; 12 13 F. The Guarantors mean and include Company and all of the First Tier Subsidiaries, the Second Tier Subsidiaries (including ICC Subsidiary but excluding the Canadian Second Tier Subsidiary) and the Domestic Third Tier Subsidiaries presently owned either directly or indirectly by Company; G. The Pledgors mean and include Company and all of the First Tier Subsidiaries and all of the Second Tier Subsidiaries (including ICC Subsidiary but excluding the Canadian Second Tier Subsidiary); H. The execution, delivery and performance by Company of this Amendment are within the corporate power of Company and have been duly authorized by all necessary corporate action on the part of Company, and this Amendment and the Amended Credit Agreement constitute the valid and binding obligations of Company enforceable against Company in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally; and I. Each Loan Guaranty and the Contribution Agreement shall continue in full force and effect and remain the valid and binding obligations of the Guarantors party thereto enforceable against the Guarantors party thereto in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. The Pledge Agreements shall continue in full force and effect and remain the valid and binding obligations of the Pledgors party thereto, enforceable against the Pledgors party thereto in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. SECTION 6. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective on the first date Agent, on behalf of Banks, shall have received all of the following, in form and substance satisfactory to Agent (the "Seventh Amendment Effective Date"): A. Resolutions of the Board of Directors of Company authorizing and approving the execution, delivery and performance of this Amendment and resolutions of the Board of Directors of each Guarantor and each Pledgor authorizing and approving the 13 14 execution and delivery of this Amendment, in each case certified by the corporate secretary or an assistant secretary of Company, each Guarantor and each Pledgor, as the case may be, as of the Seventh Amendment Effective Date; B. A certificate of the corporate secretary or an assistant secretary of Company, each Guarantor and each Pledgor which shall certify, as of the Seventh Amendment Effective Date, the names and offices of the officers of Company, each Guarantor and each Pledgor authorized to sign this Amendment; C. A counterpart hereof executed by a duly authorized officer of Company, Banks, Agent, each Guarantor and each Pledgor, or in the case of any Bank, telecopy or telephone confirmation from such Bank of its execution hereof; D. The Reallocation Date, as defined in the Credit Agreement prior to giving effect to this Amendment, shall not have occurred; E. Company shall have delivered a Level Determination Certificate for the fiscal quarter ending in June 1994; F. Company shall have prepaid all commitment fees and interest accrued prior to the Seventh Amendment Effective Date which shall be allocated to Banks in accordance with their respective Pro Rata Shares or Additional Pro Rata Shares, as applicable, as in effect immediately prior to giving effect to this Amendment; and G. Copies of an amendment to the Working Capital Credit Agreement executed by Canadian Borrowers and Banks (as defined therein) approving, among other things, the transactions contemplated by this Amendment. SECTION 7. THE GUARANTIES AND THE CONTRIBUTION AGREEMENT. In order to induce Banks to enter into this Amendment, each Guarantor represents and warrants to each Bank that the execution, delivery and performance by such Guarantor of this Amendment are within the corporate power of such Guarantor and have been duly authorized by all necessary corporate action on the part of such Guarantor and that this Amendment constitutes the valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms, subject to the 14 15 effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. Each Guarantor agrees to and acknowledges the terms and provisions of this Amendment and confirms that each Loan Guaranty to which it is a party will, from and after the Seventh Amendment Effective Date, continue to guaranty to the fullest extent possible the payment and performance of the Guarantied Obligations (as that term is defined in each Loan Guaranty) and furthermore, that from and after the Seventh Amendment Effective Date, each such Loan Guaranty will also guaranty, to the fullest extent possible, the performance of all obligations (including, without limitation, due and punctual payment of all amounts) under, referred to in, or contemplated by this Amendment by Company and the Guarantied Obligations (as defined in each Loan Guaranty) shall include all such obligations of Company. Each Guarantor agrees and acknowledges that the Contribution Agreement will continue to establish the rights and obligations of contribution among Guarantors with respect to the payment and performance of all Guarantied Obligations (as that term is defined in the Contribution Agreement), including, without limitation, the payment and performance of all Obligations of Company now or hereafter existing under or in respect of the Amended Credit Agreement. Without limiting the generality of the foregoing, each Guarantor hereby acknowledges and confirms the understanding and intent of such Guarantor that, upon the effectiveness of this Amendment, as a result of this Amendment, the definition of "Obligations" contained in the Credit Agreement includes the obligations of Company set forth in the Amended Credit Agreement and that the obligations of Company guarantied under any Loan Guaranty shall include the obligations of Company under the Amended Credit Agreement. Each Guarantor agrees and acknowledges that each Loan Guaranty to which it is a party and the Contribution Agreement shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or affected by the execution of this Amendment. Each Guarantor represents and warrants that all representations and warranties contained in this Amendment and the Loan Guaranty to which it is a party are true, correct and complete as of the date hereof to the same extent as though made on such date except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under such agreements. 15 16 SECTION 8. THE PLEDGE AGREEMENTS. In order to induce Banks to enter into this Amendment, each Pledgor represents and warrants to each Bank that the execution, delivery and performance by each Pledgor of this Amendment are within the corporate power of such Pledgor and have been duly authorized by all necessary corporate action on the part of such Pledgor and that this Amendment constitutes the valid and binding obligation of such Pledgor, enforceable against such Pledgor in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. Each Pledgor agrees to and acknowledges the terms and provisions of this Amendment and confirms that the Pledge Agreement(s) to which it is a party and the Pledged Collateral (as that term is defined in each such Pledge Agreement) will continue to secure to the fullest extent possible the payment and performance of all Senior Secured Obligations (as that term is defined in the Company Pledge Agreement, the Safeway Pledge Agreement and the Inventory Pledge Agreement) and all Secured Obligations (as that term is defined in each First Tier Pledge Agreement and each Second Tier Pledge Agreement), including, without limitation, the payment and performance of all Obligations of Company now or hereafter existing under or in respect of the Amended Credit Agreement. Without limiting the generality of the foregoing, each Pledgor hereby acknowledges and confirms the understanding and intent of such Pledgor that, upon the effectiveness of this Amendment, as a result of this Amendment, the definition of "Obligations" contained in the Credit Agreement includes the obligations of Company set forth in the Amended Credit Agreement. Each Pledgor agrees and acknowledges that the Pledge Agreements to which it is a party shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or affected by the execution of this Amendment. Each Pledgor represents and warrants that all representations and warranties contained in this Amendment and the Pledge Agreement to which it is a party are true, correct and complete as of the date hereof to the same extent as though made on such date except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under such agreements. 16 17 SECTION 9. COUNTERPARTS. This Amendment may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. SECTION 10. EFFECT OF AMENDMENT. It is hereby agreed that, except as specifically provided herein, this Amendment does not in any way affect or impair the terms and conditions of the Credit Agreement, and all terms and conditions of the Credit Agreement are to remain in full force and effect unless otherwise specifically amended, waived or changed pursuant to the terms and conditions of this Amendment. SECTION 11. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. [Remainder of Page Intentionally Left Blank] 17 18 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written, by their respective officers thereunto duly authorized. SAFEWAY INC. By ___________________________________ Name: Title: BANKERS TRUST COMPANY, individually and as Agent By ___________________________________ Name: Title: CITIBANK, N.A., individually and as Manager By ___________________________________ Name: Title: THE CHASE MANHATTAN BANK, N.A. individually and as Manager By ___________________________________ Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, individually and as Manager By ___________________________________ Name: Title: S-1 19 THE BANK OF NOVA SCOTIA, individually and as Manager By ___________________________________ Name: Title: BANK OF MONTREAL, individually and as Manager By ___________________________________ Name: Title: UNITED STATES NATIONAL BANK OF OREGON By ___________________________________ Name: Title: CIBC INC. By ___________________________________ Name: Title: THE BANK OF NEW YORK By ___________________________________ Name: Title: CONTINENTAL BANK, N.A. By ___________________________________ Name: Title: S-2 20 NATIONSBANK OF TEXAS, N.A. By ___________________________________ Name: Title: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED By ___________________________________ Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By ___________________________________ Name: Title: THE FUJI BANK, LIMITED By ___________________________________ Name: Title: UNION BANK By ___________________________________ Name: Title: ROYAL BANK OF CANADA By ___________________________________ Name: Title: S-3 21 WESTPAC BANKING CORPORATION By ___________________________________ Name: Title: SOCIETE GENERALE By ___________________________________ Name: Title: CHEMICAL BANK By ___________________________________ Name: Title: ARAB BANK, PLC By ___________________________________ Name: Title: THE TOKAI BANK LTD., LOS ANGELES AGENCY By ___________________________________ Name: Title: THE DAI-ICHI KANGYO BANK, LIMITED (SAN FRANCISCO AGENCY) By ___________________________________ Name: Title: S-4 22 ROYAL BANK OF SCOTLAND By ___________________________________ Name: Title: CREDIT LYONNAIS LOS ANGELES BRANCH By ___________________________________ Name: Title: CREDIT LYONNAIS CAYMAN ISLAND BRANCH By ___________________________________ Name: Title: THE YASUDA TRUST & BANKING CO., LTD. (Los Angeles Agency) By ___________________________________ Name: Title: FIRST HAWAIIAN BANK By ___________________________________ Name: Title: BANK OF HAWAII By ___________________________________ Name: Title: S-5 23 CREDIT SUISSE By ___________________________________ Name: Title: By ___________________________________ Name: Title: THE NIPPON CREDIT BANK, LTD., (Los Angeles Agency) By ___________________________________ Name: Title: BANQUE NATIONALE DE PARIS By ___________________________________ Name: Title: BANCA DI ROMA By _________________________________ Name: Title: By _________________________________ Name: Title: ABN AMRO BANK, N.V. By _________________________________ Name: Title: By _________________________________ Name: Title: S-6 24 WESTDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK BRANCH By _________________________________ Name: Title: By _________________________________ Name: Title: FIRST NATIONAL BANK OF MARYLAND By________________________________ Name: Title: GIROZENTRALE VIENNA By________________________________ Name: Title: By________________________________ Name: Title: BANK HAPOALIM By________________________________ Name: Title: By________________________________ Name: Title: S-7 25 BANQUE INDOSUEZ By________________________________ Name: Title: BANK OF IRELAND - GRAND CAYMAN BRANCH By________________________________ Name: Title: THE MITSUBISHI TRUST AND BANKING CORPORATION, LOS ANGELES AGENCY By________________________________ Name: Title: THE MITSUI TRUST & BANKING CO., LTD., LOS ANGELES AGENCY By________________________________ Name: Title: FIRST SECURITY BANK OF IDAHO, N.A. By________________________________ Name: Title: THE FIRST NATIONAL BANK OF BOSTON By________________________________ Name: Title: S-8 26 PNC BANK, NATIONAL ASSOCIATION By________________________________ Name: Title: STANDARD CHARTER BANK By________________________________ Name: Title: GUARANTORS AND PLEDGORS: SAFEWAY INC. By _______________________________ Name: Title: SAFEWAY AUSTRALIA HOLDINGS, INC. SAFEWAY CANADA HOLDINGS, INC. SAFEWAY U.S. HOLDINGS, INC. SAFEWAY WAREHOUSE, INC. By ___________________________________ As an authorized officer of each of the foregoing First Tier Subsidiaries SAFEWAY SOUTHERN CALIFORNIA, INC. SAFEWAY DENVER, INC. SAFEWAY RICHMOND, INC. SAFEWAY DALLAS, INC. (formerly named "SAFEWAY WASHINGTON, D.C., INC.") SAFEWAY SUPPLY, INC. SAFEWAY CORPORATE, INC. SAFEWAY TRUCKING, INC. By __________________________________ As an authorized officer of each of the foregoing Domestic Second Tier Subsidiaries S-9 27 SAFEWAY STORES 18, INC. SAFEWAY STORES 72, INC. SAFEWAY STORES 26, INC. SAFEWAY STORES 73, INC. SAFEWAY STORES 28, INC. SAFEWAY STORES 74, INC. SAFEWAY STORES 31, INC. SAFEWAY STORES 75, INC. SAFEWAY STORES 42, INC. SAFEWAY STORES 76, INC. SAFEWAY STORES 43, INC. SAFEWAY STORES 77, INC. SAFEWAY STORES 44, INC. SAFEWAY STORES 78, INC. SAFEWAY STORES 45, INC. SAFEWAY STORES 79, INC. SAFEWAY STORES 46, INC. SAFEWAY STORES 80, INC. SAFEWAY STORES 47, INC. SAFEWAY STORES 81, INC. SAFEWAY STORES 48, INC. SAFEWAY STORES 82, INC. SAFEWAY STORES 49, INC. SAFEWAY STORES 85, INC. SAFEWAY STORES 50, INC. SAFEWAY STORES 86, INC. SAFEWAY STORES 58, INC. SAFEWAY STORES 87, INC. SAFEWAY STORES 59, INC. SAFEWAY STORES 88, INC. SAFEWAY STORES 64, INC. SAFEWAY STORES 89, INC. SAFEWAY STORES 67, INC. SAFEWAY STORES 90, INC. SAFEWAY STORES 68, INC. SAFEWAY STORES 91, INC. SAFEWAY STORES 69, INC. SAFEWAY STORES 92, INC. SAFEWAY STORES 70, INC. SAFEWAY STORES 96, INC. SAFEWAY STORES 71, INC. SAFEWAY STORES 97, INC. SAFEWAY STORES 98, INC.
By __________________________________ As an authorized officer of each of the foregoing Domestic Third Tier Subsidiaries S-10 EX-4.(I).21 3 RESTATED WORKING CAPITAL CREDIT AGREEMENT 1 Exhibit 4(i).21 SAFEWAY INC. CANADA SAFEWAY LIMITED LUCERNE FOODS LTD. SEVENTH AMENDMENT AND CONSENT DATED AS OF AUGUST 19, 1994 TO SECOND AMENDED AND RESTATED WORKING CAPITAL CREDIT AGREEMENT This SEVENTH AMENDMENT AND CONSENT dated as of August 19, 1994 (this "Amendment") to the Second Amended and Restated Working Capital Credit Agreement dated as of June 14, 1990, as amended by a First Amendment and Consent dated as of March 22, 1991, a Second Amendment and Consent dated as of June 7, 1991, a Third Amendment and Consent dated as of August 7, 1991, a Fourth Amendment and Consent dated as of November 8, 1991, a Fifth Amendment and Consent dated as of January 28, 1992 and an Extension Agreement and Sixth Amendment and Consent dated as of March 31, 1994 (as so amended, "Working Capital Credit Agreement") is by and among Safeway Inc., a Delaware corporation ("Company"), Canada Safeway Limited, an Alberta corporation ("Safeway Canada"), Lucerne Foods Ltd., an Alberta corporation ("Lucerne"), the financial institutions named on the signature pages hereof ("Banks"), The Bank of Nova Scotia, as paying agent with respect to the Canadian Loans and Bankers' Acceptance Facility ("Canadian Paying Agent"), BT Bank of Canada, as administrative agent with respect to the Canadian Loans and Bankers' Acceptance Facility ("Canadian Administrative Agent"), Bankers Trust Company, as Lead Manager and Agent for the Banks ("Agent"), the Guarantors named on the signature pages hereof ("Guarantors") and the Pledgors named on the signature pages hereof ("Pledgors"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Working Capital Credit Agreement. RECITALS WHEREAS, Company proposes to reduce voluntarily the Acquisition Commitments by $50,000,000, and Company, Safeway Canada and Lucerne propose to reduce voluntarily the Working Capital Commitments by $50,000,000; WHEREAS, in connection with such commitment reductions, Company, Safeway Canada, Lucerne and Banks have agreed, subject to the terms and conditions of this Amendment, to amend the Working Capital Credit Agreement to modify the amount of commitment fees and interest payable under the Working Capital Credit Agreement and to make certain other modifications to the Working Capital Credit Agreement as set forth herein; 2 WHEREAS, Company proposes to amend the Acquisition Credit Agreement and has requested that Banks consent to the amendments to the Acquisition Credit Agreement (as amended prior to the date hereof) to be effected by that certain Seventh Amendment to Second Amended and Restated Credit Agreement dated as of August 19, 1994 (the "Seventh ACA Amendment") by and among Company, the Acquisition Banks, the managers party thereto, the co-managers party thereto, the Acquisition Agent, the guarantors party thereto and the pledgors party thereto; WHEREAS, subject to the terms and conditions of this Amendment, Banks, Canadian Paying Agent, Canadian Administrative Agent and Agent are willing to agree to such amendments, it being understood that, pursuant to the definition of Requisite Banks under the Working Capital Credit Agreement, each Domestic Bank having a Canadian Bank Affiliate under the Working Capital Credit Agreement is entitled to execute this Amendment on behalf of its Canadian Bank Affiliate; WHEREAS, Guarantors desire expressly to consent to this Amendment and to reaffirm the effectiveness of the First Tier Guaranty, the Second Tier Guaranty, the Safeway Guaranty, the Safeway New Canada Guaranty, the Safeway Canada Guaranty, the Lucerne Guaranty and the Contribution Agreement; and WHEREAS, Pledgors desire expressly to consent to this Amendment and to reaffirm the effectiveness of the Company Pledge Agreement, the Safeway Pledge Agreement, the Inventory Pledge Agreement, the First Tier Pledge Agreements, the Second Tier Pledge Agreements, the Safeway Canada Pledge Agreement and the Safeway New Canada Pledge Agreement (collectively, the "Pledge Agreements"); AGREEMENT NOW, THEREFORE, in consideration of the terms and conditions herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO WORKING CAPITAL CREDIT AGREEMENT. A. Subsection 1.1 of the Working Capital Credit Agreement is hereby amended by adding thereto the following defined terms in the appropriate alphabetical order: "'COVERAGE LEVEL' means, for the purposes of determining the Pricing Margin or Usage Fee Rate as of any date of determination on or after the Seventh 2 3 Amendment Effective Date, Coverage Level I, Coverage Level II, Coverage Level III, or Coverage Level IV, as applicable, determined by reference to Company's Interest Coverage Ratio as set forth in the most recent Level Determination Certificate delivered by Company at least one Business Day before such date of determination, as follows: Coverage Level I: Company's Interest Coverage Ratio is greater than or equal to 4.25 to 1.00; Coverage Level II: Company's Interest Coverage Ratio is less than 4.25 to 1.00 but greater than or equal to 3.75 to 1.00; Coverage Level III: Company's Interes Coverage Ratio is less than 3.75 to 1.00 but greater than or equal to 3.00 to 1.00; Coverage Level IV: Company's Interest Coverage Ratio is less than 3.00 to 1.00; provided, however, that if Company fails to deliver a Level Determination Certificate pursuant to subsection 5.1(xiii) of the Acquisition Credit Agreement setting forth Company's Interest Coverage Ratio as of the last day of any fiscal quarter within 75 days of the end of such fiscal quarter, the Coverage Level shall thereafter be deemed to be Coverage Level IV until such time as Company delivers such Level Determination Certificate. The Coverage Level shall change to the extent necessary to reflect changes in Company's Interest Coverage Ratio, as demonstrated by the delivery of a Level Determination Certificate, on the next Business Day following Company's delivery of such Level Determination Certificate." "'PRICING MARGIN' means (A) as of any date of determination prior to the Seventh Amendment Effective Date, .75% per annum or (B) as of any date of deter-mination on or after the Seventh Amendment Effective Date, the percentage (per annum) set forth in the table below which corresponds to Company's Rating Level and Coverage Level as in effect on such date of determination: Pricing Margins
Coverage Levels --------------------------------------- Level I Level II Level III Level IV ------- -------- --------- --------- Rating Levels ------------- Level A .4375% .4375% .4375% .4375% Level B .4375% .50% .50% .50% Level C .4375% .50% .625% .625% Level D .4375% .50% .625% .75%
3 4 If any determination of the Pricing Margin is erroneous by reason of any error in the determination of the Rating Level or Coverage Level by Company, and as the result of such error, the Pricing Margin during any period is set below or above the Pricing Margin that should, in the absence of such error, have been effective during such period, Company or Banks, as the case may be, shall promptly make payments, or adjust the amount of future payments, to Banks or Company, as the case may be, to the extent necessary to correct for such error." "'RATING LEVEL' means, for the purposes of determining the Pricing Margin or Usage Fee Rate as of any date of determination on or after the Seventh Amendment Effective Date, Rating Level A, Rating Level B, Rating Level C, or Rating Level D, as applicable, determined by reference to the highest debt rating (or implied debt rating) assigned to Company's Senior Debt by S&P or Moodys as in effect on such date of determination as follows: Rating Level A: (a) Company's Senior Debt is rated Baa2 or better by Moodys or BBB or better by S&P; Rating Level B: Company's Senior Debt is rated Baa3 by Moodys or BBB- by S&P; Rating Level C: Company's Senior Debt is rated Ba1 by Moodys or BB+ by S&P; Rating Level D: Company's Senior Debt or subordinated debt is not rated by S&P or Moodys or Company's Senior Debt is rated Ba2 or lower by Moodys or BB or lower by S&P. For the purposes of determining Company's Rating Level at any time that Company's Senior Debt is not rated by S&P or Moodys but Company's long-term subordinated debt is rated by S&P or Moodys, Company's Senior Debt shall be deemed to have received from S&P or Moodys, as applicable, the second highest rating above the rating received from such rating agency on Company's long-term subordinated debt. The Rating Level shall change as of the opening of business on the next Business Day following any day that S&P or Moodys, as the case may be, changes the rating it assigns to Company's long-term senior or subordinated debt to the extent such change in the Rating Level is necessary to reflect such rating change." "'SEVENTH AMENDMENT' means the Seventh Amendment and Consent dated as of August 19, 1994, to Second 4 5 Amended and Restated Working Capital Credit Agreement among Company, Safeway Canada, Lucerne, Banks, Canadian Agents, the pledgors named therein and the guarantors named therein." "'SEVENTH AMENDMENT EFFECTIVE DATE' means the date the Seventh Amendment becomes effective in accordance with its terms." "'USAGE FEE RATE' means (a) as of any date of determination prior to the Seventh Amendment Effective Date, .375% per annum or (b) as of any date of determination on or after the Seventh Amendment Effective Date, the applicable percentage rate (per annum) set forth in the table below which corresponds to Company's Rating Level and Coverage Level as in effect on such date of determination: Usage Fee Rates
Coverage Levels --------------------------------------- Level I Level II Level III Level IV ------- -------- --------- --------- Rating Levels ------------- Level A .1375% .1375% .1375% .1375% Level B .15% .15% .15% .15% Level C .15% .20% .225% .225% Level D .15% .20% .25% .375%
If any determination of the Usage Fee Rate is erroneous by reason of any error in the determination of the Rating Level or Coverage Level by Company, and as the result of such error, the Usage Fee Rate during any period is set below or above the Usage Fee Rate that should, in the absence of such error, have been effective during such period, Company or Banks, as the case may be, shall promptly make payments, or adjust the amount of future payments, to Banks or Company, as the case may be, to the extent necessary to correct for such error." B. Subsection 1.1 of the Working Capital Credit Agreement is hereby further amended by amending and restating the definitions of "Drawing Fee" and "Expiry Date" and follows: "'DRAWING FEE' means, with respect to the Drafts drawn by Safeway Canada hereunder and accepted or purchased as provided herein on any Drawing Date, an amount equal to the applicable Pricing Margin multiplied by the aggregate Face Amount of such Drafts, calculated, in each case, on the basis of the term to maturity of such Draft and a year of 365 days." 5 6 "'EXPIRY DATE' means August 7, 1998, which date reflects a one year extension requested by Canadian Borrowers pursuant to subsection 2.1F and shall not be subject to any further extension thereunder." C. Subsection 1.2 of the Working Capital Credit Agreement is hereby amended by adding thereto the following terms in the appropriate alphabetical order: "Consolidated Adjusted EBITDA" "Consolidated Interest Expense" "Interest Coverage Ratio" "Level Determination Certificate" "Moodys" "Senior Debt" "S&P" D. Subsection 2.1A of the Working Capital Credit Agreement is hereby amended by deleting the phrase "clause (c) of" from the fourth-to-last line thereof. E. Subsection 2.2A of the Working Capital Credit Agreement is hereby amended by deleting the term ".75% per annum" from clauses (ii)(c) and (iii)(b) and substituting therefor the term "the applicable Pricing Margin per annum". F. Subsection 2.3A of the Working Capital Credit Agreement is hereby amended by deleting the phrase ".375% per annum" therefrom and substituting therefor the phrase "the applicable Usage Fee Rate". SECTION 2. INCORPORATION BY REFERENCE FROM ACQUISITION CREDIT AGREEMENT OF THE SEVENTH ACA AMENDMENT. Banks hereby agree and consent to the Seventh ACA Amendment, substantially in the form attached hereto as Annex A, and to all of the amendments and modifications to the Acquisition Credit Agreement effected by the Seventh ACA Amendment. It is hereby agreed that all definitions, representations, warranties, covenants and other provisions contained in the Acquisition Credit Agreement which are incorporated in the Working Capital Credit Agreement by reference (the "Incorporated Provisions") are so incorporated in the form in which such Incorporated Provisions exist in the Acquisition Credit Agreement, as amended by the Seventh ACA Amendment, subject to the proviso set forth in subsection 1.5 of the Amended Working Capital Credit Agreement. SECTION 3. WORKING CAPITAL COMMITMENT REDUCTION. 6 7 Canadian Borrowers and Banks hereby agree that concurrent with the effectiveness of this Amendment, the Working Capital Commitments shall, pursuant to subsection 2.4E of the Working Capital Credit Agreement, automatically be reduced by $50,000,000 so as to equal $400,000,000, such reduction to be applied to reduce the Working Capital Commitments of Banks in accordance with their respective Pro Rata Shares. SECTION 4. REPRESENTATIONS AND WARRANTIES. In order to induce Banks to enter into this Amendment, Company, Safeway Canada, and Lucerne each represent and warrant (which representations and warranties in the case of Safeway Canada and Lucerne, as the case may be, shall be limited to Safeway Canada and its Subsidiaries and Lucerne and its Subsidiaries, respectively, and other facts and circumstances known to Safeway Canada and its Subsidiaries, or Lucerne and its Subsidiaries, as the case may be) to each Bank that: A. No event would result from the execution of this Amendment and, after giving effect to this Amendment, no event has occurred or is continuing which constitutes an Event of Default or Potential Event of Default; B. The representations and warranties of Company contained in the Working Capital Credit Agreement, as amended by this Amendment (the "Amended Working Capital Credit Agreement") are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under the Amended Working Capital Credit Agreement; C. This Amendment, the Amended Working Capital Credit Agreement, and the consummation of the transactions contemplated hereby or thereby do not and will not (i) violate any provisions of law applicable to Company or any of its Subsidiaries, the Certificate of Incorporation or Bylaws of Company or any of its Subsidiaries, or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, or (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, the indentures pursuant to which any outstanding Subordinated Indebtedness (including, without limitation, the Senior Subordinated Indebtedness) has 7 8 been issued (the "Indentures") or any term of any other material agreement or instrument to which Company or any of its Subsidiaries is a party or by which any of their properties or assets are bound; D. If the Working Capital Commitments were fully utilized as of the date hereof, all indebtedness of Company with respect to the Loans under the Amended Working Capital Credit Agreement and all indebtedness of Company under the Company Guaranty with respect to (i) monies borrowed by the Canadian Borrowers under the Amended Working Capital Credit Agreement and (ii) amounts owed by Safeway Canada with respect to repayment of Drafts, Bankers' Acceptances and Bankers' Acceptance Equivalent Notes issued under the Amended Working Capital Credit Agreement would be within the definition of "Senior Indebtedness" contained in the Indentures; E. All monetary obligations of Company, Safeway Canada and Lucerne now or hereafter existing under or in respect of the Amended Working Capital Credit Agreement, whether for principal, interest, fees or otherwise, are within the definition of "Guarantied Obligations" contained in the Contribution Agreement, the First Tier Guaranty, the Second Tier Guaranty and the Safeway Guaranty and all such monetary obligations of Company are within the definition of "Senior Secured Obligations" contained in the Company Pledge Agreement and the Inventory Pledge Agreement and the Collateral Agent is entitled to the benefit of the Liens created pursuant to the Collateral Documents referred to in this sentence with respect to all such obligations of Company. The obligations of each First Tier Subsidiary and each Domestic Second Tier Subsidiary under the First Tier Guaranty and the Second Tier Guaranty, respectively, are within the definition of "Secured Obligations" contained in the First Tier Pledge Agreements and the Second Tier Pledge Agreements and the Collateral Agent is entitled to the benefit of the Liens created pursuant to the Collateral Documents referred to in this sentence to which such First Tier Subsidiary or Domestic Second Tier Subsidiary is a party with respect to all such obligations of such Subsidiary; F. All monetary obligations of Safeway Canada or Lucerne now or hereafter existing under or in respect of the Amended Working Capital Credit Agreement, whether for principal, interest, fees or otherwise, are within the definition of "Guarantied Obligations" contained in the Safeway Canada Guaranty and the Lucerne Guaranty, as applicable, and, with the exception of the aforementioned obligations of Lucerne, 8 9 are within the definition of "Secured Obligations" contained in the Safeway Canada Pledge Agreement and the Canadian Administrative Agent is entitled to the benefit of the Liens created pursuant to the Collateral Documents referred to in this sentence with respect to all such obligations of Safeway Canada or Lucerne; G. Each Loan Party has performed in all material respects all agreements and satisfied all conditions which the Working Capital Credit Agreement and this Amendment provide shall be performed by it on or before the date hereof; H. The Guarantors mean and include Company, Safeway New Canada, Safeway Canada, Lucerne and all of the First Tier Subsidiaries, Safeway Warehouse, Inc., all of the Second Tier Subsidiaries (including ICC Subsidiary) and all of the Domestic Third Tier Subsidiaries presently owned either directly or indirectly by Company; I. The Pledgors mean and include Company, Safeway New Canada, Safeway Canada and all of the First Tier Subsidiaries and all of the Second Tier Subsidiaries (including ICC Subsidiary); J. The execution, delivery and performance by Company of this Amendment are within the corporate power of Company and have been duly authorized by all necessary corporate action on the part of Company, and this Amendment and the Amended Working Capital Credit Agreement constitute the valid and binding obligations of Company enforceable against Company in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally; and K. Each Working Capital Guaranty and the Contribution Agreement shall continue in full force and effect and remain the valid and binding obligations of the Guarantors party thereto enforceable against the Guarantors party thereto in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. The Pledge Agreements shall continue in full force and effect and remain the valid and binding obligations of the Pledgors party thereto, enforceable against the Pledgors party thereto in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. 9 10 SECTION 5. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective as of the first date Agent, on behalf of Banks, shall have received all of the following in form and substance satisfactory to Agent (the "Seventh Amendment Effective Date"): A. Resolutions of the Board of Directors of Company, Safeway Canada and Lucerne authorizing and approving the execution, delivery and performance of this Amendment and resolutions of the Board of Directors of each Guarantor and each Pledgor authorizing and approving the execution and delivery of this Amendment, in each case certified by the corporate secretary or an assistant secretary of Company, Safeway Canada, Lucerne, each Guarantor and each Pledgor, as the case may be, as of the Seventh Amendment Effective Date; B. A certificate of the corporate secretary or an assistant secretary of Company, Safeway Canada, Lucerne, each Guarantor and each Pledgor which shall certify, as of the Seventh Amendment Effective Date, the names and offices of the officers of Company, Safeway Canada, Lucerne, each Guarantor and each Pledgor authorized to sign this Amendment; C. A counterpart hereof executed by a duly authorized officer of Company, Banks, Canadian Paying Agent, Canadian Administrative Agent and Agent, each Guarantor and each Pledgor or in the case of any Bank, telecopy or telephone confirmation from such Bank of its execution hereof; and D. The Seventh ACA Amendment, which shall have become effective in accordance with its terms. SECTION 6. THE WORKING CAPITAL GUARANTIES AND THE CONTRIBUTION AGREEMENT. In order to induce Banks to enter into this Amendment, each Guarantor represents and warrants to each Bank that the execution, delivery and performance by such Guarantor of this Amendment are within the corporate power of such Guarantor and have been duly authorized by all necessary corporate action on the part of such Guarantor and that this Amendment constitutes the valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. 10 11 Each Guarantor agrees to and acknowledges the terms and provisions of this Amendment and acknowledges and confirms that each Working Capital Guaranty to which it is a party will, from and after the Seventh Amendment Effective Date, continue to guaranty to the fullest extent possible the payment and performance of the Guarantied Obligations (as that term is defined in each Working Capital Guaranty) and, furthermore, that from and after the Seventh Amendment Effective Date, each such Working Capital Guaranty will also guaranty, to the fullest extent possible, the performance of all obligations (including, without limitation, due and punctual payment of all amounts) under, referred to in, or contemplated by this Amendment by the principal debtor(s) whose obligations are guaranteed by the particular Guarantor and the Guarantied Obligations (as defined in each Working Capital Guaranty) shall include all such obligations of the principal debtor(s). Each Guarantor (other than Safeway Canada and Lucerne) agrees and acknowledges that the Contribution Agreement will continue to establish the rights and obligations of contribution among Guarantors with respect to the payment and performance of all Guarantied Obligations (as that term is defined in the Contribution Agreement). Without limiting the generality of the foregoing, each Guarantor hereby acknowledges and confirms the understanding and intent of such Guarantor that, upon the effectiveness of this Amendment, as a result of this Amendment, the definition of "Working Capital Obligations" contained in the Working Capital Credit Agreement includes the obligations of Borrowers set forth in the Amended Working Capital Credit Agreement and that the obligations of any Borrower guarantied under any Working Capital Guaranty shall include the obligations of such Borrower under the Amended Working Capital Credit Agreement. Each Guarantor agrees and acknowledges that each Working Capital Guaranty to which it is a party and, to the extent that such Guarantor is also a party thereto, the Contribution Agreement shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or affected by the execution of this Amendment. Each Guarantor represents and warrants that all representations and warranties contained in this Amendment and the Working Capital Guaranty to which it is a party are true, correct and complete as of the date hereof to the same extent as though made on such date except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under such agreements. 11 12 SECTION 7. THE PLEDGE AGREEMENTS. In order to induce Banks to enter into this Amendment, each Pledgor represents and warrants to each Bank that the execution, delivery and performance by each Pledgor of this Amendment are within the corporate power of such Pledgor and have been duly authorized by all necessary corporate action on the part of such Pledgor and that this Amendment constitutes the valid and binding obligation of such Pledgor, enforceable against such Pledgor in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. Each Pledgor agrees to and acknowledges the terms and provisions of this Amendment and confirms that the Pledge Agreements to which it is a party and the Pledged Collateral (as that term is defined in each such Pledge Agreement) will continue to secure to the fullest extent possible the payment and performance of all Senior Secured Obligations (as that term is defined in the Company Pledge Agreement, the Safeway Pledge Agreement and the Inventory Pledge Agreement) and all Secured Obligations (as that term is defined in the Safeway Canada Pledge Agreement, the Safeway New Canada Pledge Agreement, each First Tier Pledge Agreement and each Second Tier Pledge Agreement), and furthermore, that from and after the Seventh Amendment Effective Date, each such Pledge Agreement will also secure, to the fullest extent possible, the performance of all obligations (including, without limitation, due and punctual payment of all amounts) under, referred to in, or contemplated by this Amendment of each Borrower or Pledgor whose Working Capital Obligations are secured by any such Pledge Agreement. Without limiting the generality of the foregoing, each Pledgor hereby acknowledges and confirms the understanding and intent of such Pledgor that, upon the effectiveness of this Amendment, as a result of this Amendment, the definition of "Working Capital Obligations" contained in the Working Capital Credit Agreement includes the obligations of Borrowers set forth in the Amended Working Capital Credit Agreement and that the obligations of any Borrower secured under any Pledge Agreement shall include the obligations of such Borrower under the Amended Working Capital Credit Agreement. Each Pledgor agrees and acknowledges that the Pledge Agreement to which it is a party shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or affected by the execution of this Amendment. Each Pledgor represents and warrants that all representations and warranties contained in this Amendment and the Pledge Agreement to which it is a party are true, 12 13 correct and complete as of the date hereof to the same extent as though made on such date except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under such agreements. SECTION 8. COUNTERPARTS. This Amendment may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. SECTION 9. EFFECT OF AMENDMENT. It is hereby agreed that, except as specifically provided herein, this Amendment does not in any way affect or impair the terms and conditions of the Working Capital Credit Agreement, and all terms and conditions of the Working Capital Credit Agreement are to remain in full force and effect unless otherwise specifically amended, waived or changed pursuant to the terms and conditions of this Amendment. SECTION 10. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. [Remainder of Page Intentionally Left Blank] 13 14 WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. SAFEWAY INC., (as a Borrower, Guarantor and Pledgor) By __________________________________ Name: Title: CANADA SAFEWAY LIMITED, (as a Borrower, Guarantor and Pledgor) By __________________________________ Name: Title: LUCERNE FOODS LTD., (as a Borrower and Guarantor) By __________________________________ Name: Title: BANKERS TRUST COMPANY, individually as a Domestic Bank and as Agent and on behalf of its Canadian Bank Affiliate By __________________________________ Name: Title: BT BANK OF CANADA, individually as a Canadian Bank and as Canadian Administrative Agent By __________________________________ Name: Title: S-1 15 THE BANK OF NOVA SCOTIA, individually as a Domestic Bank and Canadian Bank and as Canadian Paying Agent By __________________________________ Name: Title: BANK OF MONTREAL, as a Domestic Bank and a Canadian Bank By __________________________________ Name: Title: CHEMICAL BANK, as a Domestic Bank By __________________________________ Name: Title: CHEMICAL BANK OF CANADA, as a Canadian Bank By __________________________________ Name: Title: By __________________________________ Name: Title: ROYAL BANK OF CANADA, as a Domestic and Canadian Bank By __________________________________ Name: Title: S-2 16 THE CHASE MANHATTAN BANK, N.A., as a Domestic Bank and on behalf of its Canadian Bank Affiliate By __________________________________ Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Domestic Bank and on behalf of its Canadian Bank Affiliate By __________________________________ Name: Title: CITIBANK, N.A., as a Domestic Bank and on behalf of its Canadian Bank Affiliate By __________________________________ Name: Title: THE BANK OF TOKYO - SAN FRANCISCO AGENCY, as a Domestic Bank and on behalf of its Canadian Bank Affiliate By __________________________________ Name: Title: BARCLAYS BANK OF CANADA, as a Domestic Bank and a Canadian Bank By __________________________________ Name: Title: S-3 17 THE SUMITOMO BANK, LIMITED, as a Domestic Bank and on behalf of its Canadian Bank Affiliate By __________________________________ Name: Title: CREDIT LYONNAIS LOS ANGELES BRANCH, as a Domestic Bank and on behalf of its Canadian Bank Affiliate By __________________________________ Name: Title: ABN AMRO N.V., as a Domestic Bank and on behalf of its Canadian Bank Affiliate By __________________________________ Name: Title: By __________________________________ Name: Title: THE INDUSTRIAL BANK OF JAPAN, LTD., as a Domestic Bank By __________________________________ Name: Title: THE INDUSTRIAL BANK OF JAPAN (CANADA), as a Canadian Bank By __________________________________ Name: Title: S-4 18 BANQUE NATIONALE DE PARIS, as a Domestic Bank and on behalf of its Canadian Bank Affiliate By __________________________________ Name: Title: By __________________________________ Name: Title: BANQUE NATIONALE DE PARIS (CANADA), as a Canadian Bank By __________________________________ Name: Title: By __________________________________ Name: Title: CIBC INC., as a Domestic Bank and Canadian Bank By __________________________________ Name: Title: BANK HAPOALIM, as a Domestic Bank By __________________________________ Name: Title: By __________________________________ Name: Title: S-5 19 BANK HAPOALIM (CANADA), as a Canadian Bank By __________________________________ Name: Title: By __________________________________ Name: Title: THE SAKURA BANK, LIMITED, as a Domestic Bank By __________________________________ Name: Title: SAKURA BANK (CANADA), as a Canadian Bank By __________________________________ Name: Title: S-6 20 GUARANTORS AND PLEDGORS: SAFEWAY NEW CANADA, INC. By ___________________________________ Name: Title: FIRST TIER SUBSIDIARIES: SAFEWAY AUSTRALIA HOLDINGS, INC. SAFEWAY CANADA HOLDINGS, INC. SAFEWAY U.S. HOLDINGS, INC. SAFEWAY WAREHOUSE, INC. By ___________________________________ As an authorized officer of each of the foregoing First Tier Subsidiaries DOMESTIC SECOND TIER SUBSIDIARIES: SAFEWAY SOUTHERN CALIFORNIA, INC. SAFEWAY DENVER, INC. SAFEWAY RICHMOND, INC. SAFEWAY DALLAS, INC. (formerly named "SAFEWAY WASHINGTON, D.C., INC.") SAFEWAY SUPPLY, INC. SAFEWAY CORPORATE, INC. SAFEWAY TRUCKING, INC. By __________________________________ As an authorized officer of each of the foregoing Domestic Second Tier Subsidiaries S-7 21 DOMESTIC THIRD TIER SUBSIDIARIES: SAFEWAY STORES 18, INC. SAFEWAY STORES 72, INC. SAFEWAY STORES 26, INC. SAFEWAY STORES 73, INC. SAFEWAY STORES 28, INC. SAFEWAY STORES 74, INC. SAFEWAY STORES 31, INC. SAFEWAY STORES 75, INC. SAFEWAY STORES 42, INC. SAFEWAY STORES 76, INC. SAFEWAY STORES 43, INC. SAFEWAY STORES 77, INC. SAFEWAY STORES 44, INC. SAFEWAY STORES 78, INC. SAFEWAY STORES 45, INC. SAFEWAY STORES 79, INC. SAFEWAY STORES 46, INC. SAFEWAY STORES 80, INC. SAFEWAY STORES 47, INC. SAFEWAY STORES 81, INC. SAFEWAY STORES 48, INC. SAFEWAY STORES 82, INC. SAFEWAY STORES 49, INC. SAFEWAY STORES 85, INC. SAFEWAY STORES 50, INC. SAFEWAY STORES 86, INC. SAFEWAY STORES 58, INC. SAFEWAY STORES 87, INC. SAFEWAY STORES 59, INC. SAFEWAY STORES 88, INC. SAFEWAY STORES 64, INC. SAFEWAY STORES 89, INC. SAFEWAY STORES 67, INC. SAFEWAY STORES 90, INC. SAFEWAY STORES 68, INC. SAFEWAY STORES 91, INC. SAFEWAY STORES 69, INC. SAFEWAY STORES 92, INC. SAFEWAY STORES 70, INC. SAFEWAY STORES 96, INC. SAFEWAY STORES 71, INC. SAFEWAY STORES 97, INC. SAFEWAY STORES 98, INC. By ____________________________________ As an authorized officer of each of the foregoing Domestic Third Tier Subsidiaries S-8 EX-10.(III).1 4 OUTSIDE DIRECTOR EQUITY PURCHASE PLAN 1 EXHIBIT 10(iii).1 FIRST AMENDMENT TO THE SAFEWAY INC. OUTSIDE DIRECTOR EQUITY PURCHASE PLAN This First Amendment, adopted as of July 5, 1994 (this "First Amendment"), to the Safeway Inc. Outside Director Equity Purchase Plan adopted on December 14, 1990 (the "Plan"), is adopted by Safeway Inc., a Delaware corporation (the "Company"). Capitalized terms used herein without definition shall have the meanings set forth in the Plan. 1. Section 3.2 of the Plan shall be amended to read in its entirety as follows: SECTION 3.2 - GRANTING OF OPTIONS (a) Each Outside Director shall be granted, on the later to occur of (i) the adoption of this Plan by the Board, or (ii) such Outside Director's appointment to the Board, an Option to purchase the number of shares of the Company's Common Stock set forth on the attached Schedule I; provided, however, that no such Option shall be granted unless and until the Outside Director purchases the number of shares of Purchase Stock set forth on Schedule I in accordance with Articles VI and VII. (b) Each Outside Director shall be granted, on the later to occur of (i) the adoption of this First Amendment by the Board, or (ii) the date such Outside Director completes three (3) continuous years of service as a member of the Board, an Option to purchase 25,000 shares. 2. Section 4.1 of the Plan shall be amended to read in its entirety as follows: SECTION 4.1 - OPTION AND PURCHASE AGREEMENTS (a) As soon as possible after an Outside Director becomes entitled to the grant of an Option under Section 3.2(a) above, the Secretary shall issue such Option and shall cause to be executed a Stock Option and Purchase Agreement in the form attached hereto as Exhibit A-1 for the number of Options calculated pursuant to Schedule I which shall be executed by the Outside Director and an authorized Officer of the Company. (b) As soon as possible after an Outside Director becomes entitled to the grant of an Option under Section 3.2(b) above, the Secretary shall issue such Option and shall cause to be executed a Stock Option Agreement in the form attached hereto as Exhibit A-2 which shall be executed by the Outside Director and an authorized Officer of the Company. 2 3. Section 4.2 shall be amended to read in its entirety as follows: SECTION 4.2 - PURCHASE PRICE OF SHARES SUBJECT TO OPTIONS (a) The Purchase Price of the shares subject to each Option granted pursuant to Section 3.2(a) above shall be (i) with respect to grants to Outside Directors who are eligible to be granted Options as of the date of the adoption of this Plan by the Board, $9.60 per share, and (ii) with respect to all other grants, 80% of the Fair Market Value on the date of grant. (b) The Purchase Price of the shares subject to each Option granted pursuant to Section 3.2(b) above shall be the Fair Market Value on the date of grant. 4. The first sentence of Section 9.3 shall be amended to read in its entirety as follows: The Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee; provided, however, that the Plan may not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. 5. Section 9.5 shall be amended to read in its entirety as follows: SECTION 9.5 - APPROVAL OF PLAN BY STOCKHOLDERS The original Plan was approved by the Company's stockholders in 1991. The First Amendment to the Plan shall be submitted for approval by the Company's stockholders within 12 months after the date of the Board's adoption of the First Amendment to the Plan. Options may be granted under the Plan, as amended by the First Amendment, prior to such stockholder approval; provided, however, that if stockholder approval of the First Amendment has not been obtained at the end of such 12-month period, all such Options which were not otherwise permitted to be granted under the Plan prior to adoption of the First Amendment shall thereupon be cancelled and become null and void. * * * * 2 3 I hereby certify that the foregoing First Amendment to the Plan was duly adopted by the Board of Directors of Safeway Inc. as of July 5, 1994. Executed on this ___ day of ________, 1994. _______________________________ Secretary * * * * I hereby certify that the foregoing First Amendment to the Plan was duly approved by the stockholders of Safeway Inc. on _______________, 1995. Executed on this ___ day of ________, 1995. _______________________________ Secretary 3 4 EXHIBIT A-1 SAFEWAY INC. OUTSIDE DIRECTOR EQUITY PURCHASE PLAN STOCK OPTION AND PURCHASE AGREEMENT THIS AGREEMENT, dated_____________________, 19_____, is made by and between SAFEWAY INC., a Delaware corporation (the "Company"), and_____________, an Outside Director of the Company. WHEREAS, the Company wishes to afford the Outside Director the opportunity to purchase shares of Common Stock; and WHEREAS, the Company wishes to carry out the Safeway Inc. Outside Director Equity Purchase Plan (the terms of which are hereby incorporated by reference and made a part of this Agreement) pursuant to which each Outside Director is entitled to a grant of stock options and to purchase shares of Common Stock of the Company. NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I PURCHASE OF PURCHASE STOCK Section 1.1 - Sale of Purchase Stock In consideration of the Outside Director's agreement to remain as a director of the Company and in exchange for the consideration and other payments described in Sections 1.2 and 1.3 below, concurrently with the execution of this Agreement the Company shall irrevocably issue to the Outside Director____________shares of its Common Stock (the "Purchase Stock") upon the terms and conditions set forth in this Agreement. Section 1.2 - Consideration to the Company As consideration for the issuance of the Purchase Stock by the Company, concurrently with the execution of this Agreement the Outside Director shall deliver to the Company cash or a check in the amount of $100 and execute and deliver a full recourse promissory note in the form 5 attached hereto as Exhibit A in the original principal amount or $99,900 and in addition shall execute in favor of the Company a Stock Pledge Agreement in form attached hereto as Exhibit B. Section 1.3 - Income Tax Withholding As a condition to the receipt of the Purchase Stock, the Outside Director shall concurrently deliver to the Company full payment (in cash or by check) of the amounts that must be withheld by the Company, as determined by the Committee in its sole discretion, for federal, state and/or local tax purposes. ARTICLE II GRANT OF OPTION Section 2.1 - Grant of Option Pursuant to the terms of the Plan but subject to the Outside Director purchasing the Purchase Stock on the date hereof, the Company irrevocably grants to the Outside Director the option to purchase any part or all of an aggregate of___________________shares of its Common Stock upon the terms and conditions set forth in this Agreement and the Plan. Section 2.2 - Purchase Price The purchase price of the Common Stock covered by the Option shall be $______________per share without commission or other charge. ARTICLE III PERIOD OF EXERCISABILlTY OF OPTION Section 3.1 - Commencement of Exercisability (a) The Option shall become exercisable in three (3) cumulative installments as follows: (i) The first installment shall consist of one-third of the shares covered by the Option and shall become exercisable on the first anniversary of the date hereof. (ii) The second installment shall consist of one-third of the shares covered by the Option and shall become exercisable on the second anniversary of the date hereof. (iii) The third installment shall consist of one-third of the shares covered by the Option and shall become exercisable on the third anniversary of the date hereof. 2 6 (b) No portion of an Option which is unexercisable at Termination of Directorship shall thereafter become exercisable. Section 3.2 - Duration of Exercisability The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3. Section 3.3 - Expiration of Option This Option may not be exercised to any extent by anyone after the first to occur of the following events: (a) The expiration of fifteen years from the date hereof; or (b) The expiration of three months from the time of the Outside Director's Termination of Directorship unless such Termination of Directorship results from his death or his disability; or (c) The expiration of one year from the date of the Outside Director's Termination of Directorship by reason of his death or his disability; or (d) The effective date of either the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person of all or substantially all of the Company's assets or 80% or more of the Company's then outstanding voting stock, or the liquidation or dissolution of the Company, unless the Committee waives this provision in connection with such transaction. At least ten days prior to the effective date of such merger, consolidation, acquisition, liquidation or dissolution, the Committee shall give the Outside Director notice of such event if the Option has then neither been fully exercised nor become unexercisable under this Section 3.3; or (e) Without the prior written consent of the Committee which may be withheld for any reason or no reason in the Committee's sole and absolute discretion, the sale of any or all of the Outside Director's Purchase Stock. ARTICLE IV EXERCISE OF OPTIONS Section 4.1 - Person Eligible to Exercise During the lifetime of the Outside Director, only he may exercise an Option granted to him, or any portion thereof. After the death of the Outside Director, any exercisable portion of an Option may, prior 3 7 to the time when such portion becomes unexercisable under Section 3.3, be exercised by his personal representative or by any person empowered to do so under the deceased Outside Director's will or under the then applicable laws or descent and distribution. Section 4.2 - Partial Exercise At any time and from time to time prior to the time when any exercisable Option or exercisable portion thereof becomes unexercisable under Section 3.3, such Option or portion thereof may be exercised in whole or in part; provided, however, that the Company shall not be required to issue fractional shares and the Committee may, by the terms of the Option, require any partial exercise to be with respect to a specified minimum number of shares. Section 4.3 - Manner Of Exercise An exercisable Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following prior to the time when such Option or such portion becomes unexercisable under Section 3.3: (a) Notice in writing signed by the Outside Director or other person then entitled to exercise such Option or portion, stating that such Option or portion is exercised, such notice complying with all applicable rules established by the Committee; and (b) (i) Full payment (in cash or by check) for the shares with respect to which such Option or portion is thereby exercised; or (ii) Subject to the Committee's consent, full payment by delivery to the Company of shares of Common Stock owned by the Outside Director duly endorsed for transfer to the Company by the Outside Director or other person then entitled to exercise such Option or portion with a Fair Market Value equal to the Option price of shares with respect to which such Option or portion is thereby exercised; or (iii) Any combination of the considerations provided for in the foregoing subsections (i) and (ii); and (c) On or prior to the date the same is required to be withheld: (i) Full payment (in cash or by check) of any amount that must be withheld by the Company for federal, state and/or local tax purposes; or (ii) Subject to the Committee's consent, full payment by delivery to the Company of shares of Common Stock owned by the Outside Director duly endorsed for transfer to the Company by the Outside Director or other person then entitled to exercise such Option or portion, with an aggregate Fair Market Value equal to the amount that must be witheld by the Company for federal, state and/or local tax purposes; or 4 8 (iii) Subject to the Committee's consent, full payment by retention by the Company of shares of Common Stock to be issued pursuant to such Option exercise with an aggregate Fair Market Value equal to the amount that must be withheld by the Company for federal, state and/or local tax purposes; or (iv) Any combination of payments provided for in the foregoing subsections (i), (ii) or (iii); Provided that if and to the extent required by Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended ("Rule 16b-3n"), an election to make full payment by the means described in Sections 4.3(c)(ii) or 4.3(c)(iii) shall be made more than six months after grant of the Option and either (x) made and the Option exercised only during the period beginning on the third business day following the date of release of quarterly or annual summary statements of sales and earnings of the Company and ending on the twelfth business day following such date, or (y) irrevocably made more than six months prior to the date the amount of tax to be withheld is determined in the case of Sections 4.3(c)(ii) and 4.3(c)(iii); and (d) Such representations and documents as the Committee, in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal or state securities laws or regulations. The Committee may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer orders to transfer agents and registrars; and (e) In the event that the Option or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than the Outside Director, appropriate proof of the right of such person or persons to exercise the Option or portion thereof. Section 4.4 - Rights as Shareholders The holders of Options shall not be, nor have any of the rights or privileges of, shareholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such holders. ARTICLE V OTHER PROVISIONS Section 5.1 - Administration The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent 5 9 therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Outside Director, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement. Section 5.2 - Agreement Subject to Terms of Plan This Agreement and the rights of the Outside Director hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan. Section 5.3 - Option Not Transferable Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Outside Director or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.3 shall not prevent transfers by will or by the applicable laws of descent and distribution. Section 5.4 - Notices Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Outside Director shall be addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be given to him. Any notice which is required to be given to the Outside Director shall, if the Outside Director is then deceased, be given to the Outside Director's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.4. Any notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid), in a post office or branch post office regularly maintained by the United States Postal Service. Section 5.5 - Titles Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. 6 10 Section 5.6 - Construction This Agreement shall be administered, interpreted and enforced under the laws of the State of Delaware. Section 5.7 - Stockholder Approval The Plan will be submitted for the approval of the Company's stockholders within 12 months after the date or the Board's initial adoption. No portion of this Option shall become exercisable prior to the time when the Plan is approved by the stockholders, and if such approval has not been obtained at the end of such 12-month period, this Option shall thereupon be canceled and become null and void. Section 5.8 - Definitions Capitalized terms not otherwise defined in this Agreement shall have the meaning specified in the Safeway Inc. Outside Director Equity Purchase Plan. Section 5.9 - No Right to Continued Membership On the Board Nothing in this Agreement or in the Plan shall confer upon the Outside Director any right to continue in his capacity as a member of the Board of Directors of the Company or shall interfere with or restrict in any way the rights of the Company or its stockholders, which are hereby expressly reserved, to remove the Outside Director at any time for any reason whatsoever, with or without cause. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date set forth above. SAFEWAY INC. By:___________________________________ ATTEST: __________________________________ ______________________________________ Outside Director 7 11 EXHIBIT A-2 SAFEWAY INC. OUTSIDE DIRECTOR EQUITY PURCHASE PLAN STOCK OPTION AGREEMENT THIS AGREEMENT, dated _______________, 19___, is made by and between SAFEWAY INC., a Delaware corporation (the "Company"), and ____________________, an Outside Director of the Company. WHEREAS, the Company wishes to afford the Outside Director the opportunity to purchase shares of Common Stock; and WHEREAS, the Company wishes to carry out the Safeway Inc. Outside Director Equity Purchase Plan, as amended by the First Amendment thereto (the terms of which are hereby incorporated by reference and made a part of this Agreement), pursuant to which each Outside Director is entitled to certain grants of stock options and to purchase shares of Common Stock of the Company. NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I GRANT OF OPTION SECTION 1.1 - GRANT OF OPTION Pursuant to the terms of the Plan, on the date hereof the Company irrevocably grants to the Outside Director the option to purchase any part or all of an aggregate of 25,000 shares of its Common Stock upon the terms and conditions set forth in this Agreement and the Plan. SECTION 1.2 - PURCHASE PRICE The purchase price of the Common Stock covered by the Option shall be $_____ per share without commission or other charge. 12 ARTICLE II PERIOD OF EXERCISABILITY OF OPTION SECTION 2.1 - COMMENCEMENT OF EXERCISABILITY (a) The Option shall become exercisable in three (3) cumulative installments as follows: (i) The first installment shall consist of one-third of the shares covered by the Option and shall become exercisable on the first anniversary of the date hereof. (ii) The second installment shall consist of one-third of the shares covered by the Option and shall become exercisable on the second anniversary of the date hereof. (iii) The third installment shall consist of one-third of the shares covered by the Option and shall become exercisable on the third anniversary of the date hereof. (b) No portion of an Option which is unexercisable at Termination of Directorship shall thereafter become exercisable. SECTION 2.2 - DURATION OF EXERCISABILITY The installments provided for in Section 2.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 2.1 shall remain exercisable until it becomes unexercisable under Section 2.3. SECTION 2.3 - EXPIRATION OF OPTION This Option may not be exercised to any extent by anyone after the first to occur of the following events: (a) The expiration of fifteen years from the date hereof; or (b) The expiration of three months from the time of the Outside Director's Termination of Directorship unless such Termination of Directorship results from his death or his disability; or (c) The expiration of one year from the date of the Outside Director's Termination of Directorship by reason of his death or his disability; or 2 13 (d) The effective date of either the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person of all or substantially all of the Company's assets or 80% or more of the Company's then outstanding voting stock, or the liquidation or dissolution of the Company, unless the Committee waives this provision in connection with such transaction. At least ten days prior to the effective date of such merger, consolidation acquisition, liquidation or dissolution, the Committee shall give the Outside Director notice of such event if the Option has then neither been fully exercised nor become unexercisable under this Section 2.3. ARTICLE III EXERCISE OF OPTIONS SECTION 3.1 - PERSON ELIGIBLE TO EXERCISE During the lifetime of the Outside Director, only he may exercise an Option granted to him, or any portion thereof. After the death of the Outside Director, any exercisable portion of an Option may, prior to the time when such portion becomes unexercisable under Section 2.3, be exercised by his personal representative or by any person empowered to do so under the deceased Outside Director's will or under the then applicable laws of descent and distribution. SECTION 3.2 - PARTIAL EXERCISE At any time and from time to time prior to the time when any exercisable Option or exercisable portion thereof becomes unexercisable under Section 2.3, such Option or portion thereof may be exercised in whole or in part; provided, however, that the Company shall not be required to issue fractional shares and the Committee may, by the terms of the Option, require any partial exercise to be with respect to a specified minimum number of shares. SECTION 3.3 - MANNER OF EXERCISE An exercisable Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following prior to the time when such Option or such portion becomes unexercisable under Section 2.3: (a) Notice in writing signed by the Outside Director or other person then entitled to exercise such Option or portion, stating that such Option or portion is exercised, such notice complying with all applicable rules established by the Committee; and (b) (i) Full payment (in cash or by check) for the shares with respect to which such Option or portion is thereby exercised; or (ii) Subject to the Committee's consent, full payment by delivery to the Company of shares of Common Stock owned by the Outside Director 3 14 duly endorsed for transfer to the Company by the Outside Director or other person then entitled to exercise such Option or portion, with a Fair Market Value equal to the Option price of shares with respect to which such Option or portion is thereby exercised; or (iii) Any combination of the considerations provided for in the foregoing subsections (i) and (ii); and (c) On or prior to the date the same is required to be withheld: (i) Full payment (in cash or by check) of any amount that must be withheld by the Company for federal, state and/or local tax purposes; or (ii) Subject to the Committee's consent, full payment by delivery to the Company of shares of Common Stock owned by the Outside Director duly endorsed for transfer to the Company by the Outside Director or other person then entitled to exercise such Option or portion with an aggregate Fair Market Value equal to the amount that must be withheld by the Company for federal, state and/or local tax purposes; or (iii) Subject to the Committee's consent, full payment by retention by the Company of shares of Common Stock to be issued pursuant to such Option exercise with an aggregate Fair Market Value equal to the amount that must be withheld by the Company for federal, state and/or local tax purposes; or (iv) Any combination of payments provided for in the foregoing subsections (i), (ii) or (iii); provided that if and to the extent required by Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended ("Rule 16b-3"), an election to make full payment by the means described in Sections 3.3(c)(ii) or 3.3(c)(iii) shall be made more than six months after grant of the Option and either (x) made and the Option exercised only during the period beginning on the third business day following the date of release of quarterly or annual summary statements of sales and earnings of the Company and ending on the twelfth business day following such date, or (y) irrevocably made more than six months prior to the date the amount of tax to be withheld is determined in the case of Sections 3.3(c)(ii) and 3.3(c)(iii); and (d) Such representations and documents as the Committee, in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal or state securities laws or regulations. The Committee may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer orders to transfer agents and registrars; and 4 15 (e) In the event that the Option or portion thereof shall be exercised pursuant to Section 3.1 by any person or persons other than the Outside Director, appropriate proof of the right of such person or persons to exercise the Option or portion thereof. SECTION 3.4 - RIGHTS AS SHAREHOLDERS The holders of Options shall not be, nor have any of the rights or privileges of, shareholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such holders. ARTICLE IV OTHER PROVISIONS SECTION 4.1 - ADMINISTRATION The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Outside Director, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement. SECTION 4.2 - AGREEMENT SUBJECT TO TERMS OF PLAN This Agreement and the rights of the Outside Director hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan. SECTION 4.3 - OPTION NOT TRANSFERABLE Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Outside Director or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 4.3 shall not prevent transfers by will or by the applicable laws of descent and distribution. 5 16 SECTION 4.4 - NOTICES Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Outside Director shall be addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section 4.4, either party may hereafter designate a different address for notices to be given to him. Any notice which is required to be given to the Outside Director shall, if the Outside Director is then deceased, be given to the Outside Director's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 4.4. Any notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. SECTION 4.5 - TITLES Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. SECTION 4.6 - CONSTRUCTION This Agreement shall be administered, interpreted and enforced under the laws of the State of Delaware. SECTION 4.7 - STOCKHOLDER APPROVAL The First Amendment to the Plan will be submitted for the approval of the Company's stockholders within 12 months after the date of the Board's initial adoption of the First Amendment to the Plan. No portion of this Option shall become exercisable prior to the time when the First Amendment to the Plan is approved by the stockholders, and if such approval has not been obtained at the end of such 12-month period, this Option shall thereupon be canceled and become null and void. SECTION 4.8 - DEFINITIONS Capitalized terms not otherwise defined in this Agreement shall have the meaning specified in the Safeway Inc. Outside Director Equity Purchase Plan. SECTION 4.9 - NO RIGHT TO CONTINUED MEMBERSHIP ON THE BOARD Nothing in this Agreement or in the Plan shall confer upon the Outside Director any right to continue in his capacity as a member of the Board of Directors of the Company or shall interfere with or restrict in any way the rights of the Company or its stockholders, which 6 17 are hereby expressly reserved, to remove the Outside Director at any time for any reason whatsoever, with or without cause. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the Date set forth above. SAFEWAY INC. By: ________________________________ ATTEST: _________________________________ ____________________________________ Outside Director Address: ___________________________ ___________________________ ___________________________ 7 EX-11.1 5 COMPUTATION OF EARNINGS PER COMMON SHARE 1 Exhibit 11.1 SAFEWAY INC. AND SUBSIDIARIES Computation of Earnings Per Common Share and Common Share Equivalent (In millions, except per share amounts)
12 Weeks Ended -------------------------------------------- September 10, 1994 September 11, 1993 --------------------- -------------------- Fully Fully Diluted Primary Diluted Primary ------- ------- ------- ------- Income before extraordinary loss $ 63.7 $ 63.7 $ 42.1 $ 42.1 Extraordinary loss (2.7) (2.7) - - ------ ------ ------ ------ Net income $ 61.0 $ 61.0 $ 42.1 $ 42.1 ====== ====== ====== ====== Weighted average common shares outstanding 103.3 103.1 99.8 99.5 Common share equivalents 19.2 19.0 22.5 21.8 ------ ------ ------ ------ Weighted average common shares and common share equivalents 122.5 122.1 122.3 121.3 ====== ====== ====== ====== Earnings per common share and common share equivalent Income before extraordinary loss $ 0.52 0.52 $ 0.34 0.35 Extraordinary loss (0.02) (0.02) - - ------ ------ ------ ------ Net Income $ 0.50 0.50 $ 0.34 0.35 ====== ====== ====== ====== Calculation of common share equivalents: Options and warrants to purchase common shares 27.8 28.0 31.2 30.5 Common shares assumed purchased with potential proceeds (8.6) (9.0) (8.7) (8.7) ------ ------ ------ ------ Common share equivalents 19.2 19.0 22.5 21.8 ====== ====== ====== ====== Calculation of common shares assumed purchased with potential proceeds: Potential proceeds from exercise of options and warrants to purchase common shares $238.7 $233.6 $166.6 $151.1 Common stock price used under the treasury stock method $27.62 $25.91 $19.12 $17.26 Common shares assumed purchased with potential proceeds 8.6 9.0 8.7 8.7
(Continued) 2 SAFEWAY INC. AND SUBSIDIARIES Computation of Earnings Per Common Share and Common Share Equivalent (Continued) (in millions, except per share amounts)
36 Weeks Ended -------------------------------------------- September 10, 1994 September 11, 1993 -------------------- -------------------- Fully Fully Diluted Primary Diluted Primary ------- ------- ------- ------- Income before extraordinary loss $164.5 $164.5 $ 76.4 $ 76.4 Extraordinary loss (10.1) (10.1) - - ------ ------ ------ ------ Net income $154.4 $154.4 $ 76.4 $ 76.4 ====== ====== ====== ====== Weighted average common shares outstanding 103.3 102.4 99.8 99.2 Common share equivalents 19.2 19.1 22.5 20.7 ------ ------ ------ ------ Weighted average common shares and common share equivalents 122.5 121.5 122.3 119.9 ====== ====== ====== ====== Earnings per common share and common share equivalent: Income before extraordinary loss $ 1.34 $ 1.35 $ 0.63 $ 0.64 Extraordinary loss (0.08) (0.08) - - ------ ------ ------ ------ Net income $ 1.26 $ 1.27 $ 0.63 $ 0.64 ====== ====== ====== ====== Calculation of common share equivalents: Options and warrants to purchase common shares 27.8 28.6 31.0 29.6 Common shares assumed purchased with potential proceeds (8.6) (9.5) (8.5) (8.9) ------ ------ ------ ------ Common share equivalents 19.2 19.1 22.5 20.7 ====== ====== ====== ====== Calculation of common shares assumed purchased with potential proceeds: Potential proceeds from exercise of options and warrants to purchase common shares $237.4 $230.7 $162.3 $134.8 Common stock price used under the treasury stock method $27.62 $24.33 $19.12 $15.07 Common shares assumed purchased with potential proceeds 8.6 9.5 8.5 8.9
2 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF INCOME ON PAGES 3 THROUGH 5 OF THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 10, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1994 JAN-02-1994 SEP-10-1994 58,400 0 136,500 0 1,057,100 1,343,700 4,279,800 (1,798,500) 4,887,300 1,750,000 2,073,100 1,000 0 0 548,700 4,887,300 10,736,300 10,736,300 (7,799,900) 0 0 0 (156,600) 283,700 (119,200) 164,500 0 (10,100) 0 154,400 1.27 1.26
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