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Sample Business Contracts

Stock Option Agreement - Safeway Inc.

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                                  SAFEWAY INC.
                             STOCK OPTION AGREEMENT



                 THIS STOCK OPTION AGREEMENT (the "Agreement") is dated as of
April 8, 1997, by and between SAFEWAY INC., a Delaware corporation (the
"Company") and ____________ ("Optionee"), a current or former member of the
Board of Directors of The Vons Companies, Inc.  ("Vons").

                 WHEREAS, pursuant to The Vons Companies, Inc. Directors' Stock
Option Plan (the "Vons Plan") and various stock option agreements between Vons
and Optionee, Vons has granted to Optionee those non-qualified stock options
(the "Vons Options") to purchase shares of the $0.10 par value common stock of
Vons (the "Vons Common Stock") listed on Exhibit A hereto;

                 WHEREAS, the Company, SSCI Merger Sub, Inc., a Michigan
corporation and an indirect wholly owned subsidiary of the Company ("Merger
Sub"), and Vons entered into an Agreement and Plan of Merger dated as of
December 15, 1996, as amended by the First Amendment to Agreement and Plan of
Merger dated as of January 8, 1997, under which Merger Sub will be merged with
and into Vons, with Vons continuing as the surviving corporation (the
"Merger"), and each share of Vons Common Stock outstanding immediately prior to
the effective time of the Merger (other than shares of Vons Common Stock owned
directly or indirectly by the Company) will be converted into the right to
receive 1.425 shares of common stock of the Company, $.01 par value per share
("Company Common Stock");

                 WHEREAS, in connection with the Merger, the Company wishes to
offer holders of Vons Options the opportunity to exchange such Vons Options for
new non-qualified options to purchase shares of Company Common Stock
("Replacement Options"), of comparable value to the Vons Options as
contemplated by Sections 4.5 and 4.6 of the Vons Plan;

                 WHEREAS, each Replacement Option will represent the right to
purchase the number (rounded to the nearest whole number) of shares of Company
Common Stock as such holder of the Vons Option being replaced would have been
entitled to receive pursuant to the Merger had such holder exercised such Vons
Option in full immediately prior to the Merger (not taking into account whether
such Vons Option was in fact exercisable), at a price per share equal to (a)
the aggregate exercise price for Vons Common Stock otherwise purchasable
pursuant to such Vons Option divided by (b) the number of shares of Company
Common Stock purchasable pursuant to such Replacement Option;

                 WHEREAS, the Board of Directors of the Company has authorized
granting to Optionee the Replacement Options immediately prior to the
consummation of the Merger in accordance with and on the terms and conditions
hereinafter stated; and

   WHEREAS, Optionee agrees that the Vons Options shall terminate upon grant
<PAGE>   2
of the Replacement Options in accordance with this Agreement.

NOW, THEREFORE, it is hereby agreed:

         1.      Grant of Option

                 Pursuant to the action of the Company and in accordance with
any and all authorizations granted by appropriate regulatory and governmental
agencies, the Company hereby grants to the Optionee the right to purchase the
number of shares of Company Common Stock listed under the heading "Replacement
Options" on Exhibit A hereto.

         2.      Purchase Price

                 The purchase price of the shares of Company Common Stock
covered by the Replacement Options shall be as set forth on Exhibit A hereto
under the heading "Exercise Price of Replacement Options," without commission
or other charge.

         3.      Exercisability

                 The Replacement Options shall be exercisable as of the date of
this Agreement. The Replacement Options shall remain exercisable until the day
after the tenth (10th) anniversary of the date of the grant of the Vons Option
to which the Replacement Option corresponds (the "Expiration Date"), unless the
Replacement Options have expired or terminated earlier in accordance with the
provisions hereof.  Subject to the terms and conditions hereof, the shares of
Company Common Stock as to which these Replacement Options are exercisable may
be purchased at any time prior to the expiration of the Replacement Options.

         4.      Expiration

                 a.       No Replacement Option may be exercised to any extent
by Optionee or any other person after the first to occur of the following
events:

                          i.      The Expiration Date;

                          ii.     Except in the case of Optionee's death,
         disability (within the meaning of Section 22(e)(3) of the Internal
         Revenue Code of 1986, as amended (the "Code")) or Retirement (as
         defined below), the expiration of three months from the date of
         Optionee's resignation from or replacement on the Board of Directors
         of the Company unless Optionee dies within said three-month period;

                          iii.    The expiration of one year from the date of
         Optionee's resignation from or replacement on the Board of Directors
         of the Company by reason of Optionee's



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<PAGE>   3
         disability, unless Optionee dies within said one-year period;

                          iv.     The expiration of one year from the date of
         Optionee's Retirement (as defined below) from the Board of Directors
         of the Company, unless Optionee dies within said one-year period; or

                          v.      The expiration of one year from the date of
         Optionee's death; or

                 "Retirement" shall mean resignation from the Board of
Directors of the Company after Optionee has attained the age of 60 years.

                 [The following version of Section 4.a. will apply to Optionees
who will not continue as members of the Board of Directors of Vons or the
Company after the Merger:

                 a.       No Replacement Option may be exercised to any extent
by Optionee or any other person after _____________, 199_ or, in the event that
Optionee dies prior to such date, one year from the date of Optionee's death.

The blank in the preceding sentence will be a date that is either (a) three
months after the Merger or (b) one year after the Merger if Optionee is at
least 60 years of age and has served a minimum of three years on the Board of
Directors of Vons or if Optionee is disabled at the time of the Merger.]

                 b.       Notwithstanding the preceding provisions of this
Section 4, the Replacement Options or any portion thereof outstanding at the
time of a Change of Control shall terminate at such time, unless there is a
surviving corporation or Parent Corporation or Subsidiary corporation thereof
that shall assume (with appropriate changes) the outstanding Replacement
Options or replace them with new options of comparable value.  "Change of
Control" shall mean (a) the merger or consolidation of the Company with or into
another corporation; (b) 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 (c) the liquidation or dissolution
of the Company.  "Parent Corporation" shall mean any corporation in an unbroken
chain of corporations ending with the Company if each of the corporations other
than the Company then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.  "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

         5.      Manner of Exercise

                 An exercisable Replacement Option, or any exercisable portion
thereof, may be





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<PAGE>   4
exercised solely by delivery to the Secretary of the Company or his office of
all of the following prior to the time when such Replacement Option or such
portion becomes unexercisable under Section 4:

                 a.       Notice in writing signed by the Optionee or other
person then entitled to exercise such Replacement Option or portion, stating
that such Replacement Option or portion is exercised, such notice complying
with all applicable rules established by the Board of Directors of the Company
(or a duly authorized committee of such Board); and

                 b.       i.      Full payment (in cash or by check) for the
         shares with respect to which such Replacement Option or portion is
         thereby exercised; or

                          ii.     Subject to the Company's consent, full
         payment by delivery to the Company of shares of Company Common Stock
         owned by the Optionee duly endorsed for transfer to the Company by the
         Optionee or other person then entitled to exercise such Replacement
         Option or portion, with a Fair Market Value (as defined below) equal
         to the Replacement Option price of shares with respect to which such
         Replacement 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 Company's consent, full
         payment by delivery to the Company of shares of Company Common Stock
         owned by the Optionee duly endorsed for transfer to the Company by the
         Optionee or other person then entitled to exercise such Replacement
         Option or portion with an aggregate Fair Market Value (as defined
         below) equal to the amount that must be withheld by the Company for
         federal, state and/or local tax purposes;

                          iii.    Subject to the Company's consent, full
         payment by retention by the Company of shares of Company Common Stock
         to be issued pursuant to such Replacement Option exercise with an
         aggregate Fair Market Value (as defined below) 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); and





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<PAGE>   5
                 d.       Such representations and documents as the Board of
Directors of the Company (or a duly authorized committee of such Board), in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provision of the Securities Act and any other federal or state
securities laws or regulations.  The Board of Directors of the Company (or a
duly authorized committee of such Board) 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 Replacement Option or portion
thereof shall be exercised by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Replacement Option or portion thereof.

                 "Fair Market Value" of a share of Company Common Stock as of a
given date shall mean (i) the closing price of the Company Common Stock on the
New York Stock Exchange on such date or, if shares were not traded on such
date, then on the next preceding trading day during which a sale occurred; (ii)
if such stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (1) the last sales price (if the stock is then
listed as a National Market Issue under the NASD National Market System) or (2)
the mean between the closing representative bid and asked prices (in all other
cases) for the stock on such date as reported by NASDAQ or such successor
quotation system; (iii) if such stock is not publicly traded on an exchange and
not quoted on NASDAQ or a successor quotation system, the mean between the
closing bid and asked prices for the stock, on such date, as determined in good
faith by the Board of Directors of the Company (or a duly authorized committee
of such Board); or (iv) if the Company Common Stock is not publicly traded, the
fair market value established by the Board of Directors of the Company (or a
duly authorized committee of such Board) acting in good faith.  In determining
the Fair Market Value of the Company Common Stock under (i) of this paragraph,
the Board of Directors of the Company (or a duly authorized committee of such
Board) may rely on the closing price as reported in the New York Stock Exchange
composite transactions published in the Western Edition of the Wall Street
Journal.

         6.      Conditions to Issuance of Stock Certificates

                 The shares of stock issuable and deliverable upon the exercise
of Replacement Options shall be previously issued shares which have then been
reacquired by the Company. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of Replacement Options prior to fulfillment of all of the following
conditions:

                 a.       The admission of such shares to listing on all stock
exchanges, if any, on which such class of stock is then listed;





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<PAGE>   6
                 b.       The completion of any registration or other
qualification of such shares under any state or federal law or under the
rulings or regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Company shall deem necessary or
advisable;

                 c.       The obtaining of any approval or other clearance from
any state or federal governmental agency which the Company shall determine to
be necessary or advisable;

                 d.       The payment to the Company of any amounts which it is
required to withhold under federal, state or local law in connection with the
exercise of the Replacement Options; and

                 e.       The lapse of such reasonable period of time following
the exercise of the Replacement Options as the Company may establish from time
to time for reasons of administrative convenience.

         7.      Transfer Restrictions

                 No Replacement Option or interest or right therein or part
thereof shall be subject to or liable for the debts, contracts or engagements
of Optionee, as the case may be, 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 after Optionee's death, but before expiration of the
Replacement Options, such Replacement Options shall be exercisable by the
person or persons to whom Optionee's rights under the Replacement Options shall
have passed by will or by the laws of descent and distribution or by a person
lawfully entitled to act for such person or persons or by a person named by
Optionee in a Beneficiary Designation Form.  Shares purchased by such persons
shall be subject to all of the terms and provisions of this Agreement.

         8.      Privileges and Restrictions of Stock Ownership

                 Optionee shall have no rights as a stockholder with respect to
Company Common Stock subject to Replacement Options until the date of issuance
of stock certificates to Optionee.  Except as provided in Sections 4(b) and 9
hereof, no adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificates are issued.

         9.      Adjustments in Outstanding Options

                 In the event that the outstanding shares of Company Common
Stock subject to





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<PAGE>   7
Replacement Options are changed into or exchanged for a different number or
kind of shares of other securities of the Company, or of another corporation,
by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend or combination of shares, the
Company shall make an appropriate and equitable adjustment in the number and
kind of shares as to which all outstanding Options, or portions thereof then
unexercised, shall be exercisable, to the end that after such event Optionee's
proportionate interest shall be maintained as before the occurrence of such
event.  Such adjustment in an outstanding Replacement Options shall be made
without change in the total price applicable to the Replacement Options or
unexercised portions of the Replacement Options (except for any change in the
aggregate price resulting from rounding-off of share quantities or prices) and
with any necessary corresponding adjustment in Replacement Option price per
share. Any such adjustment made by the Company shall be final and binding upon
Optionee, the Company and all other interested persons.

         10.     Notices

                 Notices delivered under this Agreement shall be delivered to
the Secretary of the Company at the Company's principal office and to the
Optionee at such address as Optionee shall designate to the Company.

         11.     Titles

                 Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.

         12.     Construction

                 This Agreement shall be administered, interpreted and enforced
under the internal laws of the State of California without regard to conflicts
of laws thereof.

         13.     Conformity to Securities Laws

                 Optionee acknowledges that this Agreement is intended to
conform to the extent necessary with all provisions of the Securities Act and
the Exchange Act and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, including without limitation
Rule 16b-3.  Notwithstanding anything herein to the contrary, Replacement
Options are granted and may be exercised, only in such a manner as to conform
to such laws, rules and regulations.  To the extent permitted by applicable
law, this Agreement shall be deemed amended to the extent necessary to conform
to such laws, rules and regulations.





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<PAGE>   8
         14.     Exhibits

                 The Exhibits to this Agreement are a material part hereof and
shall be treated as if fully incorporated into the body of the Agreement.

                 IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.


                                   SAFEWAY INC.


                                   By: ________________________________________
                                         Steven A. Burd
                                         President and Chief Executive Officer

                                   By: ________________________________________
                                         Michael C. Ross
                                         Senior Vice President, Secretary
                                         and General Counsel



____________________________
Optionee

____________________________

____________________________

____________________________
Address

Optionee's Taxpayer
Identification Number:

____________________________





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<PAGE>   9
                            BENEFICIARY DESIGNATION

                             STOCK OPTION AGREEMENT

                                  SAFEWAY INC.


I designate the following beneficiary or beneficiaries to exercise any options
in the event of my death, heretofore or hereafter granted to me pursuant to the
Stock Option Agreement dated April 8, 1997 by and between Safeway Inc. and
myself:

         Beneficiary            Relationship            Address


I may change the beneficiary or beneficiaries from time to time by filing with
the Company a new Beneficiary Designation Form.

I agree that the last designation received by the Company prior to my death
shall control over any testamentary or other disposition I may make; however,
if my spouse is one of the beneficiaries named above but is not my spouse at
the time of my death, such designation shall be deemed revoked.  I further
agree that the Company may make a lump sum payment to the legal representative
of my estate if there is any question as to the right of any beneficiary to
take hereunder, and the Company, its Board of Directors (and any duly
authorized committee thereof), and any employee of the Company shall have no
further liability with respect thereto.

DATED:____________________________     SIGNATURE:______________________________

                                       PRINT NAME:_____________________________


CONSENTED TO:


__________________________________     DATED:__________________________________
(Signature of Spouse)


__________________________________
(Print Name)