Opinion ID: 703215
Heading Depth: 2
Heading Rank: 2

Heading: The Lawsuits and the Settlement

Text: 7 Following announcement of the LBO, six class-action lawsuits were filed against Safeway on behalf of its shareholders, four in state court in California and one in Maryland, and one in federal district court in California. The complaints all alleged that Safeway's directors and officers had breached their fiduciary duty to the shareholders by their conduct in approving the KKR merger, and that KKR had aided and abetted their breach of fiduciary duty. 2 8 In the course of settlement negotiations, Safeway and the plaintiffs in five 3 of the class actions entered into a Memorandum of Understanding. Under its terms, Safeway agreed to change its Merger Agreement with KKR so that the record date for a portion of Safeway's quarterly dividend would occur prior to the closing of KKR's tender offer, thereby resulting in payment to current shareholders rather than to KKR. Safeway also agreed not to oppose the class attorneys' application for fees and disbursements of up to $1.825 million. In return, all claims against Safeway and KKR would be dismissed with prejudice. The final settlement, however, remained subject to plaintiffs' completion of discovery. 9 As agreed, KKR and Safeway modified their Merger Agreement so that the dividend was paid early, and their merger deal closed in November 1986. After the plaintiffs completed discovery, the parties entered into a formal settlement agreement in May 1987, which was approved by the California state court in September. 4 The agreement reflected the terms set out in the Memorandum of Understanding.