APPENDIX:
ICA AB Put Option
Under
the shareholders' agreement dated as of February 24, 2000 (the
"Shareholders' Agreement"), relating to Ahold's joint venture ICA AB
(formerly, ICA Ahold Holding AB), ("ICA"), Ahold is contingently
liable pursuant to put arrangements with its joint venture partners, ICA
Förbundet Invest AB ("IFAB") and Canica AS ("Canica" and
together with IFAB, the "ICA Partners"). Under these put option
arrangements (the "ICA Put Option"), each of the ICA Partners has the
right of first refusal with respect to the sale of the shares in ICA of the
other ICA Partner. If one of the ICA Partners is offered the shares of the
other ICA Partner constituting no less than 5% of the outstanding shares of ICA
(the "Option Shares") and opts not to purchase the Option Shares, the
selling ICA Partner may exercise its ICA Put Option pursuant to which Ahold is
obligated to purchase the Option Shares for cash. If the selling ICA Partner is
exercising its ICA Put Option with respect to all of the ICA shares held by
that ICA Partner, Ahold also is obligated to offer to purchase all of the
shares held by the non-selling ICA Partner on the same terms and conditions as
those applicable to the sale of the Option Shares. The ICA Put Option may be
exercised beginning on April 27, 2004.
If
the ICA Put Option is exercised, Ahold and the selling ICA Partner must
negotiate the price of the Option Shares in good faith. If Ahold and the
selling ICA Partner cannot agree on a price, the price will be determined using
a valuation procedure, which varies depending on the period in which the ICA
Put Option is exercised, as described in more detail below. If the ICA Put
Option is exercised prior to April 27, 2005, the valuation of the Option Shares
(if the parties cannot agree to the price of the shares) will be performed by
an independent valuation expert jointly appointed by Ahold and the ICA
Partners. The valuation procedure must use a formula equal to (a) the fair
market value of the Option Shares to be put to Ahold (as if the company was
listed to the Stockholm Stock Exchange, not including any control premium) at
the time of exercise (the "Revised Equity Value") plus (b) an amount
equal to the product of (i) the Revised Equity Value and (ii) the Premium Rate
(as described below).
The
"Premium Rate" is the percentage equal to (x) the equity value for
the ICA shares on which the price Ahold paid to acquire its 50% interest in ICA
was based divided by (y) the fair market value (also as if the company was
listed, not including any control premium or assumed future synergies resulting
from the acquisition) of the ICA shares on December 9, 1999 (the date of the
heads of agreement relating to the purchase of the ICA shares by Ahold) (the
"Base Equity Value"), minus 100%. If the ICA Put Option is exercised
on, or after, April 27, 2005, and the parties cannot agree on the price of the
Option Shares being sold, the valuation of the Option Shares will be performed
by three independent valuation experts based on the acquisition value of ICA,
as well as an amount reflecting the premium that would be expected to be paid
in a transfer of the full control of ICA characteristic at the time of
valuation of such acquisitions internationally.
Under
the Shareholders' Agreement, in October 2002 Ahold and the ICA Partners jointly
appointed an independent valuation expert (the "Shareholders Expert")
to determine the Base Equity Value. The Shareholders Expert calculated a range
for the Base Equity Value and delivered its determination to the parties in
October 2003. Ahold and the ICA Partners previously had agreed to use the
midpoint of the range calculated by the Shareholders Expert for purposes of
determining the Premium Rate.
On
November 27, 2003, Canica initiated an arbitration proceeding with the
Arbitration Institute of the Stockholm Chamber of Commerce, challenging the
valuation by the Shareholders Expert. Ahold is vigorously objecting to Canica's
challenge in this arbitration proceeding. A decision by the Arbitration
Institute is not expected before August 2004.
No
assurance can be given at this time as to the outcome of this arbitration
proceeding, including as to whether the valuation by the Shareholders Expert
will be binding upon the parties. If it is determined that such valuation is
not binding, a new determination of the Base Equity Value will be required to
be made which, could be higher or lower than that determined originally by the
Shareholders Expert.
Under
Dutch GAAP no liability is recorded to reflect the amounts that would be
payable if the ICA Put Option were to be exercised, because purchasing the
Option Shares, if they were put to Ahold, would not put Ahold in an onerous
situation. Under US GAAP the estimated fair market value of the ICA Put Option,
but not the shares themselves, is recorded as a liability as further discussed
in Note 31.
Since
it is uncertain whether or when the ICA Put Option will be exercised and since
the value of ICA may change and is subject to negotiations and/or litigation,
Ahold currently cannot determine the actual price it would have to pay for the
Option Shares upon the exercise of the ICA Put Option. In order to be able to
estimate as of year-end 2003, the fair market value of the ICA Put Option for
purposes of these financial statements, and given (i) the uncertainty as to
whether the Premium Rate calculated using the Shareholders Expert's valuation
as described above will be binding upon the parties and (ii) the absence of any
fair market value determination by the Shareholders Expert for ICA shares
subsequent to the date of the initial Ahold acquisition, Ahold retained an
external valuation expert (the "Ahold Expert") to determine the
estimated Revised Equity Value of the ICA shares assuming the ICA Put Option
were exercisable, and had been exercised in full, as of year-end 2003, as well
as the Base Equity Value and the Premium Rate, each in accordance with the
requirements of the Shareholders' Agreement. Based on the estimated Revised
Equity Value of the ICA shares as of year-end 2003, the estimated Base Equity
Value and the Premium Rate, in each case as determined by the Ahold Expert,
Ahold estimated that it would have been required to pay approximately EUR 2,100
for all of the Option Shares held by the ICA Partners
if
the ICA Put Option had been exercisable, and had been exercised in full, as of
year-end 2003. The Base Equity Value determined by the Ahold Expert was within
the range as determined by the Shareholders Expert, but the Ahold Expert
calculation was lower than the midpoint of the range because of different
assumptions used. Ahold nevertheless believes that the approximately EUR 2,100
amount determined as set forth above is a fair and reasonable estimate of the
amount that would have been payable by Ahold for all of the Option Shares held
by the ICA partners as of year-end 2003.