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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT
TO SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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DOMINICK'S SUPERMARKETS, INC.
(NAME OF SUBJECT COMPANY)
DOMINICK'S SUPERMARKETS, INC.
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON STOCK, PAR VALUE $.01 PER SHARE
NON-VOTING COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
COMMON STOCK -- 257159103
NON-VOTING COMMON STOCK -- NONE
(CUSIP NUMBER OF CLASS OF SECURITIES)
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ROBERT A. MARIANO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DOMINICK'S SUPERMARKETS, INC.
505 RAILROAD AVENUE
NORTHLAKE, ILLINOIS 60164
(708) 562-1000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
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COPIES TO:
THOMAS C. SADLER, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071-2007
(213) 485-1234
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Dominick's Supermarkets, Inc., a
Delaware corporation (the "Company"), and the address of the principal executive
offices of the Company is 505 Railroad Avenue, Northlake, Illinois 60164. The
title of the class of equity securities to which this statement relates is the
Common Stock, par value $.01 per share (the "Voting Common Stock"), and the
Non-Voting Common Stock, par value $.01 per share (the "Non-Voting Common Stock"
and, together with the Voting Common Stock, the "Common Stock"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to the cash tender offer (the "Offer") disclosed in
a Tender Offer Statement on Schedule 14D-1, dated October 19, 1998 (the
"Schedule 14D-1"), of Windy City Acquisition Corp., a Delaware corporation
("Purchaser") and a wholly-owned subsidiary of Safeway Inc., a Delaware
corporation ("Parent"), to purchase all of the outstanding shares of Common
Stock (the "Shares") at a price of $49.00 per Share, net to the seller in cash
without interest (the "Offer Price"), subject to certain conditions set forth
therein. The Offer is being made by Purchaser pursuant to the Agreement and Plan
of Merger, dated as of October 13, 1998 (the "Merger Agreement"), by and among
the Company, Parent and Purchaser, a copy of which is filed as Exhibit 1 hereto
and incorporated herein by reference. Subject to certain terms and conditions of
the Merger Agreement, Purchaser will be merged with and into the Company (the
"Merger") as soon as practicable after the expiration of the Offer, with the
Company surviving the Merger (the "Surviving Corporation") and becoming a
wholly-owned subsidiary of Parent. The Schedule 14D-1 states that the address of
the principal executive offices of Parent and Purchaser is 5918 Stoneridge Mall
Road, Pleasanton, California 94588. A copy of the press release issued by the
Company and Parent on October 13, 1998 is filed as Exhibit 2 hereto and
incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the entity
filing this statement, are set forth in Item 1 above.
(b) Except as described or referred to below, there exists on the date
hereof no material contract, agreement, arrangement or understanding and no
actual or potential conflict of interest between the Company or its affiliates
and (i) the Company's executive officers, directors or affiliates or (ii) the
executive officers, directors or affiliates of Parent or Purchaser.
Arrangements with Directors, Executive Officers or Affiliates of the Company
Certain contracts, agreements, arrangements and understandings between the
Company and certain of its directors, executive officers and affiliates,
including a description of the Company's employment and severance arrangements
with its executive officers, are described in the Company's Information
Statement in the sections entitled "Board of Directors -- Directors
Compensation" and "Certain Relationships, Transactions and Arrangements" and
"Executive Officer Compensation." The Information Statement is attached hereto
as Annex A and incorporated herein by reference.
In connection with the transactions contemplated by the Merger, the
following agreements were entered into: the Merger Agreement; the Stockholders
Agreement, dated as of October 13, 1998 (the "Stockholders Agreement"), by and
among Parent, Purchaser and the stockholders of the Company listed on the
signature pages thereto; the Amendment to Class A Common Stock Purchase Warrant,
dated as of October 13, 1998 (the "Warrant Amendment"), by and between the
Company and The Yucaipa Companies, a California general partnership ("Yucaipa");
and the Amendment to Amended and Restated Stockholders Agreement, dated as of
October 13, 1998 (the "Stockholders Agreement Amendment"), by and among Yucaipa
and the stockholders of the Company listed on the signature pages thereto
(collectively, the "Agreements").
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MERGER AGREEMENT
The following summary is qualified in its entirety by reference to the
complete text of the Merger Agreement which is filed as Exhibit 1 hereto and
incorporated herein by reference. Capitalized terms used but not defined herein
shall have the meanings set forth in the Merger Agreement.
The Offer. The obligations of Purchaser to accept for payment, purchase
and pay for any and all shares validly tendered on or prior to the expiration of
the Offer and not withdrawn are subject to the satisfaction of there being
validly tendered and not properly withdrawn prior to the expiration of the Offer
a number of Shares which in the aggregate constitutes more than 50% of the
issued and outstanding Shares (determined on a fully-diluted basis without
giving effect to the Shares issuable upon exercise of the Yucaipa Warrant (as
defined below)) (the "Minimum Condition") and the other conditions to the Offer,
including those described below under "Certain Conditions of the Offer", any of
which conditions may be waived by Purchaser in its sole discretion, except that
Purchaser may not waive the Minimum Condition without the prior written consent
of the Company. Purchaser expressly reserves the right, in its sole discretion,
at any time and from time to time, and regardless of whether or not any of the
events set forth below under "Certain Conditions to the Offer" shall have
occurred or shall have been determined by Purchaser to have occurred, to (i)
extend the period of time during which the Offer is open and thereby delay
acceptance for payment of, and the payment for, any Shares, by giving oral or
written notice of such extension to First Chicago Trust Company of New York, as
depositary (the "Depositary") and (ii) amend the Offer in any respect by giving
oral or written notice of such amendment to the Depositary. Under the terms of
the Merger Agreement, however, without the written consent of the Company,
neither Parent nor Purchaser will waive the Minimum Condition, decrease the
Offer Price payable in the Offer, decrease the number of Shares to be purchased
in the Offer, change the form of consideration to be paid in the Offer, change
or amend the conditions to the Offer set forth in the Merger Agreement,
including Annex A thereto (the "Offer Conditions") or impose any additional
conditions, change the expiration date of the Offer, or otherwise add, amend or
waive any other terms of the Offer in a manner which is adverse to the holders
of Shares. The rights reserved by Purchaser in this paragraph are in addition to
Purchaser's rights to terminate the Offer upon the failure of the conditions
described below under "Certain Conditions of the Offer" to be satisfied on the
expiration date of the Offer (the "Expiration Date"). Notwithstanding the
foregoing, if on any scheduled Expiration Date of the Offer, which shall
initially be 12:00 Midnight on Monday, November 16, 1998, all conditions to the
Offer have not been satisfied or waived, Purchaser may, and at the request of
the Company shall, from time to time, extend the expiration date of the Offer
for up to 10 additional business days (but in no event will Purchaser be
required to extend the expiration date of the Offer beyond April 15, 1999). In
addition, Purchaser may, without the consent of the Company, (i) extend the
Offer for any period required by any rule, regulation, interpretation or
position of the Securities and Exchange Commission (the "Commission") or the
staff thereof applicable to the Offer, and (ii) extend the Offer if (A) the
Offer Conditions have been satisfied or waived and (B) the number of Shares
validly tendered and not withdrawn represent more than 65% but less than 90% of
the issued and outstanding shares of each of the Voting Common Stock and the
Non-Voting Common Stock; provided, however, that in no event shall the
extensions permitted under the foregoing clause (ii) exceed, in the aggregate,
10 business days. Subject to the terms of the Offer, including the Offer
Conditions, and except to the extent the Offer is extended, Purchaser will
accept for payment, purchase and pay for all Shares validly tendered and not
withdrawn as soon as it is permitted to do so under applicable law. Purchaser
shall have the right, in its sole discretion, to extend the Offer as described
above notwithstanding the prior satisfaction of the Offer Conditions, in order
to attempt to satisfy the requirements of Section 253 of the Delaware General
Corporation Law (the "DGCL") so that the Merger could be effected without a
meeting of the Company's stockholders.
The Minimum Condition requires that at least that number of Shares
(including Voting Common Stock and Non-Voting Common Stock) constituting more
than 50% of the total issued and outstanding Shares (determined on a
fully-diluted basis without giving effect to the Shares issuable upon the
exercise of the Yucaipa Warrant) on the date such Shares are purchased (the
"Minimum Shares") shall have been validly tendered and not withdrawn prior to
the expiration of the Offer.
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The Merger. The Merger Agreement provides that, at the effective time of
the Merger (the "Effective Time") and subject to the conditions set forth
therein (and including those described below under "Certain Conditions of the
Offer") and the provisions of the DGCL, Purchaser shall be merged with and into
the Company in accordance with the DGCL and substantially in the manner
described in the Offer, the separate corporate existence of Purchaser shall
cease, and the Company shall continue as the Surviving Corporation in the
Merger. At Parent's election, any direct or indirect subsidiary of Parent other
than Purchaser may be merged with and into the Company instead of Purchaser so
long as such election (i) does not cause or result in a delay or postponement of
the consummation of the Offer or the Effective Time and (ii) does not relieve
Purchaser of any of its obligations under the Merger Agreement.
Pursuant to the Merger Agreement, at the Effective Time, each Share issued
and outstanding immediately prior to the Effective Time (other than Shares held
in the treasury of the Company, if any, and each Share owned by Parent or
Purchaser, or by any direct or indirect wholly-owned subsidiary of any of them
and shares of Common Stock outstanding immediately prior to the Effective Time
the holder of which has (i) not voted in favor of the Merger or consented
thereto in writing and (ii) demanded appraisal for such Common Stock in
accordance with DGCL ("Dissenting Shares")) shall be converted into the right to
receive the Offer Price, without interest, less any withholding taxes required
under applicable law.
Treatment of Stock Options and Other Company Stock Rights. Pursuant to the
Merger Agreement, prior to the Effective Time, the Company may accelerate to the
day after the Effective Time the vesting of unvested nonqualified and incentive
stock options (or any portion thereof) granted to certain employees of the
Company and its subsidiaries pursuant to the Company's Restated 1995 Stock
Option Plan and 1996 Equity Participation Plan (and, collectively with the
vested portion of such stock options, the "Accelerated Options"); provided,
however, that other than the Accelerated Options, neither the Company, the Board
of Directors of the Company (the "Board of Directors") nor any committee thereof
may accelerate the vesting or exercisability of any stock option, restricted
stock award, performance award, dividend equivalent, deferred stock, stock
payment, stock appreciation right or share of capital stock (collectively, the
"Company Stock Rights") granted, awarded, earned or purchased pursuant to any of
the Company's Restated 1995 Stock Option Plan, 1996 Equity Participation Plan,
Directors Deferred Compensation and Restricted Stock Plan and 1997 Employee
Stock Purchase Plan or any other stock option, performance unit or similar plan
of the Company and its subsidiaries (the "Stock Plans") prior to the Effective
Time. Prior to the Effective Time, the Company will enter into agreements in
respect of the Accelerated Options, which agreements will provide for the
payment, upon surrender of each Accelerated Option on the day after the
Effective Time, of an amount of cash per Share subject to each Accelerated
Option equal to the excess, if any, of the Offer Price over the exercise price
of such Accelerated Option (the "Spread Per Share") less an amount equal to all
taxes required to be withheld from such payment. Any such Company Stock Rights
not so surrendered or otherwise exercised prior to the Effective Time shall
terminate at the Effective Time in accordance with the terms of the applicable
Stock Plan or the relevant agreements with optionees. Parent shall cause the
Company to pay, on the day after the Effective Time, the aggregate Spread Per
Share to the holders of the surrendered Accelerated Options.
Pursuant to the Merger Agreement, Parent will also assume the vested and
unvested portion of certain outstanding nonqualified and incentive stock options
granted to certain employees of the Company or its subsidiaries (the "Assumed
Options"). The Company will provide that at the Effective Time, all outstanding
Assumed Options will be converted automatically into options to purchase shares
of common stock, par value $.01 per share, of Parent ("Parent Common Stock")
(collectively, "New Stock Rights") in an amount and, if applicable, at an
exercise price determined as follows: (i) the number of shares of Parent Common
Stock to be subject to the New Stock Right shall be equal to the product of (x)
the number of Shares remaining subject (as of immediately prior to the Effective
Time) to the Assumed Option multiplied by (y) the quotient obtained by dividing
the Offer Price by the average of the closing prices of Parent Common Stock on
the NYSE as reported on the NYSE Composite Transactions Tape for the 15 trading
days randomly selected by lot out of the 35 trading days ending on the second
trading day preceding the Effective Time (the "Conversion Ratio"); provided,
that any fractional shares will be rounded down to the nearest share; and (ii)
the exercise price per share of Parent Common Stock under the New Stock Right
will be equal to the exercise price per
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Share under the original Company Stock Right divided by the Conversion Ratio,
provided that such exercise price shall be rounded down to the nearest cent.
The unvested portion of such New Stock Right shall otherwise continue in
effect on the same terms and conditions (including antidilution, vesting and
exercisability provisions) as were in effect for the Company Stock Rights prior
to the Effective Time (except that any references to the Company shall be
deemed, as appropriate, to include Parent); provided, however, that any New
Stock Rights held by an employee or consultant of the Company or any subsidiary
whose employment or consulting arrangement, as the case may be, is terminated
without Cause (as defined in the Merger Agreement) or is subject to a
Constructive Termination (which term shall be defined in the agreements entered
into with the holders of the applicable Company Stock Rights in a manner
consistent with the definition of such term contained in the employment or
consulting agreements entered into with such individuals on October 9, 1998), in
either case after the Effective Time, shall become fully vested on the date of
such termination. The adjustments provided for in the Merger Agreement with
respect to any options that are "incentive stock options" (as defined in Section
422 of the Code) shall be, and are intended to be, effected in a manner which is
consistent with Section 424(a) of the Code.
The Merger Agreement also provides that, other than the Accelerated
Options, the Assumed Options and any Company Stock Rights otherwise exercised
prior to the Effective Time, all other Company Stock Rights will terminate at
the Effective Time in accordance with the applicable Stock Plan or such
agreements with the holders of such Company Stock Rights.
After the Effective Time, no holder of a Company Stock Right or any
participant in any Stock Plan will have any right thereunder to acquire capital
stock of the Company, Purchaser or the Surviving Corporation.
Upon the acceptance for payment of the Shares in the Offer, Purchaser or
Parent will purchase from Yucaipa the Yucaipa Warrant for an amount equal to the
product of 3,874,492 (the number of Shares underlying the Yucaipa Warrant) and
the excess of the Offer Price ($49) over the per share exercise price ($20.732
as of the date hereof) for the Yucaipa Warrant.
The Merger Agreement provides that, unless otherwise stipulated, Dissenting
Shares shall not be converted into the right to receive the Offer Price
applicable to such Shares at or after the Effective Time but shall be entitled
to receive such amount as shall be determined pursuant to Section 262 of the
DGCL unless and until the holder of such Dissenting Shares shall have failed to
perfect or withdrawn or lost such right to appraisal and payment under the DGCL.
If a holder of Dissenting Shares shall have so failed to perfect or shall have
effectively withdrawn or lost such right to appraisal and payment, or if it is
determined that such holder does not have appraisal rights in accordance with
the DGCL, then such holder's Dissenting Shares shall be treated as if they had
been converted as of the Effective Time into the right to receive the Offer
Price applicable to such Shares, without any interest thereon.
The Merger Agreement also provides that at the Effective Time and without
any further action on the part of the Company or Purchaser, the Amended and
Restated Certificate of Incorporation of the Company (the "Certificate of
Incorporation"), as in effect immediately prior to the Effective Time, shall be
the certificate of incorporation of the Surviving Corporation subject to certain
changes described in the Merger Agreement. At the Effective Time and without any
further action on the part of the Company or Purchaser, the Amended and Restated
Bylaws of the Company (the "Bylaws"), as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation. The Merger
Agreement provides that the directors of Purchaser immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation, each
to hold office in accordance with the applicable provisions of the Certificate
of Incorporation and Bylaws of the Surviving Corporation, until their successors
shall be duly elected or appointed and qualified. At the Effective Time, the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, until their respective successors
are duly elected or appointed (as the case may be) and qualified.
Stockholders Meeting. The Merger Agreement provides that to the extent
necessary to consummate the Merger, as soon as practicable following the
acquisition by Purchaser of the Minimum Shares pursuant to the
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Offer, the Company is required to, in accordance with applicable law, its
Certificate of Incorporation and Bylaws, convene and hold a meeting of its
stockholders for the purpose of approving and adopting the Merger Agreement and
the transactions contemplated thereby (the "Stockholders' Meeting"). The Company
(i) is required to recommend (and include such recommendation in the proxy
statement, if any, with respect to such Stockholders' Meeting) that the holders
of the Shares accept the Offer and approve the Merger Agreement and the other
transactions contemplated thereby, including the Merger, and (ii) is required to
take all reasonable and lawful action to solicit and obtain such approval.
Subject to the provisions of the following sentence, the Board of Directors may
not withdraw, amend or modify in a manner adverse to Parent its recommendation
referred to in clause (i) of the preceding sentence (or announce publicly its
intention to do so), provided that disclosure of the receipt of an Alternative
Transaction (as defined below) or the fact that the Board of Directors is
considering such Alternative Transaction or reviewing it with its advisors (to
the extent the Board of Directors shall have determined in good faith that such
disclosure is required by law or any applicable securities exchange
requirements) shall not constitute such a withdrawal, modification or amendment.
Prior to the acceptance for payment of the Minimum Shares pursuant to the Offer,
the Board of Directors shall be permitted (each of the following is referred to
herein as, a "Permitted Action") (A) to withdraw, amend or modify its
recommendation (or publicly announce its intention to do so) of the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, in a manner adverse to Parent or (B) to approve or recommend or enter
into an agreement with respect to a Superior Transaction (as defined below) if
(1) the Company has complied with the provisions described under "No
Solicitation of Transactions" below, (2) a Superior Transaction shall have been
proposed by any person other than Parent and such proposal is pending at the
time of such action, (3) the Board of Directors shall have determined in good
faith, based on the advice of its outside legal counsel, that the failure to
withdraw, amend or modify its recommendation or to approve or recommend or enter
into such Superior Transaction would constitute a breach of its fiduciary duties
under applicable law and (4) the Company shall have notified Parent of such
Superior Transaction proposal at least three business days in advance of such
action.
"Alternative Transaction" shall mean any of the following events: (i) any
merger, consolidation or business combination between the Company or any of its
significant subsidiaries and any person other than Parent, Purchaser or any of
their respective affiliates (a "third party"); (ii) the acquisition or purchase
by a third party of 25% or more of the capital stock (including securities
exercisable or exchangeable for or convertible into capital stock) of the
Company or any material equity interest in any of its significant subsidiaries
or the consolidated assets of the Company and its subsidiaries, taken as a
whole; (iii) any tender offer or exchange offer which, if consummated, would
result in any third party owning 25% or more of the Shares; or (iv) any proposal
or offer with respect to the foregoing.
"Superior Transaction" shall mean any bona fide Alternative Transaction
involving at least 60% of the outstanding Shares on terms that the Board of
Directors determines in its good faith judgment (after consultation with DLJ or
another financial advisor of nationally recognized reputation, taking into
account all the terms and conditions of the Alternative Transaction, including
any break-up fees, expense reimbursement provisions, conditions to consummation
and all other legal, financial, regulatory and other aspects of the proposal
and, to the extent relevant to any of the foregoing, the identity of the person
proposing the Superior Transaction) are more favorable to the Company's
stockholders from a financial point of view than the Merger Agreement and the
Merger taken as a whole.
At the Stockholders' Meeting, Parent will vote, or cause to be voted, all
Shares then owned by it or Purchaser or any of Parent's other subsidiaries or
affiliates in favor of the Merger and the adoption of the Merger Agreement.
The Merger Agreement provides that, notwithstanding the foregoing, in the
event that Purchaser acquires at least 90% of the outstanding shares of each
class of the capital stock of the Company following expiration of the Offer, the
Company will not be required to call the Stockholders' Meeting or file and mail
a proxy statement and the parties will, at the request of Purchaser and subject
to the provisions of the Merger Agreement, take all necessary and appropriate
action to cause the Merger to become effective as soon as practicable after such
expiration without a meeting of the Company's stockholders in accordance with
Section 253 of the DGCL.
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Proxy Statement. The Merger Agreement provides that, if required under
applicable law in order to effect the Merger, then promptly after consummation
of the Offer, the Company will file the Proxy Statement with the Commission
under the Exchange Act and will use its reasonable best efforts to have it
cleared by the Commission. Parent, Purchaser and the Company have agreed to
cooperate with each other in the preparation of the Proxy Statement, including,
in the case of Parent and Purchaser, by furnishing to the Company the
information relating to it required to be set forth in the Proxy Statement. The
Company has agreed to use its reasonable best efforts, after consultation with
the other parties hereto, to respond promptly to any comments made by the
Commission with respect to the Proxy Statement and any preliminary version
thereof filed by it and to cause the Proxy Statement to be mailed to the
Company's stockholders at the earliest practicable time.
Designation of Directors. The Merger Agreement provides that, promptly
upon acceptance for payment of, and payment by Purchaser in accordance with the
Offer for, not less than a majority of the outstanding Shares (on a fully
diluted basis without giving effect to shares issuable upon the exercise of the
Yucaipa Warrant) pursuant to the Offer, Purchaser will be entitled to designate
such number of members of the Board of Directors, rounded up to the next whole
number, equal to that number of directors which equals the product of the total
number of directors on the Board of Directors (after giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage that
such number of Shares owned in the aggregate by Purchaser or Parent, upon such
acceptance for payment, bears to the number of Shares outstanding.
Notwithstanding the foregoing, until the Effective Time there shall be at least
one Continuing Director (as defined in the Merger Agreement). The Company will,
upon request of Purchaser and on the date of such request, (i) either increase
the size of the Board of Directors or secure the resignations of such number of
its incumbent directors as is necessary to enable Parent's designees to be so
elected to the Board of Directors, and (ii) cause Parent's designees to be so
elected.
Access to Information; Confidentiality. Pursuant to the Merger Agreement
and subject to the terms thereof, from the date thereof to the earlier of the
Effective Time or the termination of the Merger Agreement, the Company will, and
will cause its subsidiaries, officers, directors, employees, auditors and other
agents, upon reasonable notice, to afford the officers, employees, auditors and
other agents of Parent reasonable access during normal business hours to the
officers, employees, agents, properties, offices, plants and other facilities
and to all books and records of the Company and its subsidiaries and will
furnish Parent and Purchaser and their officers, employees and agents all
financial, operating and other data and information as Parent and Purchaser may
reasonably request.
The Merger Agreement further provides that each of the Company and Parent
will cause its directors, officers, employees, agents, advisors and controlling
persons to hold all nonpublic information obtained by Parent and Purchaser
pursuant to the above paragraph in confidence on the same terms and conditions
as set forth in the Confidentiality Agreement.
In order to facilitate an orderly transition of the business of the Company
to Parent and to permit the coordination of their related operations on a timely
basis, the Company has agreed, to the extent reasonably practicable and
permitted by applicable law, to consult with Parent on significant strategic and
financial and operational matters, including, without limitation, retail
operations, store openings, closings and remodelings, marketing, advertising and
personnel.
No Solicitation of Transactions. The Merger Agreement required that,
immediately following the execution thereof, the Company cease, and cause its
subsidiaries and their respective officers, directors, employees, representative
and agents engaged in connection with the transactions contemplated by the
Merger Agreement to cease, any existing discussions or negotiations with any
parties conducted prior to the date of the Merger Agreement with respect to any
Alternative Transactions. Neither the Company nor any of its subsidiaries, nor
any of their respective directors, officers, employees or representatives and
agents engaged by the Company in connection with the transactions contemplated
by the Merger Agreement is permitted, directly or indirectly, to solicit,
initiate, facilitate or encourage the making of any proposal for an Alternative
Transaction, participate in any discussions or negotiations with, or provide any
information to, any person (other than Parent, Purchaser and their designees)
concerning an Alternative Transaction or grant any waiver or release under any
standstill or similar agreement with respect to any class of equity securities
of the
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Company and its subsidiaries; provided, however, that the Company (and its
subsidiaries and its and their respective officers, directors, employees,
representatives or agents) may, prior to the acceptance for payment of the
Minimum Shares pursuant to the Offer, participate in negotiations or discussions
with, or provide any information to, any person concerning an Alternative
Transaction not solicited after the date of the Merger Agreement which is
submitted in writing by such person to the Board of Directors after the date of
the Merger Agreement if (i) the Board of Directors, in its good faith judgment,
believes that such Alternative Transaction could reasonably be expected to
result in a Superior Transaction and (ii) determines in good faith, based on the
advice of outside legal counsel, that the failure to participate in such
discussions or negotiations or to furnish such information would constitute a
breach of its fiduciary duties under applicable law; provided, however, that
prior to participating in any such discussions or negotiations or furnishing any
information, the Company receives from such third party an executed
confidentiality agreement on terms at least as favorable to the Company, in all
material respects, as those contained in the Confidentiality Agreement, and
provided further, that the Company provides prompt notice to Parent to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, a third party. None of the above-described restrictions will
prohibit the Board of Directors from complying with Rule 14e-2 promulgated under
the Exchange Act with regard to a tender or exchange offer by a third party. The
Company is obligated to notify Parent promptly if it receives any unsolicited
proposal concerning an Alternative Transaction, the identity of the person
making any such proposal and all the terms and conditions thereof and is
required to advise Parent periodically of all material developments relating
thereto.
Directors and Officers Indemnification and Insurance. The Merger Agreement
provides that at all times after the Effective Time, Parent will cause the
Surviving Corporation to indemnify and hold harmless each person who was as of
the date of the Merger Agreement, or has been at any time prior to the date of
the Merger Agreement, an officer or director of the Company or of any of the
Company's subsidiaries (individually, an "Indemnified Party") with respect to
any losses, claims, damages, judgments, settlements, liabilities, costs or
expenses incurred in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to actual or alleged acts or
omissions by them in their capacities as such occurring at or prior to the
Effective Time (an "Indemnified Liability") to the fullest extent that the
Company or such subsidiaries would have been permitted, under applicable law and
the Certificate of Incorporation or Bylaws of the Company or the organizational
documents of such subsidiaries each as in effect as of the date of the Merger
Agreement. In connection with the foregoing, Parent will cause the Surviving
Corporation to purchase a four-year extended reporting period endorsement under
the Company's existing directors and officers liability insurance policies, for
a total amount not in excess of 175% of the last annual premium paid by the
Company for such existing insurance policies prior to the date of the Merger
Agreement; provided that such extended reporting period endorsement will extend
the directors and officers liability coverage on terms that, in all material
respects, are no less advantageous to the intended beneficiaries thereof than
such existing directors and officers liability insurance policies.
Without limiting the foregoing, the Merger Agreement also provides that
Parent will cause the Surviving Corporation to advance expenses as incurred to
the fullest extent permitted under applicable law upon receipt from an
Indemnified Party of an undertaking to reimburse the amounts so advanced in the
event of a final determination by a court of competent jurisdiction that such
Indemnified Party is not entitled thereto. To the extent that the Surviving
Corporation fails to comply with its indemnification obligations as provided in
the Merger Agreement, Parent has agreed to indemnify and hold harmless each of
the Indemnified Parties to the same extent as the Surviving Corporation was
required to indemnify such Indemnified Parties thereunder.
Filings; Reasonable Efforts. The Merger Agreement provides that, upon the
terms and subject to the conditions thereof, each of the parties thereto will
use its reasonable best efforts to take, or cause to be taken, all appropriate
action, and to do or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by the Merger Agreement, including, without limitation
(i) cooperating in the Offer and the preparation and filing of the Proxy
Statement, required filings under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") and any amendments to the foregoing,
(ii) using its reasonable best efforts to make promptly all required regulatory
filings and applications and to obtain all licenses, permits, consents,
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approvals, authorizations, qualifications and orders of governmental authorities
and parties to contracts with the Company and its subsidiaries as are necessary
for the consummation of the transactions contemplated by the Merger Agreement
and to fulfill the conditions to the Offer and the Merger, (iii) cooperating in
all respects with each other in connection with obtaining antitrust clearance
and with any investigation or other inquiry, including any proceeding initiated
by a private party, in connection with the transactions pursuant to the Merger
Agreement and (iv) keeping the other party informed in all material respects of
any material communication received by such party from, or given by such party
to, the Federal Trade Commission, the Antitrust Division of the Department of
Justice or any other governmental authority and of any material communication
received or given in connection with any proceeding by a private party, in each
case regarding required by the terms of the Merger Agreement to proffer or agree
(i) to sell or hold separate or agree to sell, divert or discontinue or to limit
any assets, businesses or interest in any assets or businesses of Parent, the
Company or any of their respective affiliates (or to consent to any sale or
agreement to sell or discontinuance or limitation by Parent or the Company, as
the case may be, of any of its assets or business) or (ii) agree to any
conditions relating to, or changes or restrictions in, the operations of any
such asset or business which, in either case, is reasonably likely to materially
and adversely impact the economic or business benefits to such party of the
transactions contemplated by the Merger Agreement.
Conduct of Business Pending the Merger. The Company has agreed that,
during the period from the date of the Merger Agreement until the Effective
Time, the businesses of it and its subsidiaries will be conducted, in all
material respects, in the ordinary course and in a manner consistent with past
practice and, in all material respects, in compliance with applicable laws. The
Company will also use its best efforts during such period to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of its present officers, employees
and consultants, and to preserve, in all material respects, its relationships
with customers, suppliers, advertisers, distributors and other persons with
which the Company or any of its subsidiaries has significant business relations.
The Company and its subsidiaries will also refrain from taking various
actions without Parent's consent pending consummation of the Merger. These
limitations cover, among other things, making capital expenditures beyond
specified limits, incurring debt beyond specified limits, making changes in
governing documents, making changes in its capital stock, declaring or paying
any dividend or other distribution, engaging in any material corporate
transaction, including acquisitions and dispositions, increasing or granting any
severance or termination pay (except to the extent required, subject to certain
limits, under existing policies or agreements), increasing the compensation
payable to its directors, officers and employees (except to the extent required
under existing plans or agreements), entering into or modifying contracts
(including leases and collective bargaining agreements) beyond specified limits,
changing tax or accounting policies, making any material tax election, paying or
discharging any claims, liabilities or obligations, settling any litigation
beyond specified limits, adopting a plan of complete or partial dissolution and
entering into transactions with affiliates.
Employee Benefits Matters. Purchaser has agreed that during the period
commencing on the consummation of the Offer and continuing until December 31,
1999, Parent will cause the Company and the Surviving Corporation to continue to
provide to employees of the Company and its subsidiaries (excluding employees
covered by collective bargaining agreements) as a whole, medical, health,
dental, life insurance, long-term disability, severance, pension, Section
401(k), retirement or savings plans, policies or arrangements (collectively,
"Employee Benefits") which, in the aggregate, are no less favorable to such
employees than the Employee Benefits provided to such employees as of the date
of the Merger Agreement. The Company and the Surviving Corporation shall pay
promptly or provide when due all compensation and benefits required to be paid
pursuant to the terms of any benefit arrangements, multi-employer plans, pension
plans and welfare plans (collectively, "Employee Plans") or any individual
agreement with any employee, former employee, director or former director in
effect and disclosed to Parent as of the date of the Merger Agreement. The
Merger Agreement provides that for all Employee Benefits (including Employee
Plans and programs of Parent and its affiliates after the Effective Time), all
service with the Company or any of its Subsidiaries prior to the Effective Time
of employees (excluding employees covered by collective bargaining agreements)
shall betreated as service with Parent and its affiliates for eligibility and
vesting purposes and for benefit accruals for purposes of severance and vacation
pay to the same extent that such service is taken into account by the
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<PAGE> 10
Company and its subsidiaries as of the date of the Merger Agreement, except to
the extent such treatment will result in duplication of benefits. From and after
the Effective Time, Parent will, and will cause the Surviving Corporation to,
(i) cause any pre-existing condition or limitation and any eligibility waiting
periods (to the extent such conditions, limitations or waiting periods did not
apply to the employees under the Employee Plans in existence as of the date of
the Merger Agreement) under any group health plans of Parent or any of its
subsidiaries to be waived with respect to employees and their eligible
dependents and (ii) give each employee credit for the plan year in which the
Effective Time occurs toward applicable deductions and annual out-of-pocket
limits for expenses incurred prior to the Effective Time (or such later date on
which participation commences) during the applicable plan year. Nothing in the
Merger Agreement shall require the continued employment of any person or prevent
the Company or any of its subsidiaries and/or the Surviving Corporation from
taking any action or refraining from taking any action which the Company or any
of its Subsidiaries could take or refrain from taking prior to or after the
Effective Time, including, without limitation, any action the Company or any of
its subsidiaries or the Surviving Corporation could take to terminate any plan
under its terms as in effect as of the date of the Merger Agreement.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including
representations and warranties by the Company concerning the Company's
capitalization, required filings and consents, the Board of Directors' approval
of the Merger Agreement and the transactions contemplated thereby (including
approvals so as to render inapplicable thereto the limitation on business
combinations contained in Section 203 of the DGCL), the required stockholder
vote to approve the Merger Agreement, the receipt of an opinion as to the
fairness, from a financial point of view, to the stockholders of the Company
(other than those holders of Shares that are affiliates of the Company) of the
consideration to be received by the stockholders of the Company pursuant to the
Merger Agreement, Commission filings and financial statements, absence of
certain changes or events, compliance with law, absence of litigation, employee
benefit plans, environmental matters, tax matters, real estate matters,
contracts, labor relations, intellectual property, affiliated transactions, the
absence of other agreements to sell the Company and brokers. Some of the
representations are qualified by a "Material Adverse Effect" clause. "Material
Adverse Effect" means any material adverse change in, or effect on, the
business, operations, assets, results of operations or condition (financial or
otherwise) of the Company and its subsidiaries taken as a whole or any change
which materially impairs or materially delays the ability of the Company to
consummate the transactions contemplated by the Merger Agreement.
Other Agreements.
Acceleration of Outstanding Indebtedness. Parent has agreed that if, after
the consummation of the Offer, any obligation of the Company or any of its
subsidiaries for borrowed money outstanding is accelerated or the Company or any
such subsidiary is otherwise required to repurchase, repay or prepay any such
obligation, Parent will, within the time period specified in the contract
governing such obligation, loan to the Company an amount equal to the amount
which the Company or any such subsidiary is required to so repurchase, repay or
prepay (including any related prepayment premiums or penalties).
Treatment of Management Agreement. Parent has agreed that immediately
following the earlier of the consummation of the Offer and the Effective Time,
it will cause (i) the Management Agreement dated as of November 1, 1996, between
Yucaipa, the Company and Dominick's Finer Foods, Inc. (the "Management
Agreement") to be terminated and (ii) the Company to make a termination payment
to Yucaipa pursuant to Section 8.3 of the Management Agreement.
Conditions of the Merger. Under the Merger Agreement, the respective
obligations of Parent and Purchaser, on the one hand, and the Company, on the
other hand, to consummate the Merger are subject to the fulfillment of the
following conditions: (a) the Merger Agreement shall have been approved by the
affirmative vote of the holders of a majority of the outstanding Voting Common
Stock, unless Purchaser shall have acquired 90% or more of the outstanding
shares of each class of the capital stock of the Company; (b) no statute, rule,
regulation, executive order, decree, ruling, injunction or other order (whether
temporary, preliminary or permanent) shall have been enacted, entered,
promulgated or enforced by any court or governmental authority of competent
jurisdiction which prohibits, restrains, enjoins or restricts the consum-
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<PAGE> 11
mation of the Merger; provided, however, that the parties will use their
reasonable best efforts to cause any such decree, ruling, injunction or other
order to be vacated or lifted; (c) any waiting period applicable to the Offer
and the Merger under the HSR Act shall have terminated or expired; and (d)
Purchaser shall have (i) commenced the Offer and (ii) purchased, pursuant to the
terms and conditions of the Offer, all shares of Common Stock duly tendered and
not withdrawn, except that neither Parent nor Purchaser shall be entitled to
rely on the condition in clause (ii) if either of them shall have failed to
purchase Shares pursuant to the Offer in breach of their obligations under the
Merger Agreement.
Termination Events. The Merger Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval thereof by the stockholders of the Company):
(a) by mutual written consent of Parent and the Company as duly
authorized by their respective Boards of Directors;
(b) by the Company or Parent, respectively, if Parent or Purchaser, on
the one hand, or the Company, on the other hand, breaches any of their
respective representations, warranties, covenants or agreements contained
in the Merger Agreement (without regard to any materiality or Material
Adverse Effect qualifier) which is reasonably likely to materially
adversely affect Parent's or Purchaser's ability to consummate the Offer or
the Merger, on the one hand, or to have a Material Adverse Effect on the
Company, on the other hand, and, with respect any such breach that is
reasonably capable of being remedied, the breach is not remedied within ten
business days after the non-breaching party has furnished the breaching
party with written notice of such breach;
(c) by Parent or the Company:
(i) if the Effective Time shall not have occurred on or before
April 15, 1999 (provided that the right to terminate the Merger
Agreement pursuant to this clause (i) shall not be available to any
party whose failure to fulfill any obligation under the Merger Agreement
has been the cause of, or resulted in, the failure of the Effective Time
to occur on or before such date);
(ii) if there shall be any statute, law, rule or regulation that
makes consummation of the Offer or the Merger illegal or prohibited or
if any court of competent jurisdiction or other governmental authority
shall have issued an order, judgment, decree or ruling, or taken any
other action restraining, enjoining or otherwise prohibiting the Offer
or the Merger or prohibiting Parent from acquiring or holding or
exercising rights of ownership of the Shares and such order, judgment,
decree, ruling or other action shall have become final and
non-appealable; or
(iii) if the Offer terminates or expires on account of the failure
of any condition specified below under "Certain Conditions to the Offer"
without Purchaser having purchased any Shares thereunder (provided that
the right to terminate the Merger Agreement pursuant to this clause
(iii) shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted
in, the failure of any such condition);
(d) by Parent, prior to the acceptance for payment of the Minimum
Shares pursuant to the Offer, if (i) the Board of Directors withdraws,
amends or modifies its approval or recommendation of the Merger Agreement
and the transactions contemplated thereby (or publicly announces its
intention to do so) in a manner adverse to Parent or (ii) the Company
approves, recommends or enters into an agreement with respect to, or
consummates, an Alternative Transaction; or
(e) by the Company, prior to the acceptance for payment of the Minimum
Shares pursuant to the Offer, if the Board of Directors takes any Permitted
Action as described above under "Stockholders Meeting"; provided that such
termination will not be effective until the Company has made payment of the
Termination Fee (as defined below).
In the event of termination of the Merger Agreement and abandonment or
rejection of the Offer as described above, no party hereto (or any of its
directors, officers, employees, advisors or other representatives) will have any
liability or further obligation to any other party to the Merger Agreement,
except as provided
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under "Termination Fees and Expenses" below, and except that nothing herein will
relieve any party from liability for any willful breach of the Merger Agreement.
Termination Fee and Expenses. The Merger Agreement provides that if it is
terminated by Parent pursuant to clause (d) under "Termination Events" or by the
Company pursuant to clause (e) under "Termination Events", the Company will pay
to Parent $36.0 million (the "Termination Fee") plus reasonable documented
out-of-pocket expenses of Parent relating to the transactions contemplated by
the Merger Agreement ("Expenses"), not to exceed $5.0 million.
The Merger Agreement further provides that the Company will pay to Parent
an amount equal to the Termination Fee plus Expenses if:
(i) an Alternative Transaction is commenced, publicly disclosed,
publicly proposed or otherwise communicated to the Company prior to the
acceptance for payment of the Minimum Shares pursuant to the Offer and
either (A) Parent or the Company terminates this Agreement pursuant to
clause (c)(i) under "Termination Events" or (B) the Company terminates this
Agreement pursuant to clause (c)(iii) under "Termination Events" or (C)
Parent terminates the Merger Agreement pursuant to clause (b) under
"Termination Events"; and
(ii) thereafter, within 12 months of the date of termination, the
Company (A) enters into a definitive agreement with respect to, or
consummates, the Alternative Transaction described in clause (i) above or
(B) consummates a Superior Proposal (whether or not such Superior Proposal
was commenced, publicly disclosed, publicly proposed or otherwise
communicated to the Company prior to such termination).
The Merger Agreement also provides that the Surviving Corporation will pay
all charges and expenses, including those of the paying agent, in connection
with the transactions with respect to the Merger contemplated by Article III of
the Merger Agreement.
Certain Conditions of the Offer. Notwithstanding any other provisions of
the Offer, and in addition to the Minimum Condition, Purchaser shall not be
obligated to accept for payment any Shares until expiration of all applicable
waiting periods under the HSR Act, and Purchaser shall not be required to accept
for payment, purchase or pay for, and may delay the acceptance for payment of or
payment for, any Shares tendered in the Offer, or if the Minimum Shares shall
not have been validly tendered pursuant to the Offer and not withdrawn, may
terminate or amend the Offer, subject to the terms and conditions of the Merger
Agreement and Purchaser's obligation to extend the Offer pursuant to the terms
of the Merger Agreement if, prior to the time of acceptance for payment of any
such Shares (whether or not any other Shares have theretofore been accepted for
payment or paid for pursuant to the Offer), any of the following shall occur and
remain in effect:
(a) a United States or state governmental authority or other agency or
commission or United States or state court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order which is in effect and has the effect
of making the acquisition of Shares by Purchaser illegal or prohibits or
imposes material limitations on the ability of Purchaser to acquire Shares
or otherwise prohibiting (directly or indirectly) the consummation of the
transactions contemplated by the Merger Agreement or prohibits or imposes
material limitations on the ability of Parent to own or operate all or a
material portion of the Company's and its subsidiaries' business or assets,
taken as a whole, subject to Parent's and Purchaser's obligations pursuant
to the Merger Agreement and the Parent's agreement not to terminate the
Offer as long as any such injunction or order has not become final and
non-appealable;
(b) either (i) any of the representations or warranties of the Company
in the Merger Agreement (without giving effect to any materiality or
Material Adverse Effect qualifier therein) shall not be true and correct
which inaccuracy, singly or in the aggregate, would have or be reasonably
likely to have a Material Adverse Effect and which are not reasonably
capable of being cured by the Company or have not been cured within 10
business days after the giving of written notice to the Company, in each
case as if such representations or warranties were made as of such time
(unless a representation speaks as of an earlier date, in which case it
shall be deemed to have been made as of such earlier date); or (ii) the
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<PAGE> 13
Company shall have failed to perform any obligation or comply with any
agreement or covenant of the Company to be performed or complied with by it
under the Merger Agreement, which failure, singly or in the aggregate,
would have or be reasonably likely to have a Material Adverse Effect and is
not reasonably capable of being cured by the Company or has not been cured
within 10 business days after the giving of written notice to the Company;
and an officer of the Company shall not have provided a certificate to the
effect that the conditions set forth in clauses (i) and (ii) have not
occurred on the date Shares are to be accepted for payment pursuant to the
Offer;
(c) (i) the Board of Directors (A) shall have amended, modified or
withdrawn in a manner adverse to the Parent its approval or recommendation
of the Merger Agreement, the Offer, the Merger or any of the transactions
contemplated thereby or (B) shall have endorsed, approved or recommended
any Alternative Transaction or (ii) the Company shall have entered into any
agreement with respect to any Alternative Transaction;
(d) any person or group (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent or Purchaser or any of their respective
subsidiaries or affiliates, shall have become the beneficial owner (as
defined in Rule 13d-3 promulgated under the Exchange Act), of more than 25%
of the outstanding Shares (either on a primary or a fully diluted basis,
without giving effect to the Shares issuable upon the exercise of the
Yucaipa Warrant); provided, however, that this provision shall not apply to
any person or group that beneficially owns Shares on the date hereof so
long as such person or group does not further increase its beneficial
ownership beyond the number of Shares such person or group beneficially
owns on the date of the Merger Agreement;
(e) the Merger Agreement shall have been terminated by the Company or
Parent pursuant to its terms;
(f) there shall have occurred and be continuing (i) any general
suspension of, or limitation on prices for, trading in securities on the
NYSE (excluding suspensions or limitations (x) resulting solely from
physical damage or interference with such exchanges not related to market
conditions or (y) triggered on the NYSE by price fluctuations on a trading
day), (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, (iii) any limitation by
any United States governmental authority on the extension of credit
generally by banks or other financial institutions; (iv) a commencement of
war or material armed hostilities or other national calamity directly
involving the United States which could reasonably be expected to
materially adversely affect the consummation of the Offer or (v) in the
case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof; or
(g) there shall have occurred and be continuing any change in the
Company's business, operations, condition (financial or otherwise), results
of operations, assets or liabilities, except for changes contemplated by
the Merger Agreement or changes which are not reasonably likely to have a
Material Adverse Effect;
which, in the reasonable judgment of Parent and Purchaser, in any such case and
regardless of the circumstances (including any action or inaction by or giving
rise to any such conditions) makes it inadvisable to proceed with the Offer
and/or with such acceptance for payment of or payment for Shares.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent and Purchaser regardless of the circumstances
giving rise to such condition or, except for the Minimum Condition, may be
waived by Parent and Purchaser in whole or in part at any time and from time to
time. The failure by Parent or Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and circumstances shall not be
deemed a waiver with respect to any other facts and circumstances, and each such
right shall be an ongoing right that may be asserted at any time and from time
to time.
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STOCKHOLDERS AGREEMENT
In connection with the transactions contemplated by the Merger Agreement,
Parent, Purchaser and certain stockholders of the Company owning approximately
41% of the issued and outstanding Shares (the "Principal Stockholders") entered
into the Stockholders Agreement. The following summary is qualified in its
entirety by reference to the complete text of the Stockholders Agreement which
is filed as Exhibit 3 hereto and incorporated by reference herein.
The Stockholders Agreement provides that during the term of the
Stockholders Agreement the Principal Stockholders will (i) tender their Shares
(including any Shares issued upon the exercise of any warrants or options, the
conversion of any convertible securities or otherwise, and in the case of
Yucaipa, the exercise of the Yucaipa Warrant, the "Subject Shares") pursuant to
the Offer and not to withdraw any Subject Shares so tendered, (ii) vote the
Subject Shares in favor of the adoption of the Merger Agreement and against any
action or agreement that would impede, interfere with, delay, postpone or
attempt to discourage the Merger or the Offer, (iii) not directly or indirectly
solicit, initiate, facilitate or encourage the making of any proposal for an
Alternative Transaction or the sale of any Subject Shares or, in the case of
Yucaipa, the Yucaipa Warrant and (iv) not sell, transfer, pledge, encumber,
assign or otherwise dispose of the Subject Shares or, in the case of Yucaipa,
the Yucaipa Warrant. Parent has agreed that on the Offer Consummation Date,
Purchaser or Parent will instruct the Depositary, as paying agent, to make
payment by wire transfer to each Principal Stockholder of an amount equal to the
product of the Offer Price and the number of Shares held by such Principal
Stockholder (the "Purchase Price") for such Principal Stockholder's Subject
Shares to an account designated by such Principal Stockholder.
In addition, pursuant to the Stockholders Agreement, each Principal
Stockholder has granted to Purchaser an irrevocable option (the "Option") to
purchase such Principal Stockholder's Subject Shares for the Purchase Price. The
Option may be exercised by Purchaser, as a whole and not in part, during the
period beginning upon the termination of the Merger Agreement in circumstances
where the Termination Fee is or may become payable as described under
"Termination Fee and Expenses" above (a "Triggering Event") and ending on the
date which is the 30th calendar day following the Triggering Event.
The Stockholders Agreement also provides that following the occurrence of a
Triggering Event, in the event that Yucaipa exercises the Yucaipa Warrant or
notifies Parent of its intention to exercise the Yucaipa Warrant, Parent and
Purchaser will have the irrevocable right (the "Warrant Option") to purchase
either the Shares issued upon the exercise of the Yucaipa Warrant (the "Warrant
Shares") or the Yucaipa Warrant, as the case may be, for a price equal to either
$49 per Share (with respect to a purchase of Shares) or a price per Share equal
to the difference between $49 and the exercise price of the Yucaipa Warrant
($20.732 as of the date hereof) (with respect to a purchase of the Yucaipa
Warrant). This right will be exercisable for a period of 30 calendar days
following receipt of notice from Yucaipa of its exercise or planned exercise of
the Yucaipa Warrant.
The Stockholders Agreement also provides that upon the earlier of the
purchase of the Minimum Shares in the Offer and the Effective Time, Parent or
Purchaser will purchase from Yucaipa the Yucaipa Warrant for an amount equal to
(i) the difference between the Offer Price ($49) and the per share exercise
price thereof ($20.732 as of the date hereof) multiplied by (ii) the number of
Shares underlying the Yucaipa Warrant (3,874,492 as of the date hereof).
The Stockholders Agreement prohibits Yucaipa from exercising the Yucaipa
Warrant without the prior written consent of Parent until the earlier to occur
of (i) the termination or expiration (without extension) of the Offer and (ii)
the termination of the Merger Agreement.
Parent has also agreed that, in the event the Option or the Warrant Option
is exercised, as promptly as practicable thereafter, Parent will propose to the
Company a merger, on terms and conditions substantially the same as those
provided for in the Merger Agreement, between itself or one of its wholly owned
subsidiaries and the Company pursuant to which the stockholders of the Company
will receive an amount of cash consideration per Share equal to the Offer Price.
In the event the Option is exercised and Parent or any of its affiliates
receives any consideration in connection with any Sale (as defined in the
Stockholders Agreement) of the Subject Shares during the period commencing upon
the date such Shares are acquired by the Parent or such affiliate and ending on
the first
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<PAGE> 15
anniversary of such date, Parent is required to pay to the Principal
Stockholders the excess (if any) of such consideration over the aggregate
purchase price paid for such Shares (less any taxes and other out-of-pocket
expenses in connection with such Sale).
Parent and Purchaser have agreed that, in connection with any exercise of
the Option and/or the Warrant Option, Purchaser will purchase, pursuant to "tag
along" rights of certain stockholders of the Company, all Shares required to be
purchased as a result of the sale by the Principal Stockholders of any of the
Subject Shares and/or the Warrant Shares at the same purchase price as such
Subject Shares and/or Warrant Shares.
WARRANT AMENDMENT
In connection with the transactions contemplated by the Merger Agreement,
the Company and Yucaipa entered into the Warrant Amendment which amended the
Class A Common Stock Purchase Warrant No. W-1 (the "Yucaipa Warrant") issued by
the Company to Yucaipa. See "Certain Relationships, Transactions and
Arrangements -- Yucaipa Warrant" in the Company's Information Statement attached
hereto as Annex A for a discussion of the Yucaipa Warrant and the purchase
thereof by Purchaser. A copy of the Yucapia Warrant is filed as Exhibit 4 hereto
and incorporated herein by reference. The following summary is qualified in its
entirety by reference to the complete text of the Warrant Amendment which is
filed as Exhibit 5 hereto and incorporated herein by reference.
The Warrant Amendment provides that the Yucaipa Warrant may be transferred
to Parent or any of its wholly-owned subsidiaries in connection with the
transactions contemplated by the Merger Agreement and the Stockholders Agreement
upon the first to occur of (i) the date on which the Offer is consummated or
(ii) the effective time of the Merger.
STOCKHOLDERS AGREEMENT AMENDMENT
In connection with the transactions contemplated by the Merger Agreement,
Yucaipa and certain stockholders of the Company entered into the Stockholders
Agreement Amendment which amended the Amended and Restated Stockholders
Agreement, dated as of November 1, 1996 (the "1996 Stockholders Agreement"), by
and among the Company, DFF Supermarkets, Inc., Yucaipa and the stockholders of
the Company listed on the signature pages thereto. See "Certain Relationships,
Transactions and Arrangements -- 1996 Stockholders Agreement" in the Company's
Information Statement attached hereto as Annex A for a discussion of the 1996
Stockholders Agreement. A copy of the 1996 Stockholders Agreement is filed as
Exhibit 6 hereto and incorporated herein by reference. The following summary is
qualified in its entirety by reference to the complete text of the Stockholders
Agreement Amendment which is filed as Exhibit 7 hereto and incorporated by
reference herein.
The Stockholders Agreement Amendment provides that the 1996 Stockholders
Agreement will be deemed to be amended so as to (a) not restrict, prevent,
prohibit or otherwise impede any party thereto from (i) tendering its shares in
the Offer or (ii) entering into the Stockholders Agreement or performing its
obligations thereunder and, for the avoidance of doubt, (b) provide that none of
the transactions contemplated by the foregoing shall constitute a Transfer (as
defined in the 1996 Stockholders Agreement) of any Shares (as defined in the
1996 Stockholders Agreement) or any pecuniary interest therein by any party
thereto. The Stockholders Agreement Amendment further provides that the
execution and delivery of the Stockholders Agreement by each party thereto, and
the performance of their respective obligations thereunder and the consummation
of the transactions contemplated thereby, will not conflict with any provision
of, or constitute a breach or default under, the 1996 Stockholders Agreement,
and that any such breach is thereby waived. In addition, the Stockholders
Agreement Amendment provides that except as otherwise provided in the 1996
Stockholders Agreement with respect to specific provisions, the 1996
Stockholders Agreement will terminate pursuant to Section 6.1 thereof upon the
consummation of the Offer.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation. The Board of Directors, at a special meeting held on
October 12, 1998, unanimously (i) determined that the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, are
advisable and fair to, and in the best interests of, the stockholders of the
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Company, (ii) approved the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, and the Stockholders Agreement and
(iii) recommended that the stockholders of the Company accept the Offer and
tender all of their Shares to Purchaser and approve the Merger Agreement and the
transactions contemplated thereby, including the Merger. A copy of the Company's
letter to stockholders, dated as of October 19, 1998, is filed hereto as Exhibit
11 and incorporated herein by reference.
(b) Background; Reasons for the Board of Directors' Conclusions. In recent
years, the food retailing industry has undergone increasing consolidation. The
reasons for this trend have included the economies of scale resulting from
improved vendor purchasing power and self-distribution, the capital requirements
to develop and maintain a modern store base and the benefits of geographic
diversification. During late 1997 and continuing through the first half of 1998,
the Company engaged in exploratory discussions with a number of other food
retailers about possible business combinations. One of these retailers was a
privately held company also operating in a single geographic region ("Company
A"). None of these discussions moved beyond preliminary stages. The Company's
operating performance during fiscal 1998 was affected by the decision made in
October 1997 to convert the Company's high volume, price impact Omni format
stores to the Dominick's Fresh Store format. The disruption caused by the
conversion of 15 of the former Omni stores to Dominick's Fresh Stores adversely
affected the Company's operating results in the first three quarters of fiscal
1998. During this time the Company began to experience increased promotional
activity by its principal competitor in response to such conversions. In
addition, over the past year, certain other supermarket operators had disclosed
plans to enter the greater Chicago marketplace. One of these operators
subsequently opened two stores in Northwest Indiana. Beginning in the early
summer of 1998, the Company received several direct and indirect solicitations
concerning its interest in discussing possible business combination
transactions. In early August 1998, American Stores Corporation, the parent of
the Company's principal competitor, announced that it would merge with
Albertsons, Inc. to create the largest supermarket company in the United States.
In light of these various considerations and the long-term competitive
implications for an independent publicly-held operator, the Company, in
consultation with members of the Board of Directors, decided to retain an
investment banker to explore its available strategic alternatives.
On August 17, 1998, Steven A. Burd, the President, Chief Executive Officer
and Chairman of Parent, made an unsolicited call to Ronald W. Burkle, the
Chairman of the Company and a principal of Yucaipa and The Yucaipa Companies LLC
("Yucaipa LLC"), and inquired whether the Company would be interested in
exploring a possible transaction. Mr. Burkle informed Mr. Burd that the Company
intended to retain an investment banker and said that Parent would have an
opportunity to make a proposal.
On August 19, 1998 the Company issued a press release announcing that it
had retained an investment banking firm to assist it in the evaluation of
various strategic alternatives, including acquisitions, mergers or other
business combinations or other transactions that would enhance shareholder
value. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") was chosen as
the Company's financial advisor.
Following the press release, DLJ contacted several parties to determine if
they would be interested in pursuing a transaction with the Company. Of the
potential strategic partners who initially spoke to either DLJ or Yucaipa LLC,
some subsequently concluded that they were not interested in pursuing a
transaction with the Company either at all or at the price levels that such
bidders anticipated would be required to satisfy the Board of Directors and
others were determined by DLJ and Yucaipa LLC to lack the financial capability
to make a competitive bid. The three remaining interested parties were Parent,
Company A and another multi-regional supermarket company ("Company B").
On August 21, 1998, Parent sent the Company a request for certain
preliminary financial and operational information concerning the Company.
Between August 24 and August 28, 1998, Parent and the Company (with assistance
from its representatives including Yucaipa LLC) negotiated the terms of a draft
confidentiality agreement. On August 28, 1998, the Company and Parent entered
into a confidentiality agreement.
Company B contacted the Company following the August 19th press release and
also requested certain non-public information regarding the Company and its
subsidiaries in connection with Company B's consideration of a possible
negotiated merger or acquisition transaction involving the Company. The Company
entered into a confidentiality agreement with Company B on August 26, 1998.
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<PAGE> 17
Following the execution of the confidentiality agreements, the Company and
DLJ supplied Parent and Company B with certain confidential information
regarding the Company and its business, operations, results of operations and
financial condition. Company B also visited a number of the Company's stores. In
addition, following their review of the Company's information, Parent and
Company B conducted extensive telephonic question and answer sessions with
representatives of Yucaipa LLC and/or the Company's senior management.
On August 26, 1998, Yucaipa LLC, on behalf of the Company, asked Parent and
Company B to provide preliminary indications of interest by September 4, 1998.
On September 4, 1998, Parent informed DLJ of Parent's preliminary
expression of interest in acquiring the Company at a purchase price ranging from
the high $40's to $50 per Share, subject to satisfactory completion of its due
diligence and negotiation of a satisfactory acquisition agreement.
Also on September 4, 1998, Company B requested additional time to respond
to the request for preliminary indications of interest. On September 8, 1998,
Company B indicated that, for various reasons, including concerns about the
potential for increasing competition in the Company's market, it did not believe
it would be able to offer a transaction with a value the Board of Directors
would find acceptable. As a result, Company B declined to present any formal
indication of interest and discontinued further discussions with the Company.
At a regularly scheduled Board of Directors meeting held on September 9,
1998, the Board of Directors reviewed the actions undertaken in connection with
the review of strategic alternatives. At the meeting the Board of Directors (i)
formally approved the terms of the retention of DLJ to act as financial advisor
in connection with a possible merger or other corporate transaction involving
the business of the Company, (ii) authorized the officers of the Company and DLJ
to continue to explore the Company's strategic alternatives and (iii) discussed
the need to provide appropriate assurances to the Company's senior management
and then approved the terms of the proposed management severance and bonus
agreements.
On September 17, 1998, the Company delivered a presentation to the senior
management of Parent in Chicago, Illinois. Following the presentation, members
of Parent's senior management met with Mr. Burkle, Robert A. Mariano, the
President and Chief Executive Officer of the Company, and certain other members
of Yucaipa LLC's and the Company's senior management to discuss the Company's
business, operations, results of operations and financial condition, and members
of Parent's senior management and of the Company's senior management visited
several of the Company's store locations. From September 17 through September
19, 1998, representatives of Parent conducted a due diligence investigation of
the Company in Chicago, Illinois.
On September 19, 1998, the Company entered into a confidentiality agreement
with Company A. On September 22, 1998, the Company delivered a presentation to
the senior management of Company A. Company A did not ask to review any further
information following the presentation.
On September 23, 1998, DLJ invited Parent and Company A to submit a written
offer to acquire all of the outstanding stock of the Company or to engage in
such other transaction as Parent and Company A, respectively, wished to propose.
In connection therewith, the Company furnished Parent and Company A with forms
of cash and stock merger agreements. The Company requested a response from
Parent and Company A by October 1, 1998.
On September 25 and 29, 1998, representatives of Parent conducted a further
due diligence investigation of the Company in Chicago, Illinois.
On October 1, 1998, a special meeting of the Board of Directors was held to
update the status of events and any proposals which were received. During the
course of the Board of Directors meeting, Parent sent the Company and DLJ a
proposal letter indicating Parent's willingness to pay at least $48 per Share in
cash to acquire all of the outstanding Shares, subject to the approval of
Parent's Board of Directors and the satisfactory review of certain additional
information about the Company. The Company and DLJ subsequently contacted Parent
to seek clarification of the offer to pay at least $48 per Share and to suggest
that the price be raised.
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<PAGE> 18
Company A, which had orally proposed a stock-for-stock combination with the
Company, did not submit any written proposal to DLJ or the Company prior to the
October 1, 1998 deadline.
Between October 1 and October 5, 1998, at the request of Parent,
representatives of the Company (including Yucaipa LLC) made available to Parent
certain additional financial, legal and operational information regarding the
Company. In addition, representatives of Parent and representatives of the
Company had telephonic discussions regarding the proposed price, the basis on
which Parent would be willing to submit a firm proposal to acquire the Company,
and the expected timing thereof.
On October 6, 1998, Parent sent the Company and DLJ a letter submitting a
firm proposal to acquire all of the outstanding Shares for a price of $49 per
Share. The letter was followed by proposed revisions to the draft Merger
Agreement, and a draft Stockholders Agreement providing for an agreement by the
Principal Stockholders to tender their shares in the Offer, to grant an option
to acquire their Shares at $49 per Share in cash under certain circumstances,
and certain other matters. Parent indicated that execution by such stockholders
of such an agreement would be a condition to the execution of a definitive
Merger Agreement.
On October 8, 1998 a special telephonic meeting of the Board of Directors
was convened. At that meeting the terms of Parent's proposal were described by
the Company's legal counsel. The Board of Directors inquired about various
aspects of the proposal and a discussion followed. DLJ then presented its
analysis of Parent's offer and certain alternative transactions, such as a
leveraged recapitalization and a potential strategic acquisition of other
supermarket retailers. Following the presentation and further discussion, the
Board of Directors directed DLJ and the Company to pursue discussions with
Parent. The Board of Directors, including the directors not affiliated with
Yucaipa, also approved the payment of a fee of $5,500,000 to Yucaipa LLC upon
consummation of the Offer as compensation for the services Yucaipa LLC had
provided, and would provide, to the Company in developing and consulting with
the Company concerning the various transaction proposals.
During the period from October 8 through October 13, 1998, representatives
of Parent and the Company (including Yucaipa LLC) discussed the terms of a
possible acquisition and negotiated the terms of the Merger Agreement, and
representatives of Parent and the Principal Stockholders negotiated the terms of
the Stockholders Agreement.
On October 11, 1998, the Board of Directors convened a special telephonic
meeting to receive an update on the status of the negotiations. At that meeting,
DLJ advised the Board of Directors that it was prepared to opine that the
consideration to be received by the stockholders of the Company (other than the
holders of Shares that are affiliates of the Company) pursuant to the Merger
Agreement was fair to such stockholders from a financial point of view. DLJ then
made a presentation to the Board of Directors concerning the basis for such an
opinion.
On October 12, 1998, the Board of Directors held a special telephonic
meeting and, following receipt of a final update on the negotiations and the
delivery of DLJ's written fairness opinion, unanimously approved the Merger
Agreement and the transactions contemplated therein, including the Offer and the
Merger, the Stockholders Agreement and the Warrant Amendment. The Merger
Agreement, the Stockholders Agreement, the Warrant Amendment and the
Stockholders Agreement Amendment were executed, and the Merger was publicly
announced, on the morning of October 13, 1998. On October 19, 1998, Purchaser
commenced the Offer.
Reasons for the Board of Directors' Conclusions. In reaching the
determination described in paragraph (a) above, the Board of Directors
considered a number of factors, including without limitation, the following:
(i) The financial condition, results of operations, business and
strategic objectives of the Company, as well as the risks involved in
achieving those objectives;
(ii) A review of the possible alternatives to the transactions
contemplated by the Merger Agreement, including the possibilities of
continuing to operate the Company as an independent entity, a strategic
acquisition, a sale or partial sale of the Company through a merger or by
other means, various financing alternatives involving a possible
recapitalization of the Company; and, in respect of each
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<PAGE> 19
alternative, the range of possible benefits to the Company's stockholders
of such alternative and the timing and the likelihood of actually
accomplishing such alternative;
(iii) An oral report from DLJ, financial advisor to the Company,
regarding the likelihood of other potential offers for the Company on terms
more favorable to the stockholders of the Company than the Offer and the
results of its efforts on behalf of the Company seeking indications of
interest in other possible alternatives;
(iv) The financial and valuation analyses presented to the Board of
Directors by DLJ, including market prices and financial data relating to
other companies engaged in businesses considered comparable to the Company
and the prices and premiums paid in recent selected acquisitions of
companies engaged in businesses considered comparable to those of the
Company;
(v) The relationship of the Offer Price to historical market prices of
the Voting Common Stock and to the Company's book value;
(vi) The written opinion of DLJ that, based on certain assumptions and
subject to certain limitations, the consideration to be received by the
stockholders of the Company (other than the holders of Shares that are
affiliates of the Company) pursuant to the Merger Agreement is fair to such
stockholders from a financial point of view. A copy of the DLJ opinion is
filed as Exhibit 12 hereto and incorporated herein by reference. The DLJ
opinion should be read in its entirety for the assumptions made, the
procedures followed, the matters considered and the limits of the review
made by DLJ in connection with such opinion. The DLJ opinion was prepared
for the Board of Directors and does not constitute a recommendation to any
stockholder as to whether to tender in the Offer. DLJ was not retained as
an advisor or agent to the Company's stockholders;
(vii) The terms and conditions of the Merger Agreement, the
Stockholders Agreement, the Warrant Amendment and the Stockholders
Agreement Amendment;
(viii) The likelihood that the Merger would be consummated, including
the experience, reputation and financial condition of Parent and the risks
to the Company if the acquisition were not consummated;
(ix) The fact that the holders of approximately 41% of the Shares were
prepared to endorse the Merger Agreement and the transactions contemplated
thereby;
(x) The fact that the Offer and the Merger are not subject to a
condition that Parent have available financing; and
(xi) The availability of dissenters' rights in the Merger under
applicable law.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer and the Merger, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its respective
determinations.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company engaged DLJ, pursuant to the DLJ Engagement Letter, to assist
the Board of Directors in evaluating strategic alternatives, financing sources
and other potential transactions. For such services, the Company agreed to pay
DLJ (i) a fee of $1.5 million which was earned on October 12, 1998 when DLJ
notified the Board of Directors that it was prepared to deliver its opinion that
the consideration to be received by the stockholders of the Company (other than
holders of Shares that are affiliates of the Company) pursuant to the Merger
Agreement was fair to such stockholders from a financial point of view and (ii)
a fee of $5.0 million, less any amounts paid or payable pursuant to clause (i),
in each case payable upon consummation of the Offer. In addition to the
foregoing compensation, the Company has agreed to reimburse DLJ for its
reasonable out-of-pocket expenses and to indemnify DLJ against certain
liabilities arising out of or in connection with its engagement, including
liabilities under federal securities laws.
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<PAGE> 20
Neither the Company nor any person acting on its behalf has employed,
retained or compensated any other person to make solicitations or
recommendations to stockholders on its behalf concerning the Offer or the
Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Except as set forth below, no transactions in the Shares have been
effected during the past 60 days by the Company or, to the Company's knowledge,
by any executive officer, director, affiliate or subsidiary of the Company. On
October 1, 1998, the Company issued 89, 89 and 64 Shares, respectively, to Grace
Barry, Evan Bayh and Antony P. Ressler pursuant to the Company's Directors
Deferred Compensation and Restricted Stock Plan. On October 12, 1998, the
Company issued 45 Shares to John W. Boyle pursuant to the Company's 1997
Employee Stock Purchase Plan.
(b) To the best of the Company's knowledge, all of its executive officers,
directors, affiliates or subsidiaries currently intend to tender all Shares
which are held of record or beneficially owned by such persons pursuant to the
Offer, other than Shares, if any, held by such persons which, if tendered, could
cause such person to incur liability under the provisions of Section 16(b) of
the Securities Exchange Act of 1934, as amended.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Prior to entering into the Merger Agreement, the Company had
preliminary contacts with other entities that had expressed interest in the
Company. Upon execution of the Merger Agreement, the Company ceased contacts
with such other entities. No discussions are underway or are being undertaken by
the Company in response to the Offer that relate to or would result in (1) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any of its subsidiaries; (2) a purchase, sale or transfer of a
material amount of assets by the Company or any of its subsidiaries; (3) a
tender offer for or other acquisition of securities by or of the Company; or (4)
any material change in the present capitalization or dividend policy of the
Company.
(b) There is no transaction, board resolution, agreement in principle or
signed contract in response to the Offer other than as disclosed in Item 3(b)
and Item 4(a) of this statement, that relates to or would result in (1) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any of its subsidiaries; (2) a purchase, sale or transfer of a
material amount of assets by the Company or any of its subsidiaries; (3) a
tender offer for or other acquisition of securities by or of the Company; or (4)
any material change in the present capitalization of dividend policy of the
Company.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The Information Statement attached as Annex A hereto is being furnished in
connection with the possible designation by Purchaser, pursuant to the Merger
Agreement, of certain persons to be appointed to the Company's Board of
Directors other than at a meeting of the Company's stockholders.
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<PAGE> 21
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
Exhibit 1. Agreement and Plan of Merger, dated as of October 13, 1998,
by and among Safeway Inc., Windy City Acquisition Corp. and
Dominick's Supermarkets, Inc.
Exhibit 2. Press Release issued by the Company and Parent on October
13, 1998. (Incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated October 13,
1998).
Exhibit 3. Stockholders Agreement, dated as of October 13, 1998, by and
among Safeway Inc., Windy City Acquisition Corp., Yucaipa
Blackhawk Partners, L.P., Yucaipa Chicago Partners, L.P.,
Yucaipa Dominick's Partners, L.P., Apollo Investment Fund,
L.P., Apollo Investment Fund III, L.P., Apollo Overseas
Partners III, L.P. and Apollo (UK) Partners III, L.P.
Exhibit 4. Class A Common Stock Purchase Warrant dated as of March 22,
1995 issued by Dominick's Supermarkets, Inc. to The Yucaipa
Companies, as supplemented. (Incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K,
Number 1-12353).
Exhibit 5. Amendment to Class A Common Stock Purchase Warrant, dated as
of October 13, 1998, by and between Dominick's Supermarkets,
Inc. and The Yucaipa Companies.
Exhibit 6. Amended and Restated Stockholders Agreement, dated as of
November 1, 1996, by and among Dominick's Supermarkets,
Inc., DFF Supermarkets, Inc., Dominick's Finer Foods, Inc.
and the stockholders of the Company named therein.
(Incorporated by reference to Exhibit 10.8 to the Company's
1996 Annual Report on Form 10-K, Number 1-12353).
Exhibit 7. Amendment to Amended and Restated Stockholders Agreement,
dated as of October 13, 1998, by and among The Yucaipa
Companies, Yucaipa Blackhawk Partners, L.P., Yucaipa Chicago
Partners, L.P., Yucaipa Dominick's Partners, L.P., Apollo
Investment Fund, L.P., Apollo Investment Fund III, L.P.,
Apollo Overseas Partners III, L.P. and Apollo (UK) Partners
III, L.P.
Exhibit 8. Management Agreement, dated as of November 1, 1996, by and
among Dominick's Supermarkets, Inc., Dominick's Finer Foods,
Inc. and The Yucaipa Companies. (Incorporated by reference
to Exhibit 10.7 to the Company's 1996 Annual Report on Form
10-K, Number 1-12353).
Exhibit 9. Form of Employment Agreement.
Exhibit 10. Form of Special Bonus Agreement.
Exhibit 11. Letter to Stockholders dated as of October 19, 1998.*
Exhibit 12. Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation dated October 12, 1998.*
</TABLE>
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* Included in materials being distributed to stockholders of the Company.
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<PAGE> 22
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: October 19, 1998
DOMINICK'S SUPERMARKETS, INC.
By: /s/ DEBORAH C. PASKIN
------------------------------------
Deborah C. Paskin
Group Vice President, Legal
and General Counsel
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<PAGE> 23
ANNEX A
[DOMINICK'S LOGO]
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about October 19, 1998, as
part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9"), to the holders of record at the close of business on
October 15, 1998 of the Shares (the "Record Date"). Capitalized terms used and
not otherwise defined herein shall have the meaning ascribed to them in the
Schedule 14D-9. You are receiving this Information Statement in connection with
the possible election of persons designated by Purchaser to a majority of the
seats on the Board of Directors of the Company (the "Board of Directors"). The
Merger Agreement requires the Company, after the purchase by Purchaser pursuant
to the Offer of such number of shares representing not less than a majority of
the outstanding shares of Common Stock on a fully diluted basis (without giving
effect to the shares issuable upon exercise of the Yucaipa Warrant), to cause
Purchaser's designees (the "Designees") to be elected to a majority of the seats
on the Board of Directors as set forth below. This Information Statement is
required by Section 14(f) of the Securities Exchange Act of 1934 (the "Exchange
Act") and Rule 14f-1 thereunder. You are urged to read this Information
Statement carefully. However, you are not required to take any action.
Pursuant to the Merger Agreement, on October 19, 1998, Parent commenced the
Offer. The Offer is scheduled to expire on November 16, 1998.
The information contained in this Information Statement (including
information listed in Schedule I attached hereto) concerning Parent, Purchaser
and the Designees has been furnished to the Company by Parent and Purchaser, and
the Company assumes no responsibility for the accuracy or completeness of such
information.
The Common Stock, par value $.01 per share (the "Voting Common Stock"), is
the only class of voting securities of the Company outstanding. Each share of
Voting Common Stock has one vote. As of the Record Date, there were 18,679,737
shares of Common Stock and 2,861,354 shares of Non-Voting Common Stock, par
value $.01 per share (the "Non-Voting Common Stock" and, together with the
Voting Common Stock, the "Common Stock") of the Company outstanding.
BOARD OF DIRECTORS
GENERAL
The Board of Directors is currently comprised of eleven members divided
into three classes serving staggered terms of three years each. Pursuant to the
Company's Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and Amended and Restated Bylaws (the "Bylaws"), the term of
office of one class of directors expires each year and at each annual meeting
the successors of the class whose term is expiring in that year are elected to
hold office for a term of three years and until their successors are elected and
qualified. The current terms of three directors expire in 1999, and the current
terms of four directors expire in each of 2000 and 2001.
DESIGNEES
Pursuant to the Merger Agreement, promptly upon the acceptance for payment
of, and payment by Purchaser in accordance with the Offer for, Shares
representing not less than a majority of the outstanding Shares on a fully
diluted basis (without giving effect to the Shares issuable upon exercise of the
Yucaipa Warrant) pursuant to the Offer, Purchaser is entitled to designate such
number of members of the Board of
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<PAGE> 24
Directors, rounded up to the next whole number, equal to that number of
directors which equals the product of the total number of directors on the Board
of Directors multiplied by the percentage that such number of Shares owned in
the aggregate by Purchaser, upon such acceptance for payment, bears to the
number of Shares outstanding; provided, however, that until the Effective Time,
there shall be at least one director who is a director as of the date hereof.
Upon the written request of Purchaser, the Company shall, on the date of such
request (i) either increase the size of the Board of Directors or secure the
resignations of such number of its incumbent directors as is necessary to enable
the Designees to be so elected to the Board of Directors and (ii) cause the
Designees to be so elected.
Purchaser has informed the Company that it will choose the Designees from
the directors and executive officers of Parent listed in Schedule I attached
hereto. Purchaser has informed the Company that each of the directors and
executive officers listed in Schedule I has consented to act as a director, if
so designated. The business address of Parent and Purchaser is 5918 Stoneridge
Mall Road, Pleasanton, California 94588.
It is expected that the Designees may assume office at any time following
the purchase by Purchaser pursuant to the Offer of such number of Shares
representing not less than a majority of the outstanding shares of Common Stock
on a fully diluted basis (without giving effect to the Shares issuable upon
exercise of the Yucaipa Warrant), which purchase cannot be earlier than November
16, 1998, and that upon assuming office, the Designees will thereafter
constitute at least a majority of the Board of Directors.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and principal occupation for the past five years and
directorships of the Company's directors and executive officers are as follows:
Directors
Ronald W. Burkle, age 45, has been Chairman of the Board of the Company
since March 1995 and served as Chief Executive Officer from March 1995 to
January 1996. Mr. Burkle co-founded Yucaipa, a private investment group
specializing in the acquisition and management of supermarket chains, in 1986.
Mr. Burkle served as director and Chairman of the Board of Food 4 Less Holdings,
Inc. ("Food 4 Less"), whose principal operating subsidiary is Ralphs Grocery
Company ("Ralphs"), and Chairman of the Board and Chief Executive Officer of its
predecessor, Food 4 Less Supermarkets, Inc., from 1987 until its merger with
Fred Meyer, Inc. ("Fred Meyer") in March 1998. Mr. Burkle also served as
Chairman of the Board of Smitty's Supermarkets, Inc. ("Smitty's") from June 1994
until its merger in May 1996 with Smith's Food & Drug Centers, Inc. ("Smith's").
He served as Chief Executive Officer of Smith's from May 1996 until its merger
with Fred Meyer in September 1997. Mr. Burkle has served as Chairman of the
Board of Fred Meyer since September 1997. Mr. Burkle also serves as a director
of Kaufman and Broad Home Corporation. Before founding Yucaipa, Mr. Burkle held
a number of supermarket executive positions and was a private investor in
Southern California.
Grace Barry, age 57, has served as a director of the Company since January
1997. Ms. Barry has been the Executive Director of The Economic Club of Chicago
since July 1986. From 1991 through 1995, Ms. Barry was the President and owner
of Cafe Galleria, Inc., a retail company in the food and gift business. In 1994,
Ms. Barry co-founded Grabur International, Inc., a retail gift and concession
business. From 1989 through 1996, Ms. Barry served as the Cable Commissioner for
the City of Chicago. Ms. Barry also serves on the boards of The Chicago Network,
The Joffrey Ballet of Chicago, Institute for Urban Life, The Golden Apple
Foundation, Toronto Sister Cities Committee, Old St. Patrick's Church and The
Arts Matter.
Evan Bayh, age 43, has served as a director of the Company since January
1997. Governor Bayh is a member of the law firm of Baker & Daniels. Governor
Bayh was Governor of the State of Indiana from January 1989 to January 1997. He
has served as chairman of the National Education Goals Panel and the Education
Commission of the States and as a member of the National Assessment in Education
Panel. Governor Bayh was a member of the executive committee of the National
Governors' Association and is a past chairman of the Democratic Governors'
Association.
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<PAGE> 25
Peter P. Copses, age 40, has served as a director of the Company since
March 1995. Mr. Copses served as a director of Food 4 Less and Ralphs from 1995
until Food 4 Less' merger with Fred Meyer in March 1998. Since 1990, Mr. Copses
has been a limited partner of Apollo Advisors, L.P. ("Apollo") which, together
with an affiliate, serves as managing general partner of the Apollo Investment
Funds, and of Lion Advisors, L.P. ("Lion") which serves as financial advisor to
certain institutional investors with respect to securities investments. Mr.
Copses is also a director of Family Restaurants Inc., Mariner Post Acute
Network, Inc., Renters Choice, Inc. and Zale Corporation.
Linda McLoughlin Figel, age 35, has been a director of the Company since
August 1996. She joined Yucaipa in 1989 and became a general partner in 1991.
Prior to 1989, Ms. Figel was employed by Bankers Trust Company in its Structured
Finance Group.
Patrick L. Graham, age 49, has served as a director of the Company since
March 1995. Mr. Graham served as a director of Food 4 Less and Ralphs from 1995
until Food 4 Less' merger with Fred Meyer in March 1998 and served as Vice
President and a director of Smitty's from June 1994 until its merger with
Smith's in May 1996. Mr. Graham joined Yucaipa as a general partner in 1993.
Prior to that time he was a Managing Director in the corporate finance
department of Libra Investments, Inc. from 1992 to 1993 and Paine Webber Inc.
from 1990 to 1992.
David B. Kaplan, age 31, has served as a director of the Company since
March 1995. Since 1991, Mr. Kaplan has been associated with and a limited
partner of Apollo and Lion. Prior to 1991, Mr. Kaplan was a member of the
corporate finance department of Donaldson, Lufkin & Jenrette Securities
Corporation. Mr. Kaplan also serves as a director of Allied Waste Industries,
Inc., Family Restaurants, Inc. and WMC Finance Co., Inc.
Darren W. Karst, age 38, joined the Company in March 1995 as Senior Vice
President, Chief Financial Officer, Secretary and a director and was appointed
Executive Vice President, Finance and Administration in March 1996. Mr. Karst
resigned as an officer of the Company in August 1998. Mr. Karst joined Yucaipa
in 1988 and has been a general partner since 1991. Prior to 1988, he was a
manager at Ernst & Young LLP.
Robert A. Mariano, age 48, has been the President and a director of the
Company since March 1995 and Chief Executive Officer since January 1996. Mr.
Mariano also served as Chief Operating Officer from March 1995 until January
1996. Mr. Mariano joined Dominick's in 1972 and was Senior Vice President of
Marketing and Merchandising from 1994 to 1995, Senior Vice President of
Perishable Merchandising from 1989 to 1994, Senior Vice President of Operations
from 1987 to 1989, and held a number of managerial positions prior to 1987.
Antony P. Ressler, age 38, has served as a director of the Company since
March 1995. In 1990, Mr. Ressler was one of the founding principals of Apollo,
Lion and of Ares Management, L.P. which serves as managing general partner of
Ares Leveraged Investment Funds I & II, private securities investment funds.
Prior to 1990, Mr. Ressler was a Senior Vice President in the high yield bond
department of Drexel Burnham Lambert Incorporated. Mr. Ressler is also a
director of Allied Waste Industries, Inc., Communications Corp. of America,
Family Restaurants, Inc., United International Holdings and Vail Resorts, Inc.
Ira L. Tochner, age 37, has served as a director of the Company since
January 1997. Mr. Tochner joined Yucaipa in 1990 and became a general partner in
1995. Prior to 1990, Mr. Tochner was employed by Arthur Andersen & Co. as a
manager.
All of the directors named above, other than Ms. Barry and Governor Bayh,
also serve on the Board of Directors of Dominick's Finer Foods, Inc.
("Dominick's"), the operating subsidiary of the Company.
Executive Officers
In addition to Messrs. Burkle and Mariano, whose biographies appear above,
the following persons are executive officer of the Company or its subsidiaries.
John W. Boyle, age 40, has been Group Vice President, Information
Technology and Store Development since March 1996. Mr. Boyle joined Dominick's
in January l995 as Vice President, Management Information
A-3
<PAGE> 26
Systems and became Vice President, Administration in March 1995. Prior to
joining Dominick's, Mr. Boyle had been employed as Vice President, Information
Systems at Food 4 Less Supermarkets, Inc. since 1993, and, before that, had been
employed as a Senior Vice President at Thrifty Drugstores.
Andrew A. Campbell, age 53, has been Executive Vice President, Finance and
Administration, and Chief Financial Officer since July 1998. Prior to that, Mr.
Campbell had been Senior Vice President, Finance and Chief Financial Officer for
Safety Kleen Corporation. Prior to that, Mr. Campbell was President of Duplex
Products, Inc. from 1995 to 1996 and Vice President, Finance and Chief Financial
Officer from 1994 to 1995. Prior to 1994, Mr. Campbell was employed by Simmons
Upholstered Furniture, Inc. as Vice President, Finance and Chief Financial
Officer.
Donald G. Fitzgerald, age 37, has been Group Vice President, Non-Perishable
Merchandising and Logistics since March 1996. Prior to that time Mr. Fitzgerald
had served as Vice President, Grocery Merchandising since 1994, as director of
grocery merchandising from 1993 to 1994 and as director of grocery purchasing
since 1990. Before 1990 Mr. Fitzgerald held several other managerial positions
at Dominick's.
William B. Nasshan, age 40, has been Group Vice President, Sales and
Marketing since November, 1997. Before that, Mr. Nasshan was Vice President,
Grocery and Logistics since March 1996 and Vice President, Omni Operations from
1995 to 1996. Prior to joining Dominick's in 1995, Mr. Nasshan was Regional
Director of Marketing and Merchandising for Cub Foods, a division of SUPERVALU,
Inc.
Deborah C. Paskin, age 46, has been Group Vice President, Legal, General
Counsel and Secretary since October 1997. Prior to that, Ms. Paskin was Vice
President, General Counsel and Secretary of Helene Curtis Industries, Inc. and
held other positions in the Helene Curtis Legal Department from 1990 through
1997. Ms. Paskin was an attorney with Latham & Watkins from 1984 to 1990.
Donald S. Rosanova, age 49, has been Group Vice President, Operations since
November 1997 and, prior to that, had been Group Vice President, Omni since
March, 1996. Prior to that time Mr. Rosanova had been Vice President,
Distribution and Transportation since 1992. Before 1992, Mr. Rosanova held
several other managerial positions at Dominick's.
Alice F. Smedstad, age 49, has been Group Vice President, Human Resources
since December 1996. Mrs. Smedstad joined the Company in October 1995 as Vice
President, Human Resources. Prior to that time, Ms. Smedstad held several senior
human resource positions at The Dial Corporation from 1980 to 1995. Ms. Smedstad
began her professional career in manufacturing with the Procter & Gamble Company
in 1973.
STOCKHOLDERS AGREEMENT
Pursuant to the 1996 Stockholders Agreement, six of the Company's current
directors (Messrs. Burkle, Graham, Karst, Mariano and Tochner and Ms. Figel)
were selected by Yucaipa and three of the Company's current directors (Messrs.
Copses, Kaplan and Ressler) were selected by Apollo. Under the 1996 Stockholders
Agreement, Yucaipa is entitled to nominate six directors to the Board of
Directors and Apollo is entitled to nominate three directors to the Board of
Directors provided that certain beneficial ownership requirements set forth in
the 1996 Stockholders Agreement continue to be met. The 1996 Stockholders
Agreement further provides that the parties thereto shall vote their Shares and
take all actions otherwise necessary to ensure the election to the Board of
Directors of the Yucaipa nominees and the Apollo nominees. See "Certain
Relationships and Related Transactions -- 1996 Stockholders Agreement." The 1996
Stockholders Agreement was amended in connection with the transactions
contemplated by the Merger Agreement and will terminate upon consummation of the
Offer. See Item 3 of the Schedule 14D-9.
BOARD MEETINGS AND COMMITTEES
Prior to January 31, 1997, the Board of Directors consisted of nine
persons: Messrs. Burkle, Copses, Graham, Kaplan, Karst, Mariano, Resnik and
Ressler and Ms. Figel. Mr. Mark A. Resnik, a director since 1995, died in
January 1997 and Mr. Tochner was appointed by the Board of Directors on January
31, 1997 to fill the vacancy created by the death of Mr. Resnik. On January 31,
1997, the total number of directors constituting the Board of Directors was
increased to eleven and, pursuant to the Certificate of Incorporation, Ms. Barry
and Governor Bayh were elected to serve on the Board of Directors by the
affirmative vote of a
A-4
<PAGE> 27
majority of the directors then in office. Ms. Barry and Governor Bayh are
"Independent Directors." The Board of Directors has an Executive Committee and
an Audit Committee. There is no standing Nominating Committee.
The Board of Directors held six meetings during the fiscal year ended
November 1, 1997.
Messrs. Burkle, Graham and Mariano currently serve on the Executive
Committee. Subject to the Company's conflict of interest policies and certain
other limitations, the Executive Committee has been granted all powers and
authority of the Board of Directors in the management of the business and
affairs of the Company. The Executive Committee was created in 1995 and held no
meetings in fiscal 1997.
Ms. Barry and Governor Bayh currently serve on the Audit Committee. The
Audit Committee makes recommendations concerning the engagement of independent
auditors, reviews with independent auditors the plans and results of the audit
engagement, approves professional services provided by the independent auditors,
reviews the independence of the independent auditors, considers the range of
audit and non-audit fees and reviews the adequacy of the Company's internal
accounting controls. The Audit Committee was established in January 1997 and
held one meeting in fiscal 1997.
DIRECTORS COMPENSATION
Prior to fiscal 1997, the Company had not paid any compensation to its
directors for serving on the Board of Directors, but reimbursed such persons for
their out-of-pocket expenses incurred in connection with attending meetings of
the Board of Directors. Currently, the Company pays its non-employee directors
(other than those affiliated with Yucaipa) an annual retainer of $25,000 in
addition to fees in the amount of $2,500 per regular meeting of the Board of
Directors, $1,000 per meeting of any committee of the Board of Directors and
$1,000 per special meeting of the Board of Directors. Pursuant to the Company's
Directors Deferred Compensation and Restricted Stock Plan, directors of the
Company may elect to receive any such annual retainers and meeting fees in the
form of restricted shares of Common Stock or to defer such fees until retirement
or other specified date or event. The Company currently anticipates that it will
continue to reimburse all directors for their out-of-pocket expenses incurred in
connection with attending meetings of the Board of Directors.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") gives Delaware corporations broad powers to indemnify their present and
former directors and officers against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with threatened, pending or completed actions, suits or
proceedings to which they are parties or are threatened to be made parties by
reason of being or having been such directors or officers, subject to specified
conditions and exclusions; gives a director or officer who successfully defends
an action the right to be so indemnified; and permits a corporation to buy
directors' and officers' liability insurance. Such indemnification is not
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or otherwise.
As permitted by Section 145 of the DGCL, Article V of the Certificate of
Incorporation provides for the indemnification by the Company of its directors,
officers, employees and agents against liabilities and expenses incurred in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the Corporation by reason of the fact that they were or
are such directors, officers, employees or agents.
Article VI of the Certificate of Incorporation provides that to the fullest
extent permitted by the DGCL as the same exists or may hereafter be amended, a
director of the Company shall not be liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director.
The Company has entered into, or intends to enter into, agreements to
indemnify its directors and executive officers in addition to the
indemnification provided for in the Certificate of Incorporation and Bylaws.
These agreements, among other things, will indemnify the Company's directors and
executive officers for certain expenses (including attorneys' fees) and all
losses, claims, liabilities, judgments, fines and settlement amounts incurred by
such person arising out of or in connection with such person's service as a
director or officer of the Company to the fullest extent permitted by applicable
law.
A-5
<PAGE> 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, the beneficial
ownership of Common Stock by (i) each person known by the Company to be the
beneficial owner of 5% or more of the Common Stock, (ii) each person who is a
director or Named executive Officer (as defined below) of the Company and (iii)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------------
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS(1)(2)
------------------------ -------------------- -----------
<S> <C> <C>
Yucaipa and affiliates:
Yucaipa Blackhawk Partners, L.P...................... 2,007,256 10.7
Yucaipa Chicago Partners, L.P........................ 253,470 1.4
Yucaipa Dominick's Partners, L.P..................... 663,333 3.6
The Yucaipa Companies(3)............................. 3,874,492 17.2
Yucaipa Management L.L.C.(4)......................... -- --
Ronald W. Burkle(5).................................. 6,798,551 30.1
Linda McLoughlin Figel(3)(6)......................... -- --
Patrick L. Graham(3)(7).............................. -- --
Darren W. Karst(3)(8)................................ 76,389 *
Ira L. Tochner(3)(9)................................. -- --
Total........................................... 6,874,940 30.4
Robert A. Mariano(10).................................. 283,520 1.5
Alice F. Smedstad(11).................................. 14,807 *
Grace Barry............................................ 983 *
Evan Bayh.............................................. 2,748 *
Apollo and affiliates:
Peter P. Copses(12).................................. 5,855,181 27.7
David B. Kaplan(12).................................. 5,855,181 27.7
Antony P. Ressler(12)................................ 5,855,181 27.7
Apollo Investment Fund, L.P.(13)..................... 2,927,591 14.7
Apollo Investment Fund III, L.P.(14)................. 2,668,412 13.5
Apollo Overseas Partners III, L.P.(15)............... 160,035 *
Apollo (U.K.) Partners III, L.P.(16)................. 99,142 *
Total(17)......................................... 5,855,181 27.7
All directors and executive officers as a group (18
persons)............................................. 13,120,588 52.0
FMR Corp.(18).......................................... 2,060,800 11.0
Ohio PERS(18).......................................... 1,080,000 5.8
Putnam Investments, Inc.(18)........................... 2,165,900 11.6
</TABLE>
- ---------------
* Less than 1.0%.
(1) Shares which each identified stockholder has the right to acquire within 60
days of the date of the table set forth above are deemed to be outstanding
in calculating the percentage ownership of such stockholder, but are not
deemed to be outstanding as to any other person. Except as otherwise
indicated, the Company believes that the beneficial owners of shares of
Common Stock listed above have sole investment and voting power with
respect to such shares, subject to community property laws where
applicable.
(2) Based on 18,679,737 shares of Common Stock outstanding as of the Record
Date.
(3) Share amounts and percentages for Yucaipa include 3,874,492 shares of
Common Stock issuable to Yucaipa upon exercise of the Yucaipa Warrant. The
Yucaipa Warrant entitles Yucaipa to purchase 3,874,492 shares of Common
Stock (less a number of shares equal to the aggregate exercise price, if
exercised on a cashless basis) at an exercise price of $20.732 per share.
Yucaipa is controlled by
A-6
<PAGE> 29
Ronald W. Burkle. The address of Yucaipa is 10000 Santa Monica Blvd., Los
Angeles, California 90067. Ms. Figel and Messrs. Graham, Karst and Tochner
disclaim beneficial ownership of any shares of Common Stock issuable upon
exercise of the Yucaipa Warrant.
(4) Yucaipa Management L.L.C. is a Delaware limited liability company
controlled by Ronald W. Burkle. Yucaipa Management L.L.C. is the sole
general partner of Yucaipa Blackhawk Partners, L.P., Yucaipa Chicago
Partners, L.P., and Yucaipa Dominick's Partners, L.P., which own 2,007,256,
253,470 and 663,333 shares of Common Stock, respectively. The foregoing
limited partnerships are parties to the 1996 Stockholders Agreement which
gives Yucaipa the right to nominate up to six directors of the Company.
(5) Represents shares owned by Yucaipa Blackhawk Partners, L.P., Yucaipa
Chicago Partners, L.P., and Yucaipa Dominick's Partners, L.P. These
entities are affiliated partnerships controlled indirectly by Ronald W.
Burkle. Mr. Burkle is the controlling general partner of Yucaipa and the
sole managing member of Yucaipa Management L.L.C. See notes (3) and (4).
(6) Ms. Figel is a general partner of Yucaipa and a limited partner of Yucaipa
Blackhawk Partners, L.P. and Yucaipa Dominick's Partners, L.P. See notes
(3) and (4).
(7) Mr. Graham is a general partner of Yucaipa and a limited partner of Yucaipa
Blackhawk Partners, L.P. and Yucaipa Dominick's Partners, L.P. See notes
(3) and (4).
(8) Includes options for shares which will be cancelled, at the effective time
of the Merger, in exchange for a cash payment per share equal to the excess
of the Offer Price over the exercise price of such options. Mr. Karst is a
general partner of Yucaipa and a limited partner of Yucaipa Blackhawk
Partners, L.P. See notes (3) and (4).
(9) Mr. Tochner is a general partner of Yucaipa and a limited partner of
Yucaipa Blackhawk Partners, L.P. See notes (3) and (4).
(10) Excludes options for 83,552 shares of Common Stock which are not
exercisable within 60 days.
(11) Excludes options for 20,217 shares of Common Stock which are not
exercisable within 60 days.
(12) Includes 2,455,224 shares of Class B Common Stock, which is convertible
into shares of Common Stock on a share-for-share basis at the election of
the holder at any time. The shares reported for each of Messrs. Copses,
Kaplan and Ressler are beneficially owned by Apollo Investment Fund, L.P.,
Apollo Investment Funds III, L.P., Apollo Overseas Partners III, L.P. or
Apollo (U.K.) Partners III, L.P. (collectively, the "Apollo Funds").
Messrs. Copses, Kaplan and Ressler are associated with Apollo Advisors,
L.P. and Apollo Advisors II, L.P. (collectively, "Advisors"), the managing
general partners of the Apollo Funds. Messrs. Copses, Kaplan and Ressler
disclaim beneficial ownership of the Common Stock and the Class B Common
Stock held by the Apollo Funds. The Apollo Funds are parties to the 1996
Stockholders Agreement, which entitles them to nominate up to three
directors of the Company. The address of Advisors is 2 Manhattanville Road,
Purchase, New York 10577.
(13) Includes 1,227,612 shares of Class B Common Stock, which is convertible
into shares of Common Stock on a share-for-share basis at the election of
the holder at any time.
(14) Includes 1,118,940 shares of Class B Common Stock, which is convertible
into shares of Common Stock on a share-for-share basis at the election of
the holder at any time.
(15) Includes 67,100 shares of Class B Common Stock, which is convertible into
shares of Common Stock on a share-for-share basis at the election of the
holder at any time.
(16) Includes 41,572 shares of Class B Common Stock, which is convertible into
shares of Common Stock on a share-for-share basis at the election of the
holder at any time.
(17) Includes 2,455,224 shares of Class B Common Stock, which is convertible
into shares of Common Stock on a share-for-share basis at the election of
the holder at any time.
(18) Based on the most recent filings of Schedule 13G received directly by the
Company with respect to such beneficial holder.
A-7
<PAGE> 30
CERTAIN RELATIONSHIPS, TRANSACTIONS AND ARRANGEMENTS
YUCAIPA TRANSACTION FEE
In connection with the transactions contemplated by the Merger Agreement,
the Company retained The Yucaipa Companies LLC ("Yucaipa LLC"), an affiliate of
Yucaipa, to provide consulting services to the Company in connection with a
possible merger or other corporate transaction involving the business of the
Company. On October 8, 1998 at a special telephonic meeting, the Board of
Directors, including the directors not affiliated with Yucaipa, approved the
payment of a fee of $5,500,000 to Yucaipa LLC upon consummation of the Offer as
compensation for the services Yucaipa LLC had provided, and would provide, to
the Company in developing and consulting with the Company concerning the various
transaction proposals described in "Item 4. The Solicitation or Recommendation"
of the Schedule 14d-9. In addition to the foregoing compensation, pursuant to
the Management Agreement, the Company will reimburse Yucaipa LLC for its
reasonable out-of-pocket expenses and indemnify Yucaipa LLC against certain
liabilities arising out of or in connection with its retention, including
liabilities under federal securities laws.
MANAGEMENT AGREEMENT
On November 1, 1996, the Company and Dominick's entered into the Management
Agreement with Yucaipa. The Management Agreement provides for the payment of an
annual fee to Yucaipa in the amount of $1.0 million. In addition, the Company
may retain Yucaipa in an advisory capacity in connection with certain
acquisition or sale transactions, in which case the Company will pay Yucaipa an
advisory fee equal to one percent (1.0%) of the transaction value. The term of
the agreement is automatically renewed on April 1 of each year for a five-year
term unless 90 days' notice is given by either party. The Management Agreement
may be terminated at any time by the Company upon 90 days' written notice,
provided that Yucaipa will be entitled to full payment of the annual fee
thereunder for the remaining term thereof, unless the Company terminates for
cause pursuant to the terms of the Management Agreement. Yucaipa may terminate
the Management Agreement if the Company fails to make a payment due thereunder,
or upon a Change of Control (as generally defined in the Management Agreement to
include certain mergers and asset sales, and acquisitions of beneficial
ownership of greater than 51% of the Company's outstanding voting securities by
persons other than Yucaipa). Upon any such termination, Yucaipa will be entitled
to full payment of the annual fee for a period of time following such
termination, the length of which depends upon the grounds for termination. Fees
paid and accrued under the Management Agreement were approximately $1.25 million
for management and advisory services during fiscal 1997.
Upon the earlier of the consummation of the Merger and the Effective Time,
the Management Agreement will be terminated and the Company will pay a
termination fee of approximately $2.5 million (assuming the Merger is
consummated on November 19, 1998) to Yucaipa (or its designee).
YUCAIPA WARRANT
Upon the closing of the acquisition of Dominick's by the Company in March
1995 (the "Acquisition"), the Company issued to Yucaipa the Yucaipa Warrant to
purchase 3,874,492 shares of Voting Common Stock. The Yucaipa Warrant became
exercisable at the election of Yucaipa upon the consummation of the initial
public offering of the Company in November 1996 at an exercise price of
approximately $20.732 (subject to adjustment) per share (the "Per Share Exercise
Price"). If not exercised, the Yucaipa Warrant will expire on March 22, 2000;
provided, however, that if on such date certain financial performance
requirements are satisfied, the expiration date will be extended to March 22,
2002 and, in such case, the exercise price will be increased daily at a rate of
25% per annum. The Yucaipa Warrant may be exercised for cash or on a cashless
basis. Pursuant to the cashless exercise provisions of the Yucaipa Warrant, upon
exercise in full Yucaipa would be entitled to receive a number of shares of
Voting Common Stock equal to the difference between 3,874,492 shares and the
number of shares having a market value as of the exercise date equal to $80.3
million (i.e., the aggregate exercise price).
A-8
<PAGE> 31
In connection with the transactions contemplated by the Merger Agreement,
(i) the Company and Yucaipa entered into the Warrant Amendment which amended the
Yucaipa Warrant and (ii) Parent or Purchaser will purchase the Yucaipa Warrant
from Yucaipa for an amount equal to the product of (a) the difference between
the Offer Price and the Per Share Exercise Price multiplied by (b) the number of
shares of Common Stock underlying the Yucaipa Warrant (3,874,492 as of the date
hereof). See "Item 3. Indemnity and Background -- Warrant Amendment" in the
Schedule 14D-9 for a discussion of the Warrant Amendment. Upon the purchase of
the Yucaipa Warrant and payment of the purchase price therefor in accordance
with the provisions of the Merger Agreement, Yucaipa will cease to have any
rights with respect to the Yucaipa Warrant.
1996 STOCKHOLDERS AGREEMENT
Under the terms of the 1996 Stockholders Agreement entered into by the
Company, certain affiliates of Yucaipa and Apollo and certain other stockholders
of the Company, Yucaipa is entitled to nominate six directors to the Boards of
Directors of the Company and Dominick's. Yucaipa's right to nominate members to
such Boards of Directors will be reduced by three if Mr. Burkle ceases for any
reason to beneficially own at least 33 1/3% of the Shares beneficially owned by
Yucaipa on the date of the Acquisition and shall terminate if Mr. Burkle ceases
for any reason (including death) to beneficially own at least 25% of the Shares
beneficially owned by Yucaipa on such date. The 1996 Stockholders Agreement
entitles Apollo to nominate three directors to the Boards of Directors of the
Company and Dominick's. Apollo's right to nominate members to such Boards of
Directors will be reduced by one if Apollo ceases to beneficially own at least
33 1/3% of the Shares beneficially owned by Apollo on the date of the
Acquisition and shall terminate if Apollo ceases to beneficially own at least
25% of the Shares beneficially owned by Apollo on such date. If Apollo ceases to
own at least 25% of the Shares beneficially owned by Apollo on the date of the
Acquisition and the parties to the 1996 Stockholders Agreement other than Apollo
beneficially own at least 33 1/3% of the Shares beneficially owned by such
stockholders on the date of the Acquisition, Yucaipa will be entitled to
nominate an additional member to the Boards of Directors of the Company and
Dominick's. Notwithstanding the foregoing, however, Apollo may assign its rights
to nominate two directors to a transferee (other than an affiliate of Yucaipa)
acquiring at least 66 2/3% of the Shares held by Apollo on the date of the
Acquisition. The 1996 Stockholders Agreement provides that the parties thereto
shall vote their Shares and take all actions otherwise necessary to ensure the
election to such Boards of Directors of the Yucaipa nominees and the Apollo
nominees. The Yucaipa nominees are Messrs. Burkle, Karst, Graham, Tochner and
Mariano and Ms. Figel. The Apollo nominees are Messrs. Copses, Kaplan and
Ressler. In addition, Apollo and certain other stockholders will have the right
to participate in any bona fide transfer of the pecuniary interests in Common
Stock beneficially owned by Yucaipa and its affiliates. In certain
circumstances, Yucaipa will have the right to compel the participation of Apollo
and other stockholders in sales of all the outstanding shares of Company stock.
As of the Record Date, affiliates of Yucaipa and Apollo beneficially own
approximately 13.9% and 27.7%, respectively, of the outstanding Common Stock,
representing an equivalent percentage of the total voting power of the Company
(excluding the Yucaipa Warrant and options held by Mr. Karst and assuming
conversion by Apollo of shares of Non-Voting Common Stock into Voting Common
Stock).
In connection with the transactions contemplated by the Merger Agreement,
Yucaipa and certain stockholders of the Company entered into the Stockholders
Agreement Amendment which amended the 1996 Stockholders Agreement. See "Item 3.
Identity and Background -- Stockholders Agreement Amendment" for a discussion of
the Stockholders Agreement Amendment.
A-9
<PAGE> 32
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Chief Executive Officer and four most highly compensated executive officers
of the Company (the "Named Executive Officers"), whose total salary and bonus
for Fiscal 1997 exceeded $100,000 for services rendered in all capacities of the
Company and its subsidiaries.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION(2)
---------------
ANNUAL COMPENSATION(1) SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR ENDED SALARY BONUS OPTIONS(#) COMPENSATION(4)
--------------------------- ----------------- ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert A. Mariano(3)........... November 1, 1997 $522,300 $476,000 25,000 $ 15,467
President and Chief November 2, 1996 482,700 463,500 -- 14,700
Executive Officer............ October 28, 1995 334,200 216,000 146,379 3,463,700(5)
Darren W. Karst(6)............. November 1, 1997 $314,770 $286,000 11,500 $ 7,753
Executive Vice President, November 2, 1996 289,700 255,000 -- 7,100
Finance and Administration, October 28, 1995 151,570 -- 73,189 1,700
and Chief Financial Officer
Robert E. McCoy(8)............. November 1, 1997 $314,770 $286,000 11,500 $ 14,873
Executive Vice President, November 2, 1996 289,400 250,000 -- 878,600(7)
Operations October 28, 1995 236,400 216,000 146,379 2,916,300(5)
Alice F. Smedstad(9)........... November 1, 1997 $174,075 $ 45,260 3,750 $ 7,443
Group Vice President, November 2, 1996 155,800 17,000 -- 2,700
Human Resources October 28, 1995 -- -- 21,956 --
Herbert R. Young(8)............ November 1, 1997 $234,200 $214,200 3,750 $ 22,617
Group Vice President, Sales November 2, 1996 229,300 225,000 -- 865,100(7)
Marketing and Advertising October 28, 1995 225,600 210,900 146,379 2,923,000(5)
</TABLE>
- ---------------
(1) Annual compensation is based on cash payments made during the fiscal period.
Bonus amounts paid relate to the prior year's performance. Fiscal 1997
salary amounts include an extra week related to salary earned in fiscal
1996, but paid in fiscal 1997.
(2) Information for Messrs. Mariano, McCoy and Young excludes equity-based
compensation of Dominick's which was extinguished in connection with the
Acquisition.
(3) Mr. Mariano was appointed President and Chief Operating Officer in March
1995 and was subsequently appointed Chief Executive Officer in January 1996.
(4) Includes (i) insurance premiums paid under senior management benefit plans,
(ii) benefits paid under a senior management financial planning plan, (iii)
profit sharing plan contributions made by the Company, and (iv) certain
other employee benefits.
(5) Includes the redemption for cash of all Dominick's stock appreciation rights
held by Messrs. Mariano, McCoy and Young at the time of the Acquisition in
the amounts of $3,450,093, $2,901,460, and $2,901,460, respectively.
(6) Mr. Karst joined the Company as Senior Vice President, Chief Financial
Officer and Secretary in March 1995 and was appointed Executive Vice
President, Finance and Administration in March 1996. Mr. Karst resigned as
an officer of the Company in August 1998. Mr. Karst is a general partner of
Yucaipa, which provides services to the Company pursuant to the Management
Agreement. See "Certain Relationships, Transactions and
Arrangements -- Management Agreement."
(7) Includes $864,000 and $843,708 paid to Messrs. McCoy and Young,
respectively, in connection with their respective employment agreements. See
"Employment Agreements."
(8) Messrs. Young and McCoy retired from the Company effective November 21,
1997.
(9) Ms. Smedstad was appointed Group Vice President, Human Resources in December
1996.
A-10
<PAGE> 33
EMPLOYMENT AGREEMENTS
On October 9, 1998, the Company entered into employment agreements (the
"Employment Agreements") and special bonus agreements (the "Special Bonus
Agreements") with 24 officers of the Company, including Messrs. Mariano, Boyle,
Fitzgerald, Nasshan and Rosanova, Ms. Paskin and Ms. Smedstad.
The Employment Agreements are for a term of from one to five years,
commencing on the date on which a change of control of the Company occurs
(including the date on which the Offer is consummated), provided that the
employee is employed by the Company on such date. The Employment Agreements
provide for the payment of salary and bonus and the continuation of benefits
upon a termination without cause, or a constructive termination, of the
employee's employment. The Employment Agreements also provide that the Company
will make additional payments to certain employees who receive payments,
benefits or distributions subject to the excise tax imposed by Section 4999 of
the Code under certain circumstances. A copy of the form of Employment Agreement
is attached hereto as Exhibit 9 and incorporated herein by reference.
The Special Bonus Agreements provide for the payment of a bonus ranging
from $93,750 to $750,000 on the closing date of a transaction involving a change
of control of the Company (including consummation of the Offer), provided that
the employee is employed by the Company on such date. The aggregate amount of
bonuses payable under the Special Bonus Agreements is approximately $3.8
million. A copy of the form of Special Bonus Agreement is attached hereto as
Exhibit 10 and incorporated herein by reference.
OPTION GRANTS TABLE
The following Option Grants Table sets forth, as to the Named Executive
Officers, certain information relating to stock options granted during fiscal
1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM(4)
OPTIONS IN FISCAL BASE PRICE EXPIRATION --------------------------------
NAME GRANTED(#) YEAR(1) ($/SHARE) DATE(2) 0%($)(3) 5%($) 10%($)
---- ----------- ---------- ----------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert A. Mariano............ 25,000 10.9% $26.5625 9/20/07 $-- $417,625 $1,058,345
Darren W. Karst.............. 11,500 5.0 26.5625 9/20/07 -- 192,108 486,839
Robert E. McCoy.............. 11,500 5.0 26.5625 9/20/07 -- 192,108 486,839
Alice F. Smedstad............ 3,750 1.6 26.5625 9/20/07 -- 62,644 158,752
Herbert Young................ 3,750 1.6 26.5625 9/20/07 -- 62,644 158,752
</TABLE>
- ---------------
(1) The total number of shares of Common Stock subject to options granted to
employees in the fiscal year ended November 1, 1997 was 228,960.
(2) Options may terminate before their expiration date if the optionee's status
as an employee or consultant is terminated or upon optionee's death.
(3) Based upon the fair market value of the Common Stock on the grant date, as
determined in good faith by the Board of Directors.
(4) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices. There can be no assurance that the amounts reflected in this table
will be achieved.
A-11
<PAGE> 34
YEAR-END OPTION VALUE TABLE
No Named Executive Officer exercised stock options during Fiscal 1997. The
following table sets forth certain information concerning the number of stock
options held by the Named Executive Officers as of November 1, 1997, and the
value of in-the-money options outstanding as of such date.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT NOVEMBER 1, 1997 AT NOVEMBER 1, 1997(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert A. Mariano............................... 58,551 112,828 $1,737,091 $2,854,119
Darren W. Karst................................. 29,275 55,414 868,531 1,417,122
Robert E. McCoy................................. 109,788 48,091 3,757,247 1,199,863
Alice F. Smedstad............................... 5,489 20,217 162,848 525,809
Herbert R. Young................................ 109,788 40,341 3,757,247 1,122,847
</TABLE>
- ---------------
(1) Value is based upon the closing price of the Voting Common Stock on the
composite tape for the New York Stock Exchange on October 31, 1997 of $36.50
minus the exercise price.
MANAGEMENT INCENTIVE PLAN
The Company's Management Incentive Plan (the "MIP program") covers all
executive officers and other key managers. Its purpose is to provide a direct
financial incentive in the form of an annual bonus to achieve or exceed
pre-determined financial objectives. The MIP program provides for varying levels
of payout to participants depending on the individual's level within the
organization. The Chief Executive Officer may receive a bonus ranging from 0% up
to 200% of base salary. Executive Vice Presidents may receive a bonus of up to
100% of base salary and Group Vice Presidents may receive a bonus of up to 85%
of base salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a board committee performing the functions of a
compensation committee. Ronald W. Burkle, the Chairman of the Board, and Robert
A. Mariano, the President and Chief Executive Officer, made decisions with
regard to executive officer compensation for fiscal 1997, except that decisions
with regard to awards under the 1996 Plan (as defined below) were made by the
Board of Directors.
REPORT ON COMPENSATION OF EXECUTIVE OFFICERS
The Board of Directors is responsible for developing the Company's
executive compensation policies and approving on an annual basis the
compensation policies applicable to the Chief Executive Officer and other
executive officers of the Company. The objectives of the Company's executive
compensation program are to support the achievement of desired performance by
the Company, provide compensation that will attract and retain superior talent
and reward performance, and align the executive officers' personal interests and
financial remuneration with the success of the Company by basing a significant
portion of their compensation upon Company performance.
The executive compensation program provides an overall level of
compensation opportunity that is competitive within the retail food and drug
industry, including those companies which compete directly with the Company in
its region, as well as companies outside the industry with which the Company may
compete for executive talent. Companies are selected for the purpose of
comparing compensation practices on the basis of a number of factors relative to
the Company, such as their size and complexity, the nature of their businesses,
the regions in which they operate, the structure of their compensation programs
(including the extent to which they rely on bonuses and other contingent forms
of compensation) and the availability of compensation information. In reviewing
the compensation practices of other companies, the Board of Directors considers
the fact that the compensation structures of most peer companies tend to be
significantly different than those of the Company in a number of respects,
particularly in such areas as the amount of bonus relative to salary paid by
such companies, their use of stock appreciation rights and stock options, the
time
A-12
<PAGE> 35
period over which stock options vest and the nature and amount of pension
benefits made available to executive officers. For these reasons, although the
Board of Directors has considered the compensation policies of certain peer
companies, the Board of Directors does not believe that all such companies are
comparable to the Company for the purpose of setting the compensation for the
Company's executive officers. The Board of Directors uses its discretion to set
executive compensation at levels warranted by external, internal and individual
circumstances. Actual compensation levels may be greater or less than average
compensation levels in other companies based upon annual and long-term
performance of the Company and each individual executive officer's performance.
The Company's executive officer compensation program is comprised of base
salary, cash bonus compensation, long-term incentive compensation in the form of
stock options, and other benefits such as those available through the Company's
medical and defined contribution plans.
Base Salary. Base salary levels for the Company's executive officers,
including the Chief Executive Officer, are set such that the overall cash
compensation package for executive officers, including bonus opportunity
compares favorably to companies with which the Company competes for executive
talent. In determining salaries, the Board of Directors also takes into account
a number of factors, which primarily include individual experience and
performance, the officer's level of responsibility, the cost of living and
historical salary levels. The measures of individual performance considered
include, to the extent applicable to an individual executive officer, a number
of quantitative and qualitative factors such as the Company's historical and
recent financial performance, the individual's achievement within his or her
responsibility of particular financial and non-financial goals, and other
contributions made by the officer to the Company's success. Specific factors
related to an individual's performance considered by the Board of Directors
include financial measures such as EBITDA (as adjusted), net income, sales, same
store sales, and cost savings and non-financial measures such as store openings,
site acquisitions or other specific tasks. The Board of Directors has not found
it practicable, and has not attempted, to assign relative weights to the
specific factors considered in determining base salary levels, and the specific
factors used may vary among achievement of any specific, pre-determined
performance targets.
Cash Bonus. The Company's Management Incentive Plan ("MIP") covers all
executive officers and other key managers. Its purpose is to provide a direct
financial incentive in the form of an annual bonus to achieve or exceed
pre-determined financial and individual objectives. The MIP program provides for
varying levels of payout to participants depending on the individual's level
within the organization. The Chief Executive Officer may receive a bonus ranging
from 0% up to 200% of base salary. Executive Vice Presidents may receive a bonus
of up to 100% of base salary, and Group Vice Presidents may receive a bonus of
up to 85% of base salary. In fiscal 1997, the MIP program was based on actual
results achieved compared to targeted performance in two (2) categories: sales
and EBITDA (as adjusted).
1996 Equity Participation Plan. The Company's 1996 Equity Participation
Plan (the "1996 Plan") authorizes the Board of Directors to provide incentives
for officers, employees and consultants through granting of stock options,
restricted stock and other awards (collectively, "Awards"), thereby stimulating
their personal and active interest in the Company's development and financial
success, and inducing them to remain in the Company's employ. Grants of Awards
are made in amounts commensurate with the individual's responsibility and at a
level calculated to be competitive within the retail food and drug industries as
well as a broader group of companies of comparable size and complexity. Options
granted to date to executive officers vest over a five-year period after the
grant date, and do not include any specific, pre-determined performance targets
as a condition to vesting or granting. The Company believes that such long-term
grants serve the primary objective of retaining executives and key managers,
while also aligning executives and shareholder interests by creating a strong
and direct link between compensation and shareholder return and by enabling
executives and key managers to develop and maintain a significant, long-term
ownership interest in the Company. In fiscal 1997, awards of 55,500 options were
granted to Named Executive Officers. Grants of additional stock options to the
Named Executive Officers may be considered in future periods by the Board of
Directors.
A-13
<PAGE> 36
Benefits. The Company provides medical and certain other benefits to
executive officers, including the Chief Executive Officer, that are generally
available to the Company's employees. The Company also provides executive
officers with supplemental death and disability benefits. The benefits available
under such arrangements are substantially similar for each of the Company's
executive officers, including the Chief Executive Officer, except to the extent
benefits are payable based upon the length of an officer's employment with the
Company.
Chief Executive Officer Compensation. The Chief Executive Officer's
compensation is reviewed and approved independently by the Board of Directors
subject to the provisions of his employment agreement. The Board of Directors
determines the Chief Executive Officer's compensation based upon the factors
applicable to the Company's other executive officers, which are described in
detail above, as well as a number of additional qualitative and quantitative
factors appropriate to his position as the Company's principal executive.
In accordance with the Company's compensation policies for all executive
officers, a large component of the Chief Executive Officer's compensation is
paid in the form of bonus, which, in order to provide an appropriate incentive
to maximize the Company's financial performance, is determined based upon preset
bonus maximums and the amount of the Company's actual sales and EBITDA (as
adjusted) compared to targeted sales and EBITDA (as adjusted). For fiscal 1997,
the Company did not achieve its targeted levels of sales and EBITDA (as
adjusted). Accordingly, the maximum pre-determined Chief Executive Officer bonus
for fiscal 1997 was not paid. Rather, the Chief Executive Officer received a
bonus of $476,000.
The Board of Directors believes that the Chief Executive Officer's total
cash compensation is appropriate in light of the Company's performance in fiscal
1997 and other factors described above.
January 23, 1998 Ronald W. Burkle
Grace Barry
Evan Bayh
Peter P. Copses
Linda McLoughlin Figel
Patrick L. Graham
David B. Kaplan
Darren W. Karst
Robert A. Mariano
Antony P. Ressler
Ira L. Tochner
The Report on Compensation of Executive Officers shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Information Statement into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, and shall not
otherwise be deemed filed under such Acts.
A-14
<PAGE> 37
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the total cumulative return on
the Common Stock based on the market price of the Voting Common Stock since
November 1, 1996, when the Company's initial public offering of Common Stock was
completed.
[CUMULATIVE RETURN BAR CHART]
<TABLE>
<CAPTION>
S&P Retail Stores
Dominick's -Food Chain
Supermarkets, Inc. S&P 500 Index
<S> <C> <C> <C>
11/1/96 100 100 100
10/31/97 187 133 122
</TABLE>
- ---------------
* Total Cumulative Return assumes $100 invested on November 1, 1996 in the
Company, the S&P 500 Stock Index, and the S&P Retail Stores -- Food Chain
Index, with reinvestment of dividends. The Company's fiscal year ended
November 1, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes of ownership with the Commission and each exchange on
which the Company's securities are registered. Officers, directors and greater
than ten percent stockholders are required by Commission regulations to furnish
the Company with copies of all ownership forms they file.
Based solely on a review of copies of reporting forms furnished to it, or
written representations that no forms were required, the Company believes that,
except as set forth below, all filing requirements applicable to its officers,
directors and beneficial owners under Section 16(a) of the Exchange Act were
complied with during fiscal 1997. The Company notes that for Ira L. Tochner, who
was appointed to the Board on January 31, 1997, following the death of Mr. Mark
Resnik, a Form 3 was inadvertently not filed until January 22, 1998. In
addition, Form 5s for directors Ressler and Bayh were inadvertently not filed
until January 23, 1998 and January 17, 1998 respectively, for 1,745 restricted
shares of Common Stock awarded to them pursuant to the Directors Plan in fiscal
1997.
A-15
<PAGE> 38
1996 EQUITY PARTICIPATION PLAN
Under the Company's 1996 Equity Participation Plan (the "1996 Plan"), the
Board of Directors (or a committee appointed by the Board of Directors) may
grant or issue stock options, stock appreciation rights, restricted stock,
deferred stock, dividend equivalents, performance awards, stock payments and
other stock related benefits, or any combination thereof (collectively,
"Awards") to officers, employees and consultants of the Company. The 1996 Plan
also provides for the granting of options to the Company's independent non-
employee directors. The prices for shares of Common Stock subject to options and
stock appreciation rights or pursuant to other Awards which may be granted or
made under the 1996 Plan are set by the Board of Directors (or a committee
thereof), provided that such price shall be no less than the par value of a
share of Common Stock, unless otherwise permitted by applicable state law, and
(i) in the case of incentive stock options ("ISOs") and Non-Qualified Stock
Options ("NQSOs") intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, such price shall not be less than
100% of the Fair Market Value (as defined in the 1996 Plan) of a share of Common
Stock on the date the option is granted; (ii) in the case of ISOs granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code) such price shall not be less than 110% of the Fair
Market Value (as defined in the 1996 Plan) of a share of Common Stock on the
date the option is granted; and (iii) in the case of options granted to
independent non-employee directors, such price shall equal 100% of the Fair
Market Value of a share of Common Stock on the date the option is granted. Under
the 1996 Plan, not more than 1,000,000 shares of Common Stock are authorized for
issuance upon exercise of options, stock appreciation rights and other Awards.
RESTATED 1995 STOCK OPTION PLAN
Under the Company's Restated 1995 Stock Option Plan (the "1995 Plan"),
certain officers and key employees of the Company received grants of NQSOs and
ISOs. As required by the 1995 Plan, all ISOs granted thereunder have a per share
exercise price at least equal to 100% of the Fair Market Value (as defined in
the 1995 Plan) of Common Stock on the date of grant and all ISOs granted
thereunder to employees who at the time such option was granted owned (within
the meaning of Section 424(d) of the "Code") more than 10% of the total combined
voting power of all classes of capital stock of the Company have a per share
exercise price at least equal to 110% of the Fair Market Value of Common Stock
on the date of grant. The 1995 Plan is administered by the Board of Directors
which designates the individuals who shall receive options, whether an optionee
will receive ISOs, NQSOs or both, and the amount, price restrictions and all
other terms and provisions of such options. Options granted and presently
outstanding under the 1995 Plan have terms of ten years and become exercisable
either (i) as to at least 20% of the shares of Common Stock covered thereby on
each anniversary of the date such option is granted or (ii) as to at least 25%
of the shares of Common Stock covered thereby on each anniversary of the date
such option is granted commencing with the second anniversary of such date.
1997 EMPLOYEE STOCK PURCHASE PLAN
Under the Company's 1997 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan"), the Company offers options to purchase shares of Voting Common
Stock to all eligible employees in successive 3-month offering periods at an
exercise price equal to 90% of the lesser of the fair market value (as
determined in accordance with the provisions of the Employee Stock Purchase
Plan) of a share of Voting Common Stock on the date of grant or the date of
exercise (the "Option Price"). Each participant automatically and without any
act on such participant's part is deemed to exercise all options at the end of
the applicable offering period to the extent that the balance of such
participant's payroll deductions is sufficient to purchase shares of Voting
Common Stock at the Option Price. The Employee Stock Purchase Plan is
administered by a committee of the Board of Directors.
A-16
<PAGE> 39
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT AND PURCHASER
As of the date of this Information Statement, Purchaser has not determined
who will be Designees. However, such Designees will be selected from the
following list of directors and executive officers of Parent upon the purchase
by Purchaser pursuant to the Offer of Shares representing not less than a
majority of the outstanding shares of Common Stock on a fully diluted basis
(without giving effect to the shares issuable upon exercise of the Yucaipa
Warrant). The information contained herein concerning Parent and Purchaser and
their respective directors and executive officers has been furnished by Parent
and Purchaser. The Company assumes no responsibility for the accuracy or
completeness of such information.
The name, present principal occupation or employment and five-year
employment history of each director and executive officer of Parent and certain
other information is set forth below. Unless otherwise indicated below, the
business address of each director and executive officer is 5918 Stoneridge Mall
Road, Pleasanton, California 94588. Unless otherwise indicated, each occupation
described below refers to employment with Parent. Except as noted, none of the
persons listed below owns any Shares or has engaged in any transactions with
respect to Shares during the past 60 days. During the last five years, neither
Parent nor any director or executive officer of Parent indicated has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) nor was such person a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction, and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws. Unless otherwise
indicated, all directors and executive officers listed below are citizens of the
United States.
Steven A. Burd, age 48, was appointed Chairman of the Board of Directors of
Parent effective May 12, 1998. He has been Chief Executive Officer since April
30, 1993 and President since October 26, 1992. He was first elected to the Board
of Directors of Parent on September 7, 1993.
James H. Greene, Jr., age 48, has been a member of the Board of Directors
of Parent since December 17, 1987. Mr. Greene is a General Partner of KKR
Associates, L.P. ("KKR Associates") and was a General Partner of Kohlberg Kravis
Roberts & Co. ("KKR") from January 1, 1993 until January 1, 1996 when he became
a member of the limited liability company which serves as the general partner of
KKR. Mr. Greene is also a director of Accuride Corporation, Bruno's, Inc.,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., Randall's Food Markets, Inc.
and Union Texas Petroleum Holdings, Inc.
Henry R. Kravis, age 54, has been a member of the Board of Directors of
Parent since November 26, 1986. Mr. Kravis is a Founding Partner of KKR and KKR
Associates. Effective January 1, 1996, he became a managing member of the
limited liability company which serves as the general partner of KKR. Mr. Kravis
is also a director of Accuride Corporation, Amphenol Corporation, Borden, Inc.,
Bruno's, Inc., Evenflo & Spalding Holdings Corporation, The Gillette Company,
IDEX Corporation, Kindercare Learning Centers, Inc., KSL Recreation Group, Inc.,
Newsquest Capital, plc, Owens-Illinois, Inc., Owens-Illinois Group, Inc.,
PRIMEDIA, Inc., Randall's Food Markets, Inc., Sotheby's Holdings, Inc., Union
Texas Petroleum Holdings, Inc. and World Color Press, Inc.
Robert I. MacDonnell, age 60, has been a member of the Board of Directors
of Parent since November 26, 1986. Mr. MacDonnell is a General Partner of KKR
Associates and was a General Partner of KKR until January 1, 1996 when he became
a member of the limited liability company which serves as the general partner of
KKR. Mr. MacDonnell is also a director of Owens-Illinois, Inc. and
Owens-Illinois Group, Inc.
Peter A. Magowan, age 56, has been a member of the Board of Directors of
Parent since November 26, 1986 and served as Chairman of the Board of Parent
from such time to May 12, 1998. He served as Chief Executive Officer from
November 26, 1986 to April 30, 1993 and served as President from March 27, 1988
to October 26, 1992. From December 1979 to November 26, 1986, Mr. Magowan served
as Chairman of the Board and Chief Executive Officer of Parent's predecessor,
Safeway Stores, Incorporated, a Maryland
A-17
<PAGE> 40
corporation. Mr. Magowan is also a director of Caterpillar, Inc. and Chrysler
Corporation. Mr. Magowan is Managing General Partner and President of the San
Francisco Giants.
George R. Roberts, age 55, has been a member of the Board of Directors of
Parent since July 23, 1986. Mr. Roberts is a Founding Partner of KKR and KKR
Associates. Effective January 1, 1996, he became a managing member of the
limited liability company which serves as the general partner of KKR. Mr.
Roberts is also a director of Accuride Corporation, Amphenol Corporation,
Borden, Inc., Bruno's, Inc., Evenflo & Spalding Holdings Corporation, IDEX
Corporation, Kindercare Learning Centers, Inc., KSL Recreation Group, Inc.,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., PRIMEDIA, Inc., Randall's Food
Markets, Inc., Union Texas Petroleum Holdings, Inc. and World Color Press, Inc.
A-18
<PAGE> 41
EXHIBITS
<TABLE>
<S> <C>
Exhibit 1. Agreement and Plan of Merger, dated as of October 13, 1998,
by and among Safeway Inc., Windy City Acquisition Corp. and
Dominick's Supermarkets, Inc.
Exhibit 2. Press Release issued by the Company and Parent on October
13, 1998. (Incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated October 13,
1998).
Exhibit 3. Stockholders Agreement, dated as of October 13, 1998, by and
among Safeway Inc., Windy City Acquisition Corp., Yucaipa
Blackhawk Partners, L.P., Yucaipa Chicago Partners, L.P.,
Yucaipa Dominick's Partners, L.P., Apollo Investment Fund,
L.P., Apollo Investment Fund III, L.P., Apollo Overseas
Partners III, L.P. and Apollo (UK) Partners III, L.P.
Exhibit 4. Class A Common Stock Purchase Warrant dated as of March 22,
1995 issued by Dominick's Supermarkets, Inc. to The Yucaipa
Companies, as supplemented. (Incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K,
Number 1-12353).
Exhibit 5. Amendment to Class A Common Stock Purchase Warrant, dated as
of October 13, 1998, by and between Dominick's Supermarkets,
Inc. and The Yucaipa Companies.
Exhibit 6. Amended and Restated Stockholders Agreement, dated as of
November 1, 1996, by and among Dominick's Supermarkets,
Inc., DFF Supermarkets, Inc., Dominick's Finer Foods, Inc.
and the stockholders of the Company named therein.
(Incorporated by reference to Exhibit 10.8 to the Company's
1996 Annual Report on Form 10-K, Number 1-12353).
Exhibit 7. Amendment to Amended and Restated Stockholders Agreement,
dated as of October 13, 1998, by and among The Yucaipa
Companies, Yucaipa Blackhawk Partners, L.P., Yucaipa Chicago
Partners, L.P., Yucaipa Dominick's Partners, L.P., Apollo
Investment Fund, L.P., Apollo Investment Fund III, L.P.,
Apollo Overseas Partners III, L.P. and Apollo (UK) Partners
III, L.P.
Exhibit 8. Management Agreement, dated as of November 1, 1996, by and
among Dominick's Supermarkets, Inc., Dominick's Finer Foods,
Inc. and The Yucaipa Companies. (Incorporated by reference
to Exhibit 10.7 to the Company's 1996 Annual Report on Form
10-K, Number 1-12353).
Exhibit 9. Form of Employment Agreement.
Exhibit 10. Form of Special Bonus Agreement.
Exhibit 11. Letter to Stockholders dated as of October 19, 1998.*
Exhibit 12. Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation dated October 12, 1998.*
</TABLE>
- ---------------
* Included in materials being distributed to stockholders of the Company.
A-19
<PAGE> 1
EXHIBIT 1
AGREEMENT AND PLAN OF MERGER
AMONG
SAFEWAY INC.,
WINDY CITY ACQUISITION CORP.
AND
DOMINICK'S SUPERMARKETS, INC.
DATED AS OF OCTOBER 13, 1998
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 13, 1998 (the
"Agreement"), among Safeway Inc., a Delaware corporation ("Parent"), Windy City
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Merger Sub"), and Dominick's Supermarkets, Inc., a Delaware corporation
(the "Company").
RECITALS
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each approved the merger of Merger Sub with and into the Company and the Company
becoming a wholly-owned direct subsidiary of Parent (the "Merger") in accordance
with the Delaware General Corporation Law (the "DGCL") upon the terms and
subject to the conditions set forth herein;
WHEREAS, in order to facilitate the Merger, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the offer by Merger Sub to
purchase for cash all of the issued and outstanding shares of Common Stock, par
value $.01 per share (the "Voting Common Stock"), and Non-Voting Common Stock,
par value $.01 per share (the "Non-Voting Common Stock" and, together with the
Voting Common Stock, the "Common Stock"), of the Company at a price per share
equal to the Price per Share (as defined below) subject to the terms and
conditions set forth herein and in Annex A hereto; and
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Parent's willingness to enter into this
Agreement, Parent and certain holders of Common Stock (the "Stockholders") have
entered into a stockholders agreement, dated as of the date hereof and in the
form attached as Exhibit A hereto (the "Stockholders Agreement");
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of this Agreement, the term:
"Action" shall mean any action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, arbitration or investigation
by or before any court, governmental or other regulatory or administrative
agency or commission or any other Person.
"Affiliate" shall mean, with respect to any Person, any other Person that
directly, or through one or more intermediaries, controls or is controlled by or
is under common control with such Person.
"Agreement" shall have the meaning set forth in the Preamble.
"Alternative Transaction" shall mean any of the following events: (i) any
merger, consolidation or business combination between the Company or any of its
Significant Subsidiaries and any person other than Parent, Merger Sub or any
affiliate thereof (a "Third Party"); (ii) the acquisition or purchase by a Third
Party of 25% or more of the capital stock (including securities exercisable or
exchangeable for or convertible into capital stock) of the Company or any
material equity interest in any of its Significant Subsidiaries or consolidated
assets of the Company and its Subsidiaries, taken as a whole; (iii) any tender
offer or exchange offer that, if consummated, would result in any Third Party
owning 25% or more of the Common Stock; or (iv) any proposal or offer with
respect to the foregoing.
"Assets" shall mean, with respect to any Person, all land, buildings,
improvements, leasehold improvements, Fixtures and Equipment and other assets,
real or personal, tangible or intangible, owned, leased or licensed by such
Person or any of its Subsidiaries.
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"Average Parent Price" shall mean the average of the closing prices of the
Parent Common Stock on the NYSE as reported on the NYSE Composite Transaction
Tape for the 15 trading days randomly selected by lot out of the 35 trading days
ending on the second trading day preceding the Effective Time.
"Benefit Arrangement" shall mean, with respect to any Person, any
employment, consulting, severance, change in control or other similar contract,
arrangement or policy and each plan, arrangement (written or oral), program,
agreement or commitment providing for insurance coverage (including without
limitation any self-insured arrangements), workers' compensation, disability
benefits, life, health, disability or accident benefits (including without
limitation any "voluntary employees' beneficiary association" as defined in
Section 501(c)(9) of the Code providing for the same or other benefits) or for
deferred compensation, profit-sharing bonuses, stock options, stock appreciation
rights, stock purchases or other forms of incentive compensation other than
Welfare Plan, Pension Plan or Multiemployer Plan, in each case with respect to
which such Person or any ERISA Affiliate has or may have any liability (accrued,
contingent or otherwise).
"Business Day" shall have the meaning specified in Rule 14d-1(e)(6) of the
Exchange Act for purposes of Article II of this Agreement and for all other
purposes shall mean each day other than Saturdays, Sundays and days when
commercial banks are authorized to be closed for business in New York, New York.
"Bylaws" shall have the meaning set forth in Section 2.4(c).
"Cause" shall mean, with respect to any employee of the Company or the
Surviving Corporation, any acts or omissions on the part of such employee
involving: (i) material dishonesty or misappropriation adversely affecting the
Company or the Surviving Corporation, as the case may be, or its property or
funds; (ii) serious misconduct, including but not limited to reckless or willful
destruction of Company property, non-performance of employee's responsibilities
as an employee, violation of a material condition of employment, aiding a
competitor of the Company or the Surviving Corporation, as the case may be,
unauthorized disclosure or use of confidential information on trade secrets or
sexual, racial or other actionable harassment; (iii) conviction of, or a plea of
nolo contendere to, any felony; or (iv) illegal, unethical, dishonest,
fraudulent or other similar conduct tending to place such employee or the
Company or the Surviving Corporation, as the case may be, by reason of
association with such employee, in disrepute or to subject the Company or the
Surviving Corporation, as the case may be, to material financial loss or loss of
business, in each case as determined by the Company Board or the Board of
Directors of the Surviving Corporation, as the case may be.
"Certificate of Incorporation" shall have the meaning set forth in Section
2.4(c).
"Certificate of Merger" shall have the meaning set forth in Section 3.3.
"Certificate of Ownership" shall have the meaning set forth in Section 3.3.
"Certificates" shall have the meaning set forth in Section 3.9(b).
"Closing" shall have the meaning set forth in Section 3.2.
"Closing Date" shall have the meaning set forth in Section 3.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning set forth in the Recitals.
"Company" shall have the meaning set forth in the Preamble.
"Company Board" shall have the meaning set forth in Section 2.4(a).
"Company Disclosure Schedule" shall have the meaning set forth in Section
4.3.
"Company Financial Adviser" shall have the meaning set forth in Section
4.20.
"Company Stock Rights" shall mean all stock options, restricted stock
awards, performance awards, dividend equivalents, deferred stock, stock
payments, stock appreciation rights and shares of capital stock granted,
awarded, earned or purchased pursuant to any Stock Plan.
"Company Stockholder Meeting" shall have the meaning set forth in Section
7.1.
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"Confidentiality Agreement" shall have the meaning set forth in Section
7.2(b).
"Continuing Directors" shall have the meaning set forth in Section 2.4(c).
"Contract" shall mean any note, bond, mortgage, indenture, guarantee, other
evidence of indebtedness, lease, license, contract, agreement on other
instrument or obligation (written or oral) to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound which (i) does not terminate or is otherwise not cancelable
within one (1) year without penalty, cost or liability or (ii) involves the
payment or receipt of money in excess of $500,000.
"Conversion Ratio" shall mean the quotient obtained by dividing the Price
Per Share by the Average Parent Price.
"Current Premium" shall have the meaning set forth in Section 7.6(d).
"DGCL" shall have the meaning set forth in the Recitals.
"DOJ" shall have the meaning set forth in Section 7.8.
"Effective Time" shall have the meaning set forth in Section 3.3.
"Employee Benefits" shall have the meaning set forth in Section 7.5.
"Employee Plans" shall mean all Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
"Encumbrances" shall mean any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right-of-way, covenant,
condition, restriction, encumbrance or other rights of third parties.
"Environmental Laws" shall mean any federal, state or local law, statute,
ordinance, order, decree, rule or regulation relating to releases, discharges,
emissions or disposals to air, water, land or groundwater of Hazardous
Materials; to the use handling or disposal of polychlorinated biphenyls,
asbestos or urea formaldehyde or any other Hazardous Material; to the treatment,
storage, disposal or management of Hazardous Materials; to exposure to toxic,
hazardous or other controlled, prohibited or regulated substances; and to the
transportation, release or any other use of Hazardous Materials, including the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
9601, et seq. ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C.
6901, et seq. ("RCRA"), the Toxic Substances Control Act, 15 U.S.C. 2601, et
seq. ("TSCA"), the Occupational, Safety and Health Act, 29 U.S.C. 651, et seq.,
the Clean Air Act, 42 U.S.C. 7401, et seq., the Federal Water Pollution Control
Act, 33 U.S.C. 1251, et seq., the Safe Drinking Water Act, 42 U.S.C. 300f, et
seq., the Hazardous Materials Transportation act, 49 U.S.C. 1802 et seq.
("HMTA") and the Emergency Planning and Community Right to Know Act, 42 U.S.C.
11001 et seq. ("EPCRA"), and other comparable state and local laws and all
rules, regulations and guidance documents promulgated pursuant thereto or
published thereunder.
"Environmental Report" shall mean any written report, study, assessment,
audit or other similar document that addresses any issues of actual or potential
noncompliance with, or actual or potential liability under or cost arising out
of, any Environmental Law that may in any way affect the Company or any of its
Subsidiaries.
"ERISA" shall have the meaning set forth in Section 4.12(c).
"ERISA Affiliate" shall mean, with respect to any Person, any entity which
is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, or a member of as "affiliated
service group" with, such Person as defined in Section 414(b), (c) or (m) of the
Code.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Expenses" shall have the meaning set forth in Section 9.3(a).
"Facility" shall have the meaning set forth in Section 4.13(a).
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"Fixtures And Equipment" shall mean, with respect to any Person, all of the
furniture, fixtures, furnishings, machinery and equipment owned, leased or
licensed by such Person and located in, at or upon the facilities of such
Person.
"GAAP" shall mean generally accepted accounting principles in the United
States of America, as in effect from time to time, consistently applied.
"Hazardous Materials" shall mean each and every element, compound, chemical
mixture, contaminant, pollutant, material, waste or other substance which is
defined, determined or identified as hazardous or toxic under Environmental Laws
or the release of which is regulated under Environmental Laws. Without limiting
the generality of the foregoing, the term includes: "hazardous substances" as
defined in CERCLA; "extremely hazardous substances" as defined in EPCRA;
"hazardous waste" as defined in RCRA; "hazardous materials" as defined in HMTA;
"chemical substance or mixture" as defined in TSCA; crude oil, petroleum
products or any fraction thereof; radioactive materials including source,
byproduct or special nuclear materials; asbestos or asbestos-containing
materials; chlorinated fluorocarbons ("CFCs"); and radon.
"HSR Act" shall have the meaning set forth in Section 4.6(b).
"Indemnified Parties" shall have the meaning set forth in Section 7.6(a).
"Leases" shall mean, with respect to any Person, all leases (including
subleases, licenses, any occupancy agreement and any other agreement) of real or
personal property, in each case to which such Person or any of its Subsidiaries
is a party, whether as lessor, lessee, guarantor or otherwise, or by which any
of them or their respective properties or assets are bound, or which otherwise
relate to the operation of their respective businesses.
"Management Agreement" shall mean that certain Management Agreement, dated
as of November 1, 1996, by and among the Company, Dominick's Finer Foods, Inc.
and Yucaipa.
"Material Adverse Effect" shall mean, with respect to either of the Company
or Parent, as the context requires, a material adverse change in, or effect on,
the business, operations, assets, results of operations or condition (financial
or otherwise) of such Person and its Subsidiaries taken as a whole or any change
which materially impairs or materially delays the ability of such Person to
consummate the transactions contemplated by this Agreement.
"Merger" shall have the meaning set forth in the Recitals.
"Merger Consideration" shall have the meaning set forth in Section 3.7(a).
"Merger Sub" shall have the meaning set forth in the Preamble.
"Minimum Condition" shall have the meaning set forth in Section 2.1(a).
"Minimum Shares" shall have the meaning set forth in Section 2.1(a).
"Multiemployer Plan" shall mean, with respect to any Person, any
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA which such
Person or any ERISA Affiliate has or may have any liability (accrued, contingent
or otherwise).
"New Stock Rights" shall have the meaning set forth in Section 3.8(b).
"NLRB" shall have the meaning set forth in Section 4.15.
"Non-Voting Common Stock" shall have the meaning set forth in the Recitals.
"NYSE" shall mean the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 4.7.
"Offer" shall have the meaning set forth in Section 2.1.
"Offer Consummation Date" shall mean the date Merger Sub accepts for
payment and pays for all shares of Common Stock that have been validly tendered
and not withdrawn pursuant to the Offer.
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"Offer Documents" shall have the meaning set forth in Section 2.2(a).
"Outside Date" shall mean April 15, 1999.
"Parent" shall have the meaning set forth in the Preamble.
"Parent Board" shall have the meaning set forth in Section 3.8(b).
"Parent Common Stock" shall have the meaning set forth in Section 3.8(b).
"Parent Financial Adviser" shall mean Morgan Stanley & Co. Incorporated.
"Paying Agent" shall have the meaning set forth in Section 3.9(a).
"Payment Fund" shall have the meaning set forth in Section 3.9(a).
"Pension Plan" shall mean, with respect to any Person, any "employee
pension benefit plan" as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan) which such Person contributed to or was required to
contribute to, or under which such Person or any ERISA Affiliate has or may have
any liability (accrued, contingent or otherwise).
"Permitted Action" shall have the meaning set forth in Section 7.1(a).
"Permitted Encumbrances" shall mean any Encumbrances resulting from (i) all
statutory or other liens for Taxes or assessments which are not yet due or
delinquent or the validity of which are being contested in good faith by
appropriate proceedings for which adequate reserves are being maintained in
other accordance with GAAP; (ii) all cashiers', landlords', workers' and
repairers' liens, and other similar liens imposed by law, incurred in the
ordinary course of business; (iii) all laws and governmental rules, regulations,
ordinances and restrictions; (iv) all leases, subleases, licenses, concessions
or service contracts to which any Person or any of its Subsidiaries is a party;
(v) Encumbrances identified on title policies or preliminary title reports or
other documents or writings delivered or made available for inspection to Parent
prior to the date hereof or included in the Public Records; and (vi) all other
liens and mortgages, covenants, imperfections in title, charges, easements,
restrictions and other Encumbrances which, in the case of any such Encumbrances
pursuant to clause (i) through (vi), do not materially detract from or
materially interfere with the present use of the asset subject thereto or
affected thereby.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, governmental agency or instrumentality, or any
other entity.
"Preferred Stock" shall have the meaning set forth in Section 4.3.
"Price Per Share" shall have the meaning set forth in Section 2.1(a).
"Property" shall have the meaning set forth in Section 4.13(a).
"Proxy Statement" shall have the meaning set forth in Section 4.19.
"Schedule 14D-1" shall have the meaning set forth in Section 2.2(a).
"Schedule 14D-9" shall have the meaning set forth in Section 2.2(b).
"SEC" shall have the meaning set forth in Section 2.2(a).
"SEC Reports" shall have the meaning set forth in Section 4.8(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such regulation is in effect on the date
hereof.
"Spread Per Share" shall have the meaning set forth in Section 3.8(a).
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"Stock Plans" shall mean the 1995 Plan, 1996 Plan, Directors Deferred
Compensation and Restricted Stock Plan and Stock Purchase Plan and any other
stock option, performance unit or similar plan of the Company and its
Subsidiaries.
"Stock Purchase Plan" shall have the meaning set forth in Section 3.8(d).
"Stockholders" shall have the meaning set forth in the Recitals.
"Stockholders Agreement" shall have the meaning set forth in the Recitals.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which such Person
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions.
"Superior Transaction" shall mean any bona fide Alternative Transaction
involving at least 60% of the outstanding shares of Common Stock on terms that
the Company Board determines in its good faith judgment (after consultation with
the Company Financial Adviser or another financial adviser of nationally
recognized reputation, taking into account all the terms and conditions of the
Alternative Transaction, including any break-up fees, expense reimbursement
provisions, conditions to consummation and all other legal, financial,
regulatory and other aspects of the proposal and, to the extent relevant to any
of the foregoing, the identity of the Person proposing the Superior Transaction)
are more favorable to the Company's stockholders from a financial point of view
than this Agreement and the Merger taken as a whole.
"Surviving Corporation" shall have the meaning set forth in Section 3.1.
"Tax" or "Taxes" shall mean all federal, state, local, foreign and other
taxes, levies, imposts, assessments, impositions or other similar government
charges, including, without limitation, income, estimated income, business,
occupation, franchise, real property, payroll, personal property, sales,
transfer, stamp, use, employment, commercial rent or withholding, occupancy,
premium, gross receipts, profits, windfall profits, deemed profits, license,
lease, severance, capital, production, corporation, ad valorem, excise, duty or
other taxes, including interest, penalties and additions (to the extent
applicable) thereto whether disputed or not.
"Tax Return" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any documents with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
"Termination Fee" shall have the meaning set forth in Section 9.3(a).
"Transfer Taxes" shall have the meaning set forth in Section 7.12.
"Voting Common Stock" shall have the meaning set forth in the Recitals.
"Welfare Plan" shall mean, with respect to any Person, any "employee
welfare benefit plan" as defined in Section 3(1) of ERISA which such Person has
or may have any liability (accrued, contingent or otherwise).
"Yucaipa" shall mean The Yucaipa Companies, a California general
partnership.
"Yucaipa Warrant" shall mean that certain Class A Common Stock Purchase
Warrant No. W-1 issued by the Company to Yucaipa on March 22, 1995.
"1995 Plan" shall mean the Company's Restated 1995 Stock Option Plan.
"1996 Plan" shall mean the Company's 1996 Equity Participation Plan.
"1996 Stockholders Agreement" shall have the meaning set forth in Section
4.2.
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ARTICLE II.
THE TENDER OFFER
SECTION 2.1. The Offer.
(a) Provided that this Agreement shall not have been terminated in
accordance with Article IX, then (i) not later than the first Business Day after
execution of this Agreement, Parent and the Company shall issue a public
announcement of the execution of this Agreement and (ii) Merger Sub shall, as
soon as practicable, but in no event later than five Business Days after the
date of such announcement, commence (within the meaning of Rule 14d-2(a) of the
Exchange Act) a tender offer (the "Offer") to purchase all of the outstanding
shares of Common Stock at a price of $49.00 per share, net to the seller in cash
(the "Price Per Share") subject to reduction only for any applicable federal
withholding taxes. The Offer shall be made pursuant to an Offer to Purchase and
related Letter of Transmittal in form reasonably satisfactory to the Company and
containing terms and conditions set forth in this Agreement. The obligation of
Merger Sub to accept for payment, purchase and pay for shares of Common Stock
tendered pursuant to the Offer shall be subject only to (i) at least that number
of shares of Common Stock equivalent to a majority of the total issued and
outstanding shares of Common Stock on a fully diluted basis (without giving
effect to the shares issuable upon the exercise of the Yucaipa Warrant) on the
date such shares are purchased pursuant to the Offer (the "Minimum Shares")
being validly tendered and not withdrawn prior to the expiration of the Offer
(the "Minimum Condition") and (ii) the satisfaction of the other conditions set
forth in Annex A hereto, any of which conditions may be waived by Merger Sub in
its sole discretion; provided, however, that Merger Sub shall not waive the
Minimum Condition without the prior written consent of the Company. The Company
agrees that no shares of Common Stock held by the Company or any of its
Subsidiaries will be tendered to Merger Sub pursuant to the Offer.
(b) Without the prior written consent of the Company, neither Parent nor
Merger Sub will (i) decrease the Price Per Share payable in the Offer, (ii)
decrease the number of shares of Common Stock sought pursuant to the Offer or
change the form of consideration payable in the Offer, (iii) change or amend the
conditions to the Offer (including the conditions set forth in Annex A hereto)
or impose additional conditions to the Offer, (iv) change the expiration date of
the Offer or (v) otherwise amend, add or waive any term or condition of the
Offer in any manner adverse to the holders of shares of Common Stock; provided,
however, that if on any scheduled expiration date of the Offer, which shall
initially be 20 Business Days after the commencement date of the Offer, all
conditions to the Offer have not been satisfied or waived, Merger Sub may, and
at the request of the Company shall, from time to time, extend the expiration
date of the Offer for up to 10 additional Business Days (but in no event shall
Merger Sub be required to extend the expiration date of the Offer beyond the
Outside Date); and provided further that Merger Sub may, without the consent of
the Company, (x) extend the Offer for any period required by any rule,
regulation, interpretation or position of the SEC or the Staff thereof
applicable to the Offer and (y) extend the Offer if (1) the Offer Conditions
shall have been satisfied or waived and (2) the number of shares of Common Stock
that have been validly tendered and not withdrawn represent more than 65% but
less than 90% of the issued and outstanding shares of each of the Voting Common
Stock and the Non-Voting Common Stock; provided, however, that in no event shall
the extensions permitted under the foregoing clause (y) exceed, in the
aggregate, 10 Business Days. Parent and Merger Sub will, subject to the terms
and conditions of this Agreement, use their best efforts to consummate the
Offer. Assuming the prior satisfaction or waiver of all the conditions to the
Offer set forth in Annex A, and subject to the terms and conditions of this
Agreement, Merger Sub shall, and Parent shall cause Merger Sub to, accept for
payment, purchase and pay for, in accordance with the terms of the Offer, all
shares of Common Stock validly tendered and not withdrawn pursuant to the Offer
as soon as permitted under applicable law, recognizing that the parties wish to
close as expeditiously as possible following expiration or termination of the
waiting period under the HSR Act. Parent shall provide, or cause to be provided,
to Merger Sub, on a timely basis, the funds necessary to purchase any shares of
Common Stock that Merger Sub becomes obligated to purchase pursuant to the
Offer.
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SECTION 2.2. SEC Filings.
(a) As soon as reasonably practicable on the commencement date of the
Offer, Parent and Merger Sub shall file with the Securities and Exchange
Commission (the "SEC"), with respect to the Offer, a Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1"). The Schedule 14D-1 will comply as to form
and content in all material respects with the applicable provisions of the
federal securities laws and will contain or incorporate by reference the Offer
to Purchase, the related Letter of Transmittal and other ancillary documents and
agreements pursuant to which the Offer will be made (the Schedule 14D-1, the
Offer to Purchase, the Letter of Transmittal and such other documents being
collectively referred to herein as the "Offer Documents"). The Company and its
counsel shall be given an opportunity to review and comment upon the Offer
Documents and any amendment or supplement thereto prior to the filing thereof
with the SEC, and Parent and Merger Sub shall consider such comments in good
faith. Parent and Merger Sub agree to provide to the Company and its counsel any
comments which Parent, Merger Sub or their counsel may receive from the Staff of
the SEC with respect to the Offer Documents promptly after receipt thereof.
Parent, Merger Sub and the Company agree to correct promptly any information
provided by any of them for use in the Offer Documents which shall have become
false or misleading in any material respect, and Parent and Merger Sub further
agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to
be filed with the SEC and disseminated to the Company's stockholders, in each
case as and to the extent required by the applicable provisions of the federal
securities laws.
(b) As soon as reasonably practicable on the commencement date of the
Offer, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (as amended from time to time, the "Schedule 14D-9")
containing the recommendation of the Company Board described in Section 4.22
(subject to the right of the Company Board to withdraw, amend or modify such
recommendation in accordance with Section 7.1(a)) which will comply as to form
and content in all material respects with the applicable provisions of the
federal securities laws. The Company will use its reasonable best efforts to
cause the Schedule 14D-9 to be filed on the same date that the Schedule 14D-1 is
filed; provided, however, that in any event the Schedule 14D-9 will be filed no
later than ten Business Days following the commencement date of the Offer. The
Company will cooperate with Parent and Merger Sub in mailing or otherwise
disseminating the Schedule 14D-9 with the appropriate Offer Documents to the
stockholders of the Company. Parent and its counsel shall be given an
opportunity to review and comment upon the Schedule 14D-9 and any amendment or
supplement thereto prior to the filing thereof with the SEC, and the Company
shall consider any such comments in good faith. The Company agrees to provide to
Parent and Merger Sub and their counsel any comments which the Company or its
counsel may receive from the Staff of the SEC with respect to the Schedule 14D-9
promptly after receipt thereof. The Company, Parent and Merger Sub agree to
correct promptly any information provided by any of them for use in the Schedule
14D-9 which shall have become false or misleading in any material respect, and
the Company further agrees to take all steps necessary to cause such Schedule
14D-9 as so corrected to be filed with the SEC and disseminated to the Company's
stockholders, in each case as and to the extent required by the applicable
provisions of the federal securities laws. Parent, Merger Sub and the Company
each hereby agree to provide promptly such information necessary to the
preparation of the exhibits and schedules to the Schedule 14D-9 and the Offer
Documents which the respective party responsible therefor shall reasonably
request.
SECTION 2.3. Company Action. Promptly upon execution of this Agreement and
in connection with the Offer, the Company shall furnish Merger Sub with such
information (including a list of the stockholders of the Company, mailing labels
and a list of securities positions, each as of a recent date), and shall
thereafter render such assistance, as Parent or Merger Sub may reasonably
request in communicating the Offer to the Company's stockholders. Subject to the
requirements of applicable law and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Merger, Parent and Merger Sub and each of their respective affiliates and
associates shall (a) hold in confidence the information contained in any of such
labels and lists, (b) use such information only in connection with the Offer and
the Merger and (c) if this Agreement is terminated, promptly deliver to the
Company all copies of such information then in their possession.
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SECTION 2.4. Composition of the Company Board.
(a) Promptly upon the acceptance for payment of, and payment by Merger Sub
in accordance with the Offer for, not less than a majority of the outstanding
shares of Common Stock on a fully diluted basis (without giving effect to the
shares issuable upon the exercise of the Yucaipa Warrant) pursuant to the Offer,
Merger Sub shall be entitled to designate such number of members of the Board of
Directors of the Company (the "Company Board"), rounded up to the next whole
number, equal to that number of directors which equals the product of the total
number of directors on the Company Board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that such number of
shares of Common Stock owned in the aggregate by Merger Sub or Parent, upon such
acceptance for payment, bears to the number of shares of Common Stock
outstanding; provided, however, that until the Effective Time there shall be at
least one Continuing Director. Upon the written request of Merger Sub, the
Company shall, on the date of such request, (i) either increase the size of the
Company Board or secure the resignations of such number of its incumbent
directors as is necessary to enable Parent's designees to be so elected to the
Company Board and (ii) cause Parent's designees to be so elected, in each case
as may be necessary to comply with the foregoing provisions of this Section
2.4(a).
(b) The Company's obligation to cause designees of Merger Sub to be elected
or appointed to the Company Board shall be subject to Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly
take all actions required pursuant to Section 14(f) and Rule 14f-1 in order to
fulfill its obligations under this Section 2.4, and shall include in the
Schedule 14D-9 such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1. Parent and Merger
Sub will supply to the Company any information with respect to any of them and
their nominees, officers, directors and affiliates required by Section 14(f) and
Rule 14f-1 and applicable rules and regulations.
(c) After the time that Merger Sub's designees constitute at least a
majority of the Company Board and until the Effective Time, any (i) amendment or
termination of this Agreement, (ii) amendment to the Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") or bylaws (the
"Bylaws") of the Company or (iii) extension of time for the performance or
waiver of the obligations or other acts of Parent or Merger Sub or waiver of the
Company's rights hereunder shall require the approval of a majority of the then
serving directors, if any, who are directors as of the date hereof (the
"Continuing Directors"), except to the extent that applicable law requires that
such action be acted upon by the full Company Board, in which case such action
will require the concurrence of a majority of the Company Board, which majority
shall include each of the Continuing Directors. If there is more than one
Continuing Director and prior to the Effective Time, the number of Continuing
Directors is reduced for any reason, the remaining Continuing Director or
Directors shall be entitled to designate persons to fill such vacancies who
shall be deemed Continuing Directors for purposes of this Agreement. In the
event there is only one Continuing Director and he or she resigns or is removed
or if all Continuing Directors resign or are removed, he, she or they, as
applicable, shall be entitled to designate his, her or their successors, as the
case may be, each of whom shall be deemed a Continuing Director for purposes of
this Agreement. The Company Board shall not delegate any matter set forth in
this Section 2.4 to any committee of the Company Board.
ARTICLE III.
THE MERGER
SECTION 3.1. The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the DGCL, at the Effective Time, Merger
Sub shall be merged with and into the Company. As a result of the Merger, the
separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation of the Merger (the "Surviving
Corporation").
SECTION 3.2. Closing and Closing Date. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to the provisions of Section 9.1, the closing (the "Closing")
of the Merger shall take place (a) at 9:00 a.m., New York City time, on the
second
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Business Day after all of the conditions to the respective obligations of the
parties set forth in Article VIII hereof shall have been satisfied or waived or
(b) at such other time and date as Parent and the Company shall agree (such date
and time on and at which the Closing occurs being referred to herein as the
"Closing Date"). The Closing shall take place at the offices of Latham & Watkins
located at 633 West Fifth Street, Sixth Floor, Los Angeles, California 90071.
SECTION 3.3. Effective Time. The parties hereto shall cause the Merger to
be consummated by either (i) filing a certificate of merger (the "Certificate Of
Merger") on the Closing Date with the Secretary of State of the State of
Delaware, or (ii) in the event Merger Sub shall have acquired 90% or more of the
outstanding shares of each class of capital stock of the Company, filing a
certificate of ownership and merger (the "Certificate of Ownership") with the
Secretary of State of the State of Delaware, in each case in such form as
required by and executed in accordance with the relevant provisions of the DGCL
(the date and time of the filing of the Certificate of Merger or the Certificate
of Ownership, as the case may be, with the Secretary of State of the State of
Delaware or at such later time or date after such filing as may be specified in
the Certificate of Merger or the Certificate of Ownership, as the case may be,
being the "Effective Time").
SECTION 3.4. Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, immunities, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation. At Parent's election, any direct or
indirect subsidiary of Parent other than Merger Sub may be merged with and into
the Company instead of Merger Sub; provided, however, that such election (i)
does not cause or result in a delay or postponement of the consummation of the
Offer or the Effective Time and (ii) shall not relieve Merger Sub of any of its
obligations under this Agreement. In the event of such an election, the parties
agree to execute an appropriate amendment to this Agreement in order to reflect
such election.
SECTION 3.5. Certificate of Incorporation; Bylaws.
(a) At the Effective Time and without any further action on the part of the
Company and Merger Sub, the Certificate of Incorporation of the Company as in
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended as provided
therein and under the DGCL, except that the Certificate of Incorporation of the
Surviving Corporation shall provide for the authorized capitalization and for
the number of directors set forth in the Certificate of Merger filed with the
Secretary of State of the State of Delaware.
(b) At the Effective Time and without any further action on the part of the
Company and Merger Sub, the Bylaws of the Company as in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation until
duly amended as provided for therein and under the DGCL.
SECTION 3.6. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed (as the case may be) and qualified.
SECTION 3.7. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or the holders of any of the following securities:
(a) Subject to Section 3.7(d), each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of
Common Stock to be canceled in accordance with Section 3.7(b) hereof) shall
be converted into and represent the right to receive the Price Per Share in
cash (the "Merger Consideration"). The Merger Consideration shall be
payable upon the surrender of the certificate formerly representing such
share of Common Stock. As of the Effective Time, all such shares of Common
Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Common Stock shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration.
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(b) Each share of Common Stock that is (i) held in the treasury of the
Company or (ii) owned by Parent, Merger Sub or any other direct or indirect
wholly-owned subsidiary of Parent or the Company, in each case immediately
prior to the Effective Time, shall be canceled and retired without any
conversion thereof and shall cease to exist and no payment or distribution
shall be made with respect thereto.
(c) Each share of common, preferred or other capital stock of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of common,
preferred or other capital stock of the Surviving Corporation and shall
thereafter constitute all of the issued and outstanding capital stock of
the Surviving Corporation.
(d) Notwithstanding any other provision of this Agreement to the
contrary, shares of Common Stock outstanding immediately prior to the
Effective Time and held by a holder who has (i) not voted in favor of the
Merger or consented thereto in writing and (ii) demanded appraisal for such
Common Stock in accordance with the DGCL shall not be converted into a
right to receive the Merger Consideration, but shall be entitled to receive
such amount as shall be determined pursuant to Section 262 of the DGCL,
unless such holder fails to perfect or withdraws or otherwise loses its
right to appraisal or it is determined that such holder does not have
appraisal rights in accordance with the DGCL. If after the Effective Time
such holder fails to perfect or withdraws or loses its right to appraisal,
or if it is determined that such holder does not have an appraisal right,
such shares of Common Stock shall be treated as if they had been converted
as of the Effective Time for a right to receive the Merger Consideration
without any interest thereon. The Company shall give Parent and Merger Sub
prompt notice of any demands received by the Company for appraisal of
shares of Common Stock pursuant to Section 262 of the DGCL, any withdrawal
of such demands and any other instruments served pursuant to the DGCL and
received by the Company, and Parent and Merger Sub shall have the right to
direct all negotiations and proceedings with respect to such demands,
except as required by applicable law. The Company shall not, except with
the prior written consent of Parent and Merger Sub, make any payment with
respect to, or settle or offer to settle, any such demands.
(e) As of the Effective Time, the Yucaipa Warrant shall no longer be
outstanding and shall automatically be canceled and shall cease to exist,
and the holder thereof shall cease to have any rights with respect thereto,
except that in the event that the Yucaipa Warrant shall not have been
purchased by Parent or Merger Sub in accordance with the Stockholders
Agreement, the holder thereof shall have the right to receive the
consideration described in the Stockholders Agreement.
SECTION 3.8. Treatment of Employee Options and Other Company Stock Rights.
(a) Prior to the Effective Time, the Company may accelerate to the day
after the Effective Time the vesting of the unvested Company Stock Rights (or
any portion thereof) identified on Section 3.8(a) of the Company Disclosure
Schedule but, other than those Company Stock Rights permitted to be accelerated
hereunder, neither the Company, the Company Board nor any committee thereof
shall accelerate the vesting or exercisability of any Company Stock Rights prior
to the Effective Time. Prior to the Effective Time, the Company will enter into
agreements in respect of those outstanding Company Stock Rights heretofore
granted pursuant to the 1995 Plan and the 1996 Plan which are identified on
Section 3.8(a) of the Company Disclosure Schedule. Such agreements will provide
for the payment, upon surrender of each Company Stock Right on the day after the
Effective Time, of an amount of cash per share subject to the vested portion
(including any Company Stock Right or portion thereof for which the vesting is
accelerated pursuant to this Section 3.8(a)) of each such Company Stock Right
equal to the excess, if any, of the Price Per Share over the exercise price of
such Company Stock Right (the "Spread Per Share") less an amount equal to all
taxes required to be withheld from such payment. Subject to Section 3.8(b), any
Company Stock Rights not so surrendered or otherwise exercised prior to the
Effective Time shall terminate at the Effective Time in accordance with the
terms of the applicable Stock Plan or such agreements with optionees, and the
Company and the Company Board, or any committee thereof, shall take, or cause to
be taken, any action required or desirable to effectuate such termination.
Parent shall cause the Company to pay, on the day after the Effective Time, the
aggregate Spread Per Share to the holders of Company Stock Rights surrendered in
accordance with this Section 3.8(a).
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(b) Prior to the Effective Time, the Company Board (or, if appropriate, any
Committee thereof) and the Board of Directors of Parent (the "Parent Board")
shall adopt appropriate resolutions and take all other actions necessary (or
instruct the officers of the Company to take all such actions, including,
without limitation, causing the Company to enter into appropriate agreements
with the holders of all affected Company Stock Rights) to provide that effective
at the Effective Time, the vested and unvested portion of all outstanding
Company Stock Rights heretofore granted under the 1995 Plan and the 1996 Plan
other than those Company Stock Rights identified on Section 3.8(a) of the
Company Disclosure Schedule (which will be canceled in exchange for the payment
provided for in Section 3.8(a) above) shall be assumed by Parent and converted
automatically into options to purchase shares of common stock, par value $.01
per share, of Parent (the "Parent Common Stock") (collectively, "New Stock
Rights") in an amount and, if applicable, at an exercise price determined as
provided below:
(i) The number of shares of Parent Common Stock to be subject to the
New Stock Right shall be equal to the product of (x) the number of shares
of Common Stock remaining subject (as of immediately prior to the Effective
Time) to the Company Stock Right identified on Section 3.8(b) of the
Company Disclosure Schedule multiplied by (y) the Conversion Ratio,
provided that any fractional shares of Parent Common Stock resulting from
such multiplication shall be rounded down to the nearest share; and
(ii) The exercise price per share of Parent Common Stock under the New
Stock Right shall be equal to the exercise price per share of the Common
Stock under the original Company Stock Right divided by the Conversion
Ratio, provided that such exercise price shall be rounded down to the
nearest cent.
(iii) As soon as practicable (but in any event within fifteen (15)
Business Days) after the Effective Time, Parent shall deliver to each
holder of an outstanding Company Stock Right an appropriate notice setting
forth such holder's rights pursuant thereto, and the unvested portion of
such Company Stock Right shall otherwise continue in effect on the same
terms and conditions (including antidilution provisions) as were in effect
prior to the Effective Time.
(iv) Subject to any applicable limitations under the Securities Act,
Parent shall file a registration statement on Form S-8 (or any successor
form) or another appropriate form (or shall cause such New Stock Rights to
be deemed to be an option or other stock right issued pursuant to a stock
option or other equity compensation plan of Parent for which shares of
Parent Common Stock have previously been registered pursuant to an
appropriate registration form with the SEC), and shall cause such
registration statement to be effective on or prior to the date of the
Effective Time, with respect to the shares of Parent Common Stock issuable
upon exercise of the New Stock Rights, and shall use all reasonable efforts
to maintain the effectiveness of such registration statement (and maintain
the current status of the prospectus or prospectuses contained therein) for
so long as such New Stock Rights shall remain outstanding.
The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Code) shall be, and is intended
to be, effected in a manner which is consistent with Section 424(a) of the Code.
Except as otherwise provided for in this Section 3.8, after the Effective Time,
each New Stock Right shall be exercisable and shall vest upon the same terms and
conditions as were applicable to the related Company Stock Right immediately
prior to the Effective Time (except that with regard to such New Stock Right,
any references to the Company shall be deemed, as appropriate, to include
Parent); provided, however, that any New Stock Rights held by an employee or
consultant of the Company or any of its Subsidiaries whose employment or
consulting arrangement, as the case may be, is terminated without Cause or is
subject to a Constructive Termination (which term shall be defined in the
agreements entered into with the holders of the applicable Company Stock Rights
in a manner consistent with the definition of such term contained in the
Employment Agreements (each dated as of October 9, 1998) identified on Section
4.12 of the Company Disclosure Schedule), in either case after the Effective
Time, shall become fully vested on the date of such termination. Parent agrees
that it shall take all action necessary, on or prior to the Effective Time, to
authorize and reserve a number of shares of Parent Common Stock sufficient for
issuance upon exercise of New Stock Rights as contemplated by this Section 3.8.
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(c) Prior to the Effective Time, the Company will take all actions
necessary (i) to shorten the offering period under the Company's 1997 Employee
Stock Purchase Plan (the "Stock Purchase Plan") in which the Effective Time
occurs so that such offering period terminates on the day prior to the Effective
Time and (ii) to terminate the Stock Purchase Plan effective as of the Effective
Time.
(d) Prior to the Effective Time, the Company, the Company Board or any
committee thereof shall take such actions, including, without limitation, by
adopting appropriate resolutions and timely providing any notification required
pursuant to the terms of any Stock Plan or Company Stock Right necessary to
ensure that as of the Effective Time, no holder of a Company Stock Right or any
participant in any Stock Plan shall have any right thereunder to acquire capital
stock of the Company, Merger Sub or the Surviving Corporation. The Company, the
Company Board or any committee thereof will take such actions, including,
without limitation, by adopting appropriate resolutions and timely providing any
notification required pursuant to the terms of any Stock Plan or Company Stock
Right necessary to ensure that as of the Effective Time, none of Merger Sub, the
Company, the Surviving Corporation or any of their respective Subsidiaries is or
will be bound by any Company Stock Rights, other options, warrants, rights or
agreements which would entitle any person, other than Merger Sub or its
affiliates, to own any capital stock of the Company, Merger Sub, the Surviving
Corporation or any of their respective subsidiaries or to receive any payment in
respect thereof, except as otherwise provided herein.
SECTION 3.9. Surrender of Shares of Common Stock; Stock Transfer Books.
(a) Prior to the Closing Date, Merger Sub shall designate a bank or trust
company reasonably acceptable to the Company to act as agent for the holders of
shares of Common Stock in connection with the Merger (the "Paying Agent") to
receive the Merger Consideration to which holders of shares of Common Stock
shall become entitled pursuant to Section 3.7(a). Prior to the filing of the
Certificate of Merger or Certificate of Ownership, as the case may be, with the
Secretary of State of the State of Delaware, Parent or Merger Sub will deposit
with the Paying Agent, in trust for the benefit of the stockholders of the
Company, cash in an aggregate amount equal to the product of (i) the number of
shares of Common Stock outstanding (and not owned of record by Parent or Merger
Sub) immediately prior to the Effective Time multiplied by (ii) the Price Per
Share. The deposit made by Parent or Merger Sub pursuant to the preceding
sentence is hereinafter referred to as the "Payment Fund." The Paying Agent
shall cause the Payment Fund to be (i) held for the benefit of the holders of
Common Stock and (ii) promptly applied to making the payments provided for in
Section 3.9(b). The Payment Fund shall not be used for any purpose that is not
provided for herein.
(b) Promptly after the Effective Time, Parent shall, or shall cause the
Surviving Corporation to, cause to be mailed to each record holder, as of the
Effective Time, of an outstanding certificate or certificates which immediately
prior to the Effective Time represented shares of Common Stock (the
"Certificates"), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Paying Agent) and
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender to the Paying Agent of a
Certificate, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, and such other
documents as may be reasonably required pursuant to such instructions, the
holder of such Certificate shall be paid promptly, without interest thereon and
subject to any required withholding or taxes, the amount of cash to which such
holder is entitled pursuant to Section 3.7(a), and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered and exchanged,
each Certificate, subject to Sections 3.7(b) and (d), shall represent solely the
right to receive the Merger Consideration into which the Common Stock it
theretofore represented shall have been converted pursuant to Section 3.7(a),
subject to any required withholding of taxes. If the payment of the Merger
Consideration is to be made to a person other than the person in whose name the
surrendered Certificate is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or shall be otherwise
in proper form for transfer and that the person requesting such payment shall
have paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
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(c) At any time after the six month anniversary of the Effective Time,
Parent shall be entitled to require the Paying Agent to deliver to Parent all
cash and any other instruments in its possession relating to the transactions
contemplated by this Agreement which had been made available to the Paying Agent
and which have not been distributed to holders of Certificates. Thereafter, each
holder of a Certificate, subject to Sections 3.7(b) and (d), may surrender such
Certificate to the Surviving Corporation and (subject to applicable abandoned
property, escheat or other similar laws) receive in exchange therefor the
consideration payable in respect thereto pursuant to Section 3.7(a), without
interest, but shall have no greater rights against the Surviving Corporation
than may be accorded to general creditors of the Surviving Corporation.
Notwithstanding the foregoing, none of Parent, the Surviving Corporation or the
Paying Agent shall be liable for the Price Per Share to any holder of a
Certificate if such amount is delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(d) At the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers of
shares of Common Stock on the records of the Company. From and after the
Effective Time, the holders of Certificates evidencing ownership of shares of
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Common Stock except as otherwise
provided for herein or by applicable law.
(e) If, at any time after the Effective Time, the Surviving Corporation
shall consider or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving Corporation its
right, title or interest in, to or under any of the rights, properties or assets
of either Merger Sub or the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, the officers of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of each of Merger
Sub and the Company or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in such names and on such behalves or otherwise,
all such other actions and things as may be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in, to and under such
rights, properties or assets in the Surviving Corporation or otherwise to carry
out the purposes of this Agreement.
SECTION 3.10. Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Paying Agent shall
pay with respect to such lost, stolen or destroyed Certificates, upon the making
of an affidavit of that fact by the holder thereof, such amount as may be
required pursuant to Section 3.9; provided, however, that Parent may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against Parent or the Paying Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that:
SECTION 4.1. Organization and Qualification. The Company and each of its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, with the corporate power and
authority to own and operate its business as presently conducted. The Company
and each of its Subsidiaries is duly qualified as a foreign corporation or other
entity to do business and is in good standing in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except for such failures of the
Company and any of its Subsidiaries to be so qualified as would not,
individually or in the aggregate, have a Material Adverse Effect. The Company
has previously made available to Parent true and correct copies of its
Certificate of Incorporation and Bylaws and the charter documents and bylaws or
other organizational documents of each of its Subsidiaries, as currently in
effect.
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SECTION 4.2. Authorization; Validity and Effect of Agreement. The Company
has the requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby have been duly authorized
by the Company Board and all other necessary corporate action on the part of the
Company, other than the adoption and approval of this Agreement by the
stockholders of the Company, and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement and the transactions
contemplated hereby. The Company Board has approved for the purposes of Section
251(b) of the DGCL the agreement of merger contained in this Agreement. This
Agreement has been duly and validly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing. The Amended and Restated
Stockholders' Agreement, dated as of November 1, 1996 and as amended as of the
date of this Agreement (the "1996 Stockholders Agreement"), a true and complete
copy of which has been provided to Parent, among the Company, Dominick's Finer
Foods, Inc. and the stockholders of the Company named therein (a) does not
restrict, prevent, prohibit or otherwise impede any holder of Common Stock from
(i) tendering its shares in the Offer or (ii) entering into a Stockholders
Agreement or performing its obligations thereunder and (b) will terminate upon
the consummation of the Offer. The amendment to the 1996 Stockholders Agreement
does not require the consent of any party to such agreement other than the
Stockholders. The Yucaipa Warrant, as amended as of the date of this Agreement,
a true and complete copy of which has been provided to Parent, permits the
transfer of the Yucaipa Warrant to Parent as described in the Stockholders
Agreement.
SECTION 4.3. Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Voting Common Stock, 10,000,000 shares of
Non-Voting Stock and 4,000,000 shares of preferred stock having a par value of
$.01 per share (the "Preferred Stock"). As of October 8, 1998, 18,679,737 shares
of Voting Common Stock (none of which are held in the Company treasury),
2,861,354 shares of Non-Voting Common Stock (none of which are held in the
Company treasury) and no shares of Preferred Stock were issued and outstanding.
As of October 8, 1998, (i) 1,205,438 shares of Voting Common Stock and no shares
of Non-Voting Stock were reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of outstanding Company Stock Rights
and (ii) 3,874,492 shares of Voting Common Stock were reserved for issuance and
issuable upon or otherwise deliverable in connection with the exercise of the
Yucaipa Warrant. All of the issued and outstanding shares of Common Stock are
validly issued, fully paid and non-assessable. Except pursuant to the exercise
of Company Stock Rights prior to the date hereof, since October 8, 1998 no
shares of Common Stock or Preferred Stock have been issued. As of the date
hereof, except as otherwise disclosed in Section 4.3 of the disclosure schedule
delivered by the Company to Parent and Merger Sub prior to the execution of this
Agreement (the "Company Disclosure Schedule"), there are no existing options,
warrants, calls, subscriptions, convertible securities or other securities,
agreements, commitments, or obligations which would require the Company or any
of its Subsidiaries to issue or sell shares of Common Stock, Preferred Stock or
any other equity securities, or securities convertible into or exchangeable or
exercisable for shares of Common Stock, Preferred Stock or any other equity
securities of the Company or any of its Subsidiaries. Except as set forth in
Section 4.3 of the Company Disclosure Schedule, the Company has no commitments
or obligations to purchase or redeem any shares of Common Stock or the capital
stock of any of its Subsidiaries or to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any such
Subsidiary or any other entity. Except as set forth in Section 4.3 of the
Company Disclosure Schedule, there are no stockholders' agreements, voting
trusts or other agreements or understandings to which the Company is a party or
by which it is bound relating to the voting or registration of any shares of
capital stock of the Company or any preemptive rights with respect thereto.
Provided that Merger Sub is not a bank holding company (as defined in 12 U.S.C.
Section 1841), or an Affiliate of a bank holding company, the shares of
Non-Voting Common Stock to be acquired by Merger Sub upon the Offer
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Consummation Date may be converted into Voting Common Stock in accordance with
the terms of the Company's Certificate of Incorporation.
SECTION 4.4. Subsidiaries. The only Subsidiaries of the Company are those
set forth in Section 4.4 of the Company Disclosure Schedule. All of the
outstanding shares of capital stock and other ownership interests of each of the
Company's Subsidiaries are validly issued, fully paid, non-assessable and free
of preemptive rights, rights of first refusal or similar rights. Except as set
forth in Section 4.4 of the Company Disclosure Schedule, the Company owns,
directly or indirectly, all of the issued and outstanding capital stock and
other ownership interests of each of its Subsidiaries, free and clear of all
Encumbrances, and there are no existing options, warrants, calls, subscriptions,
convertible securities or other securities, agreements, commitments or
obligations of any character relating to the outstanding capital stock or other
securities of any Subsidiary of the Company or which would require any
Subsidiary of the Company to issue or sell any shares of its capital stock,
ownership interests or securities convertible into or exchangeable for shares of
its capital stock or ownership interests.
SECTION 4.5. Other Interests. Except as set forth in Section 4.5 of the
Company Disclosure Schedule, neither the Company nor any of the Company's
Subsidiaries owns, directly or indirectly, any interest or investment in
(whether equity or debt) any corporation, partnership, limited liability
company, joint venture, business, trust or other Person (other than the
Company's Subsidiaries).
SECTION 4.6. No Conflict; Required Filings and Consents.
(a) Except as set forth in Section 4.6 of the Company Disclosure Schedule
with respect to clause (iii) below, neither the execution and delivery of this
Agreement nor the performance by the Company of its obligations hereunder, nor
the consummation of the transactions contemplated hereby, will: (i) conflict
with the Company's Certificate of Incorporation or Bylaws; (ii) assuming
satisfaction of the requirements set forth in Section 4.6(b) below, violate any
statute, law, ordinance, rule or regulation, applicable to the Company or any of
its Subsidiaries or any of their properties or assets; or (iii) violate, breach,
be in conflict with or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or permit the
termination of any provision of, or result in the termination of, the
acceleration of the maturity of, or the acceleration of the performance of any
obligation of the Company or any of its Subsidiaries under, or cause an
indemnity payment to be made by the Company or any of its Subsidiaries under, or
result in the creation or imposition of any lien upon any properties, assets or
business of the Company or any of its Subsidiaries under, any note, bond,
indenture, mortgage, deed of trust, lease, franchise, permit, authorization,
license, contract, instrument or other agreement or commitment or any order,
judgment or decree to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries or any of their respective
assets or properties is bound or encumbered, or give any Person the right to
require the Company or any of its Subsidiaries to purchase or repurchase any
notes, bonds or instruments of any kind except, in the case of clauses (ii) and
(iii), for such violations, breaches, conflicts, defaults or other occurrences
which, individually or in the aggregate, would not have a Material Adverse
Effect.
(b) Except (i) for the pre-merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act"), (ii) for the filing of the
Certificate of Merger or Certificate of Ownership, as the case may be, pursuant
to the DGCL, (iii) with respect to matters set forth in Sections 4.6(a) or
4.6(b) of the Company Disclosure Schedule and (iv) for applicable requirements,
if any, of the Exchange Act, no consent, approval or authorization of, permit
from, notice to, or declaration, filing or registration with, any governmental
or regulatory authority, or any other Person or entity is required to be made or
obtained by the Company or its Subsidiaries in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, except where the failure to obtain such
consent, approval, authorization, permit or declaration, to deliver such notice
or to make such filing or registration would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 4.7. Compliance. The Company and each of its Subsidiaries is in
compliance with all foreign, federal, state and local laws and regulations
applicable to its operations or with respect to which compliance is a condition
of engaging in the business thereof, except to the extent that failure to comply
would not,
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individually or in the aggregate, have a Material Adverse Effect. To the
knowledge of the Company, neither the Company nor any of its Subsidiaries has
received any notice asserting a failure, or possible failure, to comply with any
such law or regulation, the subject of which notice has not been resolved as
required thereby or otherwise to the satisfaction of the party sending the
notice, except for such failure as would not, individually or in the aggregate,
have a Material Adverse Effect. The Company and its Subsidiaries have all
permits, licenses grants, authorizations, easements, consents, certificates,
approvals, orders and franchises (collectively, "Permits") from governmental
agencies required to conduct their respective businesses as they are now being
conducted and assuming that all necessary consents to transfer are obtained, all
such Permits will remain in effect after the consummation of the Offer and after
the Effective Time, except for such failures to have such Permits that would
not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 4.8. SEC Documents.
(a) The Company has delivered or made available to Parent true and complete
copies of each registration statement, proxy or information statement, form,
report and other documents required to be filed by it with the SEC since January
1, 1997 (collectively, the "SEC Reports"). As of their respective dates, the SEC
Reports (i) complied, or, with respect to those not yet filed, will comply, in
all material respects with the applicable requirements of the Securities Act and
the Exchange Act and (ii) did not, or, with respect to those not yet filed, will
not, contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. The Company has filed all required SEC Reports required to be filed
by it under the Exchange Act since November 1, 1996. The Company has heretofore
made available or promptly will make available to Parent a complete and correct
copy of all amendments or modifications to any SEC Report which has been filed
prior to the date hereof or which is required to be filed but has not yet been
filed with the SEC.
(b) Each of the consolidated balance sheets of the Company included in or
incorporated by reference into the SEC Reports (including the related notes and
schedules) presents fairly, in all material respects, the consolidated financial
position of the Company and its consolidated Subsidiaries as of its date, and
each of the consolidated statements of income, retained earnings and cash flows
of the Company included in or incorporated by reference into the SEC Reports
(including any related notes and schedules) presents fairly, in all material
respects, the results of operations, retained earnings or cash flows, as the
case may be, of the Company and its Subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end audit
adjustments), in each case in accordance with GAAP consistently applied during
the periods involved, except as may be noted therein.
(c) Except as set forth in Section 4.8(c) of the Company Disclosure
Schedule and except as set forth in the SEC Reports, neither the Company nor any
of its Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on, or reserved against in, a consolidated balance sheet of the
Company and its Subsidiaries or in the notes thereto, prepared in accordance
with GAAP consistently applied, except for (i) liabilities or obligations that
were so reserved on, or reflected in (including the notes to), the consolidated
balance sheet of the Company as of August 8, 1998, (ii) liabilities or
obligations arising in the ordinary course of business (including trade
indebtedness) since August 8, 1998 and (iii) liabilities or obligations which
would not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 4.9. Absence of Certain Changes. Except as set forth in Section 4.9
of the Company Disclosure Schedule and except as set forth in the SEC Reports
and except for the transactions expressly contemplated hereby, since November 1,
1997, the Company and its Subsidiaries have conducted their respective
businesses only in the ordinary and usual course consistent with past practices
and there has not been any (i) change in the Company's business, operations,
condition (financial or otherwise), results of operations, assets or
liabilities, except for changes contemplated hereby or changes which have not,
individually or in the aggregate, had a Material Adverse Effect, or (ii)
condition, event or occurrence which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. Except as set
forth in Section 4.9 of the Company Disclosure Schedule and except as set forth
in the SEC Reports, from
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August 8, 1998 through the date of this Agreement, neither the Company nor any
of its Subsidiaries has taken any of the actions prohibited by Section 6.1
hereof.
SECTION 4.10. Litigation. Except as set forth in Section 4.10 of the
Company Disclosure Schedule and except as set forth in the SEC Reports, there is
no Action instituted, pending or, to the knowledge of the Company, threatened,
in each case against the Company or any of its Subsidiaries, which would,
individually or in the aggregate, directly or indirectly, have a Material
Adverse Effect, nor is there any outstanding judgment, decree or injunction, in
each case against the Company or any of its Subsidiaries, or any order of any
domestic or foreign court, governmental department, commission or agency
applicable to the Company or any of its Subsidiaries which has or will have,
individually or in the aggregate, a Material Adverse Effect.
SECTION 4.11. Taxes. Except as set forth in Section 4.11 of the Company
Disclosure Schedule:
(a) The Company and its Subsidiaries have (A) duly filed (or there
have been filed on their behalf) with the appropriate governmental
authorities all Tax Returns required to be filed by them and such Tax
Returns are true, correct and complete in all material respects, except
where (other than in the case of federal income Tax Returns) any such
failure to file, or failure to be true, correct and complete, would not,
individually or in the aggregate, have a Material Adverse Effect, and (B)
duly paid in full, or adequately disclosed and fully provided for as a
liability on the financial statements of the Company and its Subsidiaries
included in the SEC Reports or delivered to Parent prior to the date
hereof, all material Taxes;
(b) The Company and its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the
withholding of Taxes and the payment of such withheld Taxes to the proper
governmental authorities, except where any such failure to comply, withhold
or pay over would not, individually or in the aggregate, have a Material
Adverse Effect;
(c) All federal income Tax Returns of the Company and its Subsidiaries
for periods through the taxable year ended on October 31, 1994 have been
audited, and no federal or material state, local or foreign audits or other
administrative proceedings or court proceedings are presently being
conducted with regard to any Taxes or Tax Returns of the Company or its
Subsidiaries and neither the Company nor its Subsidiaries has received a
written notice of any pending audits with respect to material Taxes or
material Tax Returns of the Company, and neither the Company nor any of its
Subsidiaries has waived in writing any statute of limitations with respect
to material Taxes;
(d) Neither the Internal Revenue Service nor any other taxing
authority (whether domestic or foreign) has asserted in writing against the
Company or any of its Subsidiaries any deficiency or claim for Taxes,
except where any such deficiency or claim for Taxes, if decided adversely
to the Company or any of its Subsidiaries, would not, individually or in
the aggregate, have a Material Adverse Effect;
(e) There are no material liens for Taxes upon any Assets of the
Company or any Subsidiary thereof, except for liens for Taxes not yet due
and payable and liens for Taxes that are being contested in good faith by
appropriate proceedings, and no material written power of attorney that has
been granted by the Company or its Subsidiaries (other than to the Company
or a Subsidiary) currently is in force with respect to any matter relating
to Taxes;
(f) Neither the Company nor any of its Subsidiaries has, with regard
to any assets or property held by any of them, agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by the
Company or any of its Subsidiaries;
(g) Since March 22, 1995, none of the Company or its Subsidiaries has
been a member of an affiliated group filing a consolidated federal income
tax return other than a group the common parent of which is the Company;
(h) As of the Closing Date, except as set forth in Section 4.11(h) of
the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries shall be party to, be bound by or have an obligation under,
any Tax sharing agreement or similar contract or arrangement or any
agreement that
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obligates it to make any payment computed by reference to Taxes, taxable
income or taxable losses of any other Person; and
(i) Neither the Company nor any of its Subsidiaries has agreed to
make, or is required to make, any material adjustment under Section 481(a)
of the Code.
(j) Neither the Company nor any of its Subsidiaries has issued or
assumed (i) any obligations described in Section 279(a) of the Code, (ii)
any applicable high yield discount obligation, as defined in Section 163(i)
of the Code or (iii) any registration-required obligation, within the
meaning of Section 163(f)(2) of the Code, that is not in registered form.
SECTION 4.12. Employee Benefit Plans.
(a) Section 4.12 of the Company Disclosure Schedule contains a complete
list of all Employee Plans of the Company and its ERISA Affiliates. True and
complete copies or descriptions of the Employee Plans of the Company and its
ERISA Affiliates, including, without limitation, trust instruments, if any, that
form a part thereof, and all amendments thereto have been furnished or made
available to Parent and its counsel.
(b) Except as described in Section 4.12 of the Company Disclosure Schedule,
each of the Employee Plans of the Company and its ERISA Affiliates (other than
any Multiemployer Plan) has been administered and is in compliance with the
terms of such Employee Plan and all applicable laws, rules and regulations
except for noncompliance which could not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
(c) No "reportable event" (as such term is used in section 4043 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) for which
the notice requirements to the Pension Benefit Guaranty Corporation have not
been waived, "prohibited transaction" (as such term is used in section 406 of
ERISA or section 4975 of the Code) for which no exemption exists, "nondeductible
contributions" (as such term is used in Section 4972 of the Code) or
"accumulated funding deficiency" (as such term is used in section 412 or 4971 of
the Code) has heretofore occurred with respect to any Pension Plan (other than
any Multiemployer Plan) of the Company or its ERISA Affiliates, except for such
events which would not, individually or in the aggregate, have a Material
Adverse Effect.
(d) No litigation or administrative or other proceeding involving any
Employee Plans of the Company or any of its ERISA Affiliates has occurred or are
threatened where an adverse determination could, individually or in the
aggregate, have a Material Adverse Effect.
(e) Except as set forth in Section 4.12 of the Company Disclosure Schedule,
neither the Company nor any ERISA Affiliate has incurred any withdrawal
liability with respect to any Multiemployer Plan under Title IV of ERISA which
remains unsatisfied, except for such liabilities as would not, individually or
in the aggregate, have a Material Adverse Effect.
(f) Except as set forth in Section 4.12 of the Company Disclosure Schedule,
any termination of, or partial or complete withdrawal from, any Employee Plans
of the Company or its ERISA Affiliates, on or prior to the Closing Date, will
not subject the Company or any ERISA Affiliate to any liability that would
individually or in the aggregate have a Material Adverse Effect.
(g) Except as set forth in Section 4.12 of the Company Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment becoming due to
any employee (former or retired) of the Company or its Subsidiaries, (ii)
increase any benefits under any Employee Plan or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
(h) Except as disclosed in Section 4.12 of the Company Disclosure Schedule,
(i) the Company is not aware of any situation described in (b), (c) or (d) above
with respect to a Multiemployer Plan and (ii) the transactions contemplated by
this Agreement will not cause the occurrence of a situation described in Section
4.12 (b), (c), (d) or (e) as of the Effective Time.
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SECTION 4.13. Title to Assets.
(a) Section 4.13(a) of the Company Disclosure Schedule sets forth a
complete and accurate list of each improved or unimproved real property (whether
owned or leased, "Property") and/or store, office, plant or warehouse
("Facility") owned or leased by the Company or any of its Subsidiaries, and the
current use of such Property or Facility and indicating whether the Property or
Facility is owned or leased.
(b) Except as set forth in Section 4.13(b) of the Company Disclosure
Schedule, the Company and its Subsidiaries have good and marketable title to or
a valid leasehold estate in all of the material Property and Facilities. Except
as set forth in Section 4.13(b) of the Company Disclosure Schedule, the Company
and its Subsidiaries have good and marketable title or a valid right to use all
of the Property and Facilities that are necessary, and all of the personal
assets and properties that are necessary, for the conduct of the business of the
Company or any of its Subsidiaries free and clear of all Encumbrances (other
than Permitted Encumbrances).
(c) There are no pending or, to the best knowledge of the Company,
threatened condemnation or similar proceedings against the Company or any of its
Subsidiaries or to the knowledge of the Company, otherwise relating to any of
the Properties or Facilities of the Company and its Subsidiaries except for such
proceedings which would not, individually or in the aggregate, have a Material
Adverse Effect.
(d) Section 4.13(d) of the Company Disclosure Schedule sets forth a
complete and accurate list of all Leases (including subleases and licenses) of
personal property entered into by the Company or any of its Subsidiaries and
involving any annual expense to the Company or any such Subsidiary in excess of
$250,000 and/or not cancelable (without material liability) within one year.
(e) Section 4.13(e) of the Company Disclosure Schedule indicates each Lease
entered into by the Company or any of its Subsidiaries, as a tenant or
subtenant.
(f) The Company or its Subsidiaries, as the case may be, has in all
material respects performed all obligations on its part required to have been
performed with respect to (i) all Assets leased by it or to it (whether as
lessor or lessee), and (ii) all Leases and there exists no material default or
event which, with the giving of notice or lapse of time or both, would become a
default on the part of the Company or any of its Subsidiaries under any Lease,
in each case except where the failure to perform or such default or event would
not, individually or in the aggregate, have a Material Adverse Effect.
(g) To the knowledge of the Company, each of the Leases is valid, binding
and enforceable in accordance with its terms and is in full force and effect,
and assuming all consents required by the terms thereof or applicable law have
been obtained, the Leases will continue to be valid, binding and enforceable in
accordance with their respective terms and in full force and effect immediately
following the consummation of the transactions contemplated hereby, in each case
except where the failure to be valid, binding and enforceable and in full force
and effect would not, individually or in the aggregate, have a Material Adverse
Effect.
(h) Except as shown on Section 4.13(h) of the Company Disclosure Schedule,
the Company has delivered to Parent, or otherwise made available, originals or
true copies of all Leases (as the same may have been amended or modified, in any
material respect, from time to time) set forth in the Company Disclosure
Schedule.
(i) The Assets of the Company and its Subsidiaries, taken as a whole, are
sufficient to permit the Company and its Subsidiaries to conduct their business
as currently being conducted with only such exceptions as would not have a
Material Adverse Effect.
SECTION 4.14. Contracts. Each Contract is valid, binding and enforceable
and in full force and effect, and assuming all consents required by the terms
thereof or applicable law have been obtained, such Contracts will continue to be
valid, binding and enforceable and in full force and effect immediately
following the consummation of the transactions contemplated hereby, except where
failure to be valid, binding and enforceable and in full force and effect would
not have a Material Adverse Effect, and there are no material defaults
thereunder by the Company or its Subsidiaries or, to the best knowledge of the
Company, by any
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other party thereto. Section 4.14 of the Company Disclosure Schedule sets forth
each Contract of the Company or any of its Subsidiaries as of August 8, 1998 not
otherwise set forth in the Company Disclosure Schedule. No event has occurred
which either entitles, or would, on notice or lapse of time or both, entitle the
holder of any indebtedness for borrowed money of the Company or any of its
Subsidiaries to accelerate, or which does accelerate, the maturity of any
Contract relating to indebtedness of the Company or any of its Subsidiaries,
except as set forth in Section 4.14 of the Company Disclosure Schedule.
SECTION 4.15. Labor Relations. Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or its Subsidiaries
except as disclosed in Section 4.15 of the Company Disclosure Schedule. Except
as set forth on Section 4.15 of the Company Disclosure Schedule, there is no
labor strike, slowdown or work stoppage or lockout pending or, to the best
knowledge of the Company, threatened against the Company or any of its
Subsidiaries, there is no unfair labor practice charge or other employment
related complaint pending or, to the best knowledge of the Company, threatened
against the Company or any of its Subsidiaries which if decided adversely could
have a Material Adverse Effect, and there is no representation claim or petition
pending before the National Labor Relations Board and no question concerning
representation exists with respect to the employees of the Company or its
Subsidiaries.
SECTION 4.16. Intellectual Property. Except as set forth in Section 4.16 of
the Company Disclosure Schedule, the Company and its Subsidiaries own or possess
adequate licenses or other valid rights to use "Dominick's", "Dominick's The
Fresh Store" and all other material trademarks, trademark rights, trade names,
trade name rights, copyrights, patents, patent rights, service marks, trade
secrets, applications for trademarks and for service marks, and other
proprietary rights and information used or held for use in connection with the
business of the Company and its Subsidiaries as currently conducted, except
where the failure to own or possess such licenses or rights would not have a
Material Adverse Effect, and the Company has no knowledge of any assertion or
claim challenging the validity of any of the foregoing.
SECTION 4.17. Affiliate Transactions. Except as set forth in the SEC
Reports and as set forth in Section 4.17 of the Company Disclosure Schedule,
from November 1, 1997 through the date of this Agreement there have been no
transactions, agreements, arrangements or understandings between the Company or
any of its Subsidiaries, on the one hand, and any Affiliates (other than
wholly-owned Subsidiaries) of the Company or other Persons, on the other hand,
that would be required to be disclosed under Item 404 of Regulation S-K under
the Securities Act.
SECTION 4.18. Environmental Matters.
(a) Except as set forth in the SEC Reports, and except to the extent that,
individually or in the aggregate, failure to satisfy the following
representations has not had, and would not reasonably be expected to have, a
Material Adverse Effect, the Company and each of its Subsidiaries to the best of
the Company's knowledge (i) have obtained all applicable permits, licenses and
other authorizations which are required to be obtained under all applicable
Environmental Laws by the Company or its Subsidiaries; (ii) are in compliance
with all terms and conditions of such required permits, licenses and
authorization, and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in applicable Environmental Laws; (iii) have
not received notice of any past or present violations of Environmental Laws, or
of any event, incident or action which is reasonably likely to prevent continued
compliance with such Environmental Laws, or which would give rise to any common
law environmental liability, or which would otherwise form the basis of any
claim, action, suit or proceeding against the Company or any of its Subsidiaries
based on or resulting from the manufacture, processing, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge or release into the
environment, of any Hazardous Material; and (iv) have taken all actions required
under applicable Environmental Laws to register any products or materials
required to be registered by the Company or its Subsidiaries thereunder.
(b) The copies of the Environmental Reports provided by the Company to
Parent are true, correct and complete in all material respects.
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SECTION 4.19. Proxy Statement; Offer Documents; Other Information. None of
(a) the proxy statement, if any, for use relating to the approval by the
stockholders of the Company of the Merger and any amendment or supplement
thereto (collectively, the "Proxy Statement"), (b) the Schedule 14D-9 or (c) the
information supplied by the Company for inclusion or incorporation by reference
in the Offer Documents, the Schedule 14D-1 and any other documents to be filed
with the SEC or any regulatory agency in connection with the transactions
contemplated hereby, including any amendment or supplement to such documents,
will, at the respective times such documents are filed, and, with respect to the
Offer Documents and the Proxy Statement, if any, when first published, sent or
given to the stockholders of the Company, contain an untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not false or misleading or, in the case of the Offer
Documents and the Proxy Statement, if any, or any amendment thereof or
supplement thereto, at the time of the Company Stockholder Meeting, if any, and
at the Effective Time, contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
are made, not false or misleading or necessary to correct any statement in any
earlier communication with respect to the Offer or the solicitation of proxies
for the Company Stockholder Meeting, if any, which shall have become false or
misleading. All documents which the Company files or is responsible for filing
with the SEC and any regulatory agency in connection with the Offer or the
Merger (including, without limitation, the Schedule 14D-9 and the Proxy
Statement, if any) will comply as to form and content in all material respects
with the provisions of applicable law. Notwithstanding the foregoing, the
Company makes no representations or warranties with respect to information that
has been supplied by Parent or Merger Sub, or their auditors, attorneys,
financial advisers, other consultants or advisers, specifically for use in the
Schedule 14D-9 and the Proxy Statement, if any, or in any other documents to be
filed with the SEC or any regulatory agency in connection with the transactions
contemplated hereby.
SECTION 4.20. Opinion of Financial Adviser. The Company has received the
written opinion of Donaldson, Lufkin & Jenrette Securities Corporation (the
"Company Financial Adviser"), dated as of October 12, 1998, to the effect that
the consideration to be received in the Merger by the Company's stockholders
(other than the holders of shares of Common Stock that are Affiliates of the
Company) is fair to such stockholders from a financial point of view. An
executed copy of such opinion has been provided to Parent. The Company has been
authorized by the Company Financial Adviser to permit, subject to prior review
and consent by such Company Financial Adviser, the inclusion of such fairness
opinion (or a reference thereto) in the Proxy Statement and the Schedule 14D-9.
SECTION 4.21. Brokers. Except as set forth in Section 4.21 of the Company
Disclosure Schedule, no consultant, broker, finder or investment banker (other
than the Company Financial Adviser) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. The
Company has heretofore furnished to Parent a complete and correct copy of all
agreements between the Company and the Company Financial Adviser pursuant to
which such firm would be entitled to any payment relating to the transactions
contemplated hereby.
SECTION 4.22. Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Voting Common Stock entitled to vote
thereon is the only vote of the holders of any class or series of the Company's
capital stock necessary to approve the Merger. The Company approves of, and
consents to, the Offer. The Company Board, at a meeting duly called and held, by
unanimous vote (i) determined that this Agreement and the transactions
contemplated hereby, including the Offer and the Merger, are advisable and fair
to, and in the best interests of, the stockholders of the Company, (ii) approved
this Agreement and the transactions contemplated hereby, including the Offer and
the Merger, and the Stockholders Agreement which approvals constitute approval
of this Agreement, the Offer and the Merger and the Stockholders Agreement for
purposes of Section 203 of the DGCL, and (iii) resolved, subject to Section
7.1(a), to recommend that the holders of the shares of Common Stock accept the
Offer and tender all of their shares of Common Stock to Purchaser and approve
this Agreement and the transactions contemplated hereby, including the Offer and
the Merger. The Company hereby agrees to the inclusion in the Schedule 14D-9
and, if required, the Proxy Statement of the recommendations of the Company
Board described in this Section 4.22
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(subject to the right of the Company Board to withdraw, amend or modify such
recommendation in accordance with Section 7.1(a)).
SECTION 4.23. No Other Agreements to Sell the Company or its Assets. The
Company has no legal obligation, absolute or contingent, to any other Person to
sell more than 5% of the Assets of the Company, to sell more than 5% of the
capital stock or other ownership interests of the Company or any of its
Significant Subsidiaries, or to effect any merger, consolidation or other
reorganization of the Company or any of its Significant Subsidiaries or to enter
into any agreement with respect thereto.
SECTION 4.24. DGCL Section 203; State Takeover Statutes. The action of the
Company Board in approving the Offer, the Merger, this Agreement and the
transactions contemplated by this Agreement and the Stockholders Agreement is
sufficient to render inapplicable to the Offer, the Merger, this Agreement and
the Stockholders Agreement the provisions of Section 203 of the DGCL. No
provision of the certificate of incorporation, by-laws or other governing
instruments of the Company or any of its Subsidiaries or any applicable law
would, directly or indirectly, restrict or impair the ability of Parent (i) to
vote, or otherwise to exercise the rights of a stockholder with respect to,
shares of the Company and its Subsidiaries that may be acquired or controlled by
Parent or (ii) to consummate the Merger.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that:
SECTION 5.1. Organization and Qualification. Each of Parent and Merger Sub
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with the corporate power and authority to own
and operate its businesses as presently conducted. Each of Parent and Merger Sub
is duly qualified as a foreign corporation or other entity to do business and is
in good standing in each jurisdiction where the character of its properties
owned or held under lease or the nature of its activities makes such
qualification necessary, except for such failures of Parent and Merger Sub to be
so qualified as would not, individually or in the aggregate, have a Material
Adverse Effect. Parent has previously made available to the Company true and
correct copies of the certificate of incorporation and bylaws of each of Parent
and Merger Sub.
SECTION 5.2. Authorization; Validity and Effect of Agreement. Each of
Parent and Merger Sub has the requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Merger Sub and the performance by them of their
respective obligations hereunder and the consummation by them of the
transactions contemplated hereby have been duly authorized by the Parent Board
and the Board of Directors of Merger Sub, and no other corporate proceedings
(including, without limitation, stockholder action) on the part of Parent or
Merger Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub and constitutes a legal, valid and binding
obligation of Parent and Merger Sub, enforceable against them in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
SECTION 5.3. No Conflict; Required Filings and Consents.
(a) Neither the execution and delivery of this Agreement nor the
performance by Parent and Merger Sub of their obligations hereunder, nor the
consummation of the transactions contemplated hereby, will: (i) conflict with
Parent's or Sub's certificate of incorporation or bylaws; (ii) assuming
satisfaction of the requirements set forth in Section 5.3(b) below, violate any
statute, law, ordinance, rule or regulation, applicable to Parent or any of its
Subsidiaries or any of their properties or assets; or (iii) violate, breach, be
in conflict with or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a
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default) under, or permit the termination of any provision of, or result in the
termination of, the acceleration of the maturity of, or the acceleration of the
performance of any obligation of Parent or any of its Subsidiaries under, or
cause an indemnity payment to be made by the Parent or any of its Subsidiaries
under, or result in the creation of imposition of any lien upon any properties,
assets or business of Parent or any of its Subsidiaries under, any note, bond,
indenture, mortgage, deed of trust, lease, franchise, permit, authorization,
license, contract, instrument or other agreement or commitment or any order,
judgment or decree to which Parent or any of its Subsidiaries is a party or by
which Parent or any of its Subsidiaries or any of their respective assets or
properties is bound or encumbered, or give any Person the right to require
Parent or any of its Subsidiaries to purchase or repurchase any notes, bonds or
instruments of any kind except, in the case of clauses (ii) and (iii), for such
violations, breaches, conflicts, defaults or other occurrences which,
individually or in the aggregate, would not have a Material Adverse Effect.
(b) Except (i) for the pre-merger notification requirements of the HSR Act
and (ii) for the filing of the Certificate of Merger or Certificate of
Ownership, as the case may be, pursuant to the DGCL and (iii) for applicable
requirements, if any, of the Exchange Act, no consent, approval or authorization
of, permit from, notice to or declaration, filing or registration with, any
governmental or regulatory authority, or any other Person or entity is required
to be made or obtained by Parent or Merger Sub in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, except where the failure to obtain such
consent, approval, authorization, permit or declaration, to deliver such notice
or to make such filing or registration would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 5.4. Proxy Statement; Offer Documents; Other Information. None of
(a) the Offer Documents, (b) the Schedule 14D-1 or (c) the information supplied
by Parent or Merger Sub for inclusion or incorporation by reference in the Proxy
Statement, if any, the Schedule 14D-9 and any other documents to be filed with
the SEC or any regulatory agency in connection with the transactions
contemplated hereby, including any amendment or supplement to such documents,
will, at the respective times such documents are filed, and, with respect to the
Proxy Statement, if any, and the Offer Documents, when first published, sent or
given to stockholders of the Company, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to made the statements made therein, in light of the
circumstances under which they are made, not misleading or, in the case of the
Proxy Statement, if any, or any amendment thereof or supplement thereto, at the
time of the Company Stockholder Meeting, if any, and at the Effective Time,
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary in order to made the statements
made therein, in light of the circumstances under which they are made, not false
or misleading or necessary to correct any statement in any earlier communication
with respect to the Offer or the solicitation of proxies for the Company
Stockholder Meeting, if any, which shall have become false or misleading. All
documents which Parent or Merger Sub files or is responsible for filing with the
SEC or any regulatory agency in connection with the Offer or the Merger
(including, without limitation, the Offer Documents and the Schedule 14D-1) will
comply as to form and content in all material respects with the provisions of
applicable law. Notwithstanding the foregoing, neither Parent nor Merger Sub
makes any representation or warranty with respect to any information that has
been supplied by the Company or its auditors, attorneys, financial advisers,
other consultants or advisers, specifically for use in the Offer Documents and
the Schedule 14D-1, or in any other documents to be filed with the SEC or any
regulatory agency in connection with the transactions contemplated hereby.
SECTION 5.5. Financial Resources. Parent and Merger Sub have, as of the
date of this Agreement, available cash or undrawn lines of credit sufficient to
consummate the Offer and the Merger on the terms contemplated by this Agreement,
and, at the expiration of the Offer and at the Effective Time of the Merger,
Parent and Merger Sub will have available all of the funds necessary for the
acquisition of all shares of Common Stock pursuant to the Offer and the Merger,
as the case may be, and to perform their respective obligations under this
Agreement.
SECTION 5.6. No Prior Activities. Merger Sub has not incurred nor will it
incur any liabilities or obligations, except those incurred in connection with
its organization and with the negotiation of this Agreement and the performance
hereof, and the consummation of the transactions contemplated hereby,
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including the Merger. Except as contemplated by this Agreement, Merger Sub has
not engaged in any business activities of any type or kind whatsoever, or
entered into any agreements or arrangements with any person or entity, or become
subject to or bound by any obligation or undertaking. As of the date hereof, all
of the issued and outstanding capital stock of Merger Sub is owned beneficially
and of record by Parent, free and clear of all Encumbrances (other than those
created by this Agreement and the transactions contemplated hereby).
SECTION 5.7. Ownership of Common Stock. To the best knowledge of Parent and
Merger Sub, none of Parent, Merger Sub or any of their respective affiliates,
beneficially or of record, owns any shares of Common Stock, other than shares of
Common Stock, if any, held by or for the account of employees or former
employees of Parent, Merger Sub or any of their respective affiliates pursuant
to any Employee Plan.
SECTION 5.8. Brokers. No consultant, broker, finder or investment banker
(other than the Parent Financial Adviser, the fees and expenses of which shall
be paid by Parent) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or Merger Sub.
ARTICLE VI.
CONDUCT OF BUSINESS OF THE COMPANY PENDING THE MERGER
Except as set forth in Section 6.1 of the Company Disclosure Schedule, the
Company covenants and agrees that, during the period from the date hereof to the
Effective Time (except as otherwise contemplated by the terms of this
Agreement), unless Parent shall otherwise agree (i) the businesses of the
Company and its Subsidiaries shall be conducted, in all material respects, in
the ordinary course and in a manner consistent with past practice and, in all
material respects, in compliance with applicable laws; and (ii) the Company
shall use its best efforts consistent with the foregoing to preserve
substantially intact the business organization of the Company and its
Subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its Subsidiaries and to preserve, in all
material respects, the present relationships of the Company and its Subsidiaries
with customers, suppliers, advertisers, distributors and other persons with
which the Company or any of its Subsidiaries has significant business relations;
provided, however, that the Company shall not make any significant payment or
incur any significant obligations other than in the ordinary course of business
without Parent's prior written consent. In furtherance of the foregoing, neither
the Company nor any of its Subsidiaries shall (except as set forth in Section
6.1 of the Company Disclosure Schedule and except as otherwise contemplated by
the terms of this Agreement), between the date of this Agreement and the
Effective Time, directly or indirectly do, or propose or commit to do, any of
the following without the prior consent of Parent:
(a) make or commit to make any capital expenditures in excess of
$500,000 (such amount to increase by an additional $500,000 for each 20
Business Day period, or portion thereof, after the initial expiration date
of the Offer) in the aggregate, other than expenditures for routine or
emergency maintenance and repair or expenditures in amounts not exceeding
those reflected in capital expenditure budgets disclosed in the SEC Reports
or supplied to Parent prior to the date of this Agreement;
(b) incur any indebtedness for borrowed money or guarantee such
indebtedness of another Person (other than the Company or a wholly-owned
Subsidiary of the Company) or enter into any "keep well" or other agreement
to maintain the financial condition of another Person (other than the
Company or a wholly-owned Subsidiary of the Company) or make any loans, or
advances of borrowed money or capital contributions to, or equity
investments in, any other Person (other than the Company or a wholly-owned
Subsidiary of the Company) or issue or sell any debt securities, other than
borrowings under existing agreements in the ordinary course of business
consistent with past practice;
(c)(i) amend its Certificate of Incorporation or Bylaws or the charter
or bylaws of any of its Subsidiaries; (ii) split, combine or reclassify the
outstanding shares of its capital stock or other ownership interests or
declare, set aside or pay any dividend payable in cash, stock or property
or make any other distribution with respect to such shares of capital stock
or other ownership interests; (iii) redeem,
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purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock or other ownership interests other than in connection with
the Stock Purchase Plan; or (iv) sell or pledge any stock of any of its
Subsidiaries;
(d)(i) other than upon exercise of outstanding Company Stock Rights or
warrants or pursuant to the Stock Purchase Plan (in each case disclosed in
Section 4.3 of the Company Disclosure Schedule) and in connection with the
conversion of Non-Voting Common Stock, issue or sell or agree to issue or
sell any additional shares of, or grant, confer or award any options,
warrants or rights of any kind to acquire any shares of, its capital stock
of any class; (ii) enter into any agreement, contract or commitment to
dispose of or acquire, or relating to the disposition or acquisition of, a
segment of its business or to sell, lease, license, close, shut down or
otherwise dispose of any stores or to relocate any stores; (iii) except in
the ordinary course of business consistent with past practice, sell,
pledge, dispose of or encumber any material Assets (including, without
limitation, any indebtedness owed to them or any claims held by them),
including real property; (iv) acquire (by merger, consolidation,
acquisition of stock or assets or otherwise) any corporation, partnership
or other business organization or division thereof or any material Assets
(other than inventory in the ordinary course of business consistent with
past practice), including real property, or make any material investment,
either by purchase of stock or other securities, or contribution to
capital, in any case, in any material amount of property or assets, in or
of any other Person or (v) remodel any stores, except for store remodels
which the Company has commenced or for which the Company has entered into
an agreement, or otherwise committed, as of the date of this Agreement;
(e) grant any severance or termination pay (other than pursuant to
policies or agreements in effect on the date hereof as disclosed in the SEC
Reports or set forth in Section 6.1(e) of the Company Disclosure Schedule)
or increase the benefits payable under its severance or termination pay
policies or agreements in effect on the date hereof or enter into any
employment or severance agreement with any officer, director or employee;
(f) adopt or amend any bonus, profit sharing, compensation, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or other arrangement for the
benefit or welfare of any director, officer or employee or increase in any
manner the compensation or fringe benefits of any director, officer or
employee or grant, confer, award or pay any forms of cash incentive,
bonuses or other benefit not required by any existing plan, arrangement or
agreement, in each case except in the ordinary course of business or as
required by law or other than in accordance with Section 3.8, amend or
modify the terms of any Company Stock Rights;
(g) enter into or amend any (i) Lease or (ii) contract, agreement,
commitment, understanding or other arrangement, in each case involving
annual expenditures or liabilities in excess of $250,000 and, in the case
of clause (ii), which is not cancelable within one (1) year without
penalty, cost or liability;
(h) enter into or modify, in any material respect, any material
collective bargaining agreements;
(i) make any material change in its tax or accounting policies or any
material reclassification of assets or liabilities except as required by
law or GAAP;
(j) change or make any material Tax elections, change materially any
method of accounting with respect to Taxes, file any amended Tax Return, or
settle or compromise any material federal, state, local or foreign Tax
liability;
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
except the payment, discharge or satisfaction of (i) liabilities or
obligations in the ordinary course of business consistent with past
practice or in accordance with the terms thereof as in effect on the date
hereof or (ii) claims settled or compromised to the extent permitted by
Section 6.1(k), or waive, release, grant or transfer any rights of material
value or modify or change in any material respect any existing contract, in
each case other than in the ordinary course of business consistent with
past practice;
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(l) settle or compromise any litigation, other than litigation not in
excess of amounts reserved for in the most recent consolidated financial
statements of the Company included in the SEC Reports or, if not so
reserved for, in an aggregate amount not in excess of $500,000 (provided in
either case such settlement documents do not involve any material
non-monetary obligations on the part of the Company and its Subsidiaries);
(m) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Subsidiaries (other than the
Merger) or otherwise alter through merger, liquidation, reorganization,
restructuring or any other fashion the corporate structure and ownership of
any Subsidiary of the Company;
(n) make any payment to an Affiliate, except in accordance with the
terms of any contract or compensation to employees in the ordinary course
of business; or
(o) take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 6.1(a) through 6.1(n)
or any action which would result in any of the conditions set forth in
Annex A or Article VIII not being satisfied.
ARTICLE VII.
ADDITIONAL AGREEMENTS
SECTION 7.1. Stockholders Meeting.
(a) As soon as practicable following the acquisition by Merger Sub of the
Minimum Shares pursuant to the Offer, the Company, acting through the Company
Board, shall, in accordance with applicable law, its Certificate of
Incorporation and Bylaws and subject to the other provisions of this Section
7.1(a), to the extent necessary to consummate the Merger, promptly and duly
call, give notice of, convene and hold as soon as practicable a meeting of the
holders of Common Stock (the "Company Stockholder Meeting") for the purpose of
voting to approve and adopt this Agreement and the transactions contemplated
hereby and (i) recommend that the holders of the Common Stock accept the Offer
and tender all of their shares of Common Stock to Purchaser and approve this
Agreement and the transactions contemplated hereby, including the Merger, which
recommendation shall be included in the Proxy Statement, if any, and (ii) take
all reasonable and lawful action to solicit and obtain such approval. The
Company Board shall not withdraw, amend or modify in a manner adverse to Parent
its recommendation referred to in clause (i) of the preceding sentence (or
announce publicly its intention to do so) provided that the disclosure of (x)
the receipt of an Alternative Transaction or (y) the fact that the Company Board
is considering such Alternative Transaction or reviewing it with its advisers
(to the extent the Company Board shall have determined in good faith that any
such disclosure is required by law or any applicable securities exchange
requirement) shall not by itself constitute such a withdrawal, modification or
amendment. Notwithstanding the foregoing, prior to the acceptance for payment of
the Minimum Shares pursuant to the Offer, the Company Board shall be permitted
to (A) withdraw, amend or modify its recommendation (or publicly announce its
intention to do so) of this Agreement and the transactions contemplated hereby,
including the Offer and the Merger, in a manner adverse to Parent or (B) approve
or recommend or enter into an agreement with respect to a Superior Transaction
if: (i) the Company has complied with Section 7.3; (ii) a Superior Transaction
shall have been proposed by any Person other than Parent and such proposal is
pending at the time of such action; (iii) the Company Board shall have
determined in good faith, based on the advice of its outside legal counsel, that
the failure to withdraw, amend or modify its recommendation or to approve or
recommend or enter into such Superior Transaction would constitute a breach of
the Company Board's fiduciary duties under applicable law; and (iv) the Company
shall have notified Parent of such Superior Transaction proposal at least three
Business Days in advance of such action. No action by the Company Board
permitted by the preceding sentence (each, a "Permitted Action") shall
constitute a breach of this Agreement by the Company.
(b) Notwithstanding the preceding paragraph or any other provision of this
Agreement, in the event Merger Sub owns 90% or more of the outstanding shares of
each class of the capital stock of the Company following expiration of the
Offer, the Company shall not be required to call the Company Stockholder
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Meeting or to file or mail the Proxy Statement, and the parties hereto shall, at
the request of Parent and subject to Article VIII, take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable following such expiration without a meeting of stockholders of the
Company in accordance with Section 253 of the DGCL.
(c) If required by applicable law, as soon as practicable following
Parent's request, the Company shall file with the SEC under the Exchange Act and
the rules and regulations promulgated thereunder, and shall use its reasonable
best efforts to have cleared by the SEC, the Proxy Statement with respect to the
Company Stockholder Meeting. Parent, Purchaser and the Company will cooperate
with each other in the preparation of the Proxy Statement. Without limiting the
generality of the foregoing, each of Parent and Purchaser will furnish to the
Company the information relating to it required by the Exchange Act and the
rules and regulations promulgated thereunder to be set forth in the Proxy
Statement. The Company agrees to use its reasonable best efforts, after
consultation with the other parties hereto, to respond promptly to any comments
made by the SEC with respect to the Proxy Statement and any preliminary version
thereof filed by it and cause such Proxy Statement to be mailed to the Company's
stockholders at the earliest practicable time.
SECTION 7.2. Access to Information; Confidentiality.
(a) From the date hereof to the Effective Time, the Company shall, and
shall cause its Subsidiaries, officers, directors, employees, auditors and other
agents, upon reasonable notice, to afford the officers, employees, auditors and
other agents of Parent reasonable access during normal business hours to its
officers, employees, agents, properties, offices, plants and other facilities
and to all books and records, and shall furnish Parent with all financial,
operating and other data and information as Parent through its officers,
employees or agents may from time to time reasonably request; provided, however,
that, prior to the acceptance for payment of the Minimum Shares pursuant to the
Offer, the foregoing shall not require the Company to permit any inspection, or
to disclose any information, that in the reasonable judgment of the Company (i)
would result in the disclosure of any trade secrets of third parties or violate
any of its obligations with respect to confidentiality if the Company shall have
used all reasonable efforts to obtain the consent of such third party to such
inspection or disclosure, (ii) relates to Alternative Transactions to the extent
that any confidentiality agreement in existence on the date hereof with the
Company prohibits the Company from making such books, records and other
information available to Parent or (iii) which is subject to an attorney-client
privilege or which constitutes attorney work product; and provided further that,
prior to the acceptance for payment of the Minimum Shares pursuant to the Offer,
the Company may provide information which is of a sensitive competitive nature
in a form which minimizes the potential detriment to the Company from such
disclosure while addressing the legitimate business objectives of Parent in
seeking such information.
(b) Each of the Company and Parent will hold, and will cause its directors,
officers, employees, agents, advisers (including, without limitation, counsel
and auditors) and controlling persons to hold, any such information which is
nonpublic in confidence on the same terms and conditions as set forth in the
letter dated August 25, 1998, as amended from time to time, between the Company
and Parent (the "Confidentiality Agreement"). Each of the Company and the Parent
agree that the Confidentiality Agreement shall terminate immediately upon the
Effective Time. Each of the Company and Parent further agree that upon the
execution of this Agreement, (i) the fourth full paragraph of the
Confidentiality Agreement shall be superseded by Section 7.9 hereof, (ii) the
fourth sentence of the tenth full paragraph of the Confidentiality Agreement
shall be deemed to have been deleted and (iii) except for clause (ii)(b)
thereof, the eighth full paragraph of the Confidentiality Agreement shall be
deemed to have been deleted. Furthermore, in the event this Agreement is
terminated pursuant to Section 9.1(c)(ii), 9.1(d)(i) or 9.1(d)(iii) in a
circumstance where a Termination Fee may be payable pursuant to Section 9.3(b)
or Section 9.1(e) or 9.1(f) in a circumstance where a Termination Fee is
payable, the seventh full paragraph of the Confidentiality Agreement shall be
deemed deleted.
(c) No investigation pursuant to this Section 7.2 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
(d) In order to facilitate an orderly transition of the business of the
Company to a wholly-owned subsidiary of Parent and to permit the coordination of
their related operations on a timely basis, the Company
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shall, to the extent reasonably practical and permitted by applicable law,
consult with Parent on significant strategic and financial and operational
matters, including, without limitation, retail operations, store openings,
closings and remodelings, marketing, advertising and personnel.
SECTION 7.3. No Solicitation of Transactions. The Company shall, and shall
cause its Subsidiaries and their respective officers, directors, employees, and
representatives and agents engaged by the Company in connection with the
transactions contemplated hereby to, immediately cease any existing discussions
or negotiations, if any, with any parties conducted heretofore with respect to
any Alternative Transaction. Neither the Company or any of its Subsidiaries, nor
any of its or their respective officers, directors, employees or representatives
and agents engaged by the Company in connection with the transactions
contemplated hereby, shall, directly or indirectly, solicit, initiate,
facilitate or encourage the making of any proposal for an Alternative
Transaction, participate in discussions or negotiations with, or provide any
information to, any Person or group (other than Parent and Merger Sub or any
designees of Parent or Merger Sub) concerning an Alternative Transaction or
grant any waiver or release under any standstill or similar agreement with
respect to any class of equity securities of the Company and its Subsidiaries;
provided that the Company (and its Subsidiaries and its and their respective
officers, directors, employees, representatives or agents) may, prior to the
acceptance for payment of the Minimum Shares pursuant to the Offer, participate
in negotiations or discussions with, and provide information to, any Person
concerning an Alternative Transaction not solicited after the date hereof which
is submitted in writing by such Person to the Company Board after the date of
this Agreement if the Company Board, in its good faith judgment, believes that
such Alternative Transaction could reasonably be expected to result in a
Superior Transaction and the Company Board determines in good faith, based on
the advice of outside legal counsel, that the failure to participate in such
discussions or negotiations or to furnish such information would constitute a
breach of the Company Board's fiduciary duties under applicable law; provided,
however, that prior to participating in any such discussions or negotiations or
furnishing any information, the Company receives from such third party an
executed confidentiality agreement on terms at least as favorable to the
Company, in all material respects, as those contained in the Confidentiality
Agreement, and provided further that the Company provides prompt notice to
Parent to the effect that it is furnishing information to, or entering into
discussions or negotiations with, a third party. Nothing contained in this
Section 7.3 shall prohibit the Company Board from complying with Rule 14e-2
promulgated under the Exchange Act with regard to a tender or exchange offer.
The Company shall notify Parent promptly if it receives any unsolicited proposal
concerning an Alternative Transaction, the identity of the person making any
such proposal and all the terms and conditions thereof and shall advise Parent
periodically of all material developments relating thereto.
SECTION 7.4. Parent Vote. Parent shall vote all shares of Common Stock and
all proxies it holds in favor of the Merger. After the date hereof and prior to
the expiration of the Offer, Parent shall not purchase, offer to purchase, or
enter into any contract, agreement or understanding regarding the purchase of
shares of Common Stock, except pursuant to the terms of the Offer and the
Merger.
SECTION 7.5. Employee Benefits Matters. Commencing on the consummation of
the Offer and continuing until December 31, 1999, Parent shall cause the Company
and the Surviving Corporation to continue to provide to employees of the Company
and its Subsidiaries (excluding employees covered by collective bargaining
agreements), as a whole, Employee Benefits which, in the aggregate, are no less
favorable to such employees than the Employee Benefits provided to such
employees as of the date hereof. Parent and the Company agree that the Company
and the Surviving Corporation shall pay promptly or provide when due all
compensation and benefits required to be paid pursuant to the terms of any
Employee Plan or any individual agreement with any employee, former employee,
director or former director in effect and disclosed to Parent as of the date
hereof. For all Employee Benefits (including, without limitation, Employee Plans
and other programs of Parent and its affiliates after the Effective Time), all
service with the Company or any of its Subsidiaries prior to the Effective Time
of employees (excluding employees covered by collective bargaining agreements)
shall be treated as service with Parent and its affiliates for eligibility and
vesting purposes and for benefit accruals for purposes of severance and vacation
pay to the same extent that such service is taken into account by the Company
and its Subsidiaries as of the date hereof, except to the extent such treatment
will result in duplication of benefits. From and after the Effective Time,
Parent shall, and shall cause the Surviving
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Corporation to, (i) cause any pre-existing condition or limitation and any
eligibility waiting periods (to the extent such conditions, limitations or
waiting periods did not apply to the employees of the Company under the Employee
Plans in existence as of the date hereof) under any group health plans of Parent
or any of its Subsidiaries to be waived with respect to employees of the Company
and their eligible dependents and (ii) give each employee of the Company credit
for the plan year in which the Effective Time occurs toward applicable
deductions and annual out-of-pocket limits for expenses incurred prior to the
Effective Time (or such later date on which participation commences) during the
applicable plan year. "Employee Benefits" shall mean the following benefits: any
medical, health, dental, life insurance, long-term disability, severance,
pension, Section 401(k), retirement or savings plan, policy or arrangement,
including those such plans for which coverage is generally limited to officers
or a select group of highly compensated employees of the Company or any of its
Subsidiaries. Nothing herein shall require the continued employment of any
person or prevent the Company or any of its Subsidiaries and/or the Surviving
Corporation from taking any action or refraining from taking any action which
the Company or any of its Subsidiaries could take or refrain from taking prior
to or after the Effective Time, including, without limitation, any action the
Company or any of its Subsidiaries or the Surviving Corporation could take to
terminate any plan under its terms as in effect as of the date hereof.
SECTION 7.6. Directors' and Officers' Indemnification; Insurance.
(a) From and after the Effective Time, Parent shall cause the Surviving
Corporation to indemnify and hold harmless each person who is now, or has been
at any time prior to the date hereof, an officer or director of the Company or
any of its Subsidiaries (the "Indemnified Parties") against any losses, claims,
damages, judgments, settlements, liabilities, costs or expenses (including
without limitation reasonable attorneys' fees and out-of-pocket expenses)
incurred in connection with any claim, action, suit, proceeding or investigation
arising out of or pertaining to acts or omissions, or alleged acts or omissions,
by them in their capacities as such occurring at or prior to the Effective Time
(including, without limitation, in connection with the Offer, the Merger and the
other transactions contemplated by this Agreement), to the fullest extent that
the Company or such Subsidiaries would have been permitted, under applicable law
and the Certificate of Incorporation or Bylaws of the Company or the
organizational documents of such Subsidiaries each as in effect on the date of
this Agreement. In connection with the foregoing, Parent shall cause the
Surviving Corporation to advance expenses as incurred to the fullest extent
permitted under applicable law upon receipt from the Indemnified Party to whom
expenses are advanced of a written undertaking to repay such advances as
contemplated by Section 145(e) of the DGCL). Parent shall cause the Surviving
Corporation to pay all reasonable expenses, including reasonable attorneys'
fees, that may be incurred by any Indemnified Party in enforcing this Section
7.6. If the indemnity provided by this Section 7.6(a) is not available with
respect to any Indemnified Party, then Parent shall cause the Surviving
Corporation, on the one hand, and the Indemnified Party, on the other hand, to
contribute to the amount payable in such proportion as is appropriate to reflect
relative faults and benefits. If the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other Person and
shall not be the continuing or surviving person or entity of such consolidation
or merger or (ii) transfers or conveys all or substantially all of its
properties and assets to any Person, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors and assigns of
the Surviving Corporation assume the obligations set forth in this Section 7.6.
The parties acknowledge and agree that to the extent that the Surviving
Corporation fails to comply with its indemnification obligations pursuant to
this Section 7.6, Parent shall indemnify and hold harmless each of the
Indemnified Parties to the same extent as the Surviving Corporation was required
to indemnify such Indemnified Parties hereunder.
(b) In any event of any such claim, action, suit, proceeding or
investigation, (i) any Indemnified Party wishing to claim indemnification under
this Section 7.6 shall, upon becoming aware of any such claim, action, suit,
proceeding or investigation, promptly notify the Surviving Corporation thereof
(provided that the failure to provide such notice shall not relieve the Parent
or the Surviving Corporation of any liability or obligation it may have to such
Indemnified Party under this Section 7.6 unless such failure materially
prejudices Parent or the Surviving Corporation), and shall deliver to Parent and
the Surviving Corporation the undertaking contemplated by Section 145(e) of the
DGCL, (ii) Parent shall cause the Surviving Corporation to pay the
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reasonable fees and expenses of counsel selected by the Indemnified Parties,
which counsel shall be reasonably acceptable to Parent and the Surviving
Corporation, (iii) Parent and the Surviving Corporation shall cooperate in the
defense of any such matter; provided, however, that neither Parent nor the
Surviving Corporation shall be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld); and
provided further, that neither Parent nor the Surviving Corporation shall be
liable under this Section 7.6 for the fees and expenses of more than one counsel
for all Indemnified Parties in any single claim, action, suit, proceeding or
investigation, except to the extent that, in the opinion of counsel for the
Indemnified Parties, two or more of such Indemnified Parties have conflicting
interests in the outcome of such claim, action, suit, proceeding or
investigation such that additional counsel is required to be retained by such
Indemnified Parties under applicable standards of professional conduct.
(c) Unless otherwise required by law, (i) at the Effective Time, the
Certificate of Incorporation and Bylaws of the Surviving Corporation shall
contain provisions providing for exculpation of director and officer liability
and indemnification by the Surviving Corporation of the Indemnified Parties not
less favorable to the Indemnified Parties than those provisions providing for
exculpation of director and officer liability and indemnification by the Company
of the Indemnified Parties contained in the Certificate of Incorporation and
Bylaws of the Company as in effect on the date of this Agreement, and (ii) for a
period of six years from the Effective Time, the Surviving Corporation and the
Company's Subsidiaries shall not amend, repeal or modify any such provisions
contained in their respective certificates of incorporation and bylaws, or other
organizational documents of such Subsidiaries, to reduce or adversely affect the
rights of the Indemnified Parties thereunder in respect of actions or omissions
by them occurring at or prior to the Effective Time.
(d) Parent shall cause the Surviving Corporation to purchase a four-year
extended reporting period endorsement ("reporting tail coverage") under the
Company's existing directors' and officers' liability insurance coverage (or as
much coverage as can be obtained for a total not in excess of 175% of the
Current Premium), provided that such reporting tail coverage shall extend the
director and officer liability coverage in force as of the date hereof from the
Effective Time on terms, that in all material respects, are no less advantageous
to the intended beneficiaries thereof than the existing officers' and directors'
liability insurance. "Current Premium" shall mean the last annual premium paid
prior to the date hereof for the existing officers' and directors' liability
insurance, which the Company represents and warrants to be $445,500.
(e) This covenant is intended to be for the benefit of, and shall be
enforceable by, each of the Indemnified Parties and their respective heirs and
legal representatives.
SECTION 7.7. Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate and (ii) any failure of the Company, Parent
or Merger Sub, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 7.7
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
SECTION 7.8. Further Action. Upon the terms and subject to the conditions
hereof, each of the parties hereto shall use its reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, (i) cooperating in the Offer and
the preparation and filing of the Proxy Statement, required filings under the
HSR Act (no later than the fifth Business Day after the date of this Agreement)
and any amendments to the foregoing, (ii) using its reasonable best efforts to
make promptly all required regulatory filings and applications and to obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and parties to contracts with the Company and
its Subsidiaries as are necessary for the consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the Offer and
the Merger, (iii) cooperating in all respects with each other in connection with
obtaining antitrust clearance and with any investigation or other inquiry,
including any proceeding initiated by a private party, in connection with the
transactions pursuant hereto, and (iv) keeping the other party informed
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in all material respects of any material communication received by such party
from, or given by such party to, the FTC, the Antitrust Division of the
Department of Justice ("DOJ") or any other governmental authority and of any
material communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions contemplated
hereby. The Company and Parent each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
their Subsidiaries, from any governmental authority with respect to the Offer or
the Merger or any of the other transactions contemplated by this Agreement. The
parties hereto will consult and cooperate with one another, and consider in good
faith the views of one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other antitrust law. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
party to this Agreement shall use their reasonable best efforts to take all such
necessary action. Notwithstanding the foregoing, nothing in this Section 7.8
shall require, or be construed to require, Parent or the Company, in connection
with the receipt of any regulatory approval, to proffer or agree (i) to sell or
hold separate or agree to sell, divert or discontinue or to limit, before or
after the Effective Time any assets, businesses or interest in any assets or
businesses of Parent, the Company or any of their respective affiliates (or to
consent to any sale or agreement to sell or discontinuance or limitation by
Parent or the Company, as the case may be, of any of its assets or business) or
(ii) to agree to any conditions relating to, or changes or restriction in, the
operations of any such asset or business which, in either case, is reasonably
likely to materially and adversely impact the economic or business benefits to
such party of the transactions contemplated by this Agreement. In furtherance
and not in limitation of the covenants of the parties contained in this Section
7.8, if any administrative or judicial action or proceeding, including any
proceeding by a private party, is instituted (or threatened to be instituted)
challenging any transaction contemplated by this Agreement as violative of any
antitrust law, each of the parties shall cooperate in all respects with each
other and use its reasonable best efforts to contest and resist any such action
or proceeding, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts, and to
resolve any challenge or objection raised by any governmental authority or
private party.
SECTION 7.9. Public Announcements. The initial press release shall be a
joint press release and thereafter Parent and the Company shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Offer or the Merger and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may, upon the advice of outside legal counsel, be required by law or
any listing agreement with its securities exchange.
SECTION 7.10. Stock Exchange De-Listing. The Surviving Corporation shall
use its best efforts to cause the Voting Common Stock to be de-listed from the
NYSE and the Chicago Stock Exchange and de-registered under the Exchange Act as
soon as practicable following the Effective Time.
SECTION 7.11. Acceleration of Outstanding Indebtedness. If, after the Offer
Consummation Date, any obligation of the Company or any of its Subsidiaries for
borrowed money outstanding is accelerated or the Company or any such Subsidiary
is otherwise required to repurchase, repay or prepay any such obligation, Parent
agrees, within the time period specified in the contract governing such
obligation, to loan to the Company an amount equal to the amount which the
Company or any such Subsidiary is required to so repurchase, repay or prepay
(including any related prepayment premiums or penalties). The Company shall use
its best efforts prior to the acceptance for payment of the Minimum Shares in
the Offer to seek a waiver of any default under any obligation that would
otherwise be accelerated upon the purchase of such Minimum Shares, such waiver
to be effective until no earlier than the Effective Time; provided, however,
that the Company shall not make any significant payments in connection therewith
without Parent's prior written consent. Upon the reasonable request of Parent
(which shall not, prior to the Offer Consummation Date, require the Company to
expend any money), the Company will cooperate with Parent with respect to any
negotiations with lenders under the Company's credit facilities.
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SECTION 7.12. Transfer Taxes. The Company or the Surviving Corporation
shall pay all state or local real property transfer, real estate excise, gains
or similar Taxes, if any, of the Company (collectively, the "Transfer Taxes"),
attributable to the transfer of a controlling interest in the Company or the
beneficial ownership of real property or interests therein and any penalties or
interest with respect thereto, payable in connection with the consummation of
the Offer or the Merger. The Company shall cooperate with Parent in the filing
of any returns with respect to the Transfer Taxes, including supplying in a
timely manner a complete list of all real property or interests therein held by
the Company and its Subsidiaries and any information with respect to such
properties that is reasonably necessary to complete such returns.
SECTION 7.13. Shareholder Litigation. The Company and Parent agree that in
connection with any litigation which may be brought against the Company or its
directors or officers relating to the transactions contemplated hereby, the
Company will keep Parent, and any counsel which Parent may retain at its own
expense, informed of the course of such litigation, to the extent Parent is not
otherwise a party thereto, and the Company agrees that it will consult with
Parent prior to entering into any settlement or compromise of any such
shareholder litigation; provided, that, no such settlement or compromise will be
entered into without Parent's prior written consent, which consent shall not be
unreasonably withheld.
SECTION 7.14. Treatment of Management Agreement. At the earlier of the
Offer Consummation Date and the Effective Time, Parent will cause (a) the
Management Agreement to be terminated and (b) the Company to make a termination
payment to Yucaipa pursuant to Section 8.3 of the Management Agreement.
SECTION 7.15. Treatment of Yucaipa Warrant. At the earlier of the Offer
Consummation Date and the Effective Time, Parent or Merger Sub shall purchase
from Yucaipa the Yucaipa Warrant for an amount equal to the product of (i) the
difference between the Price Per Share and the per share exercise price thereof
($20.73 as of the date hereof) multiplied by (ii) the number of shares of Common
Stock underlying the Yucaipa Warrant (3,874,492 as of the date hereof). Upon the
purchase of the Yucaipa Warrant and payment of the purchase price therefor in
accordance with the provisions of this Section 7.15, Yucaipa shall cease to have
any rights with respect to the Yucaipa Warrant.
ARTICLE VIII.
CONDITIONS OF MERGER
The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) this Agreement shall have been approved by the affirmative vote of
the holders of a majority of the outstanding shares of Voting Common Stock,
unless Merger Sub shall have acquired 90% or more of the outstanding shares
of each class of the capital stock of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling,
injunction or other order (whether temporary, preliminary or permanent)
shall have been enacted, entered, promulgated or enforced by any court or
governmental authority of competent jurisdiction which prohibits,
restrains, enjoins or restricts the consummation of the Merger; provided,
however, that the parties shall use their reasonable best efforts to cause
any such decree, ruling, injunction or other order to be vacated or lifted;
(c) any waiting period applicable to the Offer and the Merger under
the HSR Act shall have terminated or expired; and
(d) Merger Sub shall have (i) commenced the Offer pursuant to Article
II hereof and (ii) purchased, pursuant to the terms and conditions of such
Offer, all shares of Common Stock duly tendered and not withdrawn;
provided, however, that neither Parent nor Merger Sub shall be entitled to
rely on the condition in clause (ii) above if either of them shall have
failed to purchase shares of Common Stock pursuant to the Offer in breach
of their obligations under this Agreement.
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ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Date,
whether before or after approval of matters presented in connection with the
Merger by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company as duly
authorized by their respective Boards of Directors;
(b) by the Company, if Merger Sub shall have failed to commence the
Offer within the five-Business Day period specified in Section 2.1(a);
(c) (i) by the Company, if Parent or Merger Sub breaches any of their
respective representations, warranties, covenants or agreements contained
in this Agreement (without regard to any materiality or Material Adverse
Effect qualifier) which is reasonably likely to materially adversely affect
Parent's or Merger Sub's ability to consummate the Offer or the Merger and,
with respect to any such breach that is reasonably capable of being
remedied, the breach is not remedied within ten Business Days after the
Company has furnished Parent or Merger Sub with written notice of such
breach or (ii) by Parent, prior to the acceptance for payment of the
Minimum Shares pursuant to the Offer, if the Company breaches any of its
representations, warranties, covenants or agreements contained in this
Agreement (without regard to any materiality or Material Adverse Effect
qualifier) which is reasonably likely to have a Material Adverse Effect
and, with respect to any such breach that is reasonably capable of being
remedied, the breach is not remedied within ten Business Days after Parent
has furnished the Company with written notice of such breach;
(d) by Parent or the Company:
(i) if the Effective Time shall not have occurred on or before the
Outside Date (provided that the right to terminate this Agreement
pursuant to this clause (i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on
or before such date);
(ii) if there shall be any statute, law, rule or regulation that
makes consummation of the Offer or the Merger illegal or prohibited or
if any court of competent jurisdiction or other governmental authority
shall have issued an order, judgment, decree or ruling, or taken any
other action restraining, enjoining, or otherwise prohibiting the Offer
or the Merger or prohibiting Parent from acquiring or holding or
exercising rights of ownership of the Company Stock and such order,
judgment, decree, ruling or other action shall have become final and
non-appealable; or
(iii) if the Offer terminates or expires on account of the failure
of any condition specified in Annex A without Merger Sub having
purchased any shares of Common Stock thereunder (provided that the right
to terminate this Agreement pursuant to this clause (iii) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of any
such condition);
(e) by Parent, prior to the acceptance for payment of the Minimum
Shares pursuant to the Offer, if (i) the Company Board withdraws, amends or
modifies its approval or recommendation of this Agreement and the
transactions contemplated hereby (or publicly announces its intention to do
so) in a manner adverse to Parent or (ii) the Company approves, recommends
or enters into an agreement with respect to, or consummates, an Alternative
Transaction; or
(f) by the Company, prior to the acceptance for payment of the Minimum
Shares pursuant to the Offer, if the Company Board shall have taken any
Permitted Action in accordance with the provisions of Section 7.1(a);
provided that such termination under this Section 9.1(f) shall not be
effective until the Company has made payment of the full Termination Fee
and Expenses required by Section 9.3.
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SECTION 9.2. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto except as set
forth in Section 9.3 and Section 10.1; provided, however, that nothing herein
shall relieve any party from liability for any willful breach hereof.
SECTION 9.3. Termination Fee and Expenses.
(a) In the event that this Agreement is terminated by Parent pursuant to
Section 9.1(e) or by the Company pursuant to Section 9.1(f), the Company shall
pay to Parent by wire transfer of immediately available funds to an account
designated by Parent on the next Business Day following such termination (or, in
the case of a termination pursuant to Section 9.1(f), prior to the effectiveness
of such termination, except that if documentation is not available, the Company
shall be permitted to make payment upon the provision by Parent of such
documentation) an amount equal to $36.0 million (the "Termination Fee") plus, no
later than two Business Days following the receipt of appropriate documentation,
reasonable out-of-pocket expenses of Parent relating to the transactions
contemplated by this Agreement (including reasonable fees and expenses of
Parent's counsel, accountants and financial advisers ("Expenses"); provided,
however, that the Company's reimbursement obligation for all such Expenses shall
not exceed $5.0 million.
(b) If all of the following events have occurred:
(i) an Alternative Transaction is commenced, publicly disclosed,
publicly proposed or otherwise communicated to the Company at any time on
or after the date of this Agreement and prior to the acceptance for payment
of the Minimum Shares pursuant to the Offer and either (1) Parent or the
Company terminates this Agreement pursuant to Section 9.1(d)(i) or (2) the
Company terminates this Agreement pursuant to Section 9.1(d)(iii) or (3)
Parent terminates this Agreement pursuant to Section 9.1(c)(ii); and
(ii) thereafter, within 12 months of the date of termination, the
Company (A) enters into a definitive agreement with respect to, or
consummates, the Alternative Transaction described in clause (i) above or
(B) consummates a Superior Proposal (whether or not such Superior Proposal
was commenced, publicly disclosed, publicly proposed or otherwise
communicated to the Company prior to such termination);
then, the Company shall pay to Parent an amount equal to the Termination Fee
plus Expenses (i) if payable pursuant to Section 9.3(b)(ii)(A), concurrently
with the execution of such definitive agreement or (ii) if payable pursuant to
Section 9.3(b)(ii)(B), concurrently with the consummation of such Superior
Proposal.
(c) The Surviving Corporation shall pay all charges and expenses, including
those of the Paying Agent, in connection with the transactions contemplated in
Article III. Except as otherwise specifically provided herein, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
(d) Notwithstanding the foregoing, in no event shall the Company be
obligated to pay more than one Termination Fee or more than $5.0 million in
Expenses with respect to all such occurrences.
SECTION 9.4. Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time before or after any required approval of matters presented in connection
with the Merger by the stockholders of the Company; provided, however, that
after any such approval, there shall be made no amendment that by law requires
further approval by such stockholders without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 9.5. Waiver. At any time prior to the Closing Date, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
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ARTICLE X.
GENERAL PROVISIONS
SECTION 10.1. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 9.1, as the case may be, except that the agreements set
forth in Article III and Section 7.5 and Section 7.6 shall survive the Effective
Time and those set forth in Section 7.2(b), Section 9.2 and Section 9.3 and the
Confidentiality Agreement in accordance with its terms shall survive termination
of this Agreement.
SECTION 10.2. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy,
overnight courier or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
if to Parent or Merger Sub:
Safeway Inc.
5918 Stoneridge Mall Road
Pleasanton, California 94588-3229
Attention: Michael C. Ross
Fax: (925) 467-3231
with an additional copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Charles I. Cogut, Esq.
Fax: : (212) 455-2502
if to the Company:
Dominick's Supermarkets, Inc.
505 Railroad Avenue
Northlake, Illinois 60164-1696
Attention: Robert A. Mariano
Fax: : (708) 409-3886
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Thomas C. Sadler, Esq.
Fax: (213) 891-8763
and
The Yucaipa Companies LLC
10000 Santa Monica Boulevard, Fifth Floor
Los Angeles, California 90067
Attention: Ronald W. Burkle
Fax: (310) 789-7201
SECTION 10.3. Severability. If any term or other provision of this
agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as
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possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the fullest extent possible.
SECTION 10.4. Entire Agreement; Assignment. This Agreement and the
Stockholders Agreement, together with the Confidentiality Agreement, constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof.
This Agreement shall not be assigned by any party hereto without the prior
written consent of the other parties, by operation of law or otherwise, except
that Parent and Purchaser may assign all or any of their respective rights and
obligations hereunder to any direct or indirect wholly-owned Subsidiary or
Subsidiaries of Parent, provided that no such assignment shall relieve the
assigning party of its obligations hereunder if such assignee does not perform
such obligations. Any attempted assignment which does not comply with the
provisions of this Section 10.4 shall be null and void ab initio.
SECTION 10.5. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except as provided in the
following sentence, nothing in this Agreement, express or implied, is intended
to or shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement. The parties hereto
expressly intend the provisions of Sections 3.8 and 7.6 to confer a benefit upon
and be enforceable by, as third party beneficiaries of this Agreement, the third
persons referred to in, or intended to be benefited by, such provisions.
SECTION 10.6. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
reference to the conflict of laws principles thereof.
SECTION 10.7. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 10.8. Specific Performance. Each of the parties hereto acknowledges
and agrees that the other parties hereto would be irreparably damaged in the
event any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, each of the
parties hereto agrees that they each shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and conditions hereof in any
action instituted in any court of the United States or any state having
competent jurisdiction, in addition to any other remedy to which such party may
be entitled, at law or in equity.
SECTION 10.9. Parent Guarantee. Parent hereby guarantees the due
performance of any and all obligations and liabilities of Merger Sub under or
arising out of this Agreement and the transactions contemplated hereby.
SECTION 10.10. Counterparts. This Agreement may be executed in two or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SAFEWAY INC.
By: /s/ MICHAEL C. ROSS
--------------------------------------
Name: Michael C. Ross
Title: Senior Vice President and
General Counsel
WINDY CITY ACQUISITION CORP.
By: /s/ MICHAEL C. ROSS
--------------------------------------
Name: Michael C. Ross
Title: Senior Vice President and
General Counsel
DOMINICK'S SUPERMARKETS, INC.
By: /s/ ROBERT A. MARIANO
--------------------------------------
Name: Robert A. Mariano
Title: President and Chief Executive
Officer
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ANNEX A
CONDITIONS TO THE OFFER
The Offer shall be conditioned upon at least that number of shares of
Common Stock equivalent to a majority of the total issued and outstanding shares
(on a fully diluted basis, without giving effect to the shares issuable upon the
exercise of the Yucaipa Warrant) of Common Stock on the date such shares are
purchased pursuant to the Offer (the "Minimum Shares") being validly tendered
and not withdrawn prior to the date which is 20 Business Days following the
commencement of the Offer in accordance with the terms hereof or such later date
as the Offer may be extended by an amendment to this Agreement in accordance
with the provisions of Section 9.4 or as provided in Section 2.1(b). Moreover,
notwithstanding any other provision of the Offer, and subject to the terms and
conditions of the Agreement, Merger Sub shall not be obligated to accept for
payment any shares of Common Stock until expiration of all applicable waiting
periods under the HSR Act, and Merger Sub shall not be required to accept for
payment, purchase or pay for, and may delay the acceptance for payment of or
payment for, any shares of Common Stock tendered in the Offer, or if the Minimum
Shares shall not have been validly tendered pursuant to the Offer and not
withdrawn, may terminate or amend the Offer, subject to the terms and conditions
of the Agreement and Merger Sub's obligation to extend the Offer pursuant to
Section 2.1(b) if, prior to the time of acceptance for payment of any such
shares of Common Stock (whether or not any other shares of Common Stock have
theretofore been accepted for payment or paid for pursuant to the Offer), any of
the following shall occur and remain in effect:
(a) a United States or state governmental authority or other agency or
commission or United States or state court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order which is in effect and has the effect
of making the acquisition of Common Stock by Merger Sub illegal or
prohibits or imposes material limitations on the ability of Merger Sub to
acquire shares of Common Stock or otherwise prohibiting (directly or
indirectly) consummation of the transactions contemplated by this Agreement
or prohibits or imposes material limitations on the ability of Parent to
own or operate all or a material portion of the Company's and its
Subsidiaries' businesses or assets, taken as a whole, subject to Parent's
and Merger Sub's obligations pursuant to Sections 2.1(b) and 7.8 of the
Agreement and Parent's agreement not to terminate the Offer as long as any
such injunction or order has not become final and non-appealable;
(b) either (i) any of the representations or warranties of the Company
in the Agreement (without giving effect to any materiality or Material
Adverse Effect qualifier therein) shall not be true and correct which
inaccuracy, singly or in the aggregate, would have or be reasonably likely
to have a Material Adverse Effect and which are not reasonably capable of
being cured by the Company or have not been cured within 10 Business Days
after the giving of written notice to the Company, in each case as if such
representations or warranties were made as of such time (unless a
representation speaks as of an earlier date, in which case it shall be
deemed to have been made as of such earlier date); or (ii) the Company
shall have failed to perform any obligation or to comply with any agreement
or covenant of the Company to be performed or complied with by it under the
Agreement, which failure, singly or in the aggregate, would have or be
reasonably likely to have a Material Adverse Effect and is not reasonably
capable of being cured by the Company or has not been cured within 10
Business Days after the giving of written notice to the Company; and an
officer of the Company shall not have provided a certificate to the effect
that the conditions set forth in clauses (i) and (ii) have not occurred on
the date shares of Common Stock are to be accepted for payment pursuant to
the Offer;
(c) (i) the Company Board (A) shall have amended, modified or
withdrawn in a manner adverse to Parent its approval or recommendation of
this Agreement, the Offer, the Merger or any of the transactions
contemplated thereby or (B) shall have endorsed, approved or recommended
any Alternative Transaction or (ii) the Company shall have entered into any
agreement with respect to any Alternative Transaction;
(d) any person or group (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent or Merger Sub or any of their respective
subsidiaries or affiliates, shall have become the beneficial owner
ANNEX A-1
<PAGE> 41
(as defined in Rule 13d-3 promulgated under the Exchange Act) of more than
25% of the outstanding shares of Common Stock (either on a primary or a
fully diluted basis, without giving effect to the shares issuable upon the
exercise of the Yucaipa Warrant); provided, however, that this provision
shall not apply to any person or group that beneficially owns shares of
Common Stock on the date hereof so long as such person or group does not
further increase its beneficial ownership beyond the number of shares of
Common Stock such person or group beneficially owns on the date of the
Agreement;
(e) the Agreement shall have been terminated by the Company or Parent
pursuant to its terms;
(f) there shall have occurred and be continuing (i) any general
suspension of, or limitation on prices for, trading in securities on the
NYSE (excluding suspensions or limitations (x) resulting solely from
physical damage or interference with such exchanges not related to market
conditions or (y) triggered on the NYSE by price fluctuations on a trading
day), (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, (iii) any limitation by
any United States governmental authority on the extension of credit
generally by banks or other financial institutions; (iv) a commencement of
war or material armed hostilities or other national calamity directly
involving the United States which could reasonably be expected to
materially adversely affect the consummation of the Offer or (v) in the
case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof; or
(g) there shall have occurred and be continuing any change in the
Company's business, operations, condition (financial or otherwise), results
of operations, assets or liabilities, except for changes contemplated
hereby or changes which are not reasonably likely to have a Material
Adverse Effect;
which, in reasonable judgment of Parent and Merger Sub, in any such case, and
regardless of the circumstances (including any action or inaction by or giving
rise to any such conditions), makes it inadvisable to proceed with the Offer
and/or with such acceptance for payment of or payment for shares of Common
Stock.
The foregoing conditions are for the sole benefit of Parent and Merger Sub
and may be asserted by Parent and Merger Sub regardless of the circumstances
giving rise to such condition or, except for the Minimum Condition, may be
waived by Parent and Merger Sub in whole or in part at any time and from time to
time. The failure by Parent or Merger Sub at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
ANNEX A-2
<PAGE> 1
EXHIBIT 3
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of October 13, 1998 (the
"Agreement"), by and among Safeway Inc., a Delaware corporation ("Parent"),
Windy City Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), and the parties listed on Annex A hereto
(each, a "Stockholder" and, collectively, the "Stockholders").
RECITALS
WHEREAS, Parent, Merger Sub and Dominick's Supermarkets, Inc., a
Delaware corporation (the "Company"), propose to enter into an Agreement and
Plan of Merger, dated as of October 12, 1998 (the "Merger Agreement"), which
provides, among other things, that Merger Sub will make a cash tender offer (the
"Offer") for all of the outstanding capital stock of the Company and, after
expiration of the Offer, will merge with and into the Company (the "Merger"), in
each case upon the terms and subject to the conditions in the Merger Agreement
(with all capitalized terms used but not defined herein having the meanings set
forth in the Merger Agreement);
WHEREAS, each Stockholder owns the number of shares of Voting Common
Stock, par value $.01 per share ("Voting Stock"), and/or Non-Voting Common
Stock, par value $.01 per share ("Non-Voting Stock"), of the Company (together,
the "Common Stock") set forth opposite its name on Annex A hereto (such shares
of Common Stock, together with any other shares of capital stock of the Company
acquired by such Stockholder after the date hereof and during the term of this
Agreement, including any shares issued upon the exercise of any warrants or
options, the conversion of any convertible securities or otherwise, and, with
respect to The Yucaipa Companies, a California general partnership ("Yucaipa"),
any shares issued upon exercise of the Class A Common Stock Purchase Warrant No.
W-1 issued by the Company to Yucaipa on March 22, 1995, as amended (the "Yucaipa
Warrant"), being collectively referred to herein as the "Subject Shares");
WHEREAS, Yucaipa owns the Yucaipa Warrant;
WHEREAS, as a condition to the willingness of Parent and Merger Sub to
enter into the Merger Agreement and make the Offer, Parent has required that
each Stockholder agree and, in order to induce Parent and Merger Sub to enter
into the Merger Agreement, each Stockholder has agreed, to enter into this
Agreement; and
WHEREAS, the Board of Directors of the Company (the "Company Board")
has approved Parent and Merger Sub becoming "interested stockholders" for
purposes of Section 203 of the Delaware General Corporation Law.
NOW, THEREFORE, to induce Parent and Merger Sub to enter into, and in
consideration of their entering into, the Merger Agreement, and in consideration
of the premises and the representations, warranties and agreements contained
herein, the parties agree as follows:
<PAGE> 2
1. Representations and Warranties of Each Stockholder. Each
Stockholder hereby, severally and not jointly, represents and warrants to Parent
and Merger Sub as of the date hereof solely in respect of itself as follows:
(a) Organization. Such Stockholder is a partnership duly formed
and validly existing under the laws of the jurisdiction of its
organization.
(b) Authority. Such Stockholder has the legal capacity and all
requisite power and authority to enter into this Agreement and to
perform its obligations and consummate the transactions contemplated
hereby. The execution, delivery and performance by such Stockholder of
this Agreement and the consummation by it of the transactions
contemplated hereby have been duly and validly authorized by such
Stockholder and no other partnership or other action or proceedings on
the part of such Stockholder are necessary to authorize the execution
and delivery by it of this Agreement and the consummation by it of the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Stockholder and constitutes a valid and
binding obligation of the Stockholder enforceable in accordance with
its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing.
(c) The Subject Shares. Except as set forth on Annex A hereto,
the Stockholder is the record and beneficial owner of, and has good
and marketable title to, the Subject Shares set forth opposite its
name on Annex A hereto and, in the case of Yucaipa, the Yucaipa
Warrant. The Stockholder does not own, of record or beneficially, any
shares of capital stock of the Company (or rights to acquire any such
shares) other than the Subject Shares set forth opposite its name on
Annex A hereto and, with respect to Yucaipa, the Yucaipa Warrant.
Except as set forth on Annex A hereto, the Stockholder has the sole
right to vote, sole power of disposition, sole power to issue
instructions with respect to the matters set forth in Sections 3, 4,
5, 6 (in the case of Yucaipa only) and 8 hereof, sole power of
conversion, sole power to demand appraisal rights and sole power to
agree to all of the matters set forth in this Agreement, in each case
with respect to all of such Stockholder's Subject Shares and, in the
case of Yucaipa, the Yucaipa Warrant and will have sole voting power,
sole power of disposition, sole power to issue instructions with
respect to the matters set forth in Sections 3, 4, 5, 6 (in the case
of Yucaipa only) and 8 hereof, sole power of conversion, sole power to
demand appraisal rights and sole power to agree to all of the matters
set forth in this Agreement, with respect to all of such Stockholder's
Subject Shares and, in the case of Yucaipa, the Yucaipa Warrant on the
Closing Date (as defined in Section 5(c)) or the Warrant Closing Date
(as defined in Section 6(c)(ii)), as the case may be, with no material
limitations, qualifications or restrictions on such rights, subject to
applicable federal securities laws and the terms of this Agreement.
Except for the 1996 Stockholders Agreement and this Agreement, and
except as set forth on Annex A hereto, none of the Subject Shares, or
with respect to Yucaipa, the Yucaipa Warrant, are subject to any
voting trust or other agreement, arrangement or restriction with
respect to the voting or disposition of such Subject Shares or the
Yucaipa Warrant, as the case may be. To the Stockholder's knowledge,
the
2
<PAGE> 3
Subject Shares are validly issued, fully paid and non-assessable. With
respect to the Stockholders not affiliated with Yucaipa (collectively,
"Apollo"), the Non-Voting Shares owned by Apollo may be converted into
Voting Stock by Apollo or following their transfer, by Parent in
accordance with the terms of the Company's Certificate of
Incorporation. With respect to Apollo, no shares of Non-Voting Stock
subject to this Agreement are or have ever been beneficially owned by
a bank holding company (as defined in 12 U.S.C. Section 1841) or an
Affiliate of a bank holding company.
(d) No Conflicts. Except for (i) filings under the HSR Act, if
applicable, (ii) the applicable requirements of the Exchange Act and
the Securities Act, (iii) the applicable requirements of state
securities, takeover or Blue Sky laws, (iv) such notifications,
filings, authorizing actions, orders and approvals as may be required
under other laws, (A) no material filing with, and no material permit,
authorization, consent or approval of, any state, federal or foreign
public body or authority is necessary for the execution of this
Agreement by such Stockholder and the consummation by such Stockholder
of the transactions contemplated hereby and (B) the execution and
delivery of this Agreement by such Stockholder do not, and the
consummation by it of the transactions contemplated hereby and
compliance with the terms hereof will not, conflict with, or result in
any violation of, or breach or default (with or without notice or
lapse of time or both) under (1) any partnership or other
organizational agreement of such Stockholder, (2) any provision of any
material trust, loan or credit agreement, note, bond, mortgage,
indenture, guarantee, lease or other agreement to which it is a party
or by which it is bound, including without limitation, the Amended and
Restated Stockholders Agreement dated as of November 1, 1996 by and
between, among others, the Company and the Stockholders, as amended
(the "1996 Stockholders Agreement") and, with respect to Yucaipa, the
Yucaipa Warrant, or (3) any material franchise, license, judgment,
order, writ, injunction, notice, decree, statute, law, ordinance, rule
or regulation applicable to the Stockholder or its property or assets.
The execution and delivery of the amendments dated as of the date
hereof to the 1996 Stockholders Agreement and the Yucaipa Warrant do
not require the consent or approval of any Person other than the
parties to such amendments.
2. Representations and Warranties of Parent and Merger Sub. Each of
Parent and Merger Sub hereby, jointly and severally, represents and warrants to
each Stockholder as of the date hereof as follows:
(a) Organization. Each of Parent and Merger Sub is a corporation
duly incorporated, validly existing and in good standing under the
laws of Delaware.
(b) Authority. Each of Parent and Merger Sub has all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution,
delivery and performance by Parent and Merger Sub of this Agreement
and the consummation by them of the transactions contemplated hereby,
have been duly and validly authorized by Parent and Merger Sub and no
other corporate or other action or proceedings on the part of Parent
and Merger Sub are necessary to authorize the execution and delivery
by them of this Agreement and the consummation by them of the
transactions contemplated hereby. This Agreement has
3
<PAGE> 4
been duly executed and delivered by Parent and Merger Sub and
constitutes a valid and binding obligation of Parent and Merger Sub
enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
(c) No Conflicts. Except for (i) filings under the HSR Act, if
applicable, (ii) the applicable requirements of the Exchange Act and
the Securities Act, (iii) the applicable requirements of state
securities, takeover or Blue Sky laws, (iv) such notifications,
filings, authorizing actions, orders and approvals as may be required
under other laws, (A) no material filing with, and no material permit,
authorization, consent or approval of, any state, federal or foreign
public body or authority is necessary for the execution of this
Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby and (B) the
execution and delivery of this Agreement by Parent and Merger Sub do
not, and the consummation by them of the transactions contemplated
hereby and compliance with the terms hereof will not, conflict with,
or result in any violation of, or breach or default (with or without
notice or lapse of time or both) under (1) the certificate of
incorporation or bylaws of Parent or Merger Sub, (2) any provision of
any material trust, loan or credit agreement, note, bond, mortgage,
indenture, guarantee, lease or other agreement to which Parent or
Merger Sub is a party or by which it is bound, or (3) any material
franchise, license, judgment, order, writ, injunction, notice, decree,
statute, law, ordinance, rule or regulation applicable to Parent or
Merger Sub or their respective properties or assets.
(d) Financial Condition. Parent and Merger Sub have, as of the
date of this Agreement, available cash or undrawn lines of credit
sufficient to consummate the Offer on the terms contemplated by this
Agreement, and, at the expiration of the Offer, Parent and Merger Sub
will have available all of the funds necessary for the acquisition of
all shares of Common Stock pursuant to the Offer and to perform their
respective obligations under this Agreement.
3. Tender of Subject Shares.
(a) Parent and Merger Sub jointly and severally agree (i) subject
to the conditions of the Offer set forth in Annex A to the Merger
Agreement and the other terms and conditions of the Merger Agreement,
that (x) Merger Sub will commence the Offer within five (5) Business
Days after Parent and the Company issue a public announcement of the
execution of the Merger Agreement and (y) Merger Sub will accept for
payment, purchase and pay for, in accordance with the terms of the
Offer and the Merger Agreement, all shares of Common Stock tendered
pursuant to the Offer as soon as permitted under applicable law and
(ii) not to decrease the Price Per Share below $49.00.
(b) Each Stockholder agrees (i) to tender the Subject Shares into
the Offer promptly, and in any event no later than the 10th Business
Day following the commencement of the Offer, or, if any Stockholder
has not received the Offer Documents by such time, within two Business
Days following receipt of such documents but in any
4
<PAGE> 5
event prior to the date of expiration of such Offer, in each case,
free and clear of any Encumbrances except those set forth on Annex A
hereto and those arising from this Agreement and (ii) not to withdraw
any Subject Shares so tendered. Each Stockholder acknowledges that
Merger Sub's obligation to accept for payment and pay for the Subject
Shares in the Offer is subject to the terms and conditions of the
Offer.
(c) Subject to Section 3(a)(ii), each Stockholder will receive
the same Price Per Share received by other stockholders of the Company
in the Offer with respect to Subject Shares tendered by it in the
Offer. In the event that, notwithstanding the provisions of the first
sentence of Section 3(b), any Subject Shares are for any reason
withdrawn from the Offer or are not purchased pursuant to the Offer,
such Subject Shares will remain subject to the terms of this
Agreement. On the date the Subject Shares are accepted for payment and
purchased by Merger Sub pursuant to the Offer, Merger Sub or Parent,
as the case may be, shall instruct the Paying Agent to make payment by
wire transfer to each Stockholder of the purchase price for such
Stockholder's Subject Shares to an account designated by such
Stockholder in the Offer Documents.
(d) Each Stockholder hereby agrees to permit Parent to publish
and disclose in the Offer Documents and, if approval of the
stockholders of the Company is required under applicable law, the
Proxy Statement, its identity and ownership of Common Stock and the
nature of its commitments, arrangements and understandings under this
Agreement.
4. Agreement to Vote. Each Stockholder, severally and not jointly,
agrees that:
(a) At any meeting of stockholders of the Company called to vote
upon the Merger Agreement and the transactions contemplated thereby,
however called, or at any adjournment thereof or in connection with
any written consent of the holders of Common Stock or in any other
circumstances upon which a vote, consent or other approval with
respect to the Merger Agreement and the transactions contemplated
thereby is sought, the Stockholder shall be present (in person or by
proxy) and shall vote (or cause to be voted) all Subject Shares then
beneficially owned by such Stockholder in favor of the Merger and the
Merger Agreement and the transactions contemplated thereby; and
(b) At any meeting of stockholders of the Company, however
called, or at any adjournment thereof or in connection with any
written consent of the holders of Common Stock or in any other
circumstances upon which a vote, consent or other approval is sought,
the Stockholder shall vote (or cause to be voted) all Subject Shares
then beneficially owned by such Stockholder against any action or
agreement (other than the Merger Agreement or the transactions
contemplated thereby) that would impede, interfere with, delay,
postpone or attempt to discourage the Merger, the Offer or the other
transactions contemplated by this Agreement and the Merger Agreement,
including, but not limited to: (i) any extraordinary corporate
transaction, such as a merger, consolidation or other business
combination involving the Company and its Subsidiaries; (ii) a sale,
lease or transfer of a material amount of assets of the Company and
its Subsidiaries or a
5
<PAGE> 6
reorganization, recapitalization, dissolution, winding up or
liquidation of the Company and its Subsidiaries; (iii) any change in
the management or board of directors of the Company, except as
otherwise agreed to in writing by Parent; (iv) any material change in
the present capitalization or dividend policy of the Company; or (v)
any other material change in the Company's corporate structure,
business, certificate of incorporation or by-laws.
(c) The provisions of this Section 4 shall terminate and be of no
further force and effect upon the earlier to occur of (1) the
termination of the Merger Agreement without the occurrence of any
Triggering Event (as defined in Section 5(b)) and (2) the expiration
of the Option Exercise Period (as defined in Section 5(b)) without
Parent having duly delivered the Option Exercise Notice (as defined in
Section 5(c)) in accordance with Section 19(b); provided however that
nothing herein shall relieve any party from liability for any breach
hereof.
5. Option.
(a) Subject to applicable law (including Rule 10b-13 under the
Exchange Act), each Stockholder, severally and not jointly, hereby
grants to Merger Sub an irrevocable option to purchase such
Stockholder's Subject Shares, on the terms and subject to the
conditions set forth herein (collectively, with respect to all the
Stockholders' Subject Shares, the "Option").
(b) The Option may be exercised by Merger Sub, as a whole and not
in part, during the period commencing upon the occurrence of any of
the following events and ending at 5:00 p.m., Los Angeles time, on the
date which is the 30th calendar day following the first to occur of
such events (each of such events a "Triggering Event," and such 30 day
period, the "Option Exercise Period"): (i) the Merger Agreement shall
have been terminated by Parent pursuant to Section 9.1(e) thereof;
(ii) the Merger Agreement shall have been terminated by the Company
pursuant to Section 9.1(f) thereof; or (iii) the Merger Agreement
shall have been terminated pursuant to Section 9.1(c)(ii), 9.1(d)(i)
or 9.1 (d)(iii) thereof in circumstances where a Termination Fee may
become payable pursuant to Section 9.3(b) thereof.
(c) If Merger Sub wishes to exercise the Option, Merger Sub shall
send a written notice (the "Option Exercise Notice") in accordance
with Section 19(b) to each Stockholder of its intention to exercise
the Option, specifying the place, and, if then known, the time and the
date (the "Closing Date") of the closing (the "Closing") of the
purchase. The Closing Date shall occur on the fifth Business Day (or
such longer period as may be required by applicable law or regulation)
after the later of (i) the date on which such notice is delivered and
(ii) the satisfaction of the conditions set forth in Section 5(f).
(d) At the Closing, each Stockholder shall deliver to Merger Sub
(or its designee) all of such Stockholder's Subject Shares, free and
clear of all Encumbrances (except those arising from this Agreement),
by delivery of a certificate or certificates evidencing such Subject
Shares in the denominations designated by Merger Sub in the
6
<PAGE> 7
Option Exercise Notice, duly endorsed to Merger Sub or accompanied by
stock powers duly executed in favor of Merger Sub, with all necessary
stock transfer stamps affixed.
(e) At the Closing, Merger Sub shall pay, and Parent shall cause
Merger Sub to pay, to the Stockholders, by wire transfer in
immediately available funds to the accounts the Stockholders specified
in writing no more than two Business Days prior to the Closing, an
amount equal to the product of $49.00 and the number of Subject Shares
purchased pursuant to the exercise of the Option (the "Purchase
Price").
(f) The Closing shall be subject to the satisfaction of each of
the following conditions: (i) no court, arbitrator or governmental
body, agency or official shall have issued any order, decree or ruling
and there shall not be any statute, rule or regulation, in each case,
restraining, enjoining or prohibiting the consummation of the purchase
and sale of the Subject Shares pursuant to the exercise of the Option;
(ii) any waiting period applicable to the consummation of the purchase
and sale of the Subject Shares under the HSR Act shall have expired or
been terminated; and (iii) all actions by or in respect of, and any
filing with, any governmental body, agency, official or authority
required to permit the consummation of the purchase and sale of the
Subject Shares shall have been obtained or made and shall be in full
force and effect; except, in the case of clause (iii), where the
failure to satisfy such condition would not materially delay the
Closing or materially impair the value of the Subject Shares.
(g) In the event the Option is exercised, the Stockholders shall
use their best efforts, consistent with their fiduciary duties as
directors under applicable law, to ensure that Parent is entitled to
representation on the Company Board proportionate (rounded up to the
next whole number) to the percentage determined by dividing the number
of Subject Shares by the number of outstanding shares of Common Stock;
provided that such representation shall not be rounded up to
constitute a majority of the Company Board.
(h) The provisions of this Section 5 shall terminate and be of no
further force and effect upon the earlier to occur of (1) the Closing
and (2) the expiration of the Option Exercise Period without Parent
having duly delivered the Option Exercise Notice in accordance with
Section 19(b); provided however that nothing herein shall relieve any
party from liability for any breach hereof.
6. Yucaipa Warrant.
(a) At the earlier of the Offer Consummation Date and the
Effective Time, Parent or Merger Sub shall purchase from Yucaipa the
Yucaipa Warrant for an amount equal to the product of (i) the
difference between the Price Per Share and the per share exercise
price thereof ($20.73 as of the date hereof) multiplied by (ii) the
number of shares of Common Stock underlying the Yucaipa Warrant
(3,874,492 as of the date hereof). Upon the purchase of the Yucaipa
Warrant and payment of the purchase price therefor in accordance with
the provisions of this Section 6, Yucaipa shall cease to have any
rights with respect to the Yucaipa Warrant.
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<PAGE> 8
(b) Until the earlier to occur of (i) the termination or
expiration (without extension) of the Offer and (ii) the termination
of the Merger Agreement, Yucaipa shall not exercise the Yucaipa
Warrant without the prior written consent of Parent.
(c) (i) In the event that Yucaipa either (i) exercises the
Yucaipa Warrant or (ii) notifies Parent in writing of its intention to
exercise the Yucaipa Warrant (and concurrently surrenders to the
Company the Yucaipa Warrant together with a duly completed
subscription and, if the "cash exercise" box is checked, a check made
out to the Company in the amount set forth in such subscription,
accompanied by an irrevocable instruction to the Company (which
instruction shall state that it may be withdrawn only by Parent,
copies of the foregoing to be provided to Parent concurrently with
delivery of the notice) to exercise the Warrant on the second Business
Day following the expiration of the Warrant Option Exercise Period (as
defined below)) and that any applicable transfer restrictions have
been (or will be) waived or amended, in each case, at any time on or
after the occurrence of a Triggering Event and on or prior to the
earlier to occur of a Sale (as defined in Section 10(b)) and the first
anniversary of a Triggering Event (the earlier date being referred to
herein as the "Warrant Termination Date"), Parent shall have the
right, exercisable at any time on or prior to 5:00 p.m., Los Angeles
time, on the 30th calendar day following receipt by Parent of such
notice in accordance with Section 19(b) (such 30 day period, the
"Warrant Option Exercise Period"), to acquire (a) the shares of Common
Stock issuable upon such exercise (the "Warrant Shares") at a price of
$49 per share in the case of clause (i) or (b) acquire the Yucaipa
Warrant for the same price that Parent or Merger Sub would have been
obligated to pay under Section 6(a) had either of them purchased the
Yucaipa Warrant pursuant to such Section (and for such purpose the
Price Per Share is $49), in the case of clause (ii) (the "Warrant
Option"). All of the Warrant Shares (or, if applicable, the Yucaipa
Warrant) acquired pursuant to the preceding sentence shall be subject
to the provisions of Section 10(b) for the period of time commencing
with the Warrant Closing and ending on the first anniversary thereof.
Yucaipa shall not take any action, or enter into any agreement or
arrangement, that would have the effect of giving any Person the right
to acquire the Warrant Shares (or, if applicable, the Yucaipa Warrant)
which right would either have priority over Parent's right to acquire
the Warrant Shares (or, if applicable, the Yucaipa Warrant) upon the
exercise of the Warrant Option, or which would require Parent to
transfer such Warrant Shares (or, if applicable, the Yucaipa Warrant)
to any Person following such exercise, or give any Person the right to
control or share control of the power to vote or dispose of the
Warrant Shares (or, if applicable, the Yucaipa Warrant).
(ii) If Merger Sub wishes to exercise
the Warrant Option, Merger Sub shall send a written notice (the
"Warrant Option Exercise Notice") in accordance with Section 19(b) to
Yucaipa of its intention to exercise the Option, specifying the place,
and, if then known, the time and the date (the "Warrant Closing Date")
of the closing (the "Warrant Closing") of the purchase. The Warrant
Closing Date shall occur on the fifth Business Day (or such longer
period as may be required by applicable law or regulation) after the
later of (a) the date on which such notice is delivered and (b) the
satisfaction of the conditions set forth in Section 6(b)(v).
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<PAGE> 9
(iii) At the Warrant Closing, Yucaipa shall
deliver to Merger Sub (or its designee) all of the Warrant Shares (or,
if applicable, the Yucaipa Warrant) by delivery of a certificate or
certificates evidencing such shares in the denominations designated by
Merger Sub in the Warrant Option Exercise Notice, duly endorsed to
Merger Sub or accompanied by stock powers duly executed in favor of
Merger Sub, with all necessary stock transfer stamps affixed.
(iv) At the Warrant Closing, Merger Sub
shall pay, and Parent shall cause Merger Sub to pay, to Yucaipa, by
wire transfer in immediately available funds to the account of The
Yucaipa Companies specified in writing no more than two Business Days
prior to the Closing, an amount equal to the product of $49.00 and the
number of shares purchased pursuant to the exercise of the Warrant
Option if Warrant Shares are purchased, or the price specified in
Section 6(c)(i) above, if the Yucaipa Warrant is purchased (the
"Warrant Option Price"); provided, however, that in connection with
the purchase of the Yucaipa Warrant, the Warrant Option Price will be
held in escrow, with a financial institution and under customary
arrangements, in each case, reasonably satisfactory to Parent and
Yucaipa, until such time as the Warrant Shares to be issued upon
exercise of the Yucaipa Warrant have been issued to Parent (or its
designee). In the event that such Warrant Shares have not been issued
to Parent by the end of the fifth Business Day following the Warrant
Closing Date, the Warrant Closing shall be cancelled. In such event
the Yucaipa Warrant shall be returned to Yucaipa and the Warrant
Option Price shall be returned to Parent. In addition, in such event,
no Warrant Option Exercise Period shall be deemed to have commenced
hereunder. Thereafter, Yucaipa shall not be entitled to give Parent
any further notice contemplated by Section 6(c)(ii) above.
(v) The Warrant Closing shall be subject
to the satisfaction of each of the following conditions: (1) no court,
arbitrator or governmental body, agency or official shall have issued
any order, decree or ruling and there shall not be any statute, rule
or regulation, in each case, restraining, enjoining or prohibiting the
consummation of the purchase and sale of the Warrant Shares (or, if
applicable, the Yucaipa Warrant); (2) any waiting period applicable to
the consummation of the purchase and sale of the Warrant Shares (or,
if applicable, the Yucaipa Warrant) under the HSR Act shall have
expired or been terminated; and (3) all actions by or in respect of,
and any filing with, any governmental body, agency, official, or
authority required to permit the consummation of the purchase and sale
of the Warrant Shares (or, if applicable, the Yucaipa Warrant) shall
have been obtained or made and shall be in full force and effect;
except, in the case of clause (iii), where the failure to satisfy any
such condition would not materially delay the Warrant Closing or
materially impair the value of the Warrant Shares (or, if applicable,
the Yucaipa Warrant).
(d) Except as set forth herein with respect to the application of
Section 10(b) to the Warrant Shares, the provisions of Section 6(c)
shall terminate upon the earlier to occur of the following: (i) the
Warrant Termination Date, (ii) the expiration of the Option Exercise
Period without Parent having duly delivered the Option Exercise Notice
in accordance with Section 19(b), (iii) the expiration of the Warrant
Option Exercise Period without Parent having duly delivered the
Warrant Option Exercise Notice
9
<PAGE> 10
in accordance with Section 19(b) and (iv) the Warrant Closing;
provided however that nothing herein shall relieve any party from
liability for any breach hereof.
7. Treatment of Management Agreement. At the earlier of the Offer
Consummation Date and the Effective Time, Parent will cause (a) the Management
Agreement to be terminated by the Company and (b) the Company to make a
termination payment to Yucaipa pursuant to Section 8.3 of the Management
Agreement.
8. Restriction on Transfer. Each Stockholder agrees not (a) to sell,
transfer, pledge, encumber, assign or otherwise dispose of (collectively,
"Transfer"), or enter into any contract, option or other arrangement or
understanding with respect to the Transfer by such Stockholder of, any of the
Subject Shares and, in the case of Yucaipa, the Yucaipa Warrant, or offer any
interest in any thereof to any Person other than pursuant to the terms of the
Offer, the Merger or this Agreement or (b) to enter into any voting arrangement
or understanding, whether by proxy, power of attorney, voting agreement, voting
trust or otherwise with respect to the Subject Shares, or, with respect to
Yucaipa, the Yucaipa Warrant, in connection with, directly or indirectly, any
Alternative Transaction or otherwise and agrees not to commit or agree to take
any of the foregoing actions or (c) take any action that would make any
representation or warranty of such Stockholder contained herein untrue or
incorrect in any material respect or have the effect of preventing or disabling
such Stockholder from performing its obligations under this Agreement.
Notwithstanding the foregoing, each Stockholder shall have the right to Transfer
Subject Shares and, with respect to Yucaipa, the Yucaipa Warrant to any
Affiliate upon the due execution and delivery to Parent by such transferee of a
legal, valid and binding counterpart to this Agreement so long as any such
Transfer is not intended to circumvent the provisions of this Agreement. The
transfer restrictions with respect to the Subject Shares shall terminate and be
of no further force and effect upon the earlier to occur of the following: (i)
the termination of the Merger Agreement without the occurrence of any Triggering
Event and (ii) the expiration of the Option Exercise Period without Parent
having duly delivered the Option Exercise Notice in accordance with Section
19(b). The transfer restrictions with respect to the Yucaipa Warrant set forth
herein shall terminate and be of no further force and effect upon the earlier to
occur of the following: (i) the Warrant Termination Date and (ii) the expiration
of the Option Exercise Period without Parent having duly delivered the Option
Exercise Notice in accordance with Section 19(b).
9. No Solicitation of Alternative Transactions. Each of the
Stockholders shall, and shall cause its respective officers, directors,
employees, and representatives and agents to immediately cease any existing
discussions or negotiations, if any, with any parties conducted heretofore with
respect to any Alternative Transaction or the sale of any Subject Shares, or
with respect to Yucaipa, the Yucaipa Warrant. No Stockholder, nor any of their
respective officers, directors, employees or representatives and agents, shall,
directly or indirectly, solicit, initiate, facilitate or encourage the making of
any proposal for an Alternative Transaction or the sale of any Subject Shares,
or with respect to Yucaipa, the Yucaipa Warrant, participate in discussions or
negotiations with, or provide any information to, any Person or group (other
than Parent and Merger Sub or any designees of Parent or Merger Sub) concerning
an Alternative Transaction or the sale of any Subject Shares, or with respect to
Yucaipa, the Yucaipa Warrant. Each Stockholder shall notify Parent promptly if
it receives any unsolicited proposal concerning an Alternative Transaction or
the sale of any Subject Shares, or with respect to Yucaipa,
10
<PAGE> 11
the Yucaipa Warrant, the identity of the person making any such proposal and
all the terms and conditions thereof and shall advise Parent periodically of all
material developments relating thereto.
10. Further Agreements of Parent.
(a) Parent hereby agrees that, in the event the Option or the
Warrant Option is exercised, as promptly as practicable thereafter,
Parent will propose to the Company a merger, on terms and conditions
substantially the same as those provided for in the Merger Agreement,
between itself or one of its wholly owned Subsidiaries and the Company
pursuant to which the stockholders of the Company (other than the
Company, any direct or indirect Subsidiary of the Company or Parent)
will receive an amount of cash consideration per share of Common Stock
equal to the Price Per Share, and will take such actions as may be
necessary or appropriate in order to effectuate such merger at the
earliest practicable time (such merger, the "Back-end Merger").
(b) If, after purchasing the Subject Shares pursuant to the
Option, Parent or any of its Affiliates receives any cash or non-cash
consideration in respect of the Subject Shares in connection with any
sale, transfer or other disposition, whether direct or indirect
(including without limitation by operation of law or through any
merger, consolidation or other change of control), to an unaffiliated
third party (a "Sale") during the period commencing on the date of the
Closing and ending on the first anniversary thereof, Parent shall
promptly pay over to the Stockholders (pro rata in accordance with the
number of Subject Shares acquired from each Stockholder pursuant to
the Option), as an addition to the Purchase Price, (x) the excess, if
any, of such consideration over the aggregate Purchase Price paid for
the Subject Shares by Parent or Merger Sub hereunder less (y) the sum
of (I) the amount of taxes payable by Parent or Merger Sub in
connection with such Sale and (II) the amount of out-of-pocket
expenses paid by Parent or Merger Sub in connection with such Sale;
provided that, (i) if the consideration received by Parent or such
affiliates shall be securities listed on a national securities
exchange or traded on the Nasdaq Stock Market ("NASDAQ"), the per
share value of such consideration shall be equal to the closing price
per share listed on such national securities exchange or NASDAQ on the
date such transaction is consummated and (ii) if the consideration
received by Parent or such Affiliate shall be in a form other than
securities, the per share value shall be determined in good faith as
of the date such transaction is consummated by Parent and the
Stockholders, or, if Parent and the Stockholders cannot reach
agreement, by a nationally recognized investment banking firm
reasonably acceptable to the parties. The provisions of this section
shall also apply to any Warrant Shares purchased by Parent or any of
its Affiliates, provided that the time period specified herein shall
commence with the Warrant Closing and end on the first anniversary
thereof.
(c) Parent and Merger Sub agree that, in connection with any
exercise of the Option and/or the Warrant Option, Merger Sub will
purchase, pursuant to "tag along" rights of certain stockholders of
the Company who are parties to the 1996 Stockholders Agreement or any
other similar agreements with any Stockholder (or any affiliate of
such Stockholder), all shares of Common Stock required to be purchased
as a
11
<PAGE> 12
result of the sale by the Stockholders of any of the Subject Shares
and/or Warrant Shares pursuant to such exercise of the Option and/or
Warrant Option. Any such purchase of shares of Common Stock from such
stockholders shall be for the same purchase price as the Subject
Shares and/or Warrant Shares purchased pursuant to such exercise of
the Option and/or Warrant Option and shall be made notwithstanding any
waiver or nonfulfillment by any such stockholder or any Stockholder
(or its affiliate) or any requirements for notice of sale or proper
exercise of such "tag along" rights.
11. Further Assurances. Upon the terms and subject to the conditions
hereof, each of the parties hereto shall use its reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. Without limiting the foregoing, each party hereto will, from
time to time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments and shall take
all such other action as any other party may reasonably request for the purpose
of effectively carrying out the transactions contemplated by this Agreement,
including (a) vesting good title to the Subject Shares in Merger Sub and (b)
using its reasonable best efforts to make promptly all regulatory filings and
applications, including, without limitation, under the HSR Act, and to obtain
all licenses, permits, consents, approvals, authorizations, qualification and
orders of governmental authorities and parties to contracts as are necessary for
the consummation of the transactions contemplated by this Agreement. Without in
any way limiting the foregoing, the relevant Stockholder shall, as soon as
practicable but in no event later than the date on which such Stockholder is
obligated to tender its Subject Shares pursuant to Section 3(b), obtain the
release of the Encumbrances set forth on Annex A hereto.
12. Termination. Except for Sections 4, 5, 6, 7, 8, 10 and 14 (and
Sections 11 and 15 through 19 to the extent they relate thereto), which shall
terminate in accordance with the terms set forth therein, this Agreement, and
all obligations, agreements and waivers hereunder, will terminate and be of no
further force and effect on the earliest of (a) the date the Merger Agreement is
terminated in accordance with its terms; (b) the purchase of, and payment for,
all the Subject Shares pursuant to the Offer in accordance with Section 5
hereof; and (c) the Effective Time; provided however that nothing herein shall
relieve any party from liability for any breach hereof.
13. Waiver of Appraisal and Dissenter's Rights. Each Stockholder
waives and agrees not to exercise any rights of appraisal or rights to dissent
from the Merger that such Stockholder may have with respect to such
Stockholder's Subject Shares.
14. Stockholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a director or officer of the Company makes any
agreement or understanding herein in his or her capacity as such director or
officer. Each Stockholder signs solely in its capacity as the record holder and
beneficial owner of such Stockholder's Subject Shares and nothing herein shall
limit or affect any actions taken by any Stockholder in his or her capacity as
an officer or director of the Company to the extent specifically permitted by
the Merger Agreement. This Section shall survive termination of this Agreement.
12
<PAGE> 13
15. Parent Guarantee. Parent hereby guarantees the due performance of
any and all obligations and liabilities of Merger Sub under or arising out of
this Agreement and the transactions contemplated hereby.
16. Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to the remedy of specific
performance of such provisions and to an injunction or injunctions and/or such
other equitable relief as may be necessary to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
court of the United States located in the State of Delaware or in a Delaware
state court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto (i)
consents to submit such party to the personal jurisdiction of any Federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated
hereby, (ii) agrees that such party will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court;
(iii) agrees that such party will not bring any action relating to this
Agreement or the transactions contemplated hereby in any court other than a
Federal court sitting in the State of Delaware or a Delaware state court and
(iv) waives any right to trial by jury with respect to any claim or proceeding
related to or arising out of this Agreement or any of the transactions
contemplated hereby.
17. Stop Transfer Order; Legend. In furtherance of this Agreement,
concurrently herewith, each Stockholder shall, and hereby does authorize the
Company's counsel to, notify the Company's transfer agent that there is a stop
transfer order with respect to all of the Subject Shares (and that this
Agreement places limits on the voting and transfer of such shares). If requested
by Parent, each Stockholder agrees as promptly as is reasonably practicable to
apply a legend to all certificates representing the Subject Shares referring to
the Option and other rights granted to Parent by this Agreement.
18. Adjustments to Prevent Dilution, Etc. In the event of a stock
dividend or distribution, or any change in the Company's Common Stock by reason
of any stock dividend, split-up, reclassification, recapitalization, combination
or the exchange of shares, the term "Subject Shares" shall be deemed to refer to
and include the Subject Shares as well as all such stock dividends and
distributions and any shares into which or for which any or all of the Subject
Shares may be changed or exchanged. In such event, the amount to be paid per
share by Purchaser shall be proportionately adjusted.
19. General Provisions.
(a) Amendments. This Agreement may not be modified, altered,
supplemented or amended except by an instrument in writing signed by
each of the parties hereto.
(b) Notice. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or
sent by overnight courier (providing proof of delivery) to Parent or
Merger Sub in accordance with Section 10.2 of
13
<PAGE> 14
the Merger Agreement and to the Stockholders at their respective
addresses set forth in Annex A hereto (or to such other address as any
party may have furnished to the other parties in writing in accordance
herewith).
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement
unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the
counterparts have been signed by each of the parties and delivered to
the other party, it being understood that each party need not sign the
same counterpart.
(e) Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including, without limitation, the documents and
instruments referred to herein) (i) constitutes the entire agreement
and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
(f) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware.
(g) Costs and Expenses. All costs and expenses incurred in
connection with this Agreement and the consummation of the
transactions contemplated hereby shall be paid by the party incurring
such expenses.
(h) Substitution. In the event that Parent exercises the Option
or the Warrant Option, Parent shall be permitted, at its sole
discretion, to instruct the Stockholder to transfer and deliver the
Subject Shares or the Warrant Shares, as the case may be, to a direct
or indirect wholly owned Subsidiary of Parent, whether Merger Sub or
another Subsidiary.
(i) Multiple Stockholders. All representations, warranties,
covenants and agreements of the Stockholders in this Agreement are
several and not joint, and solely relate to matters involving the
subject Stockholder and not the other Stockholders.
[Signature Pages Follow]
14
<PAGE> 15
IN WITNESS WHEREOF, Parent, Merger Sub and each Stockholder have
caused this Agreement to be signed by their respective officer thereunto duly
authorized as of the date first written above.
SAFEWAY INC.
By: /s/ Michael C. Ross
---------------------------------
Name: Michael C. Ross
Title: Senior Vice President,
General Counsel and Corporate
Secretary
WINDY CITY ACQUISITION CORP.
By: /s/ Michael C. Ross
---------------------------------
Name: Michael C. Ross
Title: Senior Vice President
and General Counsel
STOCKHOLDERS:
YUCAIPA BLACKHAWK PARTNERS, L.P.
By: Yucaipa Management L.L.C.,
Its General Partner
By: /s/ Ronald W. Burkle
---------------------------------
Name: Ronald W. Burkle
Title: Managing Member
YUCAIPA CHICAGO PARTNERS, L.P.
By: Yucaipa Management L.L.C.,
Its General Partner
By: /s/ Ronald W. Burkle
---------------------------------
Name: Ronald W. Burkle
Title: Managing Member
S-1
<PAGE> 16
YUCAIPA DOMINICK'S PARTNERS, L.P.
By: Yucaipa Management L.L.C.,
Its General Partner
By: /s/ Ronald W. Burkle
-----------------------------
Name: Ronald W. Burkle
Title: Managing Member
THE YUCAIPA COMPANIES
By: /s/ Ronald W. Burkle
-----------------------------
Name: Ronald W. Burkle
Title: Managing General Partner
APOLLO INVESTMENT FUND, L.P.
By: Apollo Advisors, L.P.
Its General Partner
By: Apollo Capital Management, Inc.
Its Managing General Partner
By: /s/ David B. Kaplan
-----------------------------
Name: David B. Kaplan
Title: Vice President
APOLLO INVESTMENT FUND III, L.P.
By: Apollo Advisors, L.P.
Its General Partner
By: Apollo Capital Management, Inc.
Its Managing General Partner
By: /s/ David B. Kaplan
-----------------------------
Name: David B. Kaplan
Title: Vice President
S-2
<PAGE> 17
APOLLO OVERSEAS PARTNERS III, L.P.
By: Apollo Advisors, L.P.
Its General Partner
By: Apollo Capital Management, Inc.
Its Managing General Partner
By: /s/ David B. Kaplan
------------------------------
Name: David B. Kaplan
Title: Vice President
APOLLO (UK) PARTNERS III, L.P.
By: Apollo Advisors, L.P.
Its General Partner
By: Apollo Capital Management, Inc.
Its Managing General Partner
By: /s/ David B. Kaplan
------------------------------
Name: David B. Kaplan
Title: Vice President
S-3
<PAGE> 18
ANNEX A
<TABLE>
<CAPTION>
SHARES OF SHARES OF
NAME VOTING STOCK NON-VOTING STOCK
- ---- ------------ ----------------
<S> <C> <C>
Yucaipa Blackhawk Partners, L.P. 2,007,256(1)
10000 Santa Monica Blvd., Fifth Floor
Los Angeles, CA 90067
Yucaipa Chicago Partners, L.P. 253,470
10000 Santa Monica Blvd., Fifth Floor
Los Angeles, CA 90067
Yucaipa Dominick's Partners, L.P. 663,333
10000 Santa Monica Blvd., Fifth Floor
Los Angeles, CA 90067
The Yucaipa Companies 3,874,492(2)
10000 Santa Monica Blvd., Fifth Floor
Los Angeles, CA 90067
Apollo Investment Fund, L.P. 1,699,979 1,227,612
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
Attention: David B. Kaplan
Apollo Investment Fund III, L.P. 1,549,472 1,118,940
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
Attention: David B. Kaplan
Apollo Overseas Partners III, L.P. 92,935 67,100
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
Attention: David B. Kaplan
Apollo (UK) Partners III, L.P. 57,571 41,571
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
Attention: David B. Kaplan
</TABLE>
- --------
(1) Of this total, 1,480,201 shares are pledged to Salomon Smith Barney
for collateral purposes in connection with a margin account.
(2) Represents shares of Voting Stock issuable to Yucaipa upon exercise of
the Yucaipa Warrant.
A-1
<PAGE> 1
Exhibit 5
DOMINICK'S SUPERMARKETS, INC.
AMENDMENT TO CLASS A COMMON STOCK PURCHASE WARRANT
This AMENDMENT TO CLASS A COMMON STOCK PURCHASE WARRANT, dated as
of October 13, 1998, between Dominick's Supermarkets, Inc., a Delaware
corporation (the "Company"), and The Yucaipa Companies, a California general
partnership ("Yucaipa"), amends that certain Class A Common Stock Purchase
Warrant No. W-1 dated as of March 22, 1995 of the Company, as amended, entitling
Yucaipa to purchase 3,874,491 shares (subject to adjustment) of common stock,
par value $.01 per share, of the Company (the "Warrant"). Capitalized terms used
herein without definition shall have the meanings assigned to them in the
Warrant.
WHEREAS, the parties hereto have entered into the Warrant and
desire to amend certain provisions thereof, as more fully described herein;
NOW, THEREFORE, in consideration of the premises, the parties
hereto hereby agree as follows:
1. Restrictions on Transfer. Section 7(b) of the Warrant shall be
amended to read in its entirety as follows:
Transfer Restrictions. Neither this Warrant nor any
interest herein may be directly or indirectly transferred or assigned by
the Holder other than (i) to Ronald W. Burkle or a Controlling
Stockholder controlled by Ronald W. Burkle and the equity holders of
which consist solely of Ronald W. Burkle and Yucaipa Individuals or (ii)
to Safeway Inc. or any of its wholly-owned subsidiaries, in connection
with the transactions contemplated by that certain Agreement and Plan of
Merger, dated as of October 13, 1998 (the "Merger Agreement"), among the
Company, Safeway Inc. and Windy City Acquisition Corp. and that certain
Stockholders Agreement, dated as of October 13, 1998, among Safeway
Inc., Windy City Acquisition Corp. and the other parties listed on the
signature pages thereto, upon the first to occur of (x) the Offer
Consummation Date (as defined in the Merger Agreement) or (y) the
effective time of the Merger (as defined in the Merger Agreement).
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to Class A Common Stock Purchase Agreement to be duly executed and delivered as
of the day and year first above written.
DOMINICK'S SUPERMARKETS, INC.
By: /s/ Robert A. Mariano
--------------------------------------
Name: Robert A. Mariano
Title: President and Chief Executive
Officer
THE YUCAIPA COMPANIES
By: /s/ Ronald W. Burkle
--------------------------------------
Name: Ronald W. Burkle
Title: Managing General Partner
<PAGE> 1
EXHIBIT 7
AMENDMENT TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
Amendment (this "Amendment"), dated as of October 13, 1998, to
that certain Amended and Restated Stockholders Agreement, dated as of November
1, 1996 (the "Amended and Restated Stockholders Agreement"; capitalized terms
used herein and not defined herein have the meanings given them in the Amended
and Restated Stockholders Agreement), by and among Dominick's Supermarkets,
Inc., a Delaware corporation (the "Company"), Dominick's Finer Foods, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company, The Yucaipa
Companies, a California general partnership, and each of the other persons
listed on the signature pages thereto (each a "Stockholder").
RECITALS
WHEREAS, each of the Stockholders owns shares of Common Stock,
par value $.01 per share, and/or Non-Voting Common Stock, par value $.01 per
share, of the Company subject to the Amended and Restated Stockholders
Agreement;
WHEREAS, the Company, Safeway Inc., a Delaware corporation
("Parent"), and Windy City Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"), propose to enter into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), which provides, among other things, that Merger Sub will (i) make a
cash tender offer (the "Offer") for all of the outstanding capital stock of the
Company and (ii) after expiration of the Offer, merge with and into the Company,
in each case upon the terms and subject to the conditions in the Merger
Agreement; and
WHEREAS, as a condition to the willingness of Parent and Merger
Sub to enter into the Merger Agreement, Parent has requested that, in connection
with the Offer and the Merger, each of the Stockholders enter into a
Stockholders Agreement (the "Stockholders Agreement") in the form attached
hereto as Exhibit A.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. The Amended and Restated Stockholders Agreement shall be
deemed to be amended so as (a) to not restrict, prevent, prohibit or otherwise
impede any Stockholder from (i) tendering its shares in the Offer or (ii)
entering into the Stockholders Agreement or performing its obligations
thereunder and, for the avoidance of doubt, (b) to provide that none of the
transactions contemplated by the foregoing shall constitute a Transfer of any
Shares or any pecuniary interest therein by any party thereto. Furthermore, the
execution and delivery of the Stockholders Agreement by each of the
Stockholders, and the performance of each of the Stockholder's obligations
thereunder and the consummation of the transactions contemplated thereby, shall
not conflict with any provision of, or constitute a breach or default under, the
Amended and Restated Stockholders Agreement, and any such breach is hereby
waived.
2. Except as otherwise provided therein with respect to specific
provisions, the Amended and Restated Stockholders Agreement shall terminate
pursuant to Section 6.1 thereof upon the consummation of the Offer.
3. The Stockholders constitute the holders of a majority of the
Shares subject to the Amended and Restated Stockholders Agreement.
<PAGE> 2
4. In the event that the Merger Agreement and the Stockholders
Agreement are terminated pursuant to their terms, this Amendment shall terminate
and be of no force and effect.
5. This Amendment may be executed in any number of counterparts
with the same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Amendment.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
THE YUCAIPA COMPANIES
By: /s/ Ronald W. Burkle
_______________________
Name: Ronald W. Burkle
Title: Managing General Partner
YUCAIPA BLACKHAWK PARTNERS, L.P.
By: Yucaipa Management L.L.C., its
General Partner
By: /s/ Ronald W. Burkle
_______________________
Name: Ronald W. Burkle
Title: Managing Member
YUCAIPA CHICAGO PARTNERS, L.P.
By: Yucaipa Management L.L.C., its
General Partner
By: /s/ Ronald W. Burkle
______________________
Name: Ronald W. Burkle
Title: Managing Member
YUCAIPA DOMINICK'S PARTNERS, L.P.
By: Yucaipa Management L.L.C., its
General Partner
By: /s/ Ronald W. Burkle
______________________
Name: Ronald W. Burkle
Title: Managing Member
<PAGE> 4
APOLLO INVESTMENT FUND L.P.
By: Apollo Advisors, L.P., its General
Partner
By: Apollo Capital Management, its
Managing General Partner
By: /s/ David B. Kaplan
------------------------
Name: David B. Kaplan
Title: Vice President
APOLLO INVESTMENT FUND III, L.P.
By: Apollo Advisors II, L.P., its General
Partner
By: Apollo Capital Management II, its
General Partner
By: /s/ David B. Kaplan
------------------------
Name: David B. Kaplan
Title: Vice President
APOLLO OVERSEAS PARTNERS III, L.P.
By: Apollo Advisors II, L.P., its General
Partner
By: Apollo Capital Management II, its
General Partner
By: /s/ David B. Kaplan
------------------------
Name: David B. Kaplan
Title: Vice President
APOLLO (UK) PARTNERS III, L.P.
By: Apollo Advisors II, L.P., its General
Partner
By: Apollo Capital Management II, its
General Partner
By: /s/ David B. Kaplan
------------------------
Name: David B. Kaplan
Title: Vice President
<PAGE> 5
EXHIBIT A
<PAGE> 1
Exhibit 9
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
October 9, 1998 by and between Dominick's Supermarkets, Inc. ("Supermarkets")
and Dominick's Finer Foods, Inc. ("Dominick's"), both Delaware corporations
(collectively hereinafter referred to as "DFF"), and [employee] ("Employee).
In consideration of the mutual covenants and conditions contained herein,
the parties agree as follows:
1. TERM. DFF agrees to employ Employee and Employee agrees to serve DFF,
in accordance with the terms of this Agreement, for a term of [term] years (the
"Term"), beginning on the date on which a Change of Control (as hereafter
defined) of DFF occurs, if and only if Employee is otherwise employed by DFF on
the date such Change of Control occurs and provided that such Change of Control
occurs within twelve (12) months after the date of this Agreement. Provided,
however, that the Board of Directors of Supermarkets may, at its discretion,
elect to extend the time frame within which a Change of Control may occur and be
subject to this Agreement. [The Term will be automatically extended for an
additional one (1) year, unless either Employee or DFF provide the other with at
least 120 days prior written notice that such party does not wish to extend the
Term.](1)
2. SALARY. DFF shall pay Employee a base salary for the Term in an
amount not less than Employee's base salary with DFF as of the date on which a
Change of Control occurs (the "Base Amount"), paid upon DFF's normal payroll
cycle, less state and federal income tax withholdings and other normal employee
deductions.
3. INCENTIVE BONUS. Employee shall be eligible to participate in any
incentive bonus or similar program that may be adopted by the Board of Directors
of Supermarkets from time-to-time; provided, however, that Employee's right to
receive any such bonus compensation shall be at the discretion of such Board of
Directors.
4. BENEFITS.
a. FRINGE BENEFITS. Commencing on the date the Term commences,
Employee shall be entitled to all rights and benefits for which he or she is
otherwise eligible under any then-existing medical, dental, life insurance,
pension and other benefit plans of DFF, as such plans shall be amended from
time to time; provided, however, that Employee shall continue to make
contributions for such benefits in the amount required by DFF as an employee
contribution to receive such benefits.
(1) Bracketed language appears only in certain of the Employment Agreements.
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b. EXPENSES. During the Term, to the extent such expenditures meet the
requirements and the policies of DFF, DFF shall reimburse Employee promptly for
all reasonable travel, entertainment, parking, business meeting and similar
expenditures in pursuance and furtherance of DFF's business.
5. TERMINATION.
a. TERMINATION OF THIS AGREEMENT. Employee's employment hereunder shall
be terminated and all of his or her rights to receive salary, bonuses and other
benefits shall terminate upon the occurrence of (i) the expiration of the Term
of this Agreement or (ii) Employee's resignation other than pursuant to Section
5(f) hereof.
b. TERMINATION FOR CAUSE. Employee's employment hereunder shall be
terminated and all of his or her rights to receive salary, bonuses and other
benefits shall terminate upon termination of Employee's employment by DFF for
Cause. For purposes of this Section 5(b), "Cause" shall mean any acts or
omissions on the part of Employee involving:
(i) material dishonesty or misappropriation adversely affecting DFF
or its property or funds;
(ii) serious misconduct, including but not limited to reckless or
willful destruction of company property, non-performance of Employee's
responsibilities as an employee, violation of a material condition of
employment, aiding a competitor of DFF, unauthorized disclosure or use
of confidential information or trade secrets or sexual, racial or
other actionable harassment;
(iii) conviction of, or a plea of nolo contendere to, any felony; or
(iv) illegal, unethical, dishonest, fraudulent or other similar
conduct tending to place Employee, or DFF by reason of association
with Employee, in disrepute or to subject DFF to material financial
loss or loss of business.
The Board of Directors of Supermarkets shall have the sole discretion to
determine whether any termination of Employee's employment is for Cause.
c. TERMINATION DUE TO DEATH. Except as provided below in Section 5(g),
Employee's rights to receive salary, bonuses and other benefits shall terminate
upon the occurrence of Employee's death.
d. TERMINATION DUE TO DISABILITY. Except as provided below in Section
5(g), Employee's employment hereunder shall be terminated and his
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or her rights to receive salary, bonuses and other benefits shall terminate in
the event that Employee has been unable, due to total or partial disability, to
perform substantially all of his or her duties under this Agreement for a
period of forty-five (45) consecutive business days.
e. Termination Without Cause. Subject to compliance with the provisions
of Section 5(g) of this Agreement. Employee's employment hereunder may be
terminated by DFF without Cause at any time during the Term.
f. Constructive Termination. Subject to compliance with the provisions
of Section 5(g) of this Agreement, Employee's employment hereunder may be
terminated by Employee (a "Constructive Termination") upon the first to occur
at the following events which, with respect to subsections (i) through (vii),
is not fully corrected upon ten (10) days' written notice from Employee to DFF:
(i) the assignment to Employee of any duties inconsistent with the
position in DFF that Employee held immediately prior to the Change of
Control, or a significant adverse alteration in the nature or status of
Employee's responsibilities or the conditions of Employee's employment
from those in effect immediately prior to the Change of Control; provided,
however, that any change in reporting obligations which is reasonably
required to conform to changes in the DFF's management structure following
a Change of Control shall not be deemed a Constructive Termination for
purposes of this clause (f)(i);
(ii) DFF's reduction of Employee's annual base salary as in effect
immediately prior to the Change of Control, except for across-the-board
salary reductions similarly affecting all management personnel of DFF and
all management personnel of any person (including without limitation, any
individual, corporation, partnership, limited liability company, joint
venture, government agency or instrumentality or any other entity) in
control of DFF;
(iii) the requirement that Employee be based at a location more than 50
miles from where DFF's office is located immediately prior to the Change
of Control, except for required travel on DFF's business to an extent
substantially consistent with Employee's business travel immediately prior
to the Change of Control;
(iv) DFF's failure to pay to Employee any portion of Employee's current
compensation within seven (7) days of the date such compensation is due;
(v) DFF's failure to continue in effect any material compensation or
benefit plan in which Employee participates immediately prior to the
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<PAGE> 4
Change of Control other than any stock options or other equity based
compensation plan, unless an equitable arrangement has been made with
respect to such plan, or DFF's failure to continue Employee's
participation therein (or in any substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of Employee's participation relative to
other participants, as existed immediately prior to the Change of Control;
(vi) DFF's failure to continue to provide Employee with benefits
substantially similar to those enjoyed by Employee under any of DFF's life
insurance, medical, health and accident, or disability plans in which
Employee was participating immediately prior to the Change of Control, the
taking of any action by DFF which would directly or indirectly materially
reduce any of such benefits, or the failure by DFF to provide Employee
with the number of paid vacation days to which Employee is entitled in
accordance with DFF's vacation policy for Employee as in effect
immediately prior to the Change of Control; or
(vii) DFF's failure to obtain a satisfactory agreement from any successor
to assume and agree to perform this Agreement.
g. Payments Upon Termination Without Cause or Constructive Termination.
Subject to compliance with the provisions of Section 8, in the event, during
the Term, that Employee's employment is terminated by DFF without Cause
pursuant to Section 5(e) hereof or by Employee as the result of a Constructive
Termination pursuant to Section 5(f) hereof, Employee or, in the event of
Employee's subsequent death, Employee's heirs or estate shall be entitled to
receive (i) payment of the Base Amount as provided by Section 2, paid upon
DFF's normal payroll cycle, less any required state and federal income tax
withholdings and other normal employee deductions for the longer of (x) the
remainder of the Term or (y) six (6) months, (ii) any and all fringe benefits
provided pursuant to Section 4(a) hereof for the longer of (x) the remainder of
the Term or (y) six (6) months (provided, however, Employee or Employee's heirs
or estate, as the case may be, shall continue to make contributions for such
benefits in the amount required by DFF as an employee contribution to receive
such benefits) and (iii) the pro rata portion of any incentive bonus earned
through the date of termination under any incentive bonus or similar program
contemplated by Section 3 hereof (provided that the payment of any such amount
shall be required to be made no later than the date on which payments are made
to other participants in such program). In the event that Employee breaches the
covenants set forth in Section 8 hereof, DFF shall have no further obligation
and Employee shall have no further right to payment pursuant to this Section
5(g).
h. Limitations on Payments Upon Termination Without Cause or
Constructive Termination. Subject to Section 6, the aggregate of all
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<PAGE> 5
payments, benefits or distributions (or combination thereof) by DFF or one
or more trusts established by DFF for the benefit of its employees, to or
for the benefit of Employee pursuant to Section 5(g) (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement, or under the terms of any other plan, program agreement or
arrangement ("Payments") shall not exceed the maximum Payments which
Employee may receive without being subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1988, as amended, or any
interest or penalties incurred by Employee with respect to such excise tax
(such excise tax, together with any such interest and penalties,
hereinafter collectively referred to as the "Excise Tax").
6. Gross Up
a. In the event that it is determined that the aggregate of all
Payments to which Employee would be entitled to receive without regard to
Section 5(h) is greater than the sum of (i) the maximum Payments which
Employee may receive without being subject to the Excise Tax, plus (ii)
Fifty Thousand Dollars ($50,000.00), then Section 5(h) shall not apply and
Employee shall be entitled to receive (i) all Payments to which Employee is
otherwise entitled to receive without regard to Section 5(h) and (ii) an
additional payment (an "Additional Payment") in an amount such that the net
amount of Payments retained by Employee after the deduction of any Excise
Tax on the Payments and any federal, state and local income and employment
taxes on the Additional Payment (for purposes of which it will be assumed
the Additional Payment will be taxed at the highest combined marginal rate
provided for in the Internal Revenue Code and any applicable state income
tax laws, assuming full deduction of state income taxes from federal
taxable income) shall be equal to the Payments. The amount of the
Additional Payment shall be reduced by income or excise tax withholding
payments made by the Company to any federal, state, or local taxing
authority with respect to the Additional Payment that was not deducted from
compensation payable to Employee.
b. All determinations required to be made under this Section 6,
including, without limitation, whether this Section 6 is applicable or
inapplicable and when an Additional Payment is required and the amount of
such Additional Payment and the assumptions to be utilized in arriving at
such determination, shall be made by the certified public accounting firm
which serves as the Company's outside auditors immediately prior to the
Change of Control.
7. Change of Control. The occurrence of any of the following events shall
constitute a Change of Control of DFF: (a) the acquisition after the date
hereof, in one or more transactions, of beneficial ownership (within the meaning
of Rule 13d-3(a)(1) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), by any person or entity (other than the Permitted Holders (as
defined),
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<PAGE> 6
Employee or any employee benefits plan of DFF) or any group of persons or
entities (excluding the Permitted Holders, Employee or any employee benefits
plan of DFF) who constitute a group (within the meaning of Section 13(d)(3) of
the Exchange Act) of any securities such that as a result of such acquisition
such person or entity or group beneficially owns (within the meaning of Rule
13d-3(a)(1) under the Exchange Act) directly or indirectly 51% or more of
Supermarkets' then outstanding voting securities entitled to vote on a regular
basis for a majority of the Board of Directors of Supermarkets; or (b) the sale
of all or substantially all of the assets of Supermarkets (including without
limitation, by way of merger, consolidation, lease or transfer) in a transaction
where Supermarkets or the beneficial owners (within the meaning of Rule
13d-3(a)(1) under the Exchange Act) of common stock of Supermarkets do not
receive (i) voting securities representing a majority of the voting power
entitled to vote on a regular basis for the Board of Directors of the acquiring
entity or of an affiliate which controls the acquiring entity, or (ii)
securities representing a majority of the equity interest in the acquiring
entity or of an affiliate which controls the acquiring entity; provided,
however, that the foregoing provisions of this Section 7 shall not apply to any
transfer, sale or disposition of shares of common stock of Supermarkets to any
person or persons who are affiliates of DFF on the date hereof. For purposes of
this Section 7, Permitted Holders shall mean The Yucaipa Companies, L.L.C.,
Apollo Advisors, L.P. and any of their respective affiliates.
8. Non-Compete, Confidentiality and Non-Solicitation Covenants.
a. Non-Compete. In consideration of and in connection with the benefits
provided under this Agreement, and in order to protect the goodwill of the
Corporation, Employee hereby covenants and agrees that during the Term,
Employee shall not directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation or control,
or be connected as a director, officer, employee, partner, consultant or
otherwise with any Competing Business, other than as a shareholder or
beneficial owner directly or indirectly of 5% or less of the outstanding
securities of a Competing Business, if such Competing Business is a public
company. For purposes of this Agreement, "Competing Business" means any
business, firm or enterprise engaged in a business substantially similar to
DFF's business within the same geographical locations as DFF's business,
including but not limited to Walgreen's Co., Osco Drug Stores, Jewel Food
Stores, Cub Foods, or Meijers or any of their respective affiliates and/or
successors.
b. Confidentiality. Employee acknowledges that, by reason of his or her
employment with DFF, he or she will learn or has learned trade secrets and
will obtain or has obtained other confidential information concerning the
business and policies of DFF and its subsidiaries. Employee agrees that he
or she will not divulge or otherwise disclose, directly or indirectly, any
such trade secrets or other confidential information concerning the
business or policies of DFF or any of its subsidiaries which he or she may
learn as a result of his or her employment during the Term or may have
learned prior thereto, except to
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<PAGE> 7
the extent such information is lawfully obtainable from public sources or such
use or disclosure is (i) necessary to the performance of this Agreement and in
furtherance of DFF's best interests, (ii) required by applicable laws, or (iii)
authorized in writing by DFF. The provisions of this Section 8(b) shall survive
the expiration, suspension or termination, for any reason, of this Agreement.
c. Non-solicitation. Employee hereby covenants and agrees that, during
the Term and for a period of two (2) years thereafter, Employee shall not, for
himself/herself or any third party, directly or indirectly, (i) disparage the
image or reputation of DFF, (ii) divert by unlawful means the business of DFF,
(iii) interfere with the contractual relationship between DFF and any of its
vendors or suppliers or (iv) employ or solicit for employment any person who is
employed by DFF.
[d. Additional Covenants. In the event that (i) Employee's employment is
terminated by DFF without Cause pursuant to Section 5(e) hereof, (ii) Employee's
employment is terminated by Employee as the result of a Constructive Termination
pursuant to Section 5(f) hereof, or (iii) either party provides notice under the
last sentence of Section 1 that such party does not wish to extend the Term for
the additional one (1) year, then Employee agrees that the covenants and
restrictions set forth in Section 8(a) shall extend beyond the Term for an
additional one (1) year period and in consideration therefor Employee shall be
entitled to receive the amounts set forth in Section 5(g)(i) and (ii) for an
additional one (1) year period.](2)
9. Miscellaneous.
a. Succession. This Agreement shall inure to the benefit of and shall be
binding upon DFF, its successors and assigns. The obligations and duties of
Employee hereunder shall be personal and not assignable.
b. Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the others
shall be in writing and delivered in person or by courier, telegraphed, telexed
or by facsimile transmission or mailed by certified mail, postage prepaid,
return receipt requested (such, mailed notice to be effective on the date of
such receipt is acknowledged, as follows:
If to the Employee: At the last address on the records of DFF.
If to DFF: Dominick's Finer Foods, Inc.
505 No. Railroad Avenue
Northlake, IL 60164
Attn: Deborah C. Paskin, Esq.
General Counsel
(2) Bracketed language appears only in certain of the Employment Agreements.
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or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
c. Entire Agreement. This Agreement contains the entire agreement of the
parties relating to the subject matter hereof, and it replaces and supersedes
any prior agreements between the parties relating to said subject matter.
d. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
e. Waiver; Amendment. No provision hereof may be waived except by a
written agreement signed by the waiving party. The waiver of any term or of any
condition of this Agreement shall not be deemed to constitute the waiver of any
other term or condition. This Agreement may be amended only by a written
agreement signed by the parties hereof.
f. Arbitration. Except as set forth in Section 9(g), any disputes or
controversies arising under this Agreement shall be settled by arbitration in
accordance with the rules of the American Arbitration Association. The
determination and findings of such arbitrators shall be final and binding on
all parties and may be enforced, if necessary, in the courts of the State of
Illinois. Should any party to this Agreement be required to commence any
litigation concerning any provision of this Agreement or the rights and duties
of the parties hereunder, the prevailing party in such proceeding shall
be entitled, in addition to such other relief as may be granted, to the
attorneys' fees and court costs incurred by reason of such litigation.
g. Remedies of DFF. Employee acknowledges that the services he or she is
obligated to render under the provisions of this Agreement are of a special,
unique, unusual, extraordinary and intellectual character, which gives this
Agreement peculiar value to DFF. The loss of these services cannot be
reasonably or adequately compensated in damages in action at law and it would
be difficult (if not impossible) to replace such services. By reason thereof,
Employee agrees and consents that if he or she violates any of the material
provisions of this Agreement (including, without limitation, Section 8 hereof),
DFF, in addition to any other rights and remedies available under this
Agreement or under applicable law, shall be entitled to seek injunctive relief,
from a tribunal of competent jurisdiction, restraining Employee from committing
or continuing any violation of this Agreement. The provisions of this Section
9(g) shall survive the termination of this Agreement for any reason.
h. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of Illinois, without regard to the
conflict of laws principles thereof.
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i. Severability. If this Agreement shall for any reason be or become
unenforceable by any party, this Agreement shall thereupon terminate and become
unenforceable by the other party as well. In all other respects, if any
provision of this Agreement is held invalid or unenforceable, the remainder of
this Agreement shall nevertheless remain in full force and effect and, if any
provision is held invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and effect in all
other circumstances.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DOMINICK'S FINER FOODS, INC. EMPLOYEE
DOMINICK'S SUPERMARKETS, INC.
By:
--------------------------------- ---------------------------------
[employee]
Title:
------------------------------
9
<PAGE> 1
Exhibit 10
October 9, 1998
PRIVILEGED AND CONFIDENTIAL
[name and address of employee]
Dear [employee]:
As you are aware, Dominick's Supermarkets, Inc. ("Supermarkets") and Dominick's
Finer Foods, Inc. ("Dominick's) (together with Supermarkets, "DFF") are
undertaking a strategic review of their business, which may result in a merger
or other corporate transaction (a "Transaction") involving a Change of Control
of DFF (as defined below). You have made significant contributions to DFF, and
we would like you to continue that commitment to DFF through the closing of any
such Transaction. To encourage your continued commitment, DFF hereby agrees to
provide you with the incentive set forth in this letter agreement, subject to
the conditions set forth below.
Provided you are employed by DFF on the day of the closing (the "Closing Date")
of a Transaction involving a Change of Control of DFF, you shall have earned and
DFF shall pay to you a special bonus (a "Special Bonus") equal to [amount], in
addition to all other bonuses which may be earned by you under any other bonus
program established by DFF from time to time.
The occurrence of any of the following events shall constitute a Change of
Control of DFF: (a) the acquisition after the date hereof, in one or more
transactions, of beneficial ownership (within the meaning of Rule 13d-3(a)(1)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), by
any person or entity (other than the Permitted Holders (as defined), Employee
or any employee benefits plan of DFF) or any group of persons or entities
(excluding the Permitted Holders, Employee or any employee benefits plan of
DFF) who constitute a group (within the meaning of Section 13(d)(3) of the
Exchange Act) of any securities such that as a result of such acquisition such
person or entity or group beneficially owns (within the meaning of Rule
13d-3(a)(1) under the Exchange Act) directly or indirectly 51% or more of
Supermarkets' then outstanding voting securities entitled to vote on a regular
basis for a majority of the Board of Directors of Supermarkets; or (b) the sale
of all or substantially all of the assets of Supermarkets (including without
limitation, by way of merger, consolidation, lease or transfer) in a
transaction where Supermarkets or the beneficial owners (within the meaning of
Rule 13d-3(a)(1) under the Exchange Act) of common stock of Supermarkets do not
receive (i) voting securities representing a majority of the voting power
entitled to vote on a
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regular basis for the Board of Directors of the acquiring entity or of an
affiliate which controls the acquiring entity, or (ii) securities representing
a majority of the equity interest in the acquiring entity or of an affiliate
which controls the acquiring entity; provided, however, that any transfer, sale
or disposition of shares of common stock of Supermarkets to any person or
persons who are affiliates of DFF on the date hereof shall not constitute a
Change of Control of DFF; provided, further, that the approval of the Board of
Directors of DFF of any plan or agreement of merger shall not constitute a
Change of Control of DFF, unless and until the effective date of any such
merger. Permitted Holders shall mean the Yucaipa Companies, L.L.C., Apollo
Advisors, L.P. and any of their respective affiliates.
Any Special Bonus payable under this letter agreement shall be paid to you
within ninety (90) days following the Closing Date. If no Transaction involving
a Change of Control of DFF occurs within six (6) months of the date of this
letter agreement, the provisions of this letter agreement shall cease to be
effective, and no amounts shall be payable hereunder; provided, however, that
DFF may renew this letter agreement upon the expiration of such six (6) month
period subject to adjustment, at the sole discretion of the Board of Directors
of Supermarkets, to the dollar amounts and percentages contained in the third
paragraph hereof. Any Special Bonus will be subject to all customary
withholding and similar requirements.
You agree that the existence and terms of this letter agreement, including the
compensation paid to you, will be considered confidential and will not be
disclosed or communicated by you in any manner except as required by law. You
acknowledge that your employment with DFF is and will remain "at will" and that
this letter agreement does not create for you any employment rights or any
other rights not specifically set forth herein.
Sincerely,
Robert A. Mariano
President and Chief
Executive Officer
Acknowledged and Agreed:
- -------------------------
[Employee]
2
<PAGE> 1
[DOMINICK'S LOGO]
October 19, 1998
Dear Stockholder:
As you may be aware, on October 13, 1998, Dominick's Supermarkets, Inc.
("Dominick's") entered into a merger agreement with Safeway Inc. ("Safeway") and
its wholly-owned subsidiary, Windy City Acquisition Corp. ("Purchaser"),
pursuant to which Purchaser agreed to commence as promptly as practicable a
tender offer to purchase all of the outstanding shares of common stock of
Dominick's for a cash price of $49.00 per share. The agreement provides that,
following completion of the offer, Safeway will cause Purchaser to merge into
Dominick's and any Dominick's shares that are not acquired through the tender
offer will be converted in the merger into the right to receive the same
consideration as is paid in the tender offer.
THE BOARD OF DIRECTORS UNANIMOUSLY HAS DETERMINED THAT THE MERGER AGREEMENT
AND TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE
ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF
DOMINICK'S, HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE OFFER AND THE MERGER, AND RECOMMENDS THAT YOU ACCEPT THE
OFFER AND TENDER ALL OF YOUR SHARES TO PURCHASER PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors as described in the enclosed Schedule
14D-9, including the opinion of Donaldson, Lufkin & Jenrette Securities
Corporation that, based on certain assumptions and subject to certain
limitations, the consideration to be received by Dominick's stockholders (other
than stockholders that are affiliates of the Company) pursuant to the merger
agreement is fair to such holders from a financial point of view. We urge you to
read the enclosed Schedule 14D-9 and the related tender offer materials
carefully.
On behalf of the Board of Directors, I thank you for the support you have
given to Dominick's over the years.
Sincerely,
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 12
October 12, 1998
Board of Directors
Dominick's Supermarkets, Inc.
505 Railroad Avenue
Northlake, IL 60164
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders, other than the stockholders who are affiliates (the
"Public Stockholders"), of Dominick's Supermarkets, Inc. (the "Company") of the
consideration to be received by such stockholders pursuant to the terms of the
Agreement and Plan of Merger, to be dated as of October 13, 1998 (the
"Agreement"), among the Company, Safeway Inc. ("Safeway") and Windy City
Acquisition Corp. ("Merger Sub"), a wholly owned subsidiary of Safeway, pursuant
to which Merger Sub will be merged (the "Merger") with and into the Company.
Pursuant to the Agreement, Merger Sub will commence a tender offer for any
and all outstanding shares of the Company's common stock at a price of $49.00
per share. The tender offer is to be followed by the Merger in which shares of
all stockholders who did not tender will be converted into the right to receive
the same consideration as in the tender offer.
In arriving at our opinion, we have reviewed a draft dated October 12, 1998
of the Agreement and exhibits thereto and a draft dated October 12, 1998 of the
Stockholders Agreement among Safeway, Merger Sub and certain stockholders of the
Company. We also have reviewed financial and other information that was publicly
available or furnished to us by the Company, including information provided
during discussions with the Company's management. Included in the information
provided during discussions with the Company's management were certain financial
projections of the Company for the fiscal years ending October 1998 through
October 2003 prepared by the management of the Company. In addition, we have
compared certain financial and securities data of the Company with various other
companies whose securities are traded in public markets, reviewed the historical
stock prices and trading values of the common stock of the Company, reviewed
prices and premiums paid in certain other business combinations and conducted
such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company or its
representatives, or that was otherwise reviewed by us. With respect to the
financial projections supplied to us by the management of the Company, we have
assumed that these projections have been reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future operating and financial performance
of the Company. We have not assumed any responsibility for making an independent
evaluation of any assets or liabilities or for making any independent
verification of any of the information reviewed by us. We have relied as to
certain legal matter on advice of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect our opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion does not address the relative
merits of the Merger and the other business strategies being considered by the
Company's Board of Directors, nor does it address the Board's decision to
proceed with the Merger. Our opinion does not constitute a recommendation to any
stockholder as to whether to tender in the tender offer of how to vote on the
proposed transaction.
Ex. 12-1
<PAGE> 2
Board of Directors
Dominick's Supermarkets, Inc.
Page 2
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company and Safeway in the past and has been
compensated for such services, including most recently: (i) DLJ lead-managed the
Company's initial public offering in October 1996 and (ii) DLJ co-managed
Safeway's $1.1 billion secondary common stock offering in July 1998 and
co-managed Safeway's $1.4 billion secondary common stock offering in December
1997. Certain DLJ employees are limited partners in Yucaipa Chicago Partners,
L.P., a shareholder of the Company. The proportionate ownership of such
employees in such partnership represents an aggregate ownership of less than 1%
of the Company's fully diluted outstanding common stock.
Based upon the foregoing and such other factors as we deem relevant, we are
the opinion that the consideration to be received by the Public Stockholders of
the Company pursuant to the Agreement is fair to such stockholders from a
financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ KENNETH D. MOELIS
------------------------------------
Kenneth D. Moelis
Managing Director
Ex. 12-2
