-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WiVIqULIdk7QIXWIzTDjZjUgv1L+gEYwAfm0zEYFBDkcAXbfKkhwnT9z3d7B18CF orNei7eRHZ+8bmYhbBpusQ== 0000950123-98-009076.txt : 19981020 0000950123-98-009076.hdr.sgml : 19981020 ACCESSION NUMBER: 0000950123-98-009076 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19981019 SROS: NYSE GROUP MEMBERS: SAFEWAY INC GROUP MEMBERS: WINDY CITY ACQUISITION CORP SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DOMINICKS SUPERMARKETS INC CENTRAL INDEX KEY: 0000943563 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 943220603 STATE OF INCORPORATION: DE FISCAL YEAR END: 1102 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-48889 FILM NUMBER: 98727544 BUSINESS ADDRESS: STREET 1: 505 RAILROAD AVE CITY: NORTHLAKE STATE: IL ZIP: 60164 BUSINESS PHONE: 7085621000 MAIL ADDRESS: STREET 1: 505 RAILROAD AVE CITY: NORTHLAKE STATE: IL ZIP: 60164 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SAFEWAY INC CENTRAL INDEX KEY: 0000086144 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 943019135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 5918 STONERIDGE MALL RD CITY: PLEASANTON STATE: CA ZIP: 94588 BUSINESS PHONE: 5104673000 MAIL ADDRESS: STREET 1: 5918 STONERIDGE MALL ROAD CITY: PLEASANTON STATE: CA ZIP: 94588 FORMER COMPANY: FORMER CONFORMED NAME: SAFEWAY STORES INC DATE OF NAME CHANGE: 19900226 SC 14D1 1 SCHEDULE 14D-1 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ DOMINICK'S SUPERMARKETS, INC. (NAME OF SUBJECT COMPANY) WINDY CITY ACQUISITION CORP. SAFEWAY INC. (BIDDERS) 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 NUMBERS OF CLASS OF SECURITIES) MICHAEL C. ROSS, ESQ. SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL SAFEWAY INC. 5918 STONERIDGE MALL ROAD PLEASANTON, CALIFORNIA 94588 TELEPHONE: (925) 467-3000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS) COPY TO: CHARLES I. COGUT, ESQ. SIMPSON THACHER & BARTLETT 425 LEXINGTON AVENUE NEW YORK, NEW YORK 10017 TELEPHONE: (212) 455-2000 CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- TRANSACTION VALUATION* AMOUNT OF FILING FEE** - --------------------------------------------------------------------------------------------- $1,114,579,921 $222,916 - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
* Based on the offer to purchase all of the outstanding shares of Common Stock and Non-Voting Common Stock of the Subject Company at $49 cash per Share, and 21,541,091 Shares outstanding and 1,205,438 outstanding options as of October 8, 1998. ** 1/50 of 1% of Transaction Valuation. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Filing Party: Form or Registration No.: Date Filed: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 This Tender Offer Statement on Schedule 14D-1 relates to the offer by Windy City Acquisition Corp., a Delaware corporation (the "Purchaser"), and a wholly-owned subsidiary of Safeway Inc., a Delaware corporation (the "Parent"), to purchase all of the outstanding shares of Common Stock, par value $.01 per share (the "Voting Shares"), and Non-Voting Common Stock, par value $.01 per share (the "Non-Voting Shares" and, together with the Voting Shares, the "Shares"), of Dominick's Supermarkets, Inc., a Delaware corporation (the "Company"), at a purchase price of $49 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated as of October 19, 1998 (the "Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1), and in the related Letter of Transmittal (which, together with the Offer to Purchase, as amended from time to time, constitute the "Offer"), a copy of which is attached hereto as Exhibit (a)(2). ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is Dominick's Supermarkets, Inc. The information set forth in Section 7 ("Certain Information Concerning the Company") of the Offer to Purchase is incorporated herein by reference. (b) The exact titles of the classes of equity securities being sought in the Offer are (i) Common Stock, par value $.01 per share, and (ii) Non-Voting Common Stock, par value $.01 per share, of the Company. The information set forth in the Introduction (the "Introduction") of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6 ("Price Range of Shares; Dividends") of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d) and (g) This Statement is filed by the Purchaser and the Parent. The information set forth in Section 8 ("Certain Information Concerning the Purchaser and the Parent") of the Offer to Purchase and in Schedule I thereto is incorporated herein by reference. (e) and (f) During the last five years, neither the Purchaser nor the Parent nor, to the best knowledge of the Purchaser or the Parent, any of the persons listed in Schedule I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was 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. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) and (b) The information set forth in Section 8 ("Certain Information Concerning the Purchaser and the Parent"), Section 10 ("Background of the Offer; Contacts with the Company") and Section 11 ("The Merger Agreement") of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) and (b) The information set forth in Section 9 ("Source and Amount of Funds") of the Offer to Purchase is incorporated herein by reference. (c) Not applicable. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(e) The information set forth in the Introduction, Section 10 ("Background of the Offer; Contacts with the Company"), Section 11 ("The Merger Agreement") and Section 12 ("Purpose of the Offer; the Merger; Plans for the Company") of the Offer to Purchase is incorporated herein by reference. 2 3 (f)-(g) The information set forth in Section 14 ("Effect of the Offer on the Market for the Shares, Stock Exchange Listing and Exchange Act Registration") of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) and (b) The information set forth in the Introduction and Section 8 ("Certain Information Concerning the Purchaser and the Parent") of and Schedule I to the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the Introduction, Section 8 ("Certain Information Concerning the Purchaser and the Parent"), Section 10 ("Background of the Offer; Contacts with the Company"), Section 11 ("The Merger Agreement") and Section 12 ("Purpose of the Offer; the Merger; Plans for the Company") of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in the Introduction and Section 17 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 8 ("Certain Information Concerning the Purchaser and the Parent") of the Offer to Purchase is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) None. (b) and (c) The information set forth in Section 16 ("Certain Legal Matters and Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 14 ("Effect of the Offer on the Market for the Shares, Stock Exchange Listing and Exchange Act Registration") and Section 16 ("Certain Legal Matters and Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. (e) None. (f) The information set forth in the Offer to Purchase and the Letter of Transmittal is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Offer to Purchase dated October 19, 1998. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter from the Dealer Manager to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(5) Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
3 4 (a)(7) Summary Advertisement as published on October 19, 1998. (a)(8) Press Release jointly issued by Safeway Inc. and Dominick's Supermarkets, Inc. on October 13, 1998 (incorporated by reference to Exhibit 99.1 to Safeway Inc.'s Current Report on Form 8-K dated October 13, 1998). (b)(1) Credit Agreement dated as of April 8, 1997, among Safeway Inc., The Vons Companies, Inc. and Canada Safeway Limited as Borrowers; Bankers Trust Company as Administrative Agent; The Chase Manhattan Bank as Syndication Agent; The Bank of Nova Scotia and Bank of America National Trust and Savings Association as Documentation Agents; the agents listed therein as Agents; and the lenders listed therein as Lenders (incorporated by reference to Exhibit 4(i).1 of Safeway Inc.'s Quarterly Report on Form 10-Q for the period ended March 22, 1997). (c)(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. (c)(2) Stockholders Agreement, dated as of October 13, 1998, by and among Safeway Inc., Windy City Acquisition Corp. and each of the stockholders of Dominick's Supermarkets, Inc. named on the signature pages thereto. (d) None. (e) Not applicable. (f) Not applicable.
4 5 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. SAFEWAY INC. By: /s/ MICHAEL C. ROSS ------------------------------------ Name: Michael C. Ross Title: Senior Vice President, Secretary and General Counsel WINDY CITY ACQUISITION CORP. By: /s/ MICHAEL C. ROSS ------------------------------------ Name: Michael C. Ross Title: Vice President and Secretary Date: October 19, 1998 5 6 EXHIBIT INDEX
EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ---- (a)(1) Offer to Purchase dated October 19, 1998.................... (a)(2) Letter of Transmittal....................................... (a)(3) Notice of Guaranteed Delivery............................... (a)(4) Letter from the Dealer Manager to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees.............. (a)(5) Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees......................... (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9............................... (a)(7) Summary Advertisement as published on October 19, 1998...... (a)(8) Press Release jointly issued by Safeway Inc. and Dominick's Supermarkets, Inc. on October 13, 1998 (incorporated by reference to Exhibit 99.1 to Safeway Inc.'s Current Report on Form 8-K dated October 13, 1998)......................... (b)(1) Credit Agreement dated as of April 8, 1997, among Safeway Inc., The Vons Companies, Inc. and Canada Safeway Limited as Borrowers; Bankers Trust Company as Administrative Agent; The Chase Manhattan Bank as Syndication Agent; The Bank of Nova Scotia and Bank of America National Trust and Savings Association as Documentation Agents; the agents listed therein as Agents; and the lenders listed therein as Lenders (incorporated by reference to Exhibit 4(i).1 of Safeway Inc.'s Quarterly Report on Form 10-Q for the period ended March 22, 1997)............................................. (c)(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. .............................. (c)(2) Stockholders Agreement, dated as of October 13, 1998, by and among Safeway Inc., Windy City Acquisition Corp. and each of the stockholders of Dominick's Supermarkets, Inc. named on the signature pages thereto.................................
6 EX-99.A.1 2 OFFER TO PURCHASE 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK AND NON-VOTING COMMON STOCK OF DOMINICK'S SUPERMARKETS, INC. AT $49 NET PER SHARE BY WINDY CITY ACQUISITION CORP. A WHOLLY-OWNED SUBSIDIARY OF SAFEWAY INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 16, 1998 UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (A) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, AND NON-VOTING COMMON STOCK, PAR VALUE $.01 PER SHARE, OF DOMINICK'S SUPERMARKETS, INC. (THE "COMPANY") (COLLECTIVELY, THE "SHARES") WHICH CONSTITUTES MORE THAN 50% OF THE ISSUED AND OUTSTANDING SHARES (DETERMINED ON A FULLY DILUTED BASIS WITHOUT GIVING EFFECT TO THE SHARES ISSUABLE UPON THE EXERCISE OF THE YUCAIPA WARRANT (AS DEFINED HEREIN)) ON THE DATE OF PURCHASE AND (B) THE EXPIRATION OR TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT"). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE THE INTRODUCTION AND SECTIONS 1 AND 15. ------------------------ THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH OF THE OFFER AND THE MERGER, ARE ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF DOMINICK'S SUPERMARKETS, INC. AND RECOMMENDS THAT HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER ALL THEIR SHARES TO WINDY CITY ACQUISITION CORP. ------------------------ IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Shares should either (1) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such facsimile) and any other required documents to First Chicago Trust Company of New York (the "Depositary"), and either deliver the certificates representing the tendered Shares and any other required documents to the Depositary or tender such Shares pursuant to the procedure for book-entry transfer set forth in Section 3 or (2) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Stockholders having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if they desire to tender Shares so registered. A stockholder who desires to tender Shares and whose certificates representing such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3. Questions and requests for assistance may be directed to Morgan Stanley & Co. Incorporated ("Morgan Stanley" or the "Dealer Manager") or to Kissel Blake Inc. (the "Information Agent") at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or the Dealer Manager, or from brokers, dealers, commercial banks or trust companies. ------------------------ The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER October 19, 1998 2 TABLE OF CONTENTS
PAGE ---- INTRODUCTION................................................ 1 THE TENDER OFFER............................................ 3 1. Term of the Offer; Expiration Date................... 3 2. Acceptance for Payment and Payment for Shares........ 4 3. Procedure for Tendering Shares....................... 5 4. Withdrawal Rights.................................... 7 5. Certain Federal Income Tax Consequences.............. 8 6. Price Range of Shares; Dividends..................... 9 7. Certain Information Concerning the Company........... 9 8. Certain Information Concerning the Purchaser and the Parent............................................... 11 9. Source and Amount of Funds........................... 12 10. Background of the Offer; Contacts with the Company... 13 11. The Merger Agreement................................. 14 12. Purpose of the Offer; The Merger; Plans for the Company.............................................. 25 13. Dividends and Distributions.......................... 27 14. Effect of the Offer on the Market for the Shares; Stock Exchange Listing; Exchange Act Registration.... 27 15. Certain Conditions of the Offer...................... 28 16. Certain Legal Matters and Regulatory Approvals....... 29 17. Fees and Expenses.................................... 31 18. Miscellaneous........................................ 31
SCHEDULE I Certain Information Regarding the Directors and Executive Officers of the Purchaser and the Parent i 3 To the Stockholders of Dominick's Supermarkets, Inc.: INTRODUCTION Windy City Acquisition Corp., a Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of Safeway Inc., a Delaware corporation (the "Parent"), hereby offers to purchase all of the outstanding shares of Common Stock, par value $.01 per share (the "Voting Shares"), and Non-Voting Common Stock, par value $.01 per share (the "Non-Voting Shares" and, collectively with the Voting Shares, the "Shares"), of Dominick's Supermarkets, Inc., a Delaware corporation (the "Company"), at a purchase price of $49 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer and sale of Shares pursuant to the Offer. The Purchaser will pay all fees and expenses of Morgan Stanley & Co. Incorporated, which is acting as Dealer Manager for the Offer ("Morgan Stanley" or the "Dealer Manager"), First Chicago Trust Company of New York, which is acting as the Depositary (the "Depositary"), and Kissel Blake Inc., which is acting as the Information Agent (the "Information Agent"), incurred in connection with the Offer. See Section 17. THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT (AS DEFINED BELOW) AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH OF THE OFFER AND THE MERGER (AS DEFINED BELOW), ARE ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS THAT ALL HOLDERS OF THE SHARES ACCEPT THE OFFER AND TENDER ALL THEIR SHARES TO THE PURCHASER. The Company Board has received the written opinion of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), financial advisor to the Company, 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 is fair to such stockholders from a financial point of view. A copy of the opinion of DLJ is attached to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") which is being distributed to the stockholders of the Company. 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 Company Board 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. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION 1) 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 THE EXERCISE OF THE YUCAIPA WARRANT (AS DEFINED IN SECTION 11)) ON THE DATE OF PURCHASE (THE "MINIMUM CONDITION") AND (ii) THE EXPIRATION OR TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED THE ("HSR ACT"). SEE SECTIONS 1 AND 15. IF THE PURCHASER PURCHASES NOT LESS THAN THAT NUMBER OF SHARES NEEDED TO SATISFY THE MINIMUM CONDITION, IT WILL BE ABLE TO EFFECT THE MERGER WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER OF THE COMPANY. SEE SECTION 12. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 13, 1998 (the "Merger Agreement"), among the Parent, the Purchaser and the Company. The Merger Agreement provides, among other things, for the making of the Offer by the Purchaser, and further provides that, following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement and the Delaware General Corporation Law (the "DGCL"), the Purchaser will be merged with and into the Company (the "Merger"). Following the Merger, the Company will continue as the surviving corporation 4 (the "Surviving Corporation") and become a wholly-owned subsidiary of the Parent, and the separate corporate existence of the Purchaser will cease. Pursuant to a Stockholders Agreement dated as of October 13, 1998, among the Parent, the Purchaser and certain stockholders of the Company owning approximately 41% of the issued and outstanding Shares (the "Principal Stockholders"), the Principal Stockholders have agreed, among other things, during the term of the Stockholders Agreement (i) to tender their Shares (including Shares to be issued upon exercise of any warrants (including the Yucaipa Warrant) or options, the conversion of any convertible securities or otherwise) in the Offer and not to withdraw any Shares so tendered, (ii) to grant options to the Purchaser to buy their Shares at the $49 Offer price upon the termination of the Merger Agreement in certain circumstances, (iii) to vote their 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, (iv) not to directly or indirectly solicit, initiate, facilitate or encourage any Alternative Transactions (as defined in Section 11) or the sale of their Shares or the Yucaipa Warrant, as applicable, and (v) not to sell, transfer, pledge, encumber, assign or otherwise dispose of their Shares. See Section 11 for a discussion of the arrangements with the Principal Stockholders. In accordance with the Merger Agreement, the Company agrees, if and to the extent permitted by law, and subject to the terms of the Merger Agreement, to take all necessary and appropriate actions to cause the Merger to become effective as soon as reasonably practicable after the purchase of the Shares pursuant to the Offer without a meeting of the Company's stockholders in accordance with the DGCL and the Company's Amended and Restated Certificate of Incorporation. See Section 11. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of the Company and each Share, if any, owned by the Parent or the Purchaser, or by any other direct or indirect wholly-owned subsidiary of the Parent or the Company, which shall be canceled and retired without payment of any consideration therefor, and other than Shares, if any (collectively, "Dissenting Shares"), held by stockholders who have not voted in favor of the Merger Agreement or consented thereto in writing and who have properly demanded appraisal of their Shares in accordance with Section 262 of the DGCL) will, by virtue of the Merger and without any action on the part of the holders of capital stock, be converted into the right to receive $49 in cash (the "Per Share Amount"), payable without interest, less any federal withholding taxes required under applicable law, to the holder thereof upon the surrender of the certificate that formerly represented such Share. The Company has represented to the Parent that as of October 8, 1998, there were 18,679,737 Voting Shares and 2,861,354 Non-Voting Shares issued and outstanding, 3,874,492 Shares reserved for issuance upon the exercise of the Yucaipa Warrant and 1,205,438 Shares reserved for issuance upon the exercise of outstanding stock options and other stock rights. Based upon the foregoing, the Purchaser believes that 11,373,265 Shares constitute a majority of the outstanding Shares on a fully diluted basis, excluding the Shares to be issued upon the exercise of the Yucaipa Warrant. The Company has advised the Purchaser that, to the knowledge of the Company, all the directors and officers of the Company intend to tender their Shares pursuant to the Offer. The Merger Agreement is more fully described in Section 11. Certain federal income tax consequences of the sale of the Shares pursuant to the Offer and the exchange of Shares for the Per Share Amount pursuant to the Merger are described in Section 5. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 2 5 THE TENDER OFFER 1. TERM OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), the Purchaser will accept for payment, purchase and pay for all Shares validly tendered on or prior to the Expiration Date and not properly withdrawn as permitted by Section 4. The term "Expiration Date" means 12:00 Midnight, New York City time, on Monday, November 16, 1998, unless and until the Purchaser, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), shall have extended the period during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser, shall expire. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, SATISFACTION OF THE MINIMUM CONDITION AND THE EXPIRATION OR TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HSR ACT. SEE SECTION 15, WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER. SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT AND THE APPLICABLE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), THE PURCHASER RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO WAIVE ANY OR ALL CONDITIONS TO THE OFFER (OTHER THAN THE MINIMUM CONDITION) AND TO MAKE ANY OTHER CHANGES IN THE TERMS AND CONDITIONS OF THE OFFER. SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT, INCLUDING THE PROVISIONS OF THE MERGER AGREEMENT DESCRIBED IN THE NEXT PARAGRAPH, AND THE APPLICABLE RULES AND REGULATIONS OF THE COMMISSION, IF BY THE EXPIRATION DATE ANY OR ALL OF SUCH CONDITIONS TO THE OFFER HAVE NOT BEEN SATISFIED, THE PURCHASER RESERVES THE RIGHT (BUT SHALL NOT BE OBLIGATED) TO (i) TERMINATE THE OFFER AND RETURN ALL TENDERED SHARES TO TENDERING STOCKHOLDERS, (ii) WAIVE SUCH UNSATISFIED CONDITIONS AND PURCHASE ALL SHARES VALIDLY TENDERED OR (iii) EXTEND THE OFFER AND, SUBJECT TO THE TERMS OF THE OFFER (INCLUDING THE RIGHTS OF STOCKHOLDERS TO WITHDRAW THEIR SHARES), RETAIN THE SHARES WHICH HAVE BEEN TENDERED, UNTIL THE TERMINATION OF THE OFFER, AS EXTENDED. Subject to the applicable rules and regulations of the Commission and the terms of the Merger Agreement, the 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 in Section 15 shall have occurred or shall have been determined by the 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 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 the Parent nor the Purchaser will waive the Minimum Condition, decrease the Per Share Amount 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 Purchaser shall have no obligation to pay interest on the purchase price of tendered Shares, including in the event the Purchaser exercises its right to extend the period of time during which the Offer is open. The rights reserved by the Purchaser in this paragraph are in addition to the Purchaser's rights to terminate the Offer pursuant to Section 15. 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, the 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 the Purchaser be required to extend the expiration date of the Offer beyond April 15, 1999). In addition, the 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 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 Shares and the Non-Voting Shares; 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 subject to its right to extend the Offer in order to attempt to satisfy the requirements of Section 253 of the DGCL so that the Merger could be effected without 3 6 a meeting of the Company's stockholders, the 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. Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, and such announcement in the case of an extension will be made in accordance with Rule 14e-1(d) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Purchaser may choose to make any public announcement, except as provided by applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that material changes be promptly disseminated to holders of Shares), the Purchaser shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. If the Purchaser makes a material change in the terms of the Offer or if it waives a material condition of the Offer, the Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances, including the materiality, of the changes. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought, a minimum 10 business day period from the day of such change is generally required to allow for adequate dissemination to stockholders. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday, or a federal holiday and consists of the time period from 12:01 A.M. through 12:00 Midnight, New York City time. The Company has provided the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed by the Purchaser to record holders of Shares and furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will accept for payment, purchase and pay for all Shares validly tendered and not withdrawn commencing at the later of (x) the Expiration Date and (y) the satisfaction or waiver of the conditions of the Offer set forth in Section 15, including, without limitation, the date of expiration or termination of all applicable waiting periods under the HSR Act, except to the extent, as described above, that the Purchaser extends the Offer in an effort to satisfy the requirements of Section 253 of the DGCL. In addition, subject to the applicable rules of the Commission, the Purchaser expressly reserves the right to delay acceptance for payment of or payment for Shares pending receipt of any other regulatory approvals specified in Section 16. Any such delays will be effected in compliance with Rule 14e-1(c) under the Exchange Act. For information with respect to approvals required to be obtained prior to the consummation of the Offer, including the HSR Act, see Section 16. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates representing such Shares ("Share Certificates") or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined below) in connection with a book-entry transfer, and (iii) any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to and received by the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry 4 7 Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against such participant. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from the Purchaser and transmitting such payments to stockholders whose Shares have been accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If for any reason whatsoever acceptance for payment of or payment for any Shares tendered pursuant to the Offer is delayed or the Purchaser is unable to accept for payment or pay for Shares tendered pursuant to the Offer, then without prejudice to the Purchaser's rights set forth herein, the Depositary may nevertheless, on behalf of the Purchaser and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Shares and such Shares may not be withdrawn except to the extent that the tendering stockholder is entitled to and duly exercises withdrawal rights as described in Section 4. If any tendered Shares are not accepted for payment for any reason or if Share Certificates are submitted for more Shares than are tendered, Share Certificates evidencing unpurchased or untendered Shares will be returned without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3, such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable following the expiration, termination or withdrawal of the Offer. 3. PROCEDURE FOR TENDERING SHARES. Valid Tenders. Except as set forth below, in order for Shares to be validly tendered pursuant to the Offer, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in connection with a book-entry delivery of Shares, and any other documents required by the Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date and either (i) Share Certificates evidencing tendered Shares must be received by the Depositary at such address or such Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, in each case on or prior to the Expiration Date, or (ii) the guaranteed delivery procedures described below must be complied with. If Share Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) must accompany each such delivery. Book-Entry Transfer. The Depositary will make a request to establish accounts with respect to the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by the Letter of Transmittal, must in any case be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date, or the guaranteed delivery procedures described below must be complied with. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE 5 8 DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Signature Guarantees. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) which is a member of a recognized Medallion Program approved by The Securities Transfer Association Inc., including the Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP) and the New York Stock Exchange, Inc. Medallion Signature Program (MSP) (any such financial institution an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by the registered holder of the Shares tendered and such holder has not completed the box entitled "Special Payment Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's Share Certificates are not immediately available, or such stockholder cannot deliver the Share Certificates and all other required documents to the Depositary on or prior to the Expiration Date, or such stockholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered, provided that all of the following conditions are satisfied: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form made available by the Purchaser is received by the Depositary as provided below on or prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry Confirmation), representing all tendered Shares in proper form for transfer, together with the Letter of Transmittal (or a facsimile thereof) properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal are received by the Depositary within three New York Stock Exchange (the "NYSE") trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of Share Certificates for, or of Book-Entry Confirmation with respect to, such Shares, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), together with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by the Letter of Transmittal. Accordingly, payment might not be made to all tendering stockholders at the same time and will depend upon when Share Certificates or Book-Entry Confirmations of such Shares are received into the Depositary's account at the Book-Entry Transfer Facility. Appointment as Proxy. By executing the Letter of Transmittal, a tendering stockholder irrevocably appoints designees of the Purchaser and each of them as such stockholder's attorneys-in-fact and proxies, with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser (and with respect to any and all other Shares, other securities or rights issued or issuable in respect of such Shares on or after the date hereof). All such powers of attorney and proxies shall be considered irrevocable and coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, the Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior powers of attorney and proxies given by such stockholder with respect to such Shares (and such other Shares and securities) will be revoked without further action, and no subsequent powers of attorney and 6 9 proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective). The designees of the Purchaser will, with respect to the Shares (and such other Shares and securities) for which such appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's payment for such Shares, the Purchaser must be able to exercise full voting rights with respect to such Shares and other securities, including voting at any meeting of stockholders. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Purchaser in its sole discretion, which determination shall be final and binding on all parties. The Purchaser reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may in the opinion of its counsel be unlawful. The Purchaser also reserves the absolute right to waive any defect or irregularity in any tender of Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of the Purchaser, the Parent, any of their affiliates or assigns, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. The Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. Backup Federal Income Tax Withholding and Substitute Form W-9. Under the "backup withholding" provisions of federal income tax law, the Depositary may be required to withhold 31% of the amount of any payments of cash pursuant to the Offer. In order to avoid backup withholding, each stockholder surrendering Shares in the Offer must, unless an exemption applies, provide the payor of such cash with such stockholder's correct taxpayer identification number ("TIN") on a substitute Form W-9 and certify, under penalties of perjury, that such TIN is correct and that such stockholder is not subject to backup withholding. If a stockholder does not provide its correct TIN or fails to provide the certifications described above, the Internal Revenue Service ("IRS") may impose a penalty on such stockholder and payment of cash to such stockholder pursuant to the Offer may be subject to backup withholding of 31%. All stockholders surrendering Shares pursuant to the Offer should complete and sign the substitute Form W-9 included in the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to the Depositary). Certain stockholders (including among others all corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign stockholders should complete and sign a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 of the Letter of Transmittal. Other Requirements. The Purchaser's acceptance for payment of Shares tendered pursuant to any of the procedures described above will constitute a binding agreement between the tendering stockholder and the Purchaser upon the terms and subject to the conditions of the Offer, including the tendering stockholder's representation and warranty that the stockholder is the holder of the Shares within the meaning of, and that the tender of the Shares complies with, Rule 14e-4(a)(4) under the Exchange Act. 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after December 17, 1998 unless theretofore accepted for payment as provided in this Offer to Purchase. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to purchase Shares validly tendered pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Depositary may, on behalf of the Purchaser, retain tendered Shares, and such Shares may not be withdrawn except as otherwise described in this Section 4. 7 10 For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If the Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then prior to the physical release of the certificates, the name of the registered holder (if different from the tendering stockholder) and the serial numbers shown on such certificates must be submitted to the Depositary, together with a signed notice of withdrawal, the signatures on which must be guaranteed by an Eligible Institution unless such Shares have been tendered for the account of any Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding. The Purchaser reserves the absolute right to reject any and all withdrawals determined by it not to be in proper form. The Purchaser also reserves the absolute right to waive any defect or irregularity in any withdrawal of Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of other stockholders. No withdrawal of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of the Purchaser, the Parent, any of their affiliates or assigns, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in Section 3. 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The summary of tax consequences set forth below is for general information only and is based on the law as currently in effect. The tax treatment of each stockholder will depend in part upon such stockholder's particular situation. Special tax consequences not described herein may be applicable to particular classes of taxpayers, such as financial institutions, broker-dealers, insurance companies, foreign corporations, foreign partnerships, foreign trusts, foreign estates, persons who are not citizens or residents of the United States, tax-exempt entities, stockholders who acquired their Shares through the exercise of an employee stock option or otherwise as compensation, and persons who received payments in respect of options to acquire Shares. ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX LAWS AND CHANGES IN SUCH TAX LAWS. The receipt of cash pursuant to the Offer or the Merger will be a taxable transaction for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"), and may also be a taxable transaction under applicable state, local, foreign income or other tax laws. Generally, for federal income tax purposes, a stockholder will recognize gain or loss in an amount equal to the difference between the cash received by the stockholder pursuant to the Offer or the Merger and the stockholder's adjusted tax basis in the Shares purchased pursuant to the Offer or converted to cash in the Merger. Gain or loss will be calculated separately for each block of Shares tendered and purchased pursuant to the Offer or converted in the Merger, as the case may be. For federal income tax purposes, such gain or loss will be a capital gain or loss if the Shares are a capital asset in the hands of the stockholder, and a long-term capital gain or loss if the stockholder's holding period is more than one year as of the date the Purchaser accepts such Shares for payment pursuant to the Offer or the effective date of the Merger, as the case may be. In the case of a non-corporate stockholder, capital gain is currently eligible for a maximum federal income tax rate of 20% (10% for non-corporate stockholders in the 15% tax bracket) if the Shares were held for more than one year. There are limitations on the deductibility of capital losses. 8 11 6. PRICE RANGE OF SHARES; DIVIDENDS. The Voting Shares are listed and traded on the NYSE and the Chicago Stock Exchange under the symbol "DFF". The Non-Voting Shares are not listed. According to the Company's 1997 Annual Report on Form 10-K for the fiscal year ended November 1, 1997 (the "1997 Annual Report"), prior to the Company's initial public offering on November 1, 1996, there was no trading market for the Voting Shares. The following table sets forth, for the quarters indicated, the high and low sales prices per Voting Share on the NYSE with respect to periods occurring in 1996, 1997 and 1998 as reported by the Dow Jones News Service. According to the 1997 Annual Report, the Company has not paid any dividends on its Common Stock since the initial public offering.
HIGH LOW ---- --- YEAR ENDED NOVEMBER 2, 1996: Fourth Quarter (from November 1)............................ $19 7/8 $19 1/2 YEAR ENDED NOVEMBER 1, 1997: First Quarter............................................... 23 5/8 18 1/8 Second Quarter.............................................. 23 3/4 17 3/4 Third Quarter............................................... 30 15/16 20 1/4 Fourth Quarter.............................................. 38 25 YEAR ENDING OCTOBER 31, 1998: First Quarter............................................... 42 1/8 34 1/8 Second Quarter.............................................. 47 7/8 38 5/16 Third Quarter............................................... 49 3/4 37 1/8 Fourth Quarter (through October 16, 1998)................... 49 1/4 37 3/16
On October 12, 1998, the last full trading day prior to announcement of the Offer, the closing sale price per Voting Share reported on the NYSE Composite Transactions Tape was $41 3/8. On October 16, 1998, the last full trading day before commencement of the Offer, the closing sale price per Voting Share reported on the NYSE Composite Transactions Tape was $48 3/8. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE VOTING SHARES. 7. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning the Company contained in this Offer to Purchase, including financial information, has been taken from or based upon publicly available documents and records on file with the Commission and other public sources. The summary information concerning the Company in this Section 7 and elsewhere in this Offer to Purchase is derived from the Company's 1997 Annual Report, the Company's Quarterly Reports on Form 10-Q for the quarters ended August 8, 1998 and August 9, 1997 (the "Company 10-Q's") and other publicly available information. The summary information set forth below is qualified in its entirety by reference to such reports (which may be obtained and inspected as described below) and should be considered in conjunction with the more comprehensive financial and other information in such reports and other publicly available reports and documents filed by the Company with the Commission and other publicly available information. Although the Purchaser and the Parent do not have any knowledge that would indicate that any statements contained herein based upon such reports are untrue, neither the Purchaser nor the Parent assumes any responsibility for the accuracy or completeness of the information contained therein, or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information but which are unknown to the Purchaser and the Parent. General. The Company was incorporated in Delaware in January 1995 and shortly thereafter acquired Dominick's Finer Foods, Inc. by acquiring all of the outstanding capital stock of its parent, DFF Supermarkets, Inc. Approximately 13.6% of the outstanding Shares (without giving effect to the Shares issuable upon the exercise of the Yucaipa Warrant) are beneficially owned by affiliates of The Yucaipa Companies ("Yucaipa") and approximately 27.2% of the outstanding Shares are beneficially owned by affiliates of Apollo Advisors, L.P. Giving effect to the Shares issuable upon the exercise of the Yucaipa Warrant, Yucaipa and Apollo beneficially own approximately 49.8% of the outstanding Shares. The Company, together with its subsidiaries, is the second largest supermarket operator in the greater Chicago metropolitan area, with 112 9 12 stores operated under the Dominick's(R) name. The Company's store base consists of 18 conventional stores and 94 full-service combination food and drug stores. The Company also owns and operates two primary distribution facilities and a dairy processing plant. As of November 1, 1997, the Company had 19,449 employees of which approximately 75% were full-time employees. The Company's principal executive offices are located at 505 Railroad Avenue, Northlake, Illinois 60164. The telephone number of the Company at such offices is (708) 562-1000. Financial Information. Set forth below are certain selected consolidated financial data for the Company which was derived from the unaudited financial statements contained in the Company 10-Q's and the audited financial statements contained in the Company's 1997 Annual Report. According to the Company 10-Q's, the results of operations for the 40 weeks ended August 8, 1998 and August 9, 1997 contain all adjustments that are of a normal and recurring nature necessary to present fairly the financial position and results of operations for such period. The results for the 40 weeks ended August 8, 1998 are not necessarily indicative of the results that may be expected for the full year. More comprehensive financial information (including management's discussion and analysis of financial condition and results of operations) is included in the reports and other documents filed by the Company with the Commission, and the following financial data is qualified in its entirety by reference to such reports and other documents, including the financial statements and related notes contained therein. Such reports and other documents may be examined and copies thereof may be obtained from the offices of the Commission in the manner set forth below. DOMINICK'S SUPERMARKETS, INC. SELECTED CONSOLIDATED FINANCIAL DATA (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE 40 WEEKS ENDED FOR THE FISCAL YEAR ENDED ------------------------------- ------------------------------------------------------- AUGUST 8, 1998 AUGUST 9, 1997 NOVEMBER 1, 1997 NOVEMBER 2, 1996 OCTOBER 28, 1995* -------------- -------------- ---------------- ---------------- ----------------- (UNAUDITED) (AUDITED) INCOME STATEMENT Sales........................ $1,841.9 $2,000.1 $2,584.9 $2,512.0 $2,433.8 Cost of sales................ 1,360.8 1,521.6 1,960.8 1,933.0 1,881.7 Gross profit................. 481.1 478.5 624.1 579.0 552.1 Selling, general and administrative expenses.... 400.7 403.7 526.1 491.4 482.2 Restructuring charge......... -- -- 74.4 -- -- Termination of Consulting Agreement with Yucaipa..... -- -- -- 10.5 -- Operating income............. 80.4 74.8 23.6 77.1 69.9 Interest expense............. 43.7 45.2 58.9 70.3 72.4 Income tax expense........... 17.9 14.9 3.6 7.4 3.5 Extraordinary item........... -- -- 23.6 6.3 4.6 Net income (loss)............ $ 18.8 $ 14.7 $ (62.5) $ (6.9) $ (10.6) Preferred stock dividend and accretion.................. -- -- -- 7.9 6.3 Net income (loss) available to common stockholders..... $ 18.8 $ 14.7 $ (62.5) $ (14.8) $ (16.9) Diluted earnings (loss) per common share............... $ 0.78 $ 0.66 $ (2.93) $ (0.96) $ (1.10) Weighted average shares outstanding-diluted........ 24.3 22.4 21.4 15.6 15.4 BALANCE SHEET (END OF PERIOD) Working capital surplus (deficit).................. $ (76.8) $ (29.4) $ (62.0) $ 17.1 ** Total assets................. 1,192.5 1,176.0 1,148.8 1,153.0 ** Total goodwill............... 367.6 411.8 375.3 420.2 ** Total debt................... 646.2 567.6 601.3 540.7 ** Stockholders' equity......... $ 135.9 $ 193.8 $ 116.6 $ 179.1 **
- ------------ * Pro Forma ** Not available in the reports and other documents publicly filed by the Company with the Commission 10 13 The Company is subject to the informational filing requirements of the Exchange Act and in accordance therewith is obligated to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. The Company is required to disclose in such proxy statements certain information, as of particular dates, concerning the Company's directors and officers, their remuneration, options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at prescribed rates at the regional offices of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. Such reports, proxy statements and other information may also be obtained at the Web site that the Commission maintains at http://www.sec.gov. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material should also be available for inspection at the library of the NYSE, 20 Broad Street, New York, New York 10005. 8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND THE PARENT. The Purchaser, a Delaware corporation and a wholly-owned subsidiary of the Parent, was organized for the sole purposes of entering into the Merger Agreement and the Stockholders Agreement and consummating the transactions contemplated thereby, including making the Offer, and has not carried on any activities to date other than those incident to its formation, entering into such agreements and the commencement of the Offer. The Parent was originally incorporated in Delaware in 1986 under the name "SSI Holdings Corporation". The Parent, together with its subsidiaries, is the second largest food and drug chain in North America (based on sales) as of the date of this Offer to Purchase. As of September 12, 1998, the Parent operated 1,381 stores. The Parent's retail operations are located principally in northern California, southern California, Oregon, Washington, Colorado, Arizona, the Mid-Atlantic region and western Canada. In support of its retail operations, the Parent has an extensive network of distribution, manufacturing and food processing facilities. In April 1997, the Parent completed its merger with The Vons Companies, Inc. ("Vons"). The Parent also holds a 49% interest in Casa Ley, S.A. de C.V., which operated 75 food and general merchandise stores in western Mexico as of September 12, 1998. The Parent has approximately 147,000 employees. Both the Parent and the Purchaser have their principal executive offices at 5918 Stoneridge Mall Road, Pleasanton, California 94588. The telephone number for both the Parent and the Purchaser is (925) 467-3000. The name, citizenship, business address, principal occupation or employment and five-year employment history of each of the directors and executive officers of the Purchaser and the Parent and certain other information are set forth in Schedule I hereto. The Parent is subject to the informational filing requirements of the Exchange Act and in accordance therewith is obligated to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. The Parent is required to disclose in such proxy statements certain information, as of particular dates, concerning the Parent's directors and officers, their remuneration, options granted to them, the principal holders of the Parent's securities and any material interest of such persons in transactions with the Parent. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at prescribed rates at the regional offices of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. Such reports, proxy statements and other information may also be obtained at the Web site that the Commission maintains at http://www.sec.gov. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material should also be available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. 11 14 Except to the extent that the Shares owned by the Principal Stockholders and the Yucaipa Warrant may be deemed to be beneficially owned by the Parent and the Purchaser pursuant to Rule 13d-3 under the Exchange Act as a result of the execution of the Stockholders Agreement, none of the Purchaser, the Parent nor, to the best knowledge of the Purchaser and the Parent, any of the persons listed on Schedule I hereto nor any associate or majority-owned subsidiary of the Purchaser, the Parent or any of the persons so listed, beneficially owns or has a right to acquire directly or indirectly any Shares, and none of the Purchaser, the Parent nor, to the best knowledge of the Purchaser and the Parent, any of the persons or entities referred to above, nor any of their respective executive officers, directors or subsidiaries, has effected any transactions in the Shares during the past 60 days. Except as set forth in this Offer to Purchase, since November 1, 1994, there have been no (i) transactions or series of similar transactions between any of the Parent, the Purchaser or, to the best knowledge of the Purchaser and the Parent, any of the persons listed in Schedule I hereto, on the one hand, and (x) the Company or any of its affiliates which are corporations, on the other hand, or (y) executive officers, directors or affiliates of the Company which are not corporations, on the other hand, involving an aggregate amount exceeding $40,000 or (ii) contacts, negotiations or transactions between any of the Parent, the Purchaser or, to the best knowledge of the Purchaser and the Parent, any of the persons listed in Schedule I hereto, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. Except for the Merger Agreement and the Stockholders Agreement, to the best knowledge of the Parent and the Purchaser, (a) there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Schedule I hereto and between such persons and any person with respect to any securities of the Company, including but not limited to, transfer or voting of any of the securities of the Company, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees or profits, division of profits or loss, or the giving or withholding of proxies, and (b) except for the pledge of 1,480,201 Shares held by Yucaipa Blackhawk Partners, L.P. to Salomon Smith Barney for collateral purposes in connection with a margin account, for which such stockholder has agreed to obtain a release prior to the tender of the related Shares in the Offer, none of the Shares are pledged otherwise subject to a contingency, the occurrence of which would give another person voting power or investment power over the Shares. 9. SOURCE AND AMOUNT OF FUNDS. The total amount of funds required by the Purchaser to purchase all outstanding Shares pursuant to the Offer and to pay fees and expenses related to the Offer and the proposed Merger is estimated to be approximately $1.2 billion. The Purchaser plans to obtain all funds needed for the Offer and the proposed Merger through capital contributions or advances made by the Parent. The Parent plans to obtain the funds for such capital contributions and advances from its existing committed bank credit facility and/or the issuance of commercial paper. The Parent also may obtain funds through borrowings under a credit facility with one or more commercial banks in respect of which the Parent has obtained a commitment letter providing additional availability of $500 million. Such commitment letter indicates the bank's willingness to provide funding on customary terms and conditions. In addition, the Parent may choose to offer debt securities to the public on terms not yet determined. Any debt incurred to fund the purchase of the Shares in the Offer is expected to be repaid from funds internally generated by the Parent and its subsidiaries. The Offer is not conditioned on obtaining financing. The Parent, together with its wholly owned subsidiaries, Vons and Canada Safeway Limited, is party to a bank credit agreement with a syndicate of banks for which Bankers Trust Company is the administrative agent (the "Bank Credit Agreement"). Of the $2.9 billion credit facility, $2.0 billion matures in 2002 and has two one-year extension options and $0.9 billion is renewable annually through 2004. The restrictive covenants of the Bank Credit Agreement limit the Parent with respect to, among other things, creating liens upon its assets and disposing of material amounts of assets other than in the ordinary course of business. The Parent also is required to meet certain financial tests under the Bank Credit Agreement. Borrowings under the Bank Credit Agreement are made on an unsecured basis. At September 12, 1998, the Company had total unused borrowing capacity under the Bank Credit Agreement of $1.5 billion. 12 15 U.S. dollar borrowings under the Bank Credit Agreement carry interest at one of the following rates selected by the Parent: (i) the prime rate; (ii) the rate based on rates at which Eurodollar deposits are offered to first-class banks by the lenders in the Bank Credit Agreement plus a pricing margin based on the Parent's debt rating or interest coverage ratio (the "Pricing Margin"); or (iii) rates quoted at the discretion of the lenders. Canadian borrowings denominated in U.S. dollars carry interest at one of the following rates selected by the Parent; (i) the Canadian base rate; or (ii) the Canadian Eurodollar rate plus the Pricing Margin. Canadian borrowings denominated in Canadian dollars carry interest at one of the following rates selected by the Company: (i) the Canadian prime rate or (ii) the rate for Canadian bankers acceptances plus the Pricing Margin. 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. On August 17, 1998, Steven A. Burd, the President, Chief Executive Officer and Chairman of the Parent, made an unsolicited call to Ronald W. Burkle, the Chairman of the Company and a principal of Yucaipa, 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 the 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 bank 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. On August 21, 1998, the Parent sent the Company a request for certain preliminary financial and operational information concerning the Company. Between August 24 and August 28, 1998, the Parent and the Company negotiated the terms of a draft confidentiality agreement. On August 28, 1998, the Company and the Parent entered into a confidentiality agreement (the "Confidentiality Agreement"), and commencing on August 28, the Company and DLJ supplied the Parent with certain confidential information regarding the Company and its business, operations, results of operations and financial condition and the Company's senior management afforded the Parent a telephonic question and answer session. On August 26, 1998, Yucaipa, on behalf of the Company, asked the Parent to provide preliminary indications of interest by September 4, 1998. On September 4, 1998, the Parent informed DLJ of the 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. On September 17, 1998, the Company delivered a presentation to the senior management of the Parent in Chicago, Illinois. Following the presentation, members of the 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's and the Company's senior management to discuss the Company's business, operations, results of operations and financial condition, and members of the 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 the Parent conducted a due diligence investigation of the Company in Chicago, Illinois. On September 23, 1998, DLJ invited the Parent to submit a written offer to acquire all of the outstanding stock of the Company or to engage in such other transaction as the Parent wished to propose. In connection therewith, the Company furnished the Parent with forms of cash and stock merger agreements. The Company requested a response from the Parent by October 1, 1998. On September 25 and 29, 1998, representatives of the Parent conducted a further due diligence investigation of the Company in Chicago, Illinois. On October 1, 1998, the Parent sent the Company and DLJ a proposal letter indicating the Parent's willingness to pay at least $48 per share in cash to acquire all of the outstanding Shares, subject to the approval of the Parent's Board of Directors and the satisfactory review of certain additional information about the Company. The Company and DLJ subsequently contacted the Parent to seek clarification of the offer to pay at least $48 per share and to suggest that the price be raised. 13 16 Between October 1 and October 5, 1998, at the request of the Parent, representatives of the Company made available to the Parent certain additional financial, legal and operational information regarding the Company. In addition, representatives of the Parent and representatives of the Company had telephonic discussions regarding the proposed price, the basis on which the Parent would be willing to submit a firm proposal to acquire the Company and the expected timing thereof. On October 6, 1998, the 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 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. The Parent indicated that execution by the Principal Stockholders of such an agreement would be a condition to the execution of a definitive Merger Agreement. During the period from October 8 through October 13, 1998, representatives of the Parent and the Company discussed the terms of a possible acquisition and negotiated the terms of the Merger Agreement, and representatives of the Parent and the Principal Stockholders negotiated the terms of the Stockholders Agreement. On October 12, 1998, the Board of Directors of the Parent approved the acquisition by the Purchaser of the Company for a purchase price of $49 in cash per Share and the transactions contemplated by the Merger Agreement and the Stockholders Agreement. On October 13, 1998, the Merger Agreement and the Stockholders Agreement were executed, and the Merger was publicly announced. On October 19, 1998, the Purchaser commenced the Offer. The Parent is filing with the Commission on the date of this Offer to Purchase a Schedule 13D reporting Shares that may be deemed to be beneficially owned by the Parent and its affiliates as a result of the Stockholders Agreement. See Section 11. 11. THE MERGER AGREEMENT. The following is a summary of the Merger Agreement, which summary is qualified in its entirety by reference to the Merger Agreement, which is filed as an exhibit to the Parent's Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") and incorporated herein by reference. The Offer. The obligations of the 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 the Minimum Condition and the other Offer Conditions, any of which conditions may be waived by the Purchaser in its sole discretion, except that the Purchaser may not waive the Minimum Condition without the prior written consent of the Company. The 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 in Section 15 shall have occurred or shall have been determined by the 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 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 the Parent nor the Purchaser will waive the Minimum Condition, decrease the Per Share Amount 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 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 the Purchaser in this paragraph are in addition to the Purchaser's rights to terminate the Offer upon the failure of the conditions in Section 15 to be satisfied on 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, the 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 the Purchaser be required to extend the expiration date of the Offer beyond April 15, 1999). In addition, the Purchaser may, without the consent of the Company, (i) extend the Offer for any period required by any rule, regulation, 14 17 interpretation or position of 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 Shares and the Non-Voting Shares; 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, the 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. The 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 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 Shares and Non-Voting Shares) 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 shall have been validly tendered and not withdrawn prior to the expiration of the Offer. The Merger. The Merger Agreement provides that, at the Effective Time and subject to the conditions set forth therein (and including those described in Section 15 hereof) and the provisions of the DGCL, the 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 the Purchaser shall cease, and the Company shall continue as the surviving corporation in the Merger (the "Surviving Corporation"). At the Parent's election, any direct or indirect subsidiary of the Parent other than the Purchaser may be merged with and into the Company instead of the 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 the 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 the Parent or the Purchaser, or by any direct or indirect wholly-owned subsidiary of any of them and Dissenting Shares) shall be converted into the right to receive the Per Share Amount, 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 Company Board 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 Per Share Amount 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. The 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. 15 18 Pursuant to the Merger Agreement, the 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 the 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 Per Share Amount by the average of the closing prices of the 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 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 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 the 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, the Purchaser or the Surviving Corporation. Upon the acceptance for payment of the Shares in the Offer, the Purchaser or the Parent will purchase from Yucaipa that certain Class A Common Stock Purchase Warrant No. W-1 issued by the Company to Yucaipa on March 22, 1995, as amended (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 Per Share Amount ($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 Per Share Amount 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 Per Share Amount applicable to such Shares, without any interest thereon. 16 19 The Merger Agreement also provides that at the Effective Time and without any further action on the part of the Company or the Purchaser, 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 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 the Purchaser, the By-Laws of the Company, as in effect immediately prior to the Effective Time, shall be the By-Laws of the Surviving Corporation. The Merger Agreement provides that the directors of the 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 By-Laws 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 the Purchaser of at least that number of Shares which constitutes more than 50% of the issued and outstanding Shares (determined on a fully diluted basis without giving effect to the Shares issuable upon the exercise of the Yucaipa Warrant) (the "Minimum Shares") pursuant to the Offer, the Company is required to, in accordance with applicable law, its Certificate of Incorporation and By-Laws, 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 Company Board may not withdraw, amend or modify in a manner adverse to the 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 Company Board is considering such Alternative Transaction or reviewing it with its advisors (to the extent the Company Board 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 Company Board 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 the 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 the Parent and such proposal is pending at the time of such action, (3) 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 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 the Parent, the 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. 17 20 "Superior Transaction" shall mean any bona fide Alternative Transaction involving at least 60% of the outstanding Shares on terms that the Company Board 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, the Parent will vote, or cause to be voted, all Shares then owned by it or the Purchaser or any of the 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 the 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 the 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. 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. The Parent, the Purchaser and the Company have agreed to cooperate with each other in the preparation of the Proxy Statement, including, in the case of the Parent and the 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 the 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, the Purchaser will be entitled to designate such number of members of 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 (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 the Purchaser or the 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 the Purchaser and 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 the Parent's designees to be so elected to the Company Board, and (ii) cause the 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 the 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 the Parent and the Purchaser and their officers, employees and agents all financial, operating and other data and information as the Parent and the Purchaser may reasonably request. 18 21 The Merger Agreement further provides that each of the Company and the Parent will cause its directors, officers, employees, agents, advisors and controlling persons to hold all nonpublic information obtained by the Parent and the 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 the 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 the 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 the Parent, the 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 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 Company Board after the date of the Merger Agreement if (i) the Company Board, 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 the 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 Company Board 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 the 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 the 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, the 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 By-laws 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, the Parent will cause the Surviving Corporation to purchase a four-year extended reporting period endorsement under the Company's existing directors and 19 22 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 the 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, the 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 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, 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 any of the transactions contemplated by the Merger Agreement. Notwithstanding the foregoing, neither the Parent nor the Company, in connection with the receipt of any regulatory approval, will be 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 the Parent, the Company or any of their respective affiliates (or to consent to any sale or agreement to sell or discontinuance or limitation by the 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 the 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 20 23 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. The Purchaser has agreed that during the period commencing at the Effective Time and continuing until December 31, 1999, the Parent will cause 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 the Parent as of the date of the Merger Agreement. The Merger Agreement provides that for all Employee Benefits (including Employee Plans and programs of the 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 the 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 of the Merger Agreement, except to the extent such treatment will result in duplication of benefits. From and after the Effective Time, the 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 the 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 Company Board's 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 one stockholder 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, affiliate 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 21 24 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. The 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, the 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. The 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 the Parent and the 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 Shares, unless the 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 consummation 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) the 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 the Parent nor the 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 the Parent and the Company as duly authorized by their respective Boards of Directors; (b) by the Company or the Parent, respectively, if the Parent or the 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 the Parent's or the 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 the 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 the Parent from 22 25 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 in Section 15 of this Offer to Purchase without the 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 the 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 the Merger Agreement and the transactions contemplated thereby (or publicly announces its intention to do so) in a manner adverse to the 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 Company Board 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 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 the Parent pursuant to clause (d) under "Termination Events" or by the Company pursuant to clause (e) under "Termination Events", the Company will pay to the Parent $36.0 million (the "Termination Fee") plus reasonable documented out-of-pocket expenses of the 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 the 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) the 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 (3) the 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. Stockholders Agreement. Concurrently with the execution and delivery of the Merger Agreement, the Parent and the Principal Stockholders entered into the Stockholders Agreement. The following is a summary of the Stockholders Agreement, which summary is qualified in its entirety by reference to the Stockholders Agreement, which is filed as an exhibit to the Schedule 14D-1 and incorporated herein by reference. 23 26 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. The Parent has agreed that on the Offer Consummation Date, the Purchaser or the 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 Per Share Amount 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 the Offer Documents. In addition, pursuant to the Stockholders Agreement, each Principal Stockholder has granted to the Purchaser an irrevocable option (the "Option") to purchase such Principal Stockholder's Subject Shares for the Purchase Price. The Option may be exercised by the 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 the Parent of its intention to exercise the Yucaipa Warrant, the Parent and the 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 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). 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, the Parent or Merger Sub will purchase from Yucaipa the Yucaipa Warrant for an amount equal to (i) the difference between the Per Share Amount ($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 the 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. The Parent has also agreed that, in the event the Option or the Warrant Option is exercised, as promptly as practicable thereafter, the 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 Per Share Amount. In the event the Option is exercised and the Parent or any of its affiliates receives any consideration in connection with any Sale (as defined in the Merger 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 anniversary of such date, the 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). The Parent and the Purchaser have agreed that, in connection with any exercise of the Option and/or the Warrant Option, the Purchaser will purchase, pursuant to "tag along" rights of certain stockholders of the 24 27 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. 12. PURPOSE OF THE OFFER; THE MERGER; PLANS FOR THE COMPANY. The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. The Offer is being made pursuant to the Merger Agreement. As promptly as practicable following consummation of the Offer and after satisfaction or waiver of all conditions to the Merger set forth in the Merger Agreement, the Purchaser intends to acquire the remaining equity interest in the Company not acquired in the Offer by consummating the Merger. Vote Required to Approve the Merger; Stockholder Approval. The Company Board has approved and adopted the Merger and the Merger Agreement in accordance with the DGCL. The Company Board will be required to submit the Merger Agreement to the Company's stockholders for approval at a stockholders' meeting convened for that purpose in accordance with the DGCL. However, if the Purchaser acquires more than 90% of the outstanding shares of each of the Voting Shares and the Non-Voting Shares, the Purchaser intends to effect the Merger without a meeting of the Company's stockholders under Section 253 of the DGCL. In the event the conditions described in the foregoing sentence are not met and stockholder approval is required, the DGCL requires that unless otherwise provided by the Company's Certificate of Incorporation, the Merger Agreement must be approved by the vote of the holders of a majority of the outstanding Voting Shares. The Certificate of Incorporation of the Company provides that the Company's stockholders may act by written consent provided that the action to be effected and the taking of such action by written consent have expressly been approved in advance by the Company Board. In the event that the Company's stockholders are required to approve the Merger Agreement, immediately following the designation of the Parent's representatives to the Company Board as described in Section 11 under "Designation of Directors", the Parent will seek to have the Company Board approve the stockholders of the Company acting by written consent to approve the Merger Agreement. If such approval is granted, the Parent will cause the Purchaser to submit a written consent approving the Merger Agreement. In either case, if the Minimum Condition is satisfied, the Purchaser will have the power, which it intends to exercise, to approve the Merger Agreement without the affirmative vote or written consent of any other stockholder. THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY, CONSENT OR AUTHORIZATION FOR OR WITH RESPECT TO THE ANNUAL MEETING OR ANY SPECIAL MEETING OF THE COMPANY'S STOCKHOLDERS OR ANY ACTION IN LIEU THEREOF. ANY SUCH SOLICITATION, IF REQUIRED, WHICH THE PURCHASER MAY MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(a) OF THE EXCHANGE ACT. THE OFFER IS CONDITIONED UPON THE MINIMUM CONDITION BEING SATISFIED. Appraisal Rights. Stockholders do not have appraisal rights as a result of the Offer. However, if the Merger is consummated, stockholders of the Company at the time of the Merger who do not vote in favor of the Merger will have the right under the DGCL to dissent and demand appraisal of, and receive payment in cash of the fair value of, their Shares outstanding immediately prior to the effective date of the Merger in accordance with Section 262 of the DGCL. Under the DGCL, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of such merger or similar business combination) and to receive payment of such fair value in cash. Any such judicial determination of the fair value of such Shares could be based upon considerations other than or in addition to the price paid in the Offer and the Merger and the market value of the Shares. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things, that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. Stockholders should recognize that the value so determined could be higher or lower than the Per Share Amount to be paid pursuant to the Offer or the consideration per Share to be paid in the Merger or other similar business combination. 25 28 In addition, several decisions by Delaware courts have held that in certain circumstances a controlling stockholder of a corporation involved in a merger has a fiduciary duty to other stockholders that requires that the merger be fair to other stockholders. In determining whether a merger is fair to minority stockholders, Delaware courts have considered, among other things, the type and amount of the consideration to be received by the stockholders and whether there was fair dealing among the parties. The Delaware Supreme Court stated in Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that the remedy ordinarily available to minority stockholders in a cash-out merger is the right to appraisal described above. However, a damages remedy or injunctive relief may be available if a merger is found to be the product of procedural unfairness, including fraud, misrepresentation or other misconduct. THE FOREGOING SUMMARY OF THE RIGHTS OF OBJECTING STOCKHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS REQUIRES STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE DGCL. The foregoing description of the DGCL is not necessarily complete and is qualified in its entirety by reference to the DGCL. Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions and which may under certain circumstances be applicable to the Merger following the purchase of Shares pursuant to the Offer or any alternative transaction (including any purchase of Shares in the open market following the purchase of Shares pursuant to the Offer for the purpose of acquiring at least 90% of the outstanding shares of each class of capital stock of the Company in order to effect the Merger without a stockholder meeting in accordance with Section 253 of the DGCL) in which the Purchaser seeks to acquire any remaining Shares. Rule 13e-3 should not be applicable to the Merger if the Merger is consummated within one year after the expiration or termination of the Offer and the price paid in the Merger is not less than the Per Share Amount paid pursuant to the Offer. However, in the event that the Purchaser is deemed to have acquired control of the Company pursuant to the Offer and if the Merger is consummated more than one year after completion of the Offer or an alternative acquisition transaction is effected whereby stockholders of the Company receive consideration less than that paid pursuant to the Offer, in either case at a time when the Shares are still registered under the Exchange Act, the Purchaser may be required to comply with Rule 13e-3 under the Exchange Act. If applicable, Rule 13e-3 would require, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the Merger or such alternative transaction and the consideration offered to minority stockholders in the Merger or such alternative transaction be filed with the Commission and disclosed to stockholders prior to consummation of the Merger or such alternative transaction. The purchase of a substantial number of Shares pursuant to the Offer may result in the Company being able to terminate its Exchange Act registration. See Section 14. If such registration were terminated, Rule 13e-3 would be inapplicable to the Merger or any such alternative transaction. Plans for the Company. It is currently expected that initially following the purchase of the Shares and the consummation of the Offer the business and operations of the Company will continue as they currently are conducted without substantial change. The Parent will continue to evaluate all aspects of the business, operations and management of the Company during the pendency of the Offer and after the consummation of the Offer and will take such further actions as it deems appropriate under the circumstances then existing. The Parent expects to focus on implementing steps to apply its strategies to sales growth and cost reduction, including through the reduction of administrative overhead. Except as described in this Offer to Purchase, none of the Purchaser, the Parent nor, to the best knowledge of the Purchaser and the Parent, any of the persons listed on Schedule I have any present plans or proposals that would relate to or result in an extraordinary corporate transaction such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries or a sale or other transfer of a material amount of assets of the Company or any of its subsidiaries, any material change in the capitalization or dividend policy of the Company or any other material change in the Company's corporate structure or business or the composition of its Board of Directors or management. 26 29 13. DIVIDENDS AND DISTRIBUTIONS. If the Company should, on or after the date of the Merger Agreement, split, combine or otherwise change the Shares or its capitalization, or disclose that it has taken any such action, then without prejudice to the Purchaser's rights under Section 15, the Purchaser may make such adjustments to the purchase price and other terms of the Offer as it deems appropriate to reflect such split, combination or other change. If on or after the date of the Merger Agreement, the Company should declare or pay any cash or stock dividend or other distribution on, or issue any rights with respect to, the Shares that is payable or distributable to stockholders of record on a date prior to the transfer to the name of the Purchaser or the nominee or transferee of the Purchaser on the Company's stock transfer records of such Shares that are purchased pursuant to the Offer, then without prejudice to the Purchaser's rights under Section 15, (i) the purchase price payable per Share by the Purchaser pursuant to the Offer will be reduced to the extent any such dividend or distribution is payable in cash and (ii) any non-cash dividend, distribution (including additional Shares) or right received and held by a tendering stockholder shall be required to be promptly remitted and transferred by the tendering stockholder to the Depositary for the account of the Purchaser, accompanied by appropriate documentation of transfer. Pending such remittance or appropriate assurance thereof, the Purchaser will, subject to applicable law, be entitled to all rights and privileges as owner of any such non-cash dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. 14. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK EXCHANGE LISTING; EXCHANGE ACT REGISTRATION. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and could reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. Following completion of the Offer, at least a majority of the outstanding Shares will be owned by the Purchaser. The Voting Common Stock is currently listed on the NYSE and the Chicago Stock Exchange. The Merger Agreement provides that the Surviving Corporation will use its best efforts to cause the Voting Shares to be delisted from the NYSE and the Chicago Stock Exchange as soon as practicable following the Effective Time. According to the NYSE's published guidelines, the NYSE would consider delisting the Shares if, among other things, the number of record holders of at least 100 Shares should fall below 1,200, the number of publicly held Shares (exclusive of holdings of officers, directors and their families and other concentrated holdings of 10% or more ("NYSE Excluded Holdings")) should fall below 600,000 or the aggregate market value of publicly held Shares (exclusive of NYSE Excluded Holdings) should fall below $5,000,000. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the NYSE for continued listing and the listing of the Shares is discontinued, the market for the Shares could be adversely affected. If the NYSE were to delist the Shares, it is possible that the Shares would continue to trade on another securities exchange or in the over-the-counter market and that price or other quotations would be reported by such exchange or through the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other sources. The extent of the public market therefor and the availability of such quotations would depend, however, upon such factors as the number of stockholders and/or the aggregate market value of such securities remaining at such time, the interest in maintaining a market in the Shares on the part of the securities firms, the possible termination of registration under the Exchange Act as described below and other factors. The Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Shares or whether it would cause future market prices to be greater or less than the Offer price. The Shares are currently registered under the Exchange Act. The purchase of Shares pursuant to the Offer may result in the Shares becoming eligible for deregistration under the Exchange Act. Registration of the Shares may be terminated upon application of the Company to the Commission if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders. The termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be 27 30 furnished by the Company to holders of the Shares and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders' meetings and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares or the holders thereof, as the case may be. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of the securities pursuant to Rule 144 under the Securities Act of 1933. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be margin securities eligible for listing or for NASDAQ reporting. The Shares are currently "margin securities" under the rules of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares for the purpose of buying, carrying or trading in securities ("purpose loans"). Depending upon factors similar to those described above with respect to listing and market quotations, it is possible that, following the Offer, the Shares might no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations and therefore could no longer be used as collateral for purpose loans made by brokers. 15. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provisions of the Offer, and in addition to the Minimum Condition, the Purchaser shall not be obligated to accept for payment any Shares until expiration of all applicable waiting periods under the HSR Act, and the 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 the 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 the Purchaser illegal or prohibits or imposes material limitations on the ability of the 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 the 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 the Parent's and the 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 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; 28 31 (c) (i) the Company Board (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 the Parent or the 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 the 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 the Parent and the 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 the Parent and the Purchaser and may be asserted by the Parent and the Purchaser regardless of the circumstances giving rise to such condition or, except for the Minimum Condition, may be waived by the Parent and the Purchaser in whole or in part at any time and from time to time. The failure by the Parent or the 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. 16. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. General. Except as set forth below, based upon its examination of publicly available filings by the Company with the Commission and other publicly available information concerning the Company, neither the Purchaser nor the Parent is aware of any licenses or other regulatory permits that appear to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the Purchaser's acquisition of Shares (and the indirect acquisition of the stock of the Company's subsidiaries) as contemplated herein, or of any filings, approvals or other actions by or with any domestic (federal or state), foreign or supranational governmental authority or administrative or regulatory agency that would be required prior to the acquisition of Shares (or the indirect 29 32 acquisition of the stock of the Company's subsidiaries) by the Purchaser pursuant to the Offer as contemplated herein. Should any such approval or other action be required, it is the Purchaser's present intention to seek such approval or action. However, the Purchaser does not presently intend to delay the purchase of Shares tendered pursuant to the Offer pending the receipt of any such approval or the taking of any such action (subject to the Purchaser's right to delay or decline to purchase Shares if any of the conditions in Section 15 shall have occurred). There can be no assurance that any such approval or other action, if needed, would be obtained without the imposition of substantial conditions that must be complied with or that adverse consequences might not result to the business of the Company, the Parent or the Purchaser as a result of the imposition of such conditions or in the event that such approval was not obtained or such other action was not taken, any of which could cause the Purchaser to elect to terminate the Offer without the purchase of the Shares thereunder. The Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed in this Section 15. State Takeover Laws. Except as described herein with respect to Section 203 of the DGCL, the Purchaser has not attempted to comply with any state takeover statutes in connection with the Offer. The Purchaser reserves the right to challenge the validity or applicability of any state law allegedly applicable to the Offer and nothing in this Offer to Purchase nor any action taken in connection herewith is intended as a waiver of that right. In the event that any state takeover statute is found applicable to the Offer, the Purchaser might be unable to accept for payment or purchase Shares tendered pursuant to the Offer or be delayed in continuing or consummating the Offer. In such case, the Purchaser may not be obligated to accept for purchase or pay for, any Shares tendered. See Section 15. Antitrust. Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the FTC and the Antitrust Division of the Department of Justice (the "Antitrust Division") and certain waiting period requirements have been satisfied. The acquisition of Shares pursuant to the Offer is subject to such requirements. See Section 2. The Parent intends to file on October 20, 1998 with the FTC and the Antitrust Division a Premerger Notification and Report Form in connection with the purchase of Shares pursuant to the Offer. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares pursuant to the Offer may not be consummated until the expiration of a 15-calendar day waiting period following such filing. Accordingly, the waiting period under the HSR Act applicable to the purchase of Shares pursuant to the Offer will expire at 11:59 p.m., New York City time, on November 3, 1998, unless such waiting period is extended by a request from the FTC or the Antitrust Division for additional information or documentary material prior to the expiration of the waiting period. If either the FTC or the Antitrust Division were to request additional information or documentary material from the Parent, the waiting period would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by the Parent with such request. Thereafter, the waiting period could be extended only by court order or by an agreement involving the Parent and the Company. If the acquisition of Shares is delayed pursuant to a request by the FTC or the Antitrust Division for additional information or documentary material pursuant to the HSR Act, the Offer may, but need not, be extended and in any event the purchase of and payment for Shares will be deferred until ten days after the request is substantially complied with, unless the waiting period is sooner terminated by the FTC and the Antitrust Division. See Section 2. Only one extension of such waiting period pursuant to a request for additional information is authorized by the HSR Act and the rules promulgated thereunder, except by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. See Section 4. The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by the Purchaser pursuant to the Offer. At any time before or after the purchase by the Purchaser of Shares pursuant to the Offer, either of the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking the divestiture of Shares purchased by the Purchaser or the divestiture of substantial assets of the Parent, its 30 33 subsidiaries or the Company. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. Although the Purchaser believes that the acquisition of Shares pursuant to the Offer would not violate the antitrust laws, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such challenge is made, what the outcome will be. See Section 15 for certain conditions to the Offer, including conditions with respect to litigation and certain government actions. Margin Credit Regulations. Federal Reserve Board Regulations G, T, U and X (the "Margin Credit Regulations") restrict the extension or maintenance of credit for the purpose of buying or carrying margin stock, including the Shares, if the credit is secured directly or indirectly thereby. Such secured credit may not be extended or maintained in an amount that exceeds the maximum loan value of the margin stock. Under the Margin Credit Regulations, the Shares are presently margin stock and the maximum loan value thereof is generally 50% of their current market value. The definition of "indirectly secured" contained in the Margin Credit Regulations provides that the term does not include an arrangement with a customer if the lender in good faith has not relied upon margin stock as collateral in extending or maintaining the particular credit. 17. FEES AND EXPENSES. Morgan Stanley is acting as Dealer Manager in connection with the Offer. The Parent and the Purchaser will reimburse Morgan Stanley for reasonable out-of-pocket expenses, including reasonable attorneys' fees, and have also agreed to indemnify Morgan Stanley against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. The Purchaser has retained Kissel Blake Inc. to act as the Information Agent and First Chicago Trust Company of New York to act as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominee stockholders to forward the Offer materials to beneficial owners. The Information Agent and the Depositary will receive reasonable and customary compensation for services relating to the Offer and will be reimbursed for certain out-of-pocket expenses. The Purchaser and the Parent have also agreed to indemnify the Information Agent and the Depositary against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. The Purchaser will not pay any fees or commissions to any broker or dealer or any other person for soliciting tenders of Shares pursuant to the Offer (other than to the Information Agent and the Depositary). Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by the Purchaser for reasonable and customary mailing and handling expenses incurred by them in forwarding offering materials to their customers. 18. MISCELLANEOUS. The Offer is being made solely by this Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. The Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If the Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, the Purchaser will make a good faith effort to comply with any such state statute. If after such good faith effort, the Purchaser cannot comply with such state statute, the Offer will not be made to nor will tenders be accepted from or on behalf of the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by the Dealer Manager or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. The Purchaser and the Parent have filed with the Commission the Schedule 14D-1 (including exhibits) pursuant to Rule 14d-3 under the Exchange Act, furnishing certain additional information with respect to the Offer. Such statement and any amendments thereto, including exhibits, may be inspected and copies may be obtained from the offices of the Commission (except that they will not be available at the regional offices of the Commission) in the manner set forth in Section 7 of this Offer to Purchase. 31 34 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF THE PURCHASER OR THE PARENT NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. WINDY CITY ACQUISITION CORP. October 19, 1998 32 35 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER AND THE PARENT 1. Directors and Executive Officers of the Purchaser. The name and position with the Purchaser of each director and executive officer of the Purchaser is set forth below. Unless set forth below, the other required information with respect to each such person is set forth under "Directors and Executive Officers of the Parent". All directors and executive officers listed below are citizens of the United States.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL OCCUPATION, POSITIONS, OFFICES NAME AND ADDRESS OR EMPLOYMENT HELD DURING THE LAST FIVE YEARS ---------------- --------------------------------------------- David G. Weed................................ Director; President. Michael C. Ross.............................. Director; Vice President and Secretary. Harvey K. Naito.............................. Director; Vice President, Treasurer and 5918 Stoneridge Mall Road Assistant Secretary; Vice President and Pleasanton, CA 94588 Treasurer of Safeway Inc.
2. Directors and Executive Officers of the Parent. The name, business address, present principal occupation or employment and material occupations, positions, offices or employments during the last five years of each director and executive officer of the Parent and certain other information are set forth below. Unless otherwise indicated, the business address of each such director and executive officer is: c/o Safeway Inc., 5918 Stoneridge Mall Road, Pleasanton, California 94588. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with the Parent. All directors and executive officers listed below are citizens of the United States except for Donald P. Wright who is a citizen of Canada.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL OCCUPATION, POSITIONS, OFFICES NAME AND ADDRESS OR EMPLOYMENT HELD DURING THE LAST FIVE YEARS ---------------- --------------------------------------------- DIRECTORS Steven A. Burd....................... Director (since 1993); Chairman of the Board (since 5/98); President (since 10/92) and Chief Executive Officer (since 4/93) of the Company. James H. Greene, Jr.................. Director (since 1987); General Partner of KKR Associates, 2800 Sand Hill Road L.P. ("KKR Associates"); General Partner of Kohlberg Kravis Suite 200 Roberts & Co. ("KKR") (1/93 -1/96); General Partner of Menlo Park, CA 94025 limited liability company which serves as the general partner of KKR (1/96 - present). Paul Hazen........................... Director (since 1990); Chief Executive Officer of Wells 420 Montgomery Street Fargo & Co. and Wells Fargo Bank, National Association San Francisco, CA 94104 (1995 - present); President and Chief Operating Officer of Wells Fargo & Co. and Wells Fargo Bank, National Association (1983 - 1995). Henry R. Kravis...................... Director (since 1986); Partner of KKR and KKR Associates; 9 West 57th Street Managing Member of limited liability company which serves Suite 4200 as the general partner of KKR (1/96 - present). New York, NY 94588 Robert I. MacDonnell................. Director (since 1986); General Partner of KKR Associates; 2800 Sand Hill Road General Partner of KKR (until 1996); General Partner of Suite 200 limited liability company which serves as the general Menlo Park, CA 94025 partner of KKR (1/96 - present).
I-1 36
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL OCCUPATION, POSITIONS, OFFICES NAME AND ADDRESS OR EMPLOYMENT HELD DURING THE LAST FIVE YEARS ---------------- --------------------------------------------- Peter A. Magowan..................... Director (since 1986); President and Managing General 3 Com Park Partner of the San Francisco Giants (11/92 - present); Chief at Candlestick Point Executive Officer of the Company (11/86 - 4/93). San Francisco, CA 94124 George R. Roberts.................... Director (since 1986); Partner of KKR and KKR Associates; 2800 Sand Hill Road Managing Member of limited liability company which serves Suite 200 as the general partner of KKR (1/96 - present). Menlo Park, CA 94025 William Y. Tauscher.................. Director (since 1998); Chief Executive Officer of Vanstar 1100 Abernathy Road Corporation (1988 - present); President of Vanstar Building 500 Corporation (9/88 - 7/95). Suite 1200 Atlanta, GA 30328 EXECUTIVE OFFICERS Steven A. Burd....................... President and Chief Executive Officer Kenneth W. Oder...................... Executive Vice President -- Labor Relations, Human Resources, Legal & Public Affairs David G. Weed........................ Executive Vice President and Chief Financial Officer; Senior Vice President (1992 - 1995). David F. Bond........................ Senior Vice President -- Finance & Control; Partner, Deloitte & Touche LLP (6/88 - 8/97). David T. Ching....................... Senior Vice President and Chief Information Officer Dick W. Gonzales..................... Senior Vice President -- Corporate Human Resources; Senior Vice President -- Human Resources, The Vons Companies, Inc. (1/93 - 4/98). Lyman C. Gordon...................... Senior Vice President -- Strategic Development Lawrence V. Jackson.................. Senior Vice President -- Supply (10/97 - present); Senior 2800 Ygnacio Valley Road Vice President and Chief Operating Officer of PepsiCo Food Walnut Creek, CA 94598 Systems (1995 - 1997); Vice President and General Manager, Pepsi-Cola Company (1992 - 1994). Melissa C. Plaisance................. Senior Vice President -- Finance & Public Affairs Larree M. Renda...................... Senior Vice President -- Corporate Retail Operations; Vice President, Corporate Retail Operations (3/93 - 2/94) Michael C. Ross...................... Senior Vice President, Secretary and General Counsel Gary D. Smith........................ Senior Vice President and Director of Marketing (1995 - present); Vice President, Corporate Grocery (until 1995) Donald P. Wright..................... Senior Vice President -- Real Estate & Engineering Richard A. Wilson.................... Vice President -- Tax
3. Ownership of Shares by Directors and Executive Officers. None. I-2 37 Facsimile copies of the Letter of Transmittal, properly completed and duly executed, will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or his broker, dealer, commercial bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer is: FIRST CHICAGO TRUST COMPANY OF NEW YORK By Mail: By Federal Express or other By Hand: First Chicago Trust Company Courier: First Chicago Trust Company of New York First Chicago Trust Company of New York Tenders & Exchanges of New York c/o Securities Transfer and Suite 4660 Tenders & Exchanges, Suite 4680 Reporting Services Inc. P.O. Box 2569 14 Wall Street, 8th Floor Attn: Tenders & Exchanges Jersey City, NJ 07303-2569 New York, NY 10005 One Exchange Plaza, Third Floor New York, NY 10006
Any questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent. You may also contact your broker, dealer, commercial bank or trust company for assistance concerning the Offer. The Information Agent for the Offer is: KISSEL BLAKE INC. A Division of Shareholder Communications Corporation 110 Wall Street New York, New York 10005 Banks and Brokers, Please Call (212) 344-6733 ALL OTHERS CALL TOLL-FREE: (800) 554-7733 The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Toll Free: (800) 701-8950 (ext. 18178) EX-99.A.2 3 LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK AND NON-VOTING COMMON STOCK OF DOMINICK'S SUPERMARKETS, INC. PURSUANT TO THE OFFER TO PURCHASE DATED OCTOBER 19, 1998 BY WINDY CITY ACQUISITION CORP. A WHOLLY-OWNED SUBSIDIARY OF SAFEWAY INC. The Depositary for the Offer is: FIRST CHICAGO TRUST COMPANY OF NEW YORK By Mail: By Federal Express or other By Hand: First Chicago Trust Company Courier: First Chicago Trust Company of New York First Chicago Trust Company of New York Tenders & Exchanges of New York c/o Securities Transfer and Suite 4660 Tenders & Exchanges, Suite 4680 Reporting Services Inc. P.O. Box 2569 14 Wall Street, 8th Floor Attn: Tenders & Exchanges Jersey City, NJ 07303-2569 New York, NY 10005 One Exchange Plaza, Third Floor New York, NY 10006
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 16, 1998 UNLESS THE OFFER IS EXTENDED. DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders, either if certificates for Shares (as defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if tenders of Shares are to be made by book-entry transfer into the account of First Chicago Trust Company of New York, as Depositary (the "Depositary"), at The Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as defined below). Stockholders who tender Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders". Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available or who cannot deliver the Share Certificates and all other required documents to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase), or who cannot complete the procedure for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. 2 - -------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------------------------------------------------------- NAME(S) & ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS SHARE CERTIFICATE(S) AND SHARE(S) TENDERED NAME(S) APPEAR(S) ON CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY) - --------------------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES SHARES CERTIFICATE REPRESENTED BY NUMBER OF SHARES NUMBER(S)* CERTIFICATE(S) TENDERED** --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- Total Shares - ---------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Stockholders. ** Unless otherwise indicated, all Shares represented by certificates delivered to the Depositary will be deemed to have been tendered. See Instruction 4. - -------------------------------------------------------------------------------- [ ] CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution ---------------------------------------------------------------------------- Check box of Book-Entry Transfer Facility: [ ] The Depository Trust Company Account Number --------------------------------------- Transaction Code Number --------------------------------------- [ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): ---------------------------------------------------------------------------- Window Ticket Number (if any): ---------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: -------------------------------------------------------------------- Name of Institution that Guaranteed Delivery: --------------------------------------------------------------------------- If delivered by Book-Entry Transfer, check box of Book-Entry Transfer Facility: [ ] The Depository Trust Company Account Number --------------------------------------- Transaction Code Number --------------------------------------- 3 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Windy City Acquisition Corp., a Delaware corporation (the "Purchaser"), and a wholly-owned subsidiary of Safeway Inc., a Delaware corporation ("Parent"), the above-described shares of Common Stock, par value $.01 per share (the "Voting Shares"), and/or shares of Non-Voting Common Stock, par value $.01 per share (the "Non-Voting Shares" and, together with the Voting Shares, the "Shares"), of Dominick's Supermarkets, Inc., a Delaware corporation (the "Company"), at a purchase price of $49 per Share, net to the seller in cash, without interest thereon, less applicable federal withholding taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase dated October 19, 1998 (the "Offer to Purchase") and in this Letter of Transmittal (which together constitute the "Offer"). The undersigned understands that the Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its wholly-owned subsidiaries, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, receipt of which is hereby acknowledged. Subject to, and effective upon, acceptance for payment for the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser all right, title and interest in and to all of the Shares that are being tendered hereby and any and all non-cash dividends, distributions (including additional Shares) or rights declared, paid or issued with respect to the tendered Shares on or after October 13, 1998 and payable or distributable to the undersigned on a date prior to the transfer to the name of the Purchaser or nominee or transferee of the Purchaser on the Company's stock transfer records of the Shares tendered herewith (collectively, a "Distribution"), and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and any Distribution) with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to (a) deliver such Share Certificates (as defined herein) (and any Distribution) or transfer ownership of such Shares (and any Distribution) on the account books maintained by the Book-Entry Transfer Facility, together in either case with appropriate evidences of transfer, to the Depositary for the account of the Purchaser, (b) present such Shares (and any Distribution) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any Distribution), all in accordance with the terms and subject to the conditions of the Offer. The undersigned irrevocably appoints designees of the Purchaser and each of them as such stockholder's attorneys-in-fact and proxies, with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser (and with respect to any and all other Shares, other securities or rights issued or issuable in respect of such Shares on or after October 13, 1998). All such powers of attorney and proxies shall be considered irrevocable and coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, the Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior proxies given by such stockholder with respect to such Shares (and such other Shares and securities) will be revoked without further action, and no subsequent powers of attorney and proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective). The designees of the Purchaser will, with respect to the Shares (and such other Shares and securities) for which such appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's payment for such Shares, the Purchaser must be able to exercise full voting rights with respect to such Shares and other securities, including voting at any meeting of stockholders. 4 The undersigned hereby represents and warrants that (a) the undersigned has full power and authority to tender, sell, assign and transfer the Shares (and any Distribution) tendered hereby and (b) when the Shares are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title to the Shares (and any Distribution), free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claim. The undersigned, upon request, will execute and deliver any additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby (and any Distribution). In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of the Purchaser any and all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer; and pending such remittance or appropriate assurance thereof, the Purchaser will be, subject to applicable law, entitled to all rights and privileges as owner of any such Distribution and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date (as defined in the Offer to Purchase) and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after December 17, 1998. See Section 4 of the Offer to Purchase. The undersigned understands that tenders of Shares pursuant to any of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions set forth in the Offer, including the undersigned's representation that the undersigned owns the Shares being tendered. Unless otherwise indicated herein under "Special Payment Instructions", please issue the check for the purchase price and/or issue or return any certificate(s) for Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered". Similarly, unless otherwise indicated herein under "Special Delivery Instructions", please mail the check for the purchase price and/or any certificate(s) for Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered". In the event that both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or any certificate(s) for Shares not tendered or accepted for payment in the name of, and deliver such check and/or such certificates to, the person or persons so indicated. The undersigned recognizes that the Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name(s) of the registered holder(s) thereof if the Purchaser does not accept for payment any of the Shares so tendered. 5 - ---------------------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be issued in the name of someone other than the undersigned. Issue [ ] check [ ] Certificate to: Name --------------------------------------------------- (Please Print) Address ------------------------------------------------- -------------------------------------------------------- (Include Zip Code) -------------------------------------------------------- (Tax Id. or Social Security No.) (See Substitute Form W-9 on the reverse side) - ----------------------------------------------------------------
- ---------------------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be sent to someone other than the undersigned or to the undersigned at an address other than that shown above. Mail [ ] check [ ] Certificate to: Name --------------------------------------------------- (Please Print) Address ------------------------------------------------- -------------------------------------------------------- (Include Zip Code) - ----------------------------------------------------------------
6 SIGN HERE AND COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIGN HERE [Picture of Hand Pointing] X ------------------------------------------------------------------ X ------------------------------------------------------------------ (SIGNATURE(S) OF HOLDER(S)) Dated: , 1998 ---------------------------------------------------- (Must be signed by the registered holder(s) exactly as name(s) appear(s) on Share Certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s): ------------------------------------------------------------------ ------------------------------------------------------------------ (PLEASE PRINT) Capacity (full title): ------------------------------------------------------------------ Address: --------------------------------------------------------- ------------------------------------------------------------------ (INCLUDE ZIP CODE) Area Code and Telephone Number: ---------------------------------- Tax Identification or Social Security No.: ----------------------- COMPLETE SUBSTITUTE FORM W-9 ON REVERSE GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature: -------------------------------------------- Name: ------------------------------------------------------------ Name of Firm: ---------------------------------------------------- (PLEASE PRINT) Address: --------------------------------------------------------- ------------------------------------------------------------------ ------------------------------------------------------------------ (INCLUDE ZIP CODE) Area Code and Telephone Number: ---------------------------------- Dated: , 1998 ---------------------------------------------------- 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) of Shares tendered herewith, unless such holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" above, or (b) if such Shares are tendered for the account of a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program (each of the foregoing being referred to as an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5 of this Letter of Transmittal. 2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by stockholders either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if tenders are to be made pursuant to the procedure for tender by book-entry transfer set forth in Section 3 of the Offer to Purchase. Share Certificates, or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility, as well as this Letter of Transmittal (or a facsimile hereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase). Stockholders whose Share Certificates are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Purchaser, must be received by the Depositary prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry Confirmation) representing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq National Market trading days after the date of execution of such Notice of Guaranteed Delivery. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal (or a facsimile hereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares and any other required information should be listed on a separate signed schedule attached hereto. 4. PARTIAL TENDERS. (Not Applicable to Book-Entry Stockholders) If fewer than all the Shares evidenced by any Share Certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered". In such cases, new Share Certificates for the Shares that were evidenced by your old Share Certificates, but were not tendered by you, will be sent to you, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by Share Certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. 8 If any of the tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Purchaser of their authority so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to or certificates for Shares not tendered or not purchased are to be issued in the name of a person other than the registered holder(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the certificate(s) listed, the certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the certificate(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6, the Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificate(s) for Shares not tendered or accepted for payment are to be registered in the name of, any person other than the registered holder(s), or if tendered certificate(s) are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or an exemption therefrom, is submitted. Except as otherwise provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificate(s) listed in this Letter of Transmittal. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in the name of, and/or certificates for Shares not tendered or not accepted for payment are to be issued or returned to, a person other than the signer of this Letter of Transmittal or if a check and/or such certificates are to be returned to a person other than the person(s) signing this Letter of Transmittal or to an address other than that shown in this Letter of Transmittal, the appropriate boxes on this Letter of Transmittal must be completed. 8. WAIVER OF CONDITIONS. Subject to the terms and conditions of the Merger Agreement, the conditions of the Offer (other than the Minimum Condition (as defined in the Offer to Purchase)) may be waived by the Purchaser in whole or in part at any time and from time to time in its sole discretion. 9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on The Substitute Form W-9 below. If the Depositary is not provided with the correct TIN, the Internal Revenue Service may subject the stockholder or other payee to a $50 penalty. In addition, payments that are made to such stockholder or other payee with respect to Shares purchased pursuant to the Offer may be subject to 31% backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, the stockholder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. If backup withholding applies, the Depositary is required to withhold 31% of any such payments made to the stockholder or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. 9 The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Depositary. The stockholder is required to give the Depositary the TIN (e.g., social security number or employer identification number) of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for assistance may be directed to the Dealer Manager or the Information Agent at their respective addresses and telephone numbers set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or the Dealer Manager or from brokers, dealers, commercial banks or trust companies. 11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify First Chicago Trust Company of New York. The stockholder will then be instructed as to the steps that must be taken in order to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK ENTRY TRANSFER OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE. 10 PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK - ------------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number or FORM W-9 BOX AT THE RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Employer Identification Number ------------------------------ ----------------------------------------------------------------------------------------- DEPARTMENT OF THE TREASURY PART 2 -- Certification -- Under penalties of perjury, I certify that: INTERNAL REVENUE SERVICE (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me) and PAYER'S REQUEST FOR TAXPAYER (2) I am not subject to backup withholding because: (a) I am exempt from backup IDENTIFICATION NUMBER ("TIN") withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such Item (2). - --------------------------------------------------------------------------------------------------------------------------- SIGN HERE (ARROW) Signature ------------------------------ PART 3 -- Awaiting TIN [ ] Date ----------------------------- , 1998 - -------------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. 11 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld. Signature Date , 1998 ------------------------------------ --------------------- 12 The Information Agent for the Offer is: KISSEL BLAKE INC. A Division of Shareholder Communications Corporation 110 Wall Street New York, NY 10005 Banks and Brokers, Please Call: (212) 344-6733 ALL OTHERS CALL TOLL-FREE: 1 (800) 554-7733 The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Toll Free: (800) 761-8950 (ext. 18178) October 19, 1998 EX-99.A.3 4 NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY TO TENDER SHARES OF COMMON STOCK AND NON-VOTING COMMON STOCK OF DOMINICK'S SUPERMARKETS, INC. As set forth in Section 3 of the Offer to Purchase described below, this instrument or one substantially equivalent hereto must be used to accept the Offer (as defined below) if certificates for Shares (as defined below) are not immediately available or the certificates for Shares and all other required documents cannot be delivered to the Depositary (as defined below) prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) or if the procedure for delivery by book-entry transfer cannot be completed on a timely basis. This instrument may be delivered by hand or transmitted by facsimile transmission or mail to the Depositary. The Depositary for the Offer is: FIRST CHICAGO TRUST COMPANY OF NEW YORK By Mail: By Federal Express or other By Hand: First Chicago Trust Company Courier: First Chicago Trust Company of New York First Chicago Trust Company of New York Tenders & Exchanges of New York c/o Securities Transfer and Suite 4660 Tenders & Exchanges, Suite 4680 Reporting Services Inc. P.O. Box 2569 14 Wall Street, 8th Floor Attn: Tenders & Exchanges Jersey City, NJ 07303-2569 New York, NY 10005 One Exchange Plaza, Third Floor New York, NY 10006
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box in the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tender(s) to Windy City Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Safeway Inc., a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase dated October 19, 1998 (the "Offer to Purchase"), and in the related Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of Common Stock, par value $.01 per share (the "Voting Shares") and/or shares of Non-Voting Common Stock, par value $.01 per share (the "Non-Voting Shares" and, together with the Voting Shares, the "Shares"), of Dominick's Supermarkets, Inc., a Delaware corporation, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. 2 Signature(s) ----------------------------------------------- Name(s) of Record Holders ----------------------------------------------------------- PLEASE TYPE OR PRINT Number of Shares ---------------------- Certificate Nos. (If Available) ----------------------------------------------------------- ----------------------------------------------------------- Dated , 1998 ---------------------------------------------- Address(es) ------------------------------------------------ - ------------------------------------------------------------ ZIP CODE Area Code and Tel. No(s) ----------------------------------- (Check the box below if Shares will be tendered by book-entry transfer) [ ] The Depository Trust Company Account Number -------------------------------------------- - ----------------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program, (a) represents that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b) represents that such tender of Shares complies with Rule 14e-4, and (c) guarantees to deliver to the Depositary either the certificates evidencing all tendered Shares, in proper form for transfer, or to deliver Shares pursuant to the procedure for book-entry transfer into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility"), in either case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other required documents, all within three Nasdaq National Market trading days after the date hereof. ----------------------------------------------------------- NAME OF FIRM ----------------------------------------------------------- ADDRESS ----------------------------------------------------------- ZIP CODE Area Code and Tel. No. ----------------------------------- - ----------------------------------------------------------- AUTHORIZED SIGNATURE Name - ---------------------------------------------------- PLEASE TYPE OR PRINT Title - ----------------------------------------------------- Dated - ----------------------------------------------, 1998 NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 2 EX-99.A.4 5 LETTER FROM THE DEALER MANAGER 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK AND NON-VOTING COMMON STOCK OF DOMINICK'S SUPERMARKETS, INC. AT $49 NET PER SHARE BY WINDY CITY ACQUISITION CORP. A WHOLLY-OWNED SUBSIDIARY OF SAFEWAY INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 16, 1998 UNLESS THE OFFER IS EXTENDED. October 19, 1998 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Windy City Acquisition Corp., a Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of Safeway Inc., a Delaware corporation (the "Parent"), to act as Dealer Manager in connection with the Purchaser's offer to purchase for cash all the outstanding shares of Common Stock, par value $.01 per share (the "Voting Shares") and Non-Voting Common Stock, par value $.01 per share (the "Non-Voting Shares", and together with the Voting Shares, the "Shares"), of Dominick's Supermarkets, Inc., a Delaware corporation (the "Company") at a purchase price of $49 per Share, net to the seller in cash without interest thereon, less applicable federal withholding taxes upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 19, 1998 (the "Offer to Purchase"), and in the related Letter of Transmittal (which together constitute the "Offer") enclosed herewith. Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary (as defined below) prior to the Expiration Date (as defined in the Offer to Purchase), or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase, dated October 19, 1998. 2. The Letter of Transmittal to tender Shares for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal may be used to tender Shares. 3. The Notice of Guaranteed Delivery for Shares to be used to accept the Offer if Share Certificates are not immediately available or if such certificates and all other required documents cannot be delivered to First Chicago Trust Company of New York (the "Depositary") by the Expiration Date or if the procedure for book-entry transfer cannot be completed by the Expiration Date. 4. The Letter to Stockholders of the Company from the Chairman of the Board, President and Chief Executive Officer of the Company, accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9. 2 5. A printed form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer. 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. 7. A return envelope addressed to First Chicago Trust Company of New York, the Depositary. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 16, 1998 UNLESS THE OFFER IS EXTENDED. In order to take advantage of the Offer, (i) a duly executed and properly completed Letter of Transmittal and any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book- entry delivery of Shares, and other required documents should be sent to the Depositary, and (ii) either Share Certificates, representing the tendered Shares should be delivered to the Depositary, or such Shares should be tendered by book-entry transfer into the Depositary's account maintained at one of the Book-Entry Transfer Facilities (as described in the Offer to Purchase), all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Shares wish to tender, but it is impracticable for them to forward their Share Certificates or other required documents on or prior to the Expiration Date or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. The Purchaser will not pay any commissions or fees to any broker, dealer or other person (other than the Dealer Manager, the Depositary and Kissel-Blake Inc. (the "Information Agent") (as described in the Offer to Purchase)) for soliciting tenders of Shares pursuant to the Offer. The Purchaser will, however, upon request, reimburse you for customary clerical and mailing expenses incurred by you in forwarding any of the enclosed materials to your clients. The Purchaser will pay or cause to be paid any stock transfer taxes payable on the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to Morgan Stanley & Co. Incorporated, the Dealer Manager, or the Information Agent, at their respective addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Additional copies of the enclosed materials may be obtained from the Information Agent. Very truly yours, MORGAN STANLEY & CO. INCORPORATED NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF THE PURCHASER, THE PARENT, THE DEALER MANAGER, THE COMPANY, THE DEPOSITARY OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.A.5 6 LETTER TO CLIENTS 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK AND NON-VOTING COMMON STOCK OF DOMINICK'S SUPERMARKETS, INC. AT $49 NET PER SHARE BY WINDY CITY ACQUISITION CORP. A WHOLLY-OWNED SUBSIDIARY OF SAFEWAY INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 16, 1998 UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration is an Offer to Purchase dated October 19, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal relating to an offer by Windy City Acquisition Corp., a Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of Safeway Inc., a Delaware corporation (the "Parent"), to purchase all of the outstanding shares of Common Stock, par value $.01 per share (the "Voting Shares") and Non-Voting Common Stock, par value $.01 per share (the "Non-Voting Shares" and, together with the Voting Shares, the "Shares"), of Dominick's Supermarkets, Inc., a Delaware corporation (the "Company"), at a purchase price of $49 per Share, net to the seller in cash without interest thereon, less applicable federal withholding taxes upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which together constitute the "Offer"). We are the holder of record of Shares held by us for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request instructions as to whether you wish to have us tender on your behalf any or all of such Shares held by us for your account, pursuant to the terms and subject to the conditions set forth in the Offer to Purchase. Your attention is directed to the following: 1. The tender price is $49 per share, net to the seller in cash without interest thereon. 2. The Offer is made for all of the outstanding Shares. 3. The Board of Directors of the Company has determined that the Merger Agreement (as defined below) and the transactions contemplated thereby, including each of the Offer and the Merger (as defined below), are advisable and fair to and in the best interests of the stockholders of the Company and recommends that holders of the Shares accept the Offer and tender their Shares to the Purchaser. 4. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of October 13, 1998 (the "Merger Agreement"), which provides that subsequent to the consummation of the Offer, the Purchaser will merge with and into the Company (the "Merger"). At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of the Company and Shares, if any, owned by the Parent, the Purchaser or any direct or indirect wholly-owned subsidiary of the Parent or the Company, which shall be cancelled and retired without payment of any consideration therefor, and other than Shares, if any, held by stockholders who shall have properly demanded appraisal of their Shares in 2 accordance with Section 262 of the Delaware General Corporation Law) shall be converted into the right to receive $49 in cash, without interest, less any withholding taxes required under applicable law. 5. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on Monday, November 16, 1998 unless the Offer is extended. 6. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares pursuant to the Offer. 7. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the Offer, a number of Shares which constitutes more than 50% of the issued and outstanding Shares (determined on a fully diluted basis without giving effect to the Shares issuable upon the exercise of the Yucaipa Warrant (as defined in the Offer to Purchase)) of all Shares and (ii) the expiration or termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Offer is being made solely by the Offer to Purchase and the related Letter of Transmittal and any ancillary documents thereto and is being made to all holders of Shares. The Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to a state statute. If the Purchaser becomes aware of any state where the making of the Offer is prohibited, the Purchaser will make a good faith effort to comply with any such state statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, the Purchaser cannot comply with any applicable statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In those jurisdictions where the securities, "blue sky" or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by the Dealer Manager or one or more registered brokers or dealers licensed under the laws of such jurisdiction. If you wish to have us tender any or all of the Shares held by us for your account, please instruct us by completing, executing and returning to us the instruction form contained in this letter. If you authorize a tender of your Shares, all such Shares will be tendered unless otherwise specified in such instruction form. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. 2 3 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK AND NON-VOTING COMMON STOCK OF DOMINICK'S SUPERMARKETS, INC. The undersigned acknowledge(s) receipt of your letter enclosing the Offer to Purchase dated October 19, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal pursuant to an offer by Windy City Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Safeway Inc., a Delaware corporation, to purchase all outstanding shares of Common Stock, par value $.01 per share (the "Voting Shares") and Non-Voting Common Stock, par value $.01 per share (the "Non-Voting Shares" and, together with the Voting Shares, the "Shares"), of Dominick's Supermarkets, Inc., a Delaware corporation. This will instruct you to tender the number of Shares indicated below (or, if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal furnished to the undersigned. Number of Shares to be Tendered* - ---------------------------------------------- Shares Dated , 1998 ----------------------------------------- SIGN HERE - ------------------------------------------------------ - ------------------------------------------------------ Signature(s) - ------------------------------------------------------ Please print name(s) - ------------------------------------------------------ Address - ------------------------------------------------------ Area Code and Telephone Number - ------------------------------------------------------ Tax Identification or Social Security Number - ------------ * Unless otherwise indicated, it will be assumed that all of your Shares held by us for your account are to be tendered. EX-99.A.6 7 GUIDELINES FOR CERTIFICATION OF TAXPAYERS 1 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. SOCIAL SECURITY NUMBERS HAVE NINE DIGITS SEPARATED BY TWO HYPHENS: I.E. 000-00-0000. EMPLOYER IDENTIFICATION NUMBERS HAVE NINE DIGITS SEPARATED BY ONLY ONE HYPHEN: 00-0000000. THE TABLE BELOW WILL HELP DETERMINE THE NUMBER TO GIVE THE PAYER. - ------------------------------------------------------------ GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF-- - ------------------------------------------------------------ 1. An individual's account The individual 2. Two or more individuals (joint The actual owner of account) the account or, if combined funds, the first individual on the account(1) 3. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 4. a. The usual revocable savings The grantor- trust account (grantor is also trustee(1) trustee) b. So-called trust account that is The actual owner(1) not a legal or valid trust under State law 5. Sole proprietorship account The owner(3) 6. Sole proprietorship The owner(3) 7. A valid, estate, or pension trust The legal entity (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(4) - ------------------------------------------------------------ - ------------------------------------------------------------ GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF-- - ------------------------------------------------------------ 8. Corporate account The corporation 9. Religious, charitable or The organization educational organization account 10. Partnership account held in the The partnership name of the partnership 11. Association, club, or other tax- The organization exempt organization 12. A broker or registered nominee The broker or nominee 13. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district or prison) that receives agricultural program payments - ------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or employer identification number. (4) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 OBTAINING A NUMBER If you do not have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for business and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service. To complete Substitute Form W-9 of you do not have a taxpayer identification number, write "Applied For" in the space for the taxpayer identification number in Part I, sign and date the Form, and give it to the requester. Generally, you will then have 60 days to obtain a taxpayer identification number and furnish it to the requester. If the requester does not receive your taxpayer identification number within 60 days, backup withholding, if applicable, will begin and continue until you furnish your taxpayer identification number to the requester. PAYEES EXEMPT FROM BACKUP WITHHOLDING The following is a list of payees exempt from backup withholding. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators. (1) A corporation (2) An organization exempt from tax under section 501(a), or an IRA, or a custodial account under section 403(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Securities, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under Section 1441. - Payments to partnership not engaged in a trade or business in the United States and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to non-resident aliens. - Payments on tax-free covenant bonds under section 1451 of the Code. - Payments made by certain foreign organizations. - Mortgage interest paid to you. EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE SUBSTITUTE FORM W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see Sections 6041, 6041(a), 6042, 6044, 6045, 6049 and 6050A and 6050N of the Code and the regulations promulgated therein. PRIVACY ACT NOTICE.--Section 6109 requires recipients of dividends, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.A.7 8 SUMMARY OF ADVERTISEMENT 1 This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made solely by the Offer to Purchase dated October 19, 1998 and the related Letter of Transmittal (and any amendments thereto) and is being made to all holders of Shares. The Purchaser (as defined below) is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to a state statute. If the Purchaser becomes aware of any state where the making of the Offer is prohibited, the Purchaser will make a good faith effort to comply with any such statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, the Purchaser cannot comply with any applicable statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In those jurisdictions where the securities, "blue sky" or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by Morgan Stanley & Co. Incorporated or one or more registered brokers or dealers licensed under the laws of such jurisdictions. Notice of Offer to Purchase for Cash All Outstanding Shares of Dominick's Supermarkets, Inc. at $49 Net Per Share by Windy City Acquisition Corp. a wholly-owned subsidiary of Safeway Inc. Windy City Acquisition Corp., a Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of Safeway Inc., a Delaware corporation (the "Parent"), is offering to purchase all of the outstanding shares of Voting Common Stock, par value $.01 per share (the "Voting Shares"), and Non-Voting Common Stock, par value $.01 per share (the "Non-Voting Shares" and, together with the Voting Shares, the "Shares"), of Dominick's Supermarkets, Inc., a Delaware corporation (the "Company"), at a purchase price of $49 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated October 19, 1998 (the "Offer to Purchase") and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 16, 1998, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES WHICH 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 IN THE OFFER TO PURCHASE)) ON THE DATE OF PURCHASE OF THE COMPANY AND (ii) THE EXPIRATION OR TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED. The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. Following the consummation of the Offer, the Purchaser intends to effect the Merger described below. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 13, 1998 (the "Merger Agreement"), among the Parent, the Purchaser and the Company. The Merger Agreement provides, among other things, for the making of the Offer by the Purchaser, and further provides that, following the completion of the Offer, upon the terms and subject to the conditions of the Page 1 2 Merger Agreement and the Delaware General Corporation Law ("DGCL"), the Purchaser will be merged with and into the Company (the "Merger"), and each Share issued and outstanding immediately prior to the effective time of the Merger (other than Shares held in the treasury of the Company and each Share owned by the Parent, the Purchaser or any direct or indirect wholly-owned subsidiary of the Parent or the Company, which shall be canceled and retired without payment of any consideration therefor, and other than Shares, if any, held by stockholders who have not voted in favor of the Merger Agreement or consented thereto in writing and who have properly demanded appraisal of such Shares in accordance with Section 262 of the DGCL) will, by virtue of the Merger and without any action on the part of the holders of the capital stock, be converted into the right to receive $49 in cash, without interest, less any federal withholding taxes required under applicable law. The Merger Agreement is more fully described in Section 11 of the Offer to Purchase. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY 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 COMPANY AND RECOMMENDS THAT ALL HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES TO THE PURCHASER. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when the Purchaser gives oral or written notice to First Chicago Trust Company of New York (the "Depositary") of the Purchaser's acceptance of such Shares for payment pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from the Purchaser and transmitting such payments to stockholders whose Shares have been accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates representing Shares (the "Share Certificates") or confirmation of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined in Section 2 of the Offer to Purchase) in connection with a book-entry transfer, and (iii) any other documents required by the Letter of Transmittal. Subject to the applicable rules and regulations of the United States Securities and Exchange Commission (the "Commission") and the terms of the Merger Agreement, the 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 in Section 15 of the Offer to Purchase shall have occurred or shall have been determined by the Purchaser to have occurred, to (i) extend the Page 2 3 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 the Depositary and (ii) amend the Offer in any respect by giving oral or written notice of such amendment to the Depositary. Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof to be made no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the rights of a tendering stockholder to withdraw such stockholder's Shares. The term "Expiration Date" means 12:00 Midnight, New York City time, on Monday, November 16, 1998, unless and until the Purchaser, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), shall have extended the period during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser, shall expire. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn at any time after December 17, 1998 unless theretofore accepted for payment by the Purchaser pursuant to the Offer. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to purchase Shares validly tendered pursuant to the Offer for any reason, then without prejudice to the Purchaser's rights under the Offer, the Depositary may, on behalf of the Purchaser, retain tendered Shares and such Shares may not be withdrawn except as otherwise described in Section 4 of the Offer to Purchase. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If the Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then prior to the physical release of such certificates, the name of the registered holder (if different from the tendering stockholder) and the serial numbers shown on such certificates must be submitted to the Depositary, together with a signed notice of withdrawal, the signatures on which must be guaranteed by an Eligible Institution (as defined in the Offer to Purchase) unless such Shares have been tendered for the account of any Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding. None of the Purchaser, the Parent, any of their affiliates or assigns, the Dealer Manager, the Depositary, Page 3 4 the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in Section 3 of the Offer to Purchase. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed by the Purchaser to record holders of Shares and furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance may be directed to the Dealer Manager or the Information Agent as set forth below. Requests for copies of the Offer to Purchase and the related Letter of Transmittal and all other tender offer materials may be directed to the Information Agent or the Dealer Manager, and copies will be furnished promptly at the Purchaser's expense. The Purchaser will not pay any fees or commissions to any broker or dealer or any other person (other than the Dealer Manager and the Information Agent) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: KISSEL-BLAKE INC. A Division of Shareholder Communication Corporation 110 Wall Street New York, New York 10005 Banks and Brokers, Please Call: (212) 344-6733 All Others Call Toll-Free: 1 (800) 554-7733 The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Toll Free: (800) 761-8950 (ext. 18178) October 19, 1998 Page 4 EX-99.C.1 9 AGREEMENT AND PLAN OF MERGER 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 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. 1 3 "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. 2 4 "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). 3 5 "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. 4 6 "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). 5 7 "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. 6 8 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. 7 9 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. 8 10 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 9 11 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. 10 12 (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). 11 13 (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. 12 14 (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. 13 15 (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. 14 16 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 15 17 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, 16 18 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 17 19 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 18 20 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. 19 21 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 20 22 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. 21 23 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 22 24 (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 23 25 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, 24 26 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, 25 27 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; 26 28 (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 27 29 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 28 30 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 29 31 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 30 32 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 31 33 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. 32 34 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. 33 35 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. 34 36 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. 35 37 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 36 38 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. 37 39 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 38 40 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 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 EX-99.C.2 10 STOCKHOLDERS AGREEMENT 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: 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 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 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 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 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 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. 7 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). 8 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 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 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 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 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 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 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 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 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 18 ANNEX A
SHARES OF SHARES OF NAME VOTING STOCK NON-VOTING STOCK - ---- ------------ ---------------- 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
- -------- (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 -----END PRIVACY-ENHANCED MESSAGE-----