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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT
TO SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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DOMINICK'S SUPERMARKETS, INC.
(NAME OF SUBJECT COMPANY)
DOMINICK'S SUPERMARKETS, INC.
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON STOCK, PAR VALUE $.01 PER SHARE
NON-VOTING COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
COMMON STOCK -- 257159103
NON-VOTING COMMON STOCK -- NONE
(CUSIP NUMBER OF CLASS OF SECURITIES)
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ROBERT A. MARIANO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DOMINICK'S SUPERMARKETS, INC.
505 RAILROAD AVENUE
NORTHLAKE, ILLINOIS 60164
(708) 562-1000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
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COPIES TO:
THOMAS C. SADLER, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071-2007
(213) 485-1234
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Dominick's Supermarkets, Inc., a
Delaware corporation (the "Company"), and the address of the principal executive
offices of the Company is 505 Railroad Avenue, Northlake, Illinois 60164. The
title of the class of equity securities to which this statement relates is the
Common Stock, par value $.01 per share (the "Voting Common Stock"), and the
Non-Voting Common Stock, par value $.01 per share (the "Non-Voting Common Stock"
and, together with the Voting Common Stock, the "Common Stock"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to the cash tender offer (the "Offer") disclosed in
a Tender Offer Statement on Schedule 14D-1, dated October 19, 1998 (the
"Schedule 14D-1"), of Windy City Acquisition Corp., a Delaware corporation
("Purchaser") and a wholly-owned subsidiary of Safeway Inc., a Delaware
corporation ("Parent"), to purchase all of the outstanding shares of Common
Stock (the "Shares") at a price of $49.00 per Share, net to the seller in cash
without interest (the "Offer Price"), subject to certain conditions set forth
therein. The Offer is being made by Purchaser pursuant to the Agreement and Plan
of Merger, dated as of October 13, 1998 (the "Merger Agreement"), by and among
the Company, Parent and Purchaser, a copy of which is filed as Exhibit 1 hereto
and incorporated herein by reference. Subject to certain terms and conditions of
the Merger Agreement, Purchaser will be merged with and into the Company (the
"Merger") as soon as practicable after the expiration of the Offer, with the
Company surviving the Merger (the "Surviving Corporation") and becoming a
wholly-owned subsidiary of Parent. The Schedule 14D-1 states that the address of
the principal executive offices of Parent and Purchaser is 5918 Stoneridge Mall
Road, Pleasanton, California 94588. A copy of the press release issued by the
Company and Parent on October 13, 1998 is filed as Exhibit 2 hereto and
incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the entity
filing this statement, are set forth in Item 1 above.
(b) Except as described or referred to below, there exists on the date
hereof no material contract, agreement, arrangement or understanding and no
actual or potential conflict of interest between the Company or its affiliates
and (i) the Company's executive officers, directors or affiliates or (ii) the
executive officers, directors or affiliates of Parent or Purchaser.
Arrangements with Directors, Executive Officers or Affiliates of the Company
Certain contracts, agreements, arrangements and understandings between the
Company and certain of its directors, executive officers and affiliates,
including a description of the Company's employment and severance arrangements
with its executive officers, are described in the Company's Information
Statement in the sections entitled "Board of Directors -- Directors
Compensation" and "Certain Relationships, Transactions and Arrangements" and
"Executive Officer Compensation." The Information Statement is attached hereto
as Annex A and incorporated herein by reference.
In connection with the transactions contemplated by the Merger, the
following agreements were entered into: the Merger Agreement; the Stockholders
Agreement, dated as of October 13, 1998 (the "Stockholders Agreement"), by and
among Parent, Purchaser and the stockholders of the Company listed on the
signature pages thereto; the Amendment to Class A Common Stock Purchase Warrant,
dated as of October 13, 1998 (the "Warrant Amendment"), by and between the
Company and The Yucaipa Companies, a California general partnership ("Yucaipa");
and the Amendment to Amended and Restated Stockholders Agreement, dated as of
October 13, 1998 (the "Stockholders Agreement Amendment"), by and among Yucaipa
and the stockholders of the Company listed on the signature pages thereto
(collectively, the "Agreements").
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MERGER AGREEMENT
The following summary is qualified in its entirety by reference to the
complete text of the Merger Agreement which is filed as Exhibit 1 hereto and
incorporated herein by reference. Capitalized terms used but not defined herein
shall have the meanings set forth in the Merger Agreement.
The Offer. The obligations of Purchaser to accept for payment, purchase
and pay for any and all shares validly tendered on or prior to the expiration of
the Offer and not withdrawn are subject to the satisfaction of there being
validly tendered and not properly withdrawn prior to the expiration of the Offer
a number of Shares which in the aggregate constitutes more than 50% of the
issued and outstanding Shares (determined on a fully-diluted basis without
giving effect to the Shares issuable upon exercise of the Yucaipa Warrant (as
defined below)) (the "Minimum Condition") and the other conditions to the Offer,
including those described below under "Certain Conditions of the Offer", any of
which conditions may be waived by Purchaser in its sole discretion, except that
Purchaser may not waive the Minimum Condition without the prior written consent
of the Company. Purchaser expressly reserves the right, in its sole discretion,
at any time and from time to time, and regardless of whether or not any of the
events set forth below under "Certain Conditions to the Offer" shall have
occurred or shall have been determined by Purchaser to have occurred, to (i)
extend the period of time during which the Offer is open and thereby delay
acceptance for payment of, and the payment for, any Shares, by giving oral or
written notice of such extension to First Chicago Trust Company of New York, as
depositary (the "Depositary") and (ii) amend the Offer in any respect by giving
oral or written notice of such amendment to the Depositary. Under the terms of
the Merger Agreement, however, without the written consent of the Company,
neither Parent nor Purchaser will waive the Minimum Condition, decrease the
Offer Price payable in the Offer, decrease the number of Shares to be purchased
in the Offer, change the form of consideration to be paid in the Offer, change
or amend the conditions to the Offer set forth in the Merger Agreement,
including Annex A thereto (the "Offer Conditions") or impose any additional
conditions, change the expiration date of the Offer, or otherwise add, amend or
waive any other terms of the Offer in a manner which is adverse to the holders
of Shares. The rights reserved by Purchaser in this paragraph are in addition to
Purchaser's rights to terminate the Offer upon the failure of the conditions
described below under "Certain Conditions of the Offer" to be satisfied on the
expiration date of the Offer (the "Expiration Date"). Notwithstanding the
foregoing, if on any scheduled Expiration Date of the Offer, which shall
initially be 12:00 Midnight on Monday, November 16, 1998, all conditions to the
Offer have not been satisfied or waived, Purchaser may, and at the request of
the Company shall, from time to time, extend the expiration date of the Offer
for up to 10 additional business days (but in no event will Purchaser be
required to extend the expiration date of the Offer beyond April 15, 1999). In
addition, Purchaser may, without the consent of the Company, (i) extend the
Offer for any period required by any rule, regulation, interpretation or
position of the Securities and Exchange Commission (the "Commission") or the
staff thereof applicable to the Offer, and (ii) extend the Offer if (A) the
Offer Conditions have been satisfied or waived and (B) the number of Shares
validly tendered and not withdrawn represent more than 65% but less than 90% of
the issued and outstanding shares of each of the Voting Common Stock and the
Non-Voting Common Stock; provided, however, that in no event shall the
extensions permitted under the foregoing clause (ii) exceed, in the aggregate,
10 business days. Subject to the terms of the Offer, including the Offer
Conditions, and except to the extent the Offer is extended, Purchaser will
accept for payment, purchase and pay for all Shares validly tendered and not
withdrawn as soon as it is permitted to do so under applicable law. Purchaser
shall have the right, in its sole discretion, to extend the Offer as described
above notwithstanding the prior satisfaction of the Offer Conditions, in order
to attempt to satisfy the requirements of Section 253 of the Delaware General
Corporation Law (the "DGCL") so that the Merger could be effected without a
meeting of the Company's stockholders.
The Minimum Condition requires that at least that number of Shares
(including Voting Common Stock and Non-Voting Common Stock) constituting more
than 50% of the total issued and outstanding Shares (determined on a
fully-diluted basis without giving effect to the Shares issuable upon the
exercise of the Yucaipa Warrant) on the date such Shares are purchased (the
"Minimum Shares") shall have been validly tendered and not withdrawn prior to
the expiration of the Offer.
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The Merger. The Merger Agreement provides that, at the effective time of
the Merger (the "Effective Time") and subject to the conditions set forth
therein (and including those described below under "Certain Conditions of the
Offer") and the provisions of the DGCL, Purchaser shall be merged with and into
the Company in accordance with the DGCL and substantially in the manner
described in the Offer, the separate corporate existence of Purchaser shall
cease, and the Company shall continue as the Surviving Corporation in the
Merger. At Parent's election, any direct or indirect subsidiary of Parent other
than Purchaser may be merged with and into the Company instead of Purchaser so
long as such election (i) does not cause or result in a delay or postponement of
the consummation of the Offer or the Effective Time and (ii) does not relieve
Purchaser of any of its obligations under the Merger Agreement.
Pursuant to the Merger Agreement, at the Effective Time, each Share issued
and outstanding immediately prior to the Effective Time (other than Shares held
in the treasury of the Company, if any, and each Share owned by Parent or
Purchaser, or by any direct or indirect wholly-owned subsidiary of any of them
and shares of Common Stock outstanding immediately prior to the Effective Time
the holder of which has (i) not voted in favor of the Merger or consented
thereto in writing and (ii) demanded appraisal for such Common Stock in
accordance with DGCL ("Dissenting Shares")) shall be converted into the right to
receive the Offer Price, without interest, less any withholding taxes required
under applicable law.
Treatment of Stock Options and Other Company Stock Rights. Pursuant to the
Merger Agreement, prior to the Effective Time, the Company may accelerate to the
day after the Effective Time the vesting of unvested nonqualified and incentive
stock options (or any portion thereof) granted to certain employees of the
Company and its subsidiaries pursuant to the Company's Restated 1995 Stock
Option Plan and 1996 Equity Participation Plan (and, collectively with the
vested portion of such stock options, the "Accelerated Options"); provided,
however, that other than the Accelerated Options, neither the Company, the Board
of Directors of the Company (the "Board of Directors") nor any committee thereof
may accelerate the vesting or exercisability of any stock option, restricted
stock award, performance award, dividend equivalent, deferred stock, stock
payment, stock appreciation right or share of capital stock (collectively, the
"Company Stock Rights") granted, awarded, earned or purchased pursuant to any of
the Company's Restated 1995 Stock Option Plan, 1996 Equity Participation Plan,
Directors Deferred Compensation and Restricted Stock Plan and 1997 Employee
Stock Purchase Plan or any other stock option, performance unit or similar plan
of the Company and its subsidiaries (the "Stock Plans") prior to the Effective
Time. Prior to the Effective Time, the Company will enter into agreements in
respect of the Accelerated Options, which agreements will provide for the
payment, upon surrender of each Accelerated Option on the day after the
Effective Time, of an amount of cash per Share subject to each Accelerated
Option equal to the excess, if any, of the Offer Price over the exercise price
of such Accelerated Option (the "Spread Per Share") less an amount equal to all
taxes required to be withheld from such payment. Any such Company Stock Rights
not so surrendered or otherwise exercised prior to the Effective Time shall
terminate at the Effective Time in accordance with the terms of the applicable
Stock Plan or the relevant agreements with optionees. Parent shall cause the
Company to pay, on the day after the Effective Time, the aggregate Spread Per
Share to the holders of the surrendered Accelerated Options.
Pursuant to the Merger Agreement, Parent will also assume the vested and
unvested portion of certain outstanding nonqualified and incentive stock options
granted to certain employees of the Company or its subsidiaries (the "Assumed
Options"). The Company will provide that at the Effective Time, all outstanding
Assumed Options will be converted automatically into options to purchase shares
of common stock, par value $.01 per share, of Parent ("Parent Common Stock")
(collectively, "New Stock Rights") in an amount and, if applicable, at an
exercise price determined as follows: (i) the number of shares of Parent Common
Stock to be subject to the New Stock Right shall be equal to the product of (x)
the number of Shares remaining subject (as of immediately prior to the Effective
Time) to the Assumed Option multiplied by (y) the quotient obtained by dividing
the Offer Price by the average of the closing prices of Parent Common Stock on
the NYSE as reported on the NYSE Composite Transactions Tape for the 15 trading
days randomly selected by lot out of the 35 trading days ending on the second
trading day preceding the Effective Time (the "Conversion Ratio"); provided,
that any fractional shares will be rounded down to the nearest share; and (ii)
the exercise price per share of Parent Common Stock under the New Stock Right
will be equal to the exercise price per
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Share under the original Company Stock Right divided by the Conversion Ratio,
provided that such exercise price shall be rounded down to the nearest cent.
The unvested portion of such New Stock Right shall otherwise continue in
effect on the same terms and conditions (including antidilution, vesting and
exercisability provisions) as were in effect for the Company Stock Rights prior
to the Effective Time (except that any references to the Company shall be
deemed, as appropriate, to include Parent); provided, however, that any New
Stock Rights held by an employee or consultant of the Company or any subsidiary
whose employment or consulting arrangement, as the case may be, is terminated
without Cause (as defined in the Merger Agreement) or is subject to a
Constructive Termination (which term shall be defined in the agreements entered
into with the holders of the applicable Company Stock Rights in a manner
consistent with the definition of such term contained in the employment or
consulting agreements entered into with such individuals on October 9, 1998), in
either case after the Effective Time, shall become fully vested on the date of
such termination. The adjustments provided for in the Merger Agreement with
respect to any options that are "incentive stock options" (as defined in Section
422 of the Code) shall be, and are intended to be, effected in a manner which is
consistent with Section 424(a) of the Code.
The Merger Agreement also provides that, other than the Accelerated
Options, the Assumed Options and any Company Stock Rights otherwise exercised
prior to the Effective Time, all other Company Stock Rights will terminate at
the Effective Time in accordance with the applicable Stock Plan or such
agreements with the holders of such Company Stock Rights.
After the Effective Time, no holder of a Company Stock Right or any
participant in any Stock Plan will have any right thereunder to acquire capital
stock of the Company, Purchaser or the Surviving Corporation.
Upon the acceptance for payment of the Shares in the Offer, Purchaser or
Parent will purchase from Yucaipa the Yucaipa Warrant for an amount equal to the
product of 3,874,492 (the number of Shares underlying the Yucaipa Warrant) and
the excess of the Offer Price ($49) over the per share exercise price ($20.732
as of the date hereof) for the Yucaipa Warrant.
The Merger Agreement provides that, unless otherwise stipulated, Dissenting
Shares shall not be converted into the right to receive the Offer Price
applicable to such Shares at or after the Effective Time but shall be entitled
to receive such amount as shall be determined pursuant to Section 262 of the
DGCL unless and until the holder of such Dissenting Shares shall have failed to
perfect or withdrawn or lost such right to appraisal and payment under the DGCL.
If a holder of Dissenting Shares shall have so failed to perfect or shall have
effectively withdrawn or lost such right to appraisal and payment, or if it is
determined that such holder does not have appraisal rights in accordance with
the DGCL, then such holder's Dissenting Shares shall be treated as if they had
been converted as of the Effective Time into the right to receive the Offer
Price applicable to such Shares, without any interest thereon.
The Merger Agreement also provides that at the Effective Time and without
any further action on the part of the Company or Purchaser, the Amended and
Restated Certificate of Incorporation of the Company (the "Certificate of
Incorporation"), as in effect immediately prior to the Effective Time, shall be
the certificate of incorporation of the Surviving Corporation subject to certain
changes described in the Merger Agreement. At the Effective Time and without any
further action on the part of the Company or Purchaser, the Amended and Restated
Bylaws of the Company (the "Bylaws"), as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation. The Merger
Agreement provides that the directors of Purchaser immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation, each
to hold office in accordance with the applicable provisions of the Certificate
of Incorporation and Bylaws of the Surviving Corporation, until their successors
shall be duly elected or appointed and qualified. At the Effective Time, the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, until their respective successors
are duly elected or appointed (as the case may be) and qualified.
Stockholders Meeting. The Merger Agreement provides that to the extent
necessary to consummate the Merger, as soon as practicable following the
acquisition by Purchaser of the Minimum Shares pursuant to the
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Offer, the Company is required to, in accordance with applicable law, its
Certificate of Incorporation and Bylaws, convene and hold a meeting of its
stockholders for the purpose of approving and adopting the Merger Agreement and
the transactions contemplated thereby (the "Stockholders' Meeting"). The Company
(i) is required to recommend (and include such recommendation in the proxy
statement, if any, with respect to such Stockholders' Meeting) that the holders
of the Shares accept the Offer and approve the Merger Agreement and the other
transactions contemplated thereby, including the Merger, and (ii) is required to
take all reasonable and lawful action to solicit and obtain such approval.
Subject to the provisions of the following sentence, the Board of Directors may
not withdraw, amend or modify in a manner adverse to Parent its recommendation
referred to in clause (i) of the preceding sentence (or announce publicly its
intention to do so), provided that disclosure of the receipt of an Alternative
Transaction (as defined below) or the fact that the Board of Directors is
considering such Alternative Transaction or reviewing it with its advisors (to
the extent the Board of Directors shall have determined in good faith that such
disclosure is required by law or any applicable securities exchange
requirements) shall not constitute such a withdrawal, modification or amendment.
Prior to the acceptance for payment of the Minimum Shares pursuant to the Offer,
the Board of Directors shall be permitted (each of the following is referred to
herein as, a "Permitted Action") (A) to withdraw, amend or modify its
recommendation (or publicly announce its intention to do so) of the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, in a manner adverse to Parent or (B) to approve or recommend or enter
into an agreement with respect to a Superior Transaction (as defined below) if
(1) the Company has complied with the provisions described under "No
Solicitation of Transactions" below, (2) a Superior Transaction shall have been
proposed by any person other than Parent and such proposal is pending at the
time of such action, (3) the Board of Directors shall have determined in good
faith, based on the advice of its outside legal counsel, that the failure to
withdraw, amend or modify its recommendation or to approve or recommend or enter
into such Superior Transaction would constitute a breach of its fiduciary duties
under applicable law and (4) the Company shall have notified Parent of such
Superior Transaction proposal at least three business days in advance of such
action.
"Alternative Transaction" shall mean any of the following events: (i) any
merger, consolidation or business combination between the Company or any of its
significant subsidiaries and any person other than Parent, Purchaser or any of
their respective affiliates (a "third party"); (ii) the acquisition or purchase
by a third party of 25% or more of the capital stock (including securities
exercisable or exchangeable for or convertible into capital stock) of the
Company or any material equity interest in any of its significant subsidiaries
or the consolidated assets of the Company and its subsidiaries, taken as a
whole; (iii) any tender offer or exchange offer which, if consummated, would
result in any third party owning 25% or more of the Shares; or (iv) any proposal
or offer with respect to the foregoing.
"Superior Transaction" shall mean any bona fide Alternative Transaction
involving at least 60% of the outstanding Shares on terms that the Board of
Directors determines in its good faith judgment (after consultation with DLJ or
another financial advisor of nationally recognized reputation, taking into
account all the terms and conditions of the Alternative Transaction, including
any break-up fees, expense reimbursement provisions, conditions to consummation
and all other legal, financial, regulatory and other aspects of the proposal
and, to the extent relevant to any of the foregoing, the identity of the person
proposing the Superior Transaction) are more favorable to the Company's
stockholders from a financial point of view than the Merger Agreement and the
Merger taken as a whole.
At the Stockholders' Meeting, Parent will vote, or cause to be voted, all
Shares then owned by it or Purchaser or any of Parent's other subsidiaries or
affiliates in favor of the Merger and the adoption of the Merger Agreement.
The Merger Agreement provides that, notwithstanding the foregoing, in the
event that Purchaser acquires at least 90% of the outstanding shares of each
class of the capital stock of the Company following expiration of the Offer, the
Company will not be required to call the Stockholders' Meeting or file and mail
a proxy statement and the parties will, at the request of Purchaser and subject
to the provisions of the Merger Agreement, take all necessary and appropriate
action to cause the Merger to become effective as soon as practicable after such
expiration without a meeting of the Company's stockholders in accordance with
Section 253 of the DGCL.
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Proxy Statement. The Merger Agreement provides that, if required under
applicable law in order to effect the Merger, then promptly after consummation
of the Offer, the Company will file the Proxy Statement with the Commission
under the Exchange Act and will use its reasonable best efforts to have it
cleared by the Commission. Parent, Purchaser and the Company have agreed to
cooperate with each other in the preparation of the Proxy Statement, including,
in the case of Parent and Purchaser, by furnishing to the Company the
information relating to it required to be set forth in the Proxy Statement. The
Company has agreed to use its reasonable best efforts, after consultation with
the other parties hereto, to respond promptly to any comments made by the
Commission with respect to the Proxy Statement and any preliminary version
thereof filed by it and to cause the Proxy Statement to be mailed to the
Company's stockholders at the earliest practicable time.
Designation of Directors. The Merger Agreement provides that, promptly
upon acceptance for payment of, and payment by Purchaser in accordance with the
Offer for, not less than a majority of the outstanding Shares (on a fully
diluted basis without giving effect to shares issuable upon the exercise of the
Yucaipa Warrant) pursuant to the Offer, Purchaser will be entitled to designate
such number of members of the Board of Directors, rounded up to the next whole
number, equal to that number of directors which equals the product of the total
number of directors on the Board of Directors (after giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage that
such number of Shares owned in the aggregate by Purchaser or Parent, upon such
acceptance for payment, bears to the number of Shares outstanding.
Notwithstanding the foregoing, until the Effective Time there shall be at least
one Continuing Director (as defined in the Merger Agreement). The Company will,
upon request of Purchaser and on the date of such request, (i) either increase
the size of the Board of Directors or secure the resignations of such number of
its incumbent directors as is necessary to enable Parent's designees to be so
elected to the Board of Directors, and (ii) cause Parent's designees to be so
elected.
Access to Information; Confidentiality. Pursuant to the Merger Agreement
and subject to the terms thereof, from the date thereof to the earlier of the
Effective Time or the termination of the Merger Agreement, the Company will, and
will cause its subsidiaries, officers, directors, employees, auditors and other
agents, upon reasonable notice, to afford the officers, employees, auditors and
other agents of Parent reasonable access during normal business hours to the
officers, employees, agents, properties, offices, plants and other facilities
and to all books and records of the Company and its subsidiaries and will
furnish Parent and Purchaser and their officers, employees and agents all
financial, operating and other data and information as Parent and Purchaser may
reasonably request.
The Merger Agreement further provides that each of the Company and Parent
will cause its directors, officers, employees, agents, advisors and controlling
persons to hold all nonpublic information obtained by Parent and Purchaser
pursuant to the above paragraph in confidence on the same terms and conditions
as set forth in the Confidentiality Agreement.
In order to facilitate an orderly transition of the business of the Company
to Parent and to permit the coordination of their related operations on a timely
basis, the Company has agreed, to the extent reasonably practicable and
permitted by applicable law, to consult with Parent on significant strategic and
financial and operational matters, including, without limitation, retail
operations, store openings, closings and remodelings, marketing, advertising and
personnel.
No Solicitation of Transactions. The Merger Agreement required that,
immediately following the execution thereof, the Company cease, and cause its
subsidiaries and their respective officers, directors, employees, representative
and agents engaged in connection with the transactions contemplated by the
Merger Agreement to cease, any existing discussions or negotiations with any
parties conducted prior to the date of the Merger Agreement with respect to any
Alternative Transactions. Neither the Company nor any of its subsidiaries, nor
any of their respective directors, officers, employees or representatives and
agents engaged by the Company in connection with the transactions contemplated
by the Merger Agreement is permitted, directly or indirectly, to solicit,
initiate, facilitate or encourage the making of any proposal for an Alternative
Transaction, participate in any discussions or negotiations with, or provide any
information to, any person (other than Parent, Purchaser and their designees)
concerning an Alternative Transaction or grant any waiver or release under any
standstill or similar agreement with respect to any class of equity securities
of the
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Company and its subsidiaries; provided, however, that the Company (and its
subsidiaries and its and their respective officers, directors, employees,
representatives or agents) may, prior to the acceptance for payment of the
Minimum Shares pursuant to the Offer, participate in negotiations or discussions
with, or provide any information to, any person concerning an Alternative
Transaction not solicited after the date of the Merger Agreement which is
submitted in writing by such person to the Board of Directors after the date of
the Merger Agreement if (i) the Board of Directors, in its good faith judgment,
believes that such Alternative Transaction could reasonably be expected to
result in a Superior Transaction and (ii) determines in good faith, based on the
advice of outside legal counsel, that the failure to participate in such
discussions or negotiations or to furnish such information would constitute a
breach of its fiduciary duties under applicable law; provided, however, that
prior to participating in any such discussions or negotiations or furnishing any
information, the Company receives from such third party an executed
confidentiality agreement on terms at least as favorable to the Company, in all
material respects, as those contained in the Confidentiality Agreement, and
provided further, that the Company provides prompt notice to Parent to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, a third party. None of the above-described restrictions will
prohibit the Board of Directors from complying with Rule 14e-2 promulgated under
the Exchange Act with regard to a tender or exchange offer by a third party. The
Company is obligated to notify Parent promptly if it receives any unsolicited
proposal concerning an Alternative Transaction, the identity of the person
making any such proposal and all the terms and conditions thereof and is
required to advise Parent periodically of all material developments relating
thereto.
Directors and Officers Indemnification and Insurance. The Merger Agreement
provides that at all times after the Effective Time, Parent will cause the
Surviving Corporation to indemnify and hold harmless each person who was as of
the date of the Merger Agreement, or has been at any time prior to the date of
the Merger Agreement, an officer or director of the Company or of any of the
Company's subsidiaries (individually, an "Indemnified Party") with respect to
any losses, claims, damages, judgments, settlements, liabilities, costs or
expenses incurred in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to actual or alleged acts or
omissions by them in their capacities as such occurring at or prior to the
Effective Time (an "Indemnified Liability") to the fullest extent that the
Company or such subsidiaries would have been permitted, under applicable law and
the Certificate of Incorporation or Bylaws of the Company or the organizational
documents of such subsidiaries each as in effect as of the date of the Merger
Agreement. In connection with the foregoing, Parent will cause the Surviving
Corporation to purchase a four-year extended reporting period endorsement under
the Company's existing directors and officers liability insurance policies, for
a total amount not in excess of 175% of the last annual premium paid by the
Company for such existing insurance policies prior to the date of the Merger
Agreement; provided that such extended reporting period endorsement will extend
the directors and officers liability coverage on terms that, in all material
respects, are no less advantageous to the intended beneficiaries thereof than
such existing directors and officers liability insurance policies.
Without limiting the foregoing, the Merger Agreement also provides that
Parent will cause the Surviving Corporation to advance expenses as incurred to
the fullest extent permitted under applicable law upon receipt from an
Indemnified Party of an undertaking to reimburse the amounts so advanced in the
event of a final determination by a court of competent jurisdiction that such
Indemnified Party is not entitled thereto. To the extent that the Surviving
Corporation fails to comply with its indemnification obligations as provided in
the Merger Agreement, Parent has agreed to indemnify and hold harmless each of
the Indemnified Parties to the same extent as the Surviving Corporation was
required to indemnify such Indemnified Parties thereunder.
Filings; Reasonable Efforts. The Merger Agreement provides that, upon the
terms and subject to the conditions thereof, each of the parties thereto will
use its reasonable best efforts to take, or cause to be taken, all appropriate
action, and to do or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by the Merger Agreement, including, without limitation
(i) cooperating in the Offer and the preparation and filing of the Proxy
Statement, required filings under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") and any amendments to the foregoing,
(ii) using its reasonable best efforts to make promptly all required regulatory
filings and applications and to obtain all licenses, permits, consents,
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approvals, authorizations, qualifications and orders of governmental authorities
and parties to contracts with the Company and its subsidiaries as are necessary
for the consummation of the transactions contemplated by the Merger Agreement
and to fulfill the conditions to the Offer and the Merger, (iii) cooperating in
all respects with each other in connection with obtaining antitrust clearance
and with any investigation or other inquiry, including any proceeding initiated
by a private party, in connection with the transactions pursuant to the Merger
Agreement and (iv) keeping the other party informed in all material respects of
any material communication received by such party from, or given by such party
to, the Federal Trade Commission, the Antitrust Division of the Department of
Justice or any other governmental authority and of any material communication
received or given in connection with any proceeding by a private party, in each
case regarding required by the terms of the Merger Agreement to proffer or agree
(i) to sell or hold separate or agree to sell, divert or discontinue or to limit
any assets, businesses or interest in any assets or businesses of Parent, the
Company or any of their respective affiliates (or to consent to any sale or
agreement to sell or discontinuance or limitation by Parent or the Company, as
the case may be, of any of its assets or business) or (ii) agree to any
conditions relating to, or changes or restrictions in, the operations of any
such asset or business which, in either case, is reasonably likely to materially
and adversely impact the economic or business benefits to such party of the
transactions contemplated by the Merger Agreement.
Conduct of Business Pending the Merger. The Company has agreed that,
during the period from the date of the Merger Agreement until the Effective
Time, the businesses of it and its subsidiaries will be conducted, in all
material respects, in the ordinary course and in a manner consistent with past
practice and, in all material respects, in compliance with applicable laws. The
Company will also use its best efforts during such period to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of its present officers, employees
and consultants, and to preserve, in all material respects, its relationships
with customers, suppliers, advertisers, distributors and other persons with
which the Company or any of its subsidiaries has significant business relations.
The Company and its subsidiaries will also refrain from taking various
actions without Parent's consent pending consummation of the Merger. These
limitations cover, among other things, making capital expenditures beyond
specified limits, incurring debt beyond specified limits, making changes in
governing documents, making changes in its capital stock, declaring or paying
any dividend or other distribution, engaging in any material corporate
transaction, including acquisitions and dispositions, increasing or granting any
severance or termination pay (except to the extent required, subject to certain
limits, under existing policies or agreements), increasing the compensation
payable to its directors, officers and employees (except to the extent required
under existing plans or agreements), entering into or modifying contracts
(including leases and collective bargaining agreements) beyond specified limits,
changing tax or accounting policies, making any material tax election, paying or
discharging any claims, liabilities or obligations, settling any litigation
beyond specified limits, adopting a plan of complete or partial dissolution and
entering into transactions with affiliates.
Employee Benefits Matters. Purchaser has agreed that during the period
commencing on the consummation of the Offer and continuing until December 31,
1999, Parent will cause the Company and the Surviving Corporation to continue to
provide to employees of the Company and its subsidiaries (excluding employees
covered by collective bargaining agreements) as a whole, medical, health,
dental, life insurance, long-term disability, severance, pension, Section
401(k), retirement or savings plans, policies or arrangements (collectively,
"Employee Benefits") which, in the aggregate, are no less favorable to such
employees than the Employee Benefits provided to such employees as of the date
of the Merger Agreement. The Company and the Surviving Corporation shall pay
promptly or provide when due all compensation and benefits required to be paid
pursuant to the terms of any benefit arrangements, multi-employer plans, pension
plans and welfare plans (collectively, "Employee Plans") or any individual
agreement with any employee, former employee, director or former director in
effect and disclosed to Parent as of the date of the Merger Agreement. The
Merger Agreement provides that for all Employee Benefits (including Employee
Plans and programs of Parent and its affiliates after the Effective Time), all
service with the Company or any of its Subsidiaries prior to the Effective Time
of employees (excluding employees covered by collective bargaining agreements)
shall betreated as service with Parent and its affiliates for eligibility and
vesting purposes and for benefit accruals for purposes of severance and vacation
pay to the same extent that such service is taken into account by the
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Company and its subsidiaries as of the date of the Merger Agreement, except to
the extent such treatment will result in duplication of benefits. From and after
the Effective Time, Parent will, and will cause the Surviving Corporation to,
(i) cause any pre-existing condition or limitation and any eligibility waiting
periods (to the extent such conditions, limitations or waiting periods did not
apply to the employees under the Employee Plans in existence as of the date of
the Merger Agreement) under any group health plans of Parent or any of its
subsidiaries to be waived with respect to employees and their eligible
dependents and (ii) give each employee credit for the plan year in which the
Effective Time occurs toward applicable deductions and annual out-of-pocket
limits for expenses incurred prior to the Effective Time (or such later date on
which participation commences) during the applicable plan year. Nothing in the
Merger Agreement shall require the continued employment of any person or prevent
the Company or any of its subsidiaries and/or the Surviving Corporation from
taking any action or refraining from taking any action which the Company or any
of its Subsidiaries could take or refrain from taking prior to or after the
Effective Time, including, without limitation, any action the Company or any of
its subsidiaries or the Surviving Corporation could take to terminate any plan
under its terms as in effect as of the date of the Merger Agreement.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including
representations and warranties by the Company concerning the Company's
capitalization, required filings and consents, the Board of Directors' approval
of the Merger Agreement and the transactions contemplated thereby (including
approvals so as to render inapplicable thereto the limitation on business
combinations contained in Section 203 of the DGCL), the required stockholder
vote to approve the Merger Agreement, the receipt of an opinion as to the
fairness, from a financial point of view, to the stockholders of the Company
(other than those holders of Shares that are affiliates of the Company) of the
consideration to be received by the stockholders of the Company pursuant to the
Merger Agreement, Commission filings and financial statements, absence of
certain changes or events, compliance with law, absence of litigation, employee
benefit plans, environmental matters, tax matters, real estate matters,
contracts, labor relations, intellectual property, affiliated transactions, the
absence of other agreements to sell the Company and brokers. Some of the
representations are qualified by a "Material Adverse Effect" clause. "Material
Adverse Effect" means any material adverse change in, or effect on, the
business, operations, assets, results of operations or condition (financial or
otherwise) of the Company and its subsidiaries taken as a whole or any change
which materially impairs or materially delays the ability of the Company to
consummate the transactions contemplated by the Merger Agreement.
Other Agreements.
Acceleration of Outstanding Indebtedness. Parent has agreed that if, after
the consummation of the Offer, any obligation of the Company or any of its
subsidiaries for borrowed money outstanding is accelerated or the Company or any
such subsidiary is otherwise required to repurchase, repay or prepay any such
obligation, Parent will, within the time period specified in the contract
governing such obligation, loan to the Company an amount equal to the amount
which the Company or any such subsidiary is required to so repurchase, repay or
prepay (including any related prepayment premiums or penalties).
Treatment of Management Agreement. Parent has agreed that immediately
following the earlier of the consummation of the Offer and the Effective Time,
it will cause (i) the Management Agreement dated as of November 1, 1996, between
Yucaipa, the Company and Dominick's Finer Foods, Inc. (the "Management
Agreement") to be terminated and (ii) the Company to make a termination payment
to Yucaipa pursuant to Section 8.3 of the Management Agreement.
Conditions of the Merger. Under the Merger Agreement, the respective
obligations of Parent and Purchaser, on the one hand, and the Company, on the
other hand, to consummate the Merger are subject to the fulfillment of the
following conditions: (a) the Merger Agreement shall have been approved by the
affirmative vote of the holders of a majority of the outstanding Voting Common
Stock, unless Purchaser shall have acquired 90% or more of the outstanding
shares of each class of the capital stock of the Company; (b) no statute, rule,
regulation, executive order, decree, ruling, injunction or other order (whether
temporary, preliminary or permanent) shall have been enacted, entered,
promulgated or enforced by any court or governmental authority of competent
jurisdiction which prohibits, restrains, enjoins or restricts the consum-
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mation of the Merger; provided, however, that the parties will use their
reasonable best efforts to cause any such decree, ruling, injunction or other
order to be vacated or lifted; (c) any waiting period applicable to the Offer
and the Merger under the HSR Act shall have terminated or expired; and (d)
Purchaser shall have (i) commenced the Offer and (ii) purchased, pursuant to the
terms and conditions of the Offer, all shares of Common Stock duly tendered and
not withdrawn, except that neither Parent nor Purchaser shall be entitled to
rely on the condition in clause (ii) if either of them shall have failed to
purchase Shares pursuant to the Offer in breach of their obligations under the
Merger Agreement.
Termination Events. The Merger Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval thereof by the stockholders of the Company):
(a) by mutual written consent of Parent and the Company as duly
authorized by their respective Boards of Directors;
(b) by the Company or Parent, respectively, if Parent or Purchaser, on
the one hand, or the Company, on the other hand, breaches any of their
respective representations, warranties, covenants or agreements contained
in the Merger Agreement (without regard to any materiality or Material
Adverse Effect qualifier) which is reasonably likely to materially
adversely affect Parent's or Purchaser's ability to consummate the Offer or
the Merger, on the one hand, or to have a Material Adverse Effect on the
Company, on the other hand, and, with respect any such breach that is
reasonably capable of being remedied, the breach is not remedied within ten
business days after the non-breaching party has furnished the breaching
party with written notice of such breach;
(c) by Parent or the Company:
(i) if the Effective Time shall not have occurred on or before
April 15, 1999 (provided that the right to terminate the Merger
Agreement pursuant to this clause (i) shall not be available to any
party whose failure to fulfill any obligation under the Merger Agreement
has been the cause of, or resulted in, the failure of the Effective Time
to occur on or before such date);
(ii) if there shall be any statute, law, rule or regulation that
makes consummation of the Offer or the Merger illegal or prohibited or
if any court of competent jurisdiction or other governmental authority
shall have issued an order, judgment, decree or ruling, or taken any
other action restraining, enjoining or otherwise prohibiting the Offer
or the Merger or prohibiting Parent from acquiring or holding or
exercising rights of ownership of the Shares and such order, judgment,
decree, ruling or other action shall have become final and
non-appealable; or
(iii) if the Offer terminates or expires on account of the failure
of any condition specified below under "Certain Conditions to the Offer"
without Purchaser having purchased any Shares thereunder (provided that
the right to terminate the Merger Agreement pursuant to this clause
(iii) shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted
in, the failure of any such condition);
(d) by Parent, prior to the acceptance for payment of the Minimum
Shares pursuant to the Offer, if (i) the Board of Directors withdraws,
amends or modifies its approval or recommendation of the Merger Agreement
and the transactions contemplated thereby (or publicly announces its
intention to do so) in a manner adverse to Parent or (ii) the Company
approves, recommends or enters into an agreement with respect to, or
consummates, an Alternative Transaction; or
(e) by the Company, prior to the acceptance for payment of the Minimum
Shares pursuant to the Offer, if the Board of Directors takes any Permitted
Action as described above under "Stockholders Meeting"; provided that such
termination will not be effective until the Company has made payment of the
Termination Fee (as defined below).
In the event of termination of the Merger Agreement and abandonment or
rejection of the Offer as described above, no party hereto (or any of its
directors, officers, employees, advisors or other representatives) will have any
liability or further obligation to any other party to the Merger Agreement,
except as provided
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under "Termination Fees and Expenses" below, and except that nothing herein will
relieve any party from liability for any willful breach of the Merger Agreement.
Termination Fee and Expenses. The Merger Agreement provides that if it is
terminated by Parent pursuant to clause (d) under "Termination Events" or by the
Company pursuant to clause (e) under "Termination Events", the Company will pay
to Parent $36.0 million (the "Termination Fee") plus reasonable documented
out-of-pocket expenses of Parent relating to the transactions contemplated by
the Merger Agreement ("Expenses"), not to exceed $5.0 million.
The Merger Agreement further provides that the Company will pay to Parent
an amount equal to the Termination Fee plus Expenses if:
(i) an Alternative Transaction is commenced, publicly disclosed,
publicly proposed or otherwise communicated to the Company prior to the
acceptance for payment of the Minimum Shares pursuant to the Offer and
either (A) Parent or the Company terminates this Agreement pursuant to
clause (c)(i) under "Termination Events" or (B) the Company terminates this
Agreement pursuant to clause (c)(iii) under "Termination Events" or (C)
Parent terminates the Merger Agreement pursuant to clause (b) under
"Termination Events"; and
(ii) thereafter, within 12 months of the date of termination, the
Company (A) enters into a definitive agreement with respect to, or
consummates, the Alternative Transaction described in clause (i) above or
(B) consummates a Superior Proposal (whether or not such Superior Proposal
was commenced, publicly disclosed, publicly proposed or otherwise
communicated to the Company prior to such termination).
The Merger Agreement also provides that the Surviving Corporation will pay
all charges and expenses, including those of the paying agent, in connection
with the transactions with respect to the Merger contemplated by Article III of
the Merger Agreement.
Certain Conditions of the Offer. Notwithstanding any other provisions of
the Offer, and in addition to the Minimum Condition, Purchaser shall not be
obligated to accept for payment any Shares until expiration of all applicable
waiting periods under the HSR Act, and Purchaser shall not be required to accept
for payment, purchase or pay for, and may delay the acceptance for payment of or
payment for, any Shares tendered in the Offer, or if the Minimum Shares shall
not have been validly tendered pursuant to the Offer and not withdrawn, may
terminate or amend the Offer, subject to the terms and conditions of the Merger
Agreement and Purchaser's obligation to extend the Offer pursuant to the terms
of the Merger Agreement if, prior to the time of acceptance for payment of any
such Shares (whether or not any other Shares have theretofore been accepted for
payment or paid for pursuant to the Offer), any of the following shall occur and
remain in effect:
(a) a United States or state governmental authority or other agency or
commission or United States or state court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order which is in effect and has the effect
of making the acquisition of Shares by Purchaser illegal or prohibits or
imposes material limitations on the ability of Purchaser to acquire Shares
or otherwise prohibiting (directly or indirectly) the consummation of the
transactions contemplated by the Merger Agreement or prohibits or imposes
material limitations on the ability of Parent to own or operate all or a
material portion of the Company's and its subsidiaries' business or assets,
taken as a whole, subject to Parent's and Purchaser's obligations pursuant
to the Merger Agreement and the Parent's agreement not to terminate the
Offer as long as any such injunction or order has not become final and
non-appealable;
(b) either (i) any of the representations or warranties of the Company
in the Merger Agreement (without giving effect to any materiality or
Material Adverse Effect qualifier therein) shall not be true and correct
which inaccuracy, singly or in the aggregate, would have or be reasonably
likely to have a Material Adverse Effect and which are not reasonably
capable of being cured by the Company or have not been cured within 10
business days after the giving of written notice to the Company, in each
case as if such representations or warranties were made as of such time
(unless a representation speaks as of an earlier date, in which case it
shall be deemed to have been made as of such earlier date); or (ii) the
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Company shall have failed to perform any obligation or comply with any
agreement or covenant of the Company to be performed or complied with by it
under the Merger Agreement, which failure, singly or in the aggregate,
would have or be reasonably likely to have a Material Adverse Effect and is
not reasonably capable of being cured by the Company or has not been cured
within 10 business days after the giving of written notice to the Company;
and an officer of the Company shall not have provided a certificate to the
effect that the conditions set forth in clauses (i) and (ii) have not
occurred on the date Shares are to be accepted for payment pursuant to the
Offer;
(c) (i) the Board of Directors (A) shall have amended, modified or
withdrawn in a manner adverse to the Parent its approval or recommendation
of the Merger Agreement, the Offer, the Merger or any of the transactions
contemplated thereby or (B) shall have endorsed, approved or recommended
any Alternative Transaction or (ii) the Company shall have entered into any
agreement with respect to any Alternative Transaction;
(d) any person or group (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent or Purchaser or any of their respective
subsidiaries or affiliates, shall have become the beneficial owner (as
defined in Rule 13d-3 promulgated under the Exchange Act), of more than 25%
of the outstanding Shares (either on a primary or a fully diluted basis,
without giving effect to the Shares issuable upon the exercise of the
Yucaipa Warrant); provided, however, that this provision shall not apply to
any person or group that beneficially owns Shares on the date hereof so
long as such person or group does not further increase its beneficial
ownership beyond the number of Shares such person or group beneficially
owns on the date of the Merger Agreement;
(e) the Merger Agreement shall have been terminated by the Company or
Parent pursuant to its terms;
(f) there shall have occurred and be continuing (i) any general
suspension of, or limitation on prices for, trading in securities on the
NYSE (excluding suspensions or limitations (x) resulting solely from
physical damage or interference with such exchanges not related to market
conditions or (y) triggered on the NYSE by price fluctuations on a trading
day), (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, (iii) any limitation by
any United States governmental authority on the extension of credit
generally by banks or other financial institutions; (iv) a commencement of
war or material armed hostilities or other national calamity directly
involving the United States which could reasonably be expected to
materially adversely affect the consummation of the Offer or (v) in the
case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof; or
(g) there shall have occurred and be continuing any change in the
Company's business, operations, condition (financial or otherwise), results
of operations, assets or liabilities, except for changes contemplated by
the Merger Agreement or changes which are not reasonably likely to have a
Material Adverse Effect;
which, in the reasonable judgment of Parent and Purchaser, in any such case and
regardless of the circumstances (including any action or inaction by or giving
rise to any such conditions) makes it inadvisable to proceed with the Offer
and/or with such acceptance for payment of or payment for Shares.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent and Purchaser regardless of the circumstances
giving rise to such condition or, except for the Minimum Condition, may be
waived by Parent and Purchaser in whole or in part at any time and from time to
time. The failure by Parent or Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and circumstances shall not be
deemed a waiver with respect to any other facts and circumstances, and each such
right shall be an ongoing right that may be asserted at any time and from time
to time.
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STOCKHOLDERS AGREEMENT
In connection with the transactions contemplated by the Merger Agreement,
Parent, Purchaser and certain stockholders of the Company owning approximately
41% of the issued and outstanding Shares (the "Principal Stockholders") entered
into the Stockholders Agreement. The following summary is qualified in its
entirety by reference to the complete text of the Stockholders Agreement which
is filed as Exhibit 3 hereto and incorporated by reference herein.
The Stockholders Agreement provides that during the term of the
Stockholders Agreement the Principal Stockholders will (i) tender their Shares
(including any Shares issued upon the exercise of any warrants or options, the
conversion of any convertible securities or otherwise, and in the case of
Yucaipa, the exercise of the Yucaipa Warrant, the "Subject Shares") pursuant to
the Offer and not to withdraw any Subject Shares so tendered, (ii) vote the
Subject Shares in favor of the adoption of the Merger Agreement and against any
action or agreement that would impede, interfere with, delay, postpone or
attempt to discourage the Merger or the Offer, (iii) not directly or indirectly
solicit, initiate, facilitate or encourage the making of any proposal for an
Alternative Transaction or the sale of any Subject Shares or, in the case of
Yucaipa, the Yucaipa Warrant and (iv) not sell, transfer, pledge, encumber,
assign or otherwise dispose of the Subject Shares or, in the case of Yucaipa,
the Yucaipa Warrant. Parent has agreed that on the Offer Consummation Date,
Purchaser or Parent will instruct the Depositary, as paying agent, to make
payment by wire transfer to each Principal Stockholder of an amount equal to the
product of the Offer Price and the number of Shares held by such Principal
Stockholder (the "Purchase Price") for such Principal Stockholder's Subject
Shares to an account designated by such Principal Stockholder.
In addition, pursuant to the Stockholders Agreement, each Principal
Stockholder has granted to Purchaser an irrevocable option (the "Option") to
purchase such Principal Stockholder's Subject Shares for the Purchase Price. The
Option may be exercised by Purchaser, as a whole and not in part, during the
period beginning upon the termination of the Merger Agreement in circumstances
where the Termination Fee is or may become payable as described under
"Termination Fee and Expenses" above (a "Triggering Event") and ending on the
date which is the 30th calendar day following the Triggering Event.
The Stockholders Agreement also provides that following the occurrence of a
Triggering Event, in the event that Yucaipa exercises the Yucaipa Warrant or
notifies Parent of its intention to exercise the Yucaipa Warrant, Parent and
Purchaser will have the irrevocable right (the "Warrant Option") to purchase
either the Shares issued upon the exercise of the Yucaipa Warrant (the "Warrant
Shares") or the Yucaipa Warrant, as the case may be, for a price equal to either
$49 per Share (with respect to a purchase of Shares) or a price per Share equal
to the difference between $49 and the exercise price of the Yucaipa Warrant
($20.732 as of the date hereof) (with respect to a purchase of the Yucaipa
Warrant). This right will be exercisable for a period of 30 calendar days
following receipt of notice from Yucaipa of its exercise or planned exercise of
the Yucaipa Warrant.
The Stockholders Agreement also provides that upon the earlier of the
purchase of the Minimum Shares in the Offer and the Effective Time, Parent or
Purchaser will purchase from Yucaipa the Yucaipa Warrant for an amount equal to
(i) the difference between the Offer Price ($49) and the per share exercise
price thereof ($20.732 as of the date hereof) multiplied by (ii) the number of
Shares underlying the Yucaipa Warrant (3,874,492 as of the date hereof).
The Stockholders Agreement prohibits Yucaipa from exercising the Yucaipa
Warrant without the prior written consent of Parent until the earlier to occur
of (i) the termination or expiration (without extension) of the Offer and (ii)
the termination of the Merger Agreement.
Parent has also agreed that, in the event the Option or the Warrant Option
is exercised, as promptly as practicable thereafter, Parent will propose to the
Company a merger, on terms and conditions substantially the same as those
provided for in the Merger Agreement, between itself or one of its wholly owned
subsidiaries and the Company pursuant to which the stockholders of the Company
will receive an amount of cash consideration per Share equal to the Offer Price.
In the event the Option is exercised and Parent or any of its affiliates
receives any consideration in connection with any Sale (as defined in the
Stockholders Agreement) of the Subject Shares during the period commencing upon
the date such Shares are acquired by the Parent or such affiliate and ending on
the first
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anniversary of such date, Parent is required to pay to the Principal
Stockholders the excess (if any) of such consideration over the aggregate
purchase price paid for such Shares (less any taxes and other out-of-pocket
expenses in connection with such Sale).
Parent and Purchaser have agreed that, in connection with any exercise of
the Option and/or the Warrant Option, Purchaser will purchase, pursuant to "tag
along" rights of certain stockholders of the Company, all Shares required to be
purchased as a result of the sale by the Principal Stockholders of any of the
Subject Shares and/or the Warrant Shares at the same purchase price as such
Subject Shares and/or Warrant Shares.
WARRANT AMENDMENT
In connection with the transactions contemplated by the Merger Agreement,
the Company and Yucaipa entered into the Warrant Amendment which amended the
Class A Common Stock Purchase Warrant No. W-1 (the "Yucaipa Warrant") issued by
the Company to Yucaipa. See "Certain Relationships, Transactions and
Arrangements -- Yucaipa Warrant" in the Company's Information Statement attached
hereto as Annex A for a discussion of the Yucaipa Warrant and the purchase
thereof by Purchaser. A copy of the Yucapia Warrant is filed as Exhibit 4 hereto
and incorporated herein by reference. The following summary is qualified in its
entirety by reference to the complete text of the Warrant Amendment which is
filed as Exhibit 5 hereto and incorporated herein by reference.
The Warrant Amendment provides that the Yucaipa Warrant may be transferred
to Parent or any of its wholly-owned subsidiaries in connection with the
transactions contemplated by the Merger Agreement and the Stockholders Agreement
upon the first to occur of (i) the date on which the Offer is consummated or
(ii) the effective time of the Merger.
STOCKHOLDERS AGREEMENT AMENDMENT
In connection with the transactions contemplated by the Merger Agreement,
Yucaipa and certain stockholders of the Company entered into the Stockholders
Agreement Amendment which amended the Amended and Restated Stockholders
Agreement, dated as of November 1, 1996 (the "1996 Stockholders Agreement"), by
and among the Company, DFF Supermarkets, Inc., Yucaipa and the stockholders of
the Company listed on the signature pages thereto. See "Certain Relationships,
Transactions and Arrangements -- 1996 Stockholders Agreement" in the Company's
Information Statement attached hereto as Annex A for a discussion of the 1996
Stockholders Agreement. A copy of the 1996 Stockholders Agreement is filed as
Exhibit 6 hereto and incorporated herein by reference. The following summary is
qualified in its entirety by reference to the complete text of the Stockholders
Agreement Amendment which is filed as Exhibit 7 hereto and incorporated by
reference herein.
The Stockholders Agreement Amendment provides that the 1996 Stockholders
Agreement will be deemed to be amended so as to (a) not restrict, prevent,
prohibit or otherwise impede any party thereto from (i) tendering its shares in
the Offer or (ii) entering into the Stockholders Agreement or performing its
obligations thereunder and, for the avoidance of doubt, (b) provide that none of
the transactions contemplated by the foregoing shall constitute a Transfer (as
defined in the 1996 Stockholders Agreement) of any Shares (as defined in the
1996 Stockholders Agreement) or any pecuniary interest therein by any party
thereto. The Stockholders Agreement Amendment further provides that the
execution and delivery of the Stockholders Agreement by each party thereto, and
the performance of their respective obligations thereunder and the consummation
of the transactions contemplated thereby, will not conflict with any provision
of, or constitute a breach or default under, the 1996 Stockholders Agreement,
and that any such breach is thereby waived. In addition, the Stockholders
Agreement Amendment provides that except as otherwise provided in the 1996
Stockholders Agreement with respect to specific provisions, the 1996
Stockholders Agreement will terminate pursuant to Section 6.1 thereof upon the
consummation of the Offer.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation. The Board of Directors, at a special meeting held on
October 12, 1998, unanimously (i) determined that the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, are
advisable and fair to, and in the best interests of, the stockholders of the
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Company, (ii) approved the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, and the Stockholders Agreement and
(iii) recommended that the stockholders of the Company accept the Offer and
tender all of their Shares to Purchaser and approve the Merger Agreement and the
transactions contemplated thereby, including the Merger. A copy of the Company's
letter to stockholders, dated as of October 19, 1998, is filed hereto as Exhibit
11 and incorporated herein by reference.
(b) Background; Reasons for the Board of Directors' Conclusions. In recent
years, the food retailing industry has undergone increasing consolidation. The
reasons for this trend have included the economies of scale resulting from
improved vendor purchasing power and self-distribution, the capital requirements
to develop and maintain a modern store base and the benefits of geographic
diversification. During late 1997 and continuing through the first half of 1998,
the Company engaged in exploratory discussions with a number of other food
retailers about possible business combinations. One of these retailers was a
privately held company also operating in a single geographic region ("Company
A"). None of these discussions moved beyond preliminary stages. The Company's
operating performance during fiscal 1998 was affected by the decision made in
October 1997 to convert the Company's high volume, price impact Omni format
stores to the Dominick's Fresh Store format. The disruption caused by the
conversion of 15 of the former Omni stores to Dominick's Fresh Stores adversely
affected the Company's operating results in the first three quarters of fiscal
1998. During this time the Company began to experience increased promotional
activity by its principal competitor in response to such conversions. In
addition, over the past year, certain other supermarket operators had disclosed
plans to enter the greater Chicago marketplace. One of these operators
subsequently opened two stores in Northwest Indiana. Beginning in the early
summer of 1998, the Company received several direct and indirect solicitations
concerning its interest in discussing possible business combination
transactions. In early August 1998, American Stores Corporation, the parent of
the Company's principal competitor, announced that it would merge with
Albertsons, Inc. to create the largest supermarket company in the United States.
In light of these various considerations and the long-term competitive
implications for an independent publicly-held operator, the Company, in
consultation with members of the Board of Directors, decided to retain an
investment banker to explore its available strategic alternatives.
On August 17, 1998, Steven A. Burd, the President, Chief Executive Officer
and Chairman of Parent, made an unsolicited call to Ronald W. Burkle, the
Chairman of the Company and a principal of Yucaipa and The Yucaipa Companies LLC
("Yucaipa LLC"), and inquired whether the Company would be interested in
exploring a possible transaction. Mr. Burkle informed Mr. Burd that the Company
intended to retain an investment banker and said that Parent would have an
opportunity to make a proposal.
On August 19, 1998 the Company issued a press release announcing that it
had retained an investment banking firm to assist it in the evaluation of
various strategic alternatives, including acquisitions, mergers or other
business combinations or other transactions that would enhance shareholder
value. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") was chosen as
the Company's financial advisor.
Following the press release, DLJ contacted several parties to determine if
they would be interested in pursuing a transaction with the Company. Of the
potential strategic partners who initially spoke to either DLJ or Yucaipa LLC,
some subsequently concluded that they were not interested in pursuing a
transaction with the Company either at all or at the price levels that such
bidders anticipated would be required to satisfy the Board of Directors and
others were determined by DLJ and Yucaipa LLC to lack the financial capability
to make a competitive bid. The three remaining interested parties were Parent,
Company A and another multi-regional supermarket company ("Company B").
On August 21, 1998, Parent sent the Company a request for certain
preliminary financial and operational information concerning the Company.
Between August 24 and August 28, 1998, Parent and the Company (with assistance
from its representatives including Yucaipa LLC) negotiated the terms of a draft
confidentiality agreement. On August 28, 1998, the Company and Parent entered
into a confidentiality agreement.
Company B contacted the Company following the August 19th press release and
also requested certain non-public information regarding the Company and its
subsidiaries in connection with Company B's consideration of a possible
negotiated merger or acquisition transaction involving the Company. The Company
entered into a confidentiality agreement with Company B on August 26, 1998.
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Following the execution of the confidentiality agreements, the Company and
DLJ supplied Parent and Company B with certain confidential information
regarding the Company and its business, operations, results of operations and
financial condition. Company B also visited a number of the Company's stores. In
addition, following their review of the Company's information, Parent and
Company B conducted extensive telephonic question and answer sessions with
representatives of Yucaipa LLC and/or the Company's senior management.
On August 26, 1998, Yucaipa LLC, on behalf of the Company, asked Parent and
Company B to provide preliminary indications of interest by September 4, 1998.
On September 4, 1998, Parent informed DLJ of Parent's preliminary
expression of interest in acquiring the Company at a purchase price ranging from
the high $40's to $50 per Share, subject to satisfactory completion of its due
diligence and negotiation of a satisfactory acquisition agreement.
Also on September 4, 1998, Company B requested additional time to respond
to the request for preliminary indications of interest. On September 8, 1998,
Company B indicated that, for various reasons, including concerns about the
potential for increasing competition in the Company's market, it did not believe
it would be able to offer a transaction with a value the Board of Directors
would find acceptable. As a result, Company B declined to present any formal
indication of interest and discontinued further discussions with the Company.
At a regularly scheduled Board of Directors meeting held on September 9,
1998, the Board of Directors reviewed the actions undertaken in connection with
the review of strategic alternatives. At the meeting the Board of Directors (i)
formally approved the terms of the retention of DLJ to act as financial advisor
in connection with a possible merger or other corporate transaction involving
the business of the Company, (ii) authorized the officers of the Company and DLJ
to continue to explore the Company's strategic alternatives and (iii) discussed
the need to provide appropriate assurances to the Company's senior management
and then approved the terms of the proposed management severance and bonus
agreements.
On September 17, 1998, the Company delivered a presentation to the senior
management of Parent in Chicago, Illinois. Following the presentation, members
of Parent's senior management met with Mr. Burkle, Robert A. Mariano, the
President and Chief Executive Officer of the Company, and certain other members
of Yucaipa LLC's and the Company's senior management to discuss the Company's
business, operations, results of operations and financial condition, and members
of Parent's senior management and of the Company's senior management visited
several of the Company's store locations. From September 17 through September
19, 1998, representatives of Parent conducted a due diligence investigation of
the Company in Chicago, Illinois.
On September 19, 1998, the Company entered into a confidentiality agreement
with Company A. On September 22, 1998, the Company delivered a presentation to
the senior management of Company A. Company A did not ask to review any further
information following the presentation.
On September 23, 1998, DLJ invited Parent and Company A to submit a written
offer to acquire all of the outstanding stock of the Company or to engage in
such other transaction as Parent and Company A, respectively, wished to propose.
In connection therewith, the Company furnished Parent and Company A with forms
of cash and stock merger agreements. The Company requested a response from
Parent and Company A by October 1, 1998.
On September 25 and 29, 1998, representatives of Parent conducted a further
due diligence investigation of the Company in Chicago, Illinois.
On October 1, 1998, a special meeting of the Board of Directors was held to
update the status of events and any proposals which were received. During the
course of the Board of Directors meeting, Parent sent the Company and DLJ a
proposal letter indicating Parent's willingness to pay at least $48 per Share in
cash to acquire all of the outstanding Shares, subject to the approval of
Parent's Board of Directors and the satisfactory review of certain additional
information about the Company. The Company and DLJ subsequently contacted Parent
to seek clarification of the offer to pay at least $48 per Share and to suggest
that the price be raised.
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Company A, which had orally proposed a stock-for-stock combination with the
Company, did not submit any written proposal to DLJ or the Company prior to the
October 1, 1998 deadline.
Between October 1 and October 5, 1998, at the request of Parent,
representatives of the Company (including Yucaipa LLC) made available to Parent
certain additional financial, legal and operational information regarding the
Company. In addition, representatives of Parent and representatives of the
Company had telephonic discussions regarding the proposed price, the basis on
which Parent would be willing to submit a firm proposal to acquire the Company,
and the expected timing thereof.
On October 6, 1998, Parent sent the Company and DLJ a letter submitting a
firm proposal to acquire all of the outstanding Shares for a price of $49 per
Share. The letter was followed by proposed revisions to the draft Merger
Agreement, and a draft Stockholders Agreement providing for an agreement by the
Principal Stockholders to tender their shares in the Offer, to grant an option
to acquire their Shares at $49 per Share in cash under certain circumstances,
and certain other matters. Parent indicated that execution by such stockholders
of such an agreement would be a condition to the execution of a definitive
Merger Agreement.
On October 8, 1998 a special telephonic meeting of the Board of Directors
was convened. At that meeting the terms of Parent's proposal were described by
the Company's legal counsel. The Board of Directors inquired about various
aspects of the proposal and a discussion followed. DLJ then presented its
analysis of Parent's offer and certain alternative transactions, such as a
leveraged recapitalization and a potential strategic acquisition of other
supermarket retailers. Following the presentation and further discussion, the
Board of Directors directed DLJ and the Company to pursue discussions with
Parent. The Board of Directors, including the directors not affiliated with
Yucaipa, also approved the payment of a fee of $5,500,000 to Yucaipa LLC upon
consummation of the Offer as compensation for the services Yucaipa LLC had
provided, and would provide, to the Company in developing and consulting with
the Company concerning the various transaction proposals.
During the period from October 8 through October 13, 1998, representatives
of Parent and the Company (including Yucaipa LLC) discussed the terms of a
possible acquisition and negotiated the terms of the Merger Agreement, and
representatives of Parent and the Principal Stockholders negotiated the terms of
the Stockholders Agreement.
On October 11, 1998, the Board of Directors convened a special telephonic
meeting to receive an update on the status of the negotiations. At that meeting,
DLJ advised the Board of Directors that it was prepared to opine that the
consideration to be received by the stockholders of the Company (other than the
holders of Shares that are affiliates of the Company) pursuant to the Merger
Agreement was fair to such stockholders from a financial point of view. DLJ then
made a presentation to the Board of Directors concerning the basis for such an
opinion.
On October 12, 1998, the Board of Directors held a special telephonic
meeting and, following receipt of a final update on the negotiations and the
delivery of DLJ's written fairness opinion, unanimously approved the Merger
Agreement and the transactions contemplated therein, including the Offer and the
Merger, the Stockholders Agreement and the Warrant Amendment. The Merger
Agreement, the Stockholders Agreement, the Warrant Amendment and the
Stockholders Agreement Amendment were executed, and the Merger was publicly
announced, on the morning of October 13, 1998. On October 19, 1998, Purchaser
commenced the Offer.
Reasons for the Board of Directors' Conclusions. In reaching the
determination described in paragraph (a) above, the Board of Directors
considered a number of factors, including without limitation, the following:
(i) The financial condition, results of operations, business and
strategic objectives of the Company, as well as the risks involved in
achieving those objectives;
(ii) A review of the possible alternatives to the transactions
contemplated by the Merger Agreement, including the possibilities of
continuing to operate the Company as an independent entity, a strategic
acquisition, a sale or partial sale of the Company through a merger or by
other means, various financing alternatives involving a possible
recapitalization of the Company; and, in respect of each
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alternative, the range of possible benefits to the Company's stockholders
of such alternative and the timing and the likelihood of actually
accomplishing such alternative;
(iii) An oral report from DLJ, financial advisor to the Company,
regarding the likelihood of other potential offers for the Company on terms
more favorable to the stockholders of the Company than the Offer and the
results of its efforts on behalf of the Company seeking indications of
interest in other possible alternatives;
(iv) The financial and valuation analyses presented to the Board of
Directors by DLJ, including market prices and financial data relating to
other companies engaged in businesses considered comparable to the Company
and the prices and premiums paid in recent selected acquisitions of
companies engaged in businesses considered comparable to those of the
Company;
(v) The relationship of the Offer Price to historical market prices of
the Voting Common Stock and to the Company's book value;
(vi) The written opinion of DLJ that, based on certain assumptions and
subject to certain limitations, the consideration to be received by the
stockholders of the Company (other than the holders of Shares that are
affiliates of the Company) pursuant to the Merger Agreement is fair to such
stockholders from a financial point of view. A copy of the DLJ opinion is
filed as Exhibit 12 hereto and incorporated herein by reference. The DLJ
opinion should be read in its entirety for the assumptions made, the
procedures followed, the matters considered and the limits of the review
made by DLJ in connection with such opinion. The DLJ opinion was prepared
for the Board of Directors and does not constitute a recommendation to any
stockholder as to whether to tender in the Offer. DLJ was not retained as
an advisor or agent to the Company's stockholders;
(vii) The terms and conditions of the Merger Agreement, the
Stockholders Agreement, the Warrant Amendment and the Stockholders
Agreement Amendment;
(viii) The likelihood that the Merger would be consummated, including
the experience, reputation and financial condition of Parent and the risks
to the Company if the acquisition were not consummated;
(ix) The fact that the holders of approximately 41% of the Shares were
prepared to endorse the Merger Agreement and the transactions contemplated
thereby;
(x) The fact that the Offer and the Merger are not subject to a
condition that Parent have available financing; and
(xi) The availability of dissenters' rights in the Merger under
applicable law.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer and the Merger, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its respective
determinations.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company engaged DLJ, pursuant to the DLJ Engagement Letter, to assist
the Board of Directors in evaluating strategic alternatives, financing sources
and other potential transactions. For such services, the Company agreed to pay
DLJ (i) a fee of $1.5 million which was earned on October 12, 1998 when DLJ
notified the Board of Directors that it was prepared to deliver its opinion that
the consideration to be received by the stockholders of the Company (other than
holders of Shares that are affiliates of the Company) pursuant to the Merger
Agreement was fair to such stockholders from a financial point of view and (ii)
a fee of $5.0 million, less any amounts paid or payable pursuant to clause (i),
in each case payable upon consummation of the Offer. In addition to the
foregoing compensation, the Company has agreed to reimburse DLJ for its
reasonable out-of-pocket expenses and to indemnify DLJ against certain
liabilities arising out of or in connection with its engagement, including
liabilities under federal securities laws.
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Neither the Company nor any person acting on its behalf has employed,
retained or compensated any other person to make solicitations or
recommendations to stockholders on its behalf concerning the Offer or the
Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Except as set forth below, no transactions in the Shares have been
effected during the past 60 days by the Company or, to the Company's knowledge,
by any executive officer, director, affiliate or subsidiary of the Company. On
October 1, 1998, the Company issued 89, 89 and 64 Shares, respectively, to Grace
Barry, Evan Bayh and Antony P. Ressler pursuant to the Company's Directors
Deferred Compensation and Restricted Stock Plan. On October 12, 1998, the
Company issued 45 Shares to John W. Boyle pursuant to the Company's 1997
Employee Stock Purchase Plan.
(b) To the best of the Company's knowledge, all of its executive officers,
directors, affiliates or subsidiaries currently intend to tender all Shares
which are held of record or beneficially owned by such persons pursuant to the
Offer, other than Shares, if any, held by such persons which, if tendered, could
cause such person to incur liability under the provisions of Section 16(b) of
the Securities Exchange Act of 1934, as amended.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Prior to entering into the Merger Agreement, the Company had
preliminary contacts with other entities that had expressed interest in the
Company. Upon execution of the Merger Agreement, the Company ceased contacts
with such other entities. No discussions are underway or are being undertaken by
the Company in response to the Offer that relate to or would result in (1) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any of its subsidiaries; (2) a purchase, sale or transfer of a
material amount of assets by the Company or any of its subsidiaries; (3) a
tender offer for or other acquisition of securities by or of the Company; or (4)
any material change in the present capitalization or dividend policy of the
Company.
(b) There is no transaction, board resolution, agreement in principle or
signed contract in response to the Offer other than as disclosed in Item 3(b)
and Item 4(a) of this statement, that relates to or would result in (1) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any of its subsidiaries; (2) a purchase, sale or transfer of a
material amount of assets by the Company or any of its subsidiaries; (3) a
tender offer for or other acquisition of securities by or of the Company; or (4)
any material change in the present capitalization of dividend policy of the
Company.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The Information Statement attached as Annex A hereto is being furnished in
connection with the possible designation by Purchaser, pursuant to the Merger
Agreement, of certain persons to be appointed to the Company's Board of
Directors other than at a meeting of the Company's stockholders.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1. Agreement and Plan of Merger, dated as of October 13, 1998,
by and among Safeway Inc., Windy City Acquisition Corp. and
Dominick's Supermarkets, Inc.
Exhibit 2. Press Release issued by the Company and Parent on October
13, 1998. (Incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated October 13,
1998).
Exhibit 3. Stockholders Agreement, dated as of October 13, 1998, by and
among Safeway Inc., Windy City Acquisition Corp., Yucaipa
Blackhawk Partners, L.P., Yucaipa Chicago Partners, L.P.,
Yucaipa Dominick's Partners, L.P., Apollo Investment Fund,
L.P., Apollo Investment Fund III, L.P., Apollo Overseas
Partners III, L.P. and Apollo (UK) Partners III, L.P.
Exhibit 4. Class A Common Stock Purchase Warrant dated as of March 22,
1995 issued by Dominick's Supermarkets, Inc. to The Yucaipa
Companies, as supplemented. (Incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K,
Number 1-12353).
Exhibit 5. Amendment to Class A Common Stock Purchase Warrant, dated as
of October 13, 1998, by and between Dominick's Supermarkets,
Inc. and The Yucaipa Companies.
Exhibit 6. Amended and Restated Stockholders Agreement, dated as of
November 1, 1996, by and among Dominick's Supermarkets,
Inc., DFF Supermarkets, Inc., Dominick's Finer Foods, Inc.
and the stockholders of the Company named therein.
(Incorporated by reference to Exhibit 10.8 to the Company's
1996 Annual Report on Form 10-K, Number 1-12353).
Exhibit 7. Amendment to Amended and Restated Stockholders Agreement,
dated as of October 13, 1998, by and among The Yucaipa
Companies, Yucaipa Blackhawk Partners, L.P., Yucaipa Chicago
Partners, L.P., Yucaipa Dominick's Partners, L.P., Apollo
Investment Fund, L.P., Apollo Investment Fund III, L.P.,
Apollo Overseas Partners III, L.P. and Apollo (UK) Partners
III, L.P.
Exhibit 8. Management Agreement, dated as of November 1, 1996, by and
among Dominick's Supermarkets, Inc., Dominick's Finer Foods,
Inc. and The Yucaipa Companies. (Incorporated by reference
to Exhibit 10.7 to the Company's 1996 Annual Report on Form
10-K, Number 1-12353).
Exhibit 9. Form of Employment Agreement.
Exhibit 10. Form of Special Bonus Agreement.
Exhibit 11. Letter to Stockholders dated as of October 19, 1998.*
Exhibit 12. Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation dated October 12, 1998.*
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* Included in materials being distributed to stockholders of the Company.
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: October 19, 1998
DOMINICK'S SUPERMARKETS, INC.
By: /s/ DEBORAH C. PASKIN
------------------------------------
Deborah C. Paskin
Group Vice President, Legal
and General Counsel
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ANNEX A
[DOMINICK'S LOGO]
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about October 19, 1998, as
part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9"), to the holders of record at the close of business on
October 15, 1998 of the Shares (the "Record Date"). Capitalized terms used and
not otherwise defined herein shall have the meaning ascribed to them in the
Schedule 14D-9. You are receiving this Information Statement in connection with
the possible election of persons designated by Purchaser to a majority of the
seats on the Board of Directors of the Company (the "Board of Directors"). The
Merger Agreement requires the Company, after the purchase by Purchaser pursuant
to the Offer of such number of shares representing not less than a majority of
the outstanding shares of Common Stock on a fully diluted basis (without giving
effect to the shares issuable upon exercise of the Yucaipa Warrant), to cause
Purchaser's designees (the "Designees") to be elected to a majority of the seats
on the Board of Directors as set forth below. This Information Statement is
required by Section 14(f) of the Securities Exchange Act of 1934 (the "Exchange
Act") and Rule 14f-1 thereunder. You are urged to read this Information
Statement carefully. However, you are not required to take any action.
Pursuant to the Merger Agreement, on October 19, 1998, Parent commenced the
Offer. The Offer is scheduled to expire on November 16, 1998.
The information contained in this Information Statement (including
information listed in Schedule I attached hereto) concerning Parent, Purchaser
and the Designees has been furnished to the Company by Parent and Purchaser, and
the Company assumes no responsibility for the accuracy or completeness of such
information.
The Common Stock, par value $.01 per share (the "Voting Common Stock"), is
the only class of voting securities of the Company outstanding. Each share of
Voting Common Stock has one vote. As of the Record Date, there were 18,679,737
shares of Common Stock and 2,861,354 shares of Non-Voting Common Stock, par
value $.01 per share (the "Non-Voting Common Stock" and, together with the
Voting Common Stock, the "Common Stock") of the Company outstanding.
BOARD OF DIRECTORS
GENERAL
The Board of Directors is currently comprised of eleven members divided
into three classes serving staggered terms of three years each. Pursuant to the
Company's Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and Amended and Restated Bylaws (the "Bylaws"), the term of
office of one class of directors expires each year and at each annual meeting
the successors of the class whose term is expiring in that year are elected to
hold office for a term of three years and until their successors are elected and
qualified. The current terms of three directors expire in 1999, and the current
terms of four directors expire in each of 2000 and 2001.
DESIGNEES
Pursuant to the Merger Agreement, promptly upon the acceptance for payment
of, and payment by Purchaser in accordance with the Offer for, Shares
representing not less than a majority of the outstanding Shares on a fully
diluted basis (without giving effect to the Shares issuable upon exercise of the
Yucaipa Warrant) pursuant to the Offer, Purchaser is entitled to designate such
number of members of the Board of
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Directors, rounded up to the next whole number, equal to that number of
directors which equals the product of the total number of directors on the Board
of Directors multiplied by the percentage that such number of Shares owned in
the aggregate by Purchaser, upon such acceptance for payment, bears to the
number of Shares outstanding; provided, however, that until the Effective Time,
there shall be at least one director who is a director as of the date hereof.
Upon the written request of Purchaser, the Company shall, on the date of such
request (i) either increase the size of the Board of Directors or secure the
resignations of such number of its incumbent directors as is necessary to enable
the Designees to be so elected to the Board of Directors and (ii) cause the
Designees to be so elected.
Purchaser has informed the Company that it will choose the Designees from
the directors and executive officers of Parent listed in Schedule I attached
hereto. Purchaser has informed the Company that each of the directors and
executive officers listed in Schedule I has consented to act as a director, if
so designated. The business address of Parent and Purchaser is 5918 Stoneridge
Mall Road, Pleasanton, California 94588.
It is expected that the Designees may assume office at any time following
the purchase by Purchaser pursuant to the Offer of such number of Shares
representing not less than a majority of the outstanding shares of Common Stock
on a fully diluted basis (without giving effect to the Shares issuable upon
exercise of the Yucaipa Warrant), which purchase cannot be earlier than November
16, 1998, and that upon assuming office, the Designees will thereafter
constitute at least a majority of the Board of Directors.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and principal occupation for the past five years and
directorships of the Company's directors and executive officers are as follows:
Directors
Ronald W. Burkle, age 45, has been Chairman of the Board of the Company
since March 1995 and served as Chief Executive Officer from March 1995 to
January 1996. Mr. Burkle co-founded Yucaipa, a private investment group
specializing in the acquisition and management of supermarket chains, in 1986.
Mr. Burkle served as director and Chairman of the Board of Food 4 Less Holdings,
Inc. ("Food 4 Less"), whose principal operating subsidiary is Ralphs Grocery
Company ("Ralphs"), and Chairman of the Board and Chief Executive Officer of its
predecessor, Food 4 Less Supermarkets, Inc., from 1987 until its merger with
Fred Meyer, Inc. ("Fred Meyer") in March 1998. Mr. Burkle also served as
Chairman of the Board of Smitty's Supermarkets, Inc. ("Smitty's") from June 1994
until its merger in May 1996 with Smith's Food & Drug Centers, Inc. ("Smith's").
He served as Chief Executive Officer of Smith's from May 1996 until its merger
with Fred Meyer in September 1997. Mr. Burkle has served as Chairman of the
Board of Fred Meyer since September 1997. Mr. Burkle also serves as a director
of Kaufman and Broad Home Corporation. Before founding Yucaipa, Mr. Burkle held
a number of supermarket executive positions and was a private investor in
Southern California.
Grace Barry, age 57, has served as a director of the Company since January
1997. Ms. Barry has been the Executive Director of The Economic Club of Chicago
since July 1986. From 1991 through 1995, Ms. Barry was the President and owner
of Cafe Galleria, Inc., a retail company in the food and gift business. In 1994,
Ms. Barry co-founded Grabur International, Inc., a retail gift and concession
business. From 1989 through 1996, Ms. Barry served as the Cable Commissioner for
the City of Chicago. Ms. Barry also serves on the boards of The Chicago Network,
The Joffrey Ballet of Chicago, Institute for Urban Life, The Golden Apple
Foundation, Toronto Sister Cities Committee, Old St. Patrick's Church and The
Arts Matter.
Evan Bayh, age 43, has served as a director of the Company since January
1997. Governor Bayh is a member of the law firm of Baker & Daniels. Governor
Bayh was Governor of the State of Indiana from January 1989 to January 1997. He
has served as chairman of the National Education Goals Panel and the Education
Commission of the States and as a member of the National Assessment in Education
Panel. Governor Bayh was a member of the executive committee of the National
Governors' Association and is a past chairman of the Democratic Governors'
Association.
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Peter P. Copses, age 40, has served as a director of the Company since
March 1995. Mr. Copses served as a director of Food 4 Less and Ralphs from 1995
until Food 4 Less' merger with Fred Meyer in March 1998. Since 1990, Mr. Copses
has been a limited partner of Apollo Advisors, L.P. ("Apollo") which, together
with an affiliate, serves as managing general partner of the Apollo Investment
Funds, and of Lion Advisors, L.P. ("Lion") which serves as financial advisor to
certain institutional investors with respect to securities investments. Mr.
Copses is also a director of Family Restaurants Inc., Mariner Post Acute
Network, Inc., Renters Choice, Inc. and Zale Corporation.
Linda McLoughlin Figel, age 35, has been a director of the Company since
August 1996. She joined Yucaipa in 1989 and became a general partner in 1991.
Prior to 1989, Ms. Figel was employed by Bankers Trust Company in its Structured
Finance Group.
Patrick L. Graham, age 49, has served as a director of the Company since
March 1995. Mr. Graham served as a director of Food 4 Less and Ralphs from 1995
until Food 4 Less' merger with Fred Meyer in March 1998 and served as Vice
President and a director of Smitty's from June 1994 until its merger with
Smith's in May 1996. Mr. Graham joined Yucaipa as a general partner in 1993.
Prior to that time he was a Managing Director in the corporate finance
department of Libra Investments, Inc. from 1992 to 1993 and Paine Webber Inc.
from 1990 to 1992.
David B. Kaplan, age 31, has served as a director of the Company since
March 1995. Since 1991, Mr. Kaplan has been associated with and a limited
partner of Apollo and Lion. Prior to 1991, Mr. Kaplan was a member of the
corporate finance department of Donaldson, Lufkin & Jenrette Securities
Corporation. Mr. Kaplan also serves as a director of Allied Waste Industries,
Inc., Family Restaurants, Inc. and WMC Finance Co., Inc.
Darren W. Karst, age 38, joined the Company in March 1995 as Senior Vice
President, Chief Financial Officer, Secretary and a director and was appointed
Executive Vice President, Finance and Administration in March 1996. Mr. Karst
resigned as an officer of the Company in August 1998. Mr. Karst joined Yucaipa
in 1988 and has been a general partner since 1991. Prior to 1988, he was a
manager at Ernst & Young LLP.
Robert A. Mariano, age 48, has been the President and a director of the
Company since March 1995 and Chief Executive Officer since January 1996. Mr.
Mariano also served as Chief Operating Officer from March 1995 until January
1996. Mr. Mariano joined Dominick's in 1972 and was Senior Vice President of
Marketing and Merchandising from 1994 to 1995, Senior Vice President of
Perishable Merchandising from 1989 to 1994, Senior Vice President of Operations
from 1987 to 1989, and held a number of managerial positions prior to 1987.
Antony P. Ressler, age 38, has served as a director of the Company since
March 1995. In 1990, Mr. Ressler was one of the founding principals of Apollo,
Lion and of Ares Management, L.P. which serves as managing general partner of
Ares Leveraged Investment Funds I & II, private securities investment funds.
Prior to 1990, Mr. Ressler was a Senior Vice President in the high yield bond
department of Drexel Burnham Lambert Incorporated. Mr. Ressler is also a
director of Allied Waste Industries, Inc., Communications Corp. of America,
Family Restaurants, Inc., United International Holdings and Vail Resorts, Inc.
Ira L. Tochner, age 37, has served as a director of the Company since
January 1997. Mr. Tochner joined Yucaipa in 1990 and became a general partner in
1995. Prior to 1990, Mr. Tochner was employed by Arthur Andersen & Co. as a
manager.
All of the directors named above, other than Ms. Barry and Governor Bayh,
also serve on the Board of Directors of Dominick's Finer Foods, Inc.
("Dominick's"), the operating subsidiary of the Company.
Executive Officers
In addition to Messrs. Burkle and Mariano, whose biographies appear above,
the following persons are executive officer of the Company or its subsidiaries.
John W. Boyle, age 40, has been Group Vice President, Information
Technology and Store Development since March 1996. Mr. Boyle joined Dominick's
in January l995 as Vice President, Management Information
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Systems and became Vice President, Administration in March 1995. Prior to
joining Dominick's, Mr. Boyle had been employed as Vice President, Information
Systems at Food 4 Less Supermarkets, Inc. since 1993, and, before that, had been
employed as a Senior Vice President at Thrifty Drugstores.
Andrew A. Campbell, age 53, has been Executive Vice President, Finance and
Administration, and Chief Financial Officer since July 1998. Prior to that, Mr.
Campbell had been Senior Vice President, Finance and Chief Financial Officer for
Safety Kleen Corporation. Prior to that, Mr. Campbell was President of Duplex
Products, Inc. from 1995 to 1996 and Vice President, Finance and Chief Financial
Officer from 1994 to 1995. Prior to 1994, Mr. Campbell was employed by Simmons
Upholstered Furniture, Inc. as Vice President, Finance and Chief Financial
Officer.
Donald G. Fitzgerald, age 37, has been Group Vice President, Non-Perishable
Merchandising and Logistics since March 1996. Prior to that time Mr. Fitzgerald
had served as Vice President, Grocery Merchandising since 1994, as director of
grocery merchandising from 1993 to 1994 and as director of grocery purchasing
since 1990. Before 1990 Mr. Fitzgerald held several other managerial positions
at Dominick's.
William B. Nasshan, age 40, has been Group Vice President, Sales and
Marketing since November, 1997. Before that, Mr. Nasshan was Vice President,
Grocery and Logistics since March 1996 and Vice President, Omni Operations from
1995 to 1996. Prior to joining Dominick's in 1995, Mr. Nasshan was Regional
Director of Marketing and Merchandising for Cub Foods, a division of SUPERVALU,
Inc.
Deborah C. Paskin, age 46, has been Group Vice President, Legal, General
Counsel and Secretary since October 1997. Prior to that, Ms. Paskin was Vice
President, General Counsel and Secretary of Helene Curtis Industries, Inc. and
held other positions in the Helene Curtis Legal Department from 1990 through
1997. Ms. Paskin was an attorney with Latham & Watkins from 1984 to 1990.
Donald S. Rosanova, age 49, has been Group Vice President, Operations since
November 1997 and, prior to that, had been Group Vice President, Omni since
March, 1996. Prior to that time Mr. Rosanova had been Vice President,
Distribution and Transportation since 1992. Before 1992, Mr. Rosanova held
several other managerial positions at Dominick's.
Alice F. Smedstad, age 49, has been Group Vice President, Human Resources
since December 1996. Mrs. Smedstad joined the Company in October 1995 as Vice
President, Human Resources. Prior to that time, Ms. Smedstad held several senior
human resource positions at The Dial Corporation from 1980 to 1995. Ms. Smedstad
began her professional career in manufacturing with the Procter & Gamble Company
in 1973.
STOCKHOLDERS AGREEMENT
Pursuant to the 1996 Stockholders Agreement, six of the Company's current
directors (Messrs. Burkle, Graham, Karst, Mariano and Tochner and Ms. Figel)
were selected by Yucaipa and three of the Company's current directors (Messrs.
Copses, Kaplan and Ressler) were selected by Apollo. Under the 1996 Stockholders
Agreement, Yucaipa is entitled to nominate six directors to the Board of
Directors and Apollo is entitled to nominate three directors to the Board of
Directors provided that certain beneficial ownership requirements set forth in
the 1996 Stockholders Agreement continue to be met. The 1996 Stockholders
Agreement further provides that the parties thereto shall vote their Shares and
take all actions otherwise necessary to ensure the election to the Board of
Directors of the Yucaipa nominees and the Apollo nominees. See "Certain
Relationships and Related Transactions -- 1996 Stockholders Agreement." The 1996
Stockholders Agreement was amended in connection with the transactions
contemplated by the Merger Agreement and will terminate upon consummation of the
Offer. See Item 3 of the Schedule 14D-9.
BOARD MEETINGS AND COMMITTEES
Prior to January 31, 1997, the Board of Directors consisted of nine
persons: Messrs. Burkle, Copses, Graham, Kaplan, Karst, Mariano, Resnik and
Ressler and Ms. Figel. Mr. Mark A. Resnik, a director since 1995, died in
January 1997 and Mr. Tochner was appointed by the Board of Directors on January
31, 1997 to fill the vacancy created by the death of Mr. Resnik. On January 31,
1997, the total number of directors constituting the Board of Directors was
increased to eleven and, pursuant to the Certificate of Incorporation, Ms. Barry
and Governor Bayh were elected to serve on the Board of Directors by the
affirmative vote of a
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majority of the directors then in office. Ms. Barry and Governor Bayh are
"Independent Directors." The Board of Directors has an Executive Committee and
an Audit Committee. There is no standing Nominating Committee.
The Board of Directors held six meetings during the fiscal year ended
November 1, 1997.
Messrs. Burkle, Graham and Mariano currently serve on the Executive
Committee. Subject to the Company's conflict of interest policies and certain
other limitations, the Executive Committee has been granted all powers and
authority of the Board of Directors in the management of the business and
affairs of the Company. The Executive Committee was created in 1995 and held no
meetings in fiscal 1997.
Ms. Barry and Governor Bayh currently serve on the Audit Committee. The
Audit Committee makes recommendations concerning the engagement of independent
auditors, reviews with independent auditors the plans and results of the audit
engagement, approves professional services provided by the independent auditors,
reviews the independence of the independent auditors, considers the range of
audit and non-audit fees and reviews the adequacy of the Company's internal
accounting controls. The Audit Committee was established in January 1997 and
held one meeting in fiscal 1997.
DIRECTORS COMPENSATION
Prior to fiscal 1997, the Company had not paid any compensation to its
directors for serving on the Board of Directors, but reimbursed such persons for
their out-of-pocket expenses incurred in connection with attending meetings of
the Board of Directors. Currently, the Company pays its non-employee directors
(other than those affiliated with Yucaipa) an annual retainer of $25,000 in
addition to fees in the amount of $2,500 per regular meeting of the Board of
Directors, $1,000 per meeting of any committee of the Board of Directors and
$1,000 per special meeting of the Board of Directors. Pursuant to the Company's
Directors Deferred Compensation and Restricted Stock Plan, directors of the
Company may elect to receive any such annual retainers and meeting fees in the
form of restricted shares of Common Stock or to defer such fees until retirement
or other specified date or event. The Company currently anticipates that it will
continue to reimburse all directors for their out-of-pocket expenses incurred in
connection with attending meetings of the Board of Directors.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") gives Delaware corporations broad powers to indemnify their present and
former directors and officers against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with threatened, pending or completed actions, suits or
proceedings to which they are parties or are threatened to be made parties by
reason of being or having been such directors or officers, subject to specified
conditions and exclusions; gives a director or officer who successfully defends
an action the right to be so indemnified; and permits a corporation to buy
directors' and officers' liability insurance. Such indemnification is not
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or otherwise.
As permitted by Section 145 of the DGCL, Article V of the Certificate of
Incorporation provides for the indemnification by the Company of its directors,
officers, employees and agents against liabilities and expenses incurred in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the Corporation by reason of the fact that they were or
are such directors, officers, employees or agents.
Article VI of the Certificate of Incorporation provides that to the fullest
extent permitted by the DGCL as the same exists or may hereafter be amended, a
director of the Company shall not be liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director.
The Company has entered into, or intends to enter into, agreements to
indemnify its directors and executive officers in addition to the
indemnification provided for in the Certificate of Incorporation and Bylaws.
These agreements, among other things, will indemnify the Company's directors and
executive officers for certain expenses (including attorneys' fees) and all
losses, claims, liabilities, judgments, fines and settlement amounts incurred by
such person arising out of or in connection with such person's service as a
director or officer of the Company to the fullest extent permitted by applicable
law.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, the beneficial
ownership of Common Stock by (i) each person known by the Company to be the
beneficial owner of 5% or more of the Common Stock, (ii) each person who is a
director or Named executive Officer (as defined below) of the Company and (iii)
all directors and executive officers of the Company as a group.
SHARES BENEFICIALLY OWNED
-----------------------------------
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS(1)(2)
------------------------ -------------------- -----------
Yucaipa and affiliates:
Yucaipa Blackhawk Partners, L.P...................... 2,007,256 10.7
Yucaipa Chicago Partners, L.P........................ 253,470 1.4
Yucaipa Dominick's Partners, L.P..................... 663,333 3.6
The Yucaipa Companies(3)............................. 3,874,492 17.2
Yucaipa Management L.L.C.(4)......................... -- --
Ronald W. Burkle(5).................................. 6,798,551 30.1
Linda McLoughlin Figel(3)(6)......................... -- --
Patrick L. Graham(3)(7).............................. -- --
Darren W. Karst(3)(8)................................ 76,389 *
Ira L. Tochner(3)(9)................................. -- --
Total........................................... 6,874,940 30.4
Robert A. Mariano(10).................................. 283,520 1.5
Alice F. Smedstad(11).................................. 14,807 *
Grace Barry............................................ 983 *
Evan Bayh.............................................. 2,748 *
Apollo and affiliates:
Peter P. Copses(12).................................. 5,855,181 27.7
David B. Kaplan(12).................................. 5,855,181 27.7
Antony P. Ressler(12)................................ 5,855,181 27.7
Apollo Investment Fund, L.P.(13)..................... 2,927,591 14.7
Apollo Investment Fund III, L.P.(14)................. 2,668,412 13.5
Apollo Overseas Partners III, L.P.(15)............... 160,035 *
Apollo (U.K.) Partners III, L.P.(16)................. 99,142 *
Total(17)......................................... 5,855,181 27.7
All directors and executive officers as a group (18
persons)............................................. 13,120,588 52.0
FMR Corp.(18).......................................... 2,060,800 11.0
Ohio PERS(18).......................................... 1,080,000 5.8
Putnam Investments, Inc.(18)........................... 2,165,900 11.6
- ---------------
* Less than 1.0%.
(1) Shares which each identified stockholder has the right to acquire within 60
days of the date of the table set forth above are deemed to be outstanding
in calculating the percentage ownership of such stockholder, but are not
deemed to be outstanding as to any other person. Except as otherwise
indicated, the Company believes that the beneficial owners of shares of
Common Stock listed above have sole investment and voting power with
respect to such shares, subject to community property laws where
applicable.
(2) Based on 18,679,737 shares of Common Stock outstanding as of the Record
Date.
(3) Share amounts and percentages for Yucaipa include 3,874,492 shares of
Common Stock issuable to Yucaipa upon exercise of the Yucaipa Warrant. The
Yucaipa Warrant entitles Yucaipa to purchase 3,874,492 shares of Common
Stock (less a number of shares equal to the aggregate exercise price, if
exercised on a cashless basis) at an exercise price of $20.732 per share.
Yucaipa is controlled by
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Ronald W. Burkle. The address of Yucaipa is 10000 Santa Monica Blvd., Los
Angeles, California 90067. Ms. Figel and Messrs. Graham, Karst and Tochner
disclaim beneficial ownership of any shares of Common Stock issuable upon
exercise of the Yucaipa Warrant.
(4) Yucaipa Management L.L.C. is a Delaware limited liability company
controlled by Ronald W. Burkle. Yucaipa Management L.L.C. is the sole
general partner of Yucaipa Blackhawk Partners, L.P., Yucaipa Chicago
Partners, L.P., and Yucaipa Dominick's Partners, L.P., which own 2,007,256,
253,470 and 663,333 shares of Common Stock, respectively. The foregoing
limited partnerships are parties to the 1996 Stockholders Agreement which
gives Yucaipa the right to nominate up to six directors of the Company.
(5) Represents shares owned by Yucaipa Blackhawk Partners, L.P., Yucaipa
Chicago Partners, L.P., and Yucaipa Dominick's Partners, L.P. These
entities are affiliated partnerships controlled indirectly by Ronald W.
Burkle. Mr. Burkle is the controlling general partner of Yucaipa and the
sole managing member of Yucaipa Management L.L.C. See notes (3) and (4).
(6) Ms. Figel is a general partner of Yucaipa and a limited partner of Yucaipa
Blackhawk Partners, L.P. and Yucaipa Dominick's Partners, L.P. See notes
(3) and (4).
(7) Mr. Graham is a general partner of Yucaipa and a limited partner of Yucaipa
Blackhawk Partners, L.P. and Yucaipa Dominick's Partners, L.P. See notes
(3) and (4).
(8) Includes options for shares which will be cancelled, at the effective time
of the Merger, in exchange for a cash payment per share equal to the excess
of the Offer Price over the exercise price of such options. Mr. Karst is a
general partner of Yucaipa and a limited partner of Yucaipa Blackhawk
Partners, L.P. See notes (3) and (4).
(9) Mr. Tochner is a general partner of Yucaipa and a limited partner of
Yucaipa Blackhawk Partners, L.P. See notes (3) and (4).
(10) Excludes options for 83,552 shares of Common Stock which are not
exercisable within 60 days.
(11) Excludes options for 20,217 shares of Common Stock which are not
exercisable within 60 days.
(12) Includes 2,455,224 shares of Class B Common Stock, which is convertible
into shares of Common Stock on a share-for-share basis at the election of
the holder at any time. The shares reported for each of Messrs. Copses,
Kaplan and Ressler are beneficially owned by Apollo Investment Fund, L.P.,
Apollo Investment Funds III, L.P., Apollo Overseas Partners III, L.P. or
Apollo (U.K.) Partners III, L.P. (collectively, the "Apollo Funds").
Messrs. Copses, Kaplan and Ressler are associated with Apollo Advisors,
L.P. and Apollo Advisors II, L.P. (collectively, "Advisors"), the managing
general partners of the Apollo Funds. Messrs. Copses, Kaplan and Ressler
disclaim beneficial ownership of the Common Stock and the Class B Common
Stock held by the Apollo Funds. The Apollo Funds are parties to the 1996
Stockholders Agreement, which entitles them to nominate up to three
directors of the Company. The address of Advisors is 2 Manhattanville Road,
Purchase, New York 10577.
(13) Includes 1,227,612 shares of Class B Common Stock, which is convertible
into shares of Common Stock on a share-for-share basis at the election of
the holder at any time.
(14) Includes 1,118,940 shares of Class B Common Stock, which is convertible
into shares of Common Stock on a share-for-share basis at the election of
the holder at any time.
(15) Includes 67,100 shares of Class B Common Stock, which is convertible into
shares of Common Stock on a share-for-share basis at the election of the
holder at any time.
(16) Includes 41,572 shares of Class B Common Stock, which is convertible into
shares of Common Stock on a share-for-share basis at the election of the
holder at any time.
(17) Includes 2,455,224 shares of Class B Common Stock, which is convertible
into shares of Common Stock on a share-for-share basis at the election of
the holder at any time.
(18) Based on the most recent filings of Schedule 13G received directly by the
Company with respect to such beneficial holder.
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CERTAIN RELATIONSHIPS, TRANSACTIONS AND ARRANGEMENTS
YUCAIPA TRANSACTION FEE
In connection with the transactions contemplated by the Merger Agreement,
the Company retained The Yucaipa Companies LLC ("Yucaipa LLC"), an affiliate of
Yucaipa, to provide consulting services to the Company in connection with a
possible merger or other corporate transaction involving the business of the
Company. On October 8, 1998 at a special telephonic meeting, the Board of
Directors, including the directors not affiliated with Yucaipa, approved the
payment of a fee of $5,500,000 to Yucaipa LLC upon consummation of the Offer as
compensation for the services Yucaipa LLC had provided, and would provide, to
the Company in developing and consulting with the Company concerning the various
transaction proposals described in "Item 4. The Solicitation or Recommendation"
of the Schedule 14d-9. In addition to the foregoing compensation, pursuant to
the Management Agreement, the Company will reimburse Yucaipa LLC for its
reasonable out-of-pocket expenses and indemnify Yucaipa LLC against certain
liabilities arising out of or in connection with its retention, including
liabilities under federal securities laws.
MANAGEMENT AGREEMENT
On November 1, 1996, the Company and Dominick's entered into the Management
Agreement with Yucaipa. The Management Agreement provides for the payment of an
annual fee to Yucaipa in the amount of $1.0 million. In addition, the Company
may retain Yucaipa in an advisory capacity in connection with certain
acquisition or sale transactions, in which case the Company will pay Yucaipa an
advisory fee equal to one percent (1.0%) of the transaction value. The term of
the agreement is automatically renewed on April 1 of each year for a five-year
term unless 90 days' notice is given by either party. The Management Agreement
may be terminated at any time by the Company upon 90 days' written notice,
provided that Yucaipa will be entitled to full payment of the annual fee
thereunder for the remaining term thereof, unless the Company terminates for
cause pursuant to the terms of the Management Agreement. Yucaipa may terminate
the Management Agreement if the Company fails to make a payment due thereunder,
or upon a Change of Control (as generally defined in the Management Agreement to
include certain mergers and asset sales, and acquisitions of beneficial
ownership of greater than 51% of the Company's outstanding voting securities by
persons other than Yucaipa). Upon any such termination, Yucaipa will be entitled
to full payment of the annual fee for a period of time following such
termination, the length of which depends upon the grounds for termination. Fees
paid and accrued under the Management Agreement were approximately $1.25 million
for management and advisory services during fiscal 1997.
Upon the earlier of the consummation of the Merger and the Effective Time,
the Management Agreement will be terminated and the Company will pay a
termination fee of approximately $2.5 million (assuming the Merger is
consummated on November 19, 1998) to Yucaipa (or its designee).
YUCAIPA WARRANT
Upon the closing of the acquisition of Dominick's by the Company in March
1995 (the "Acquisition"), the Company issued to Yucaipa the Yucaipa Warrant to
purchase 3,874,492 shares of Voting Common Stock. The Yucaipa Warrant became
exercisable at the election of Yucaipa upon the consummation of the initial
public offering of the Company in November 1996 at an exercise price of
approximately $20.732 (subject to adjustment) per share (the "Per Share Exercise
Price"). If not exercised, the Yucaipa Warrant will expire on March 22, 2000;
provided, however, that if on such date certain financial performance
requirements are satisfied, the expiration date will be extended to March 22,
2002 and, in such case, the exercise price will be increased daily at a rate of
25% per annum. The Yucaipa Warrant may be exercised for cash or on a cashless
basis. Pursuant to the cashless exercise provisions of the Yucaipa Warrant, upon
exercise in full Yucaipa would be entitled to receive a number of shares of
Voting Common Stock equal to the difference between 3,874,492 shares and the
number of shares having a market value as of the exercise date equal to $80.3
million (i.e., the aggregate exercise price).
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31
In connection with the transactions contemplated by the Merger Agreement,
(i) the Company and Yucaipa entered into the Warrant Amendment which amended the
Yucaipa Warrant and (ii) Parent or Purchaser will purchase the Yucaipa Warrant
from Yucaipa for an amount equal to the product of (a) the difference between
the Offer Price and the Per Share Exercise Price multiplied by (b) the number of
shares of Common Stock underlying the Yucaipa Warrant (3,874,492 as of the date
hereof). See "Item 3. Indemnity and Background -- Warrant Amendment" in the
Schedule 14D-9 for a discussion of the Warrant Amendment. Upon the purchase of
the Yucaipa Warrant and payment of the purchase price therefor in accordance
with the provisions of the Merger Agreement, Yucaipa will cease to have any
rights with respect to the Yucaipa Warrant.
1996 STOCKHOLDERS AGREEMENT
Under the terms of the 1996 Stockholders Agreement entered into by the
Company, certain affiliates of Yucaipa and Apollo and certain other stockholders
of the Company, Yucaipa is entitled to nominate six directors to the Boards of
Directors of the Company and Dominick's. Yucaipa's right to nominate members to
such Boards of Directors will be reduced by three if Mr. Burkle ceases for any
reason to beneficially own at least 33 1/3% of the Shares beneficially owned by
Yucaipa on the date of the Acquisition and shall terminate if Mr. Burkle ceases
for any reason (including death) to beneficially own at least 25% of the Shares
beneficially owned by Yucaipa on such date. The 1996 Stockholders Agreement
entitles Apollo to nominate three directors to the Boards of Directors of the
Company and Dominick's. Apollo's right to nominate members to such Boards of
Directors will be reduced by one if Apollo ceases to beneficially own at least
33 1/3% of the Shares beneficially owned by Apollo on the date of the
Acquisition and shall terminate if Apollo ceases to beneficially own at least
25% of the Shares beneficially owned by Apollo on such date. If Apollo ceases to
own at least 25% of the Shares beneficially owned by Apollo on the date of the
Acquisition and the parties to the 1996 Stockholders Agreement other than Apollo
beneficially own at least 33 1/3% of the Shares beneficially owned by such
stockholders on the date of the Acquisition, Yucaipa will be entitled to
nominate an additional member to the Boards of Directors of the Company and
Dominick's. Notwithstanding the foregoing, however, Apollo may assign its rights
to nominate two directors to a transferee (other than an affiliate of Yucaipa)
acquiring at least 66 2/3% of the Shares held by Apollo on the date of the
Acquisition. The 1996 Stockholders Agreement provides that the parties thereto
shall vote their Shares and take all actions otherwise necessary to ensure the
election to such Boards of Directors of the Yucaipa nominees and the Apollo
nominees. The Yucaipa nominees are Messrs. Burkle, Karst, Graham, Tochner and
Mariano and Ms. Figel. The Apollo nominees are Messrs. Copses, Kaplan and
Ressler. In addition, Apollo and certain other stockholders will have the right
to participate in any bona fide transfer of the pecuniary interests in Common
Stock beneficially owned by Yucaipa and its affiliates. In certain
circumstances, Yucaipa will have the right to compel the participation of Apollo
and other stockholders in sales of all the outstanding shares of Company stock.
As of the Record Date, affiliates of Yucaipa and Apollo beneficially own
approximately 13.9% and 27.7%, respectively, of the outstanding Common Stock,
representing an equivalent percentage of the total voting power of the Company
(excluding the Yucaipa Warrant and options held by Mr. Karst and assuming
conversion by Apollo of shares of Non-Voting Common Stock into Voting Common
Stock).
In connection with the transactions contemplated by the Merger Agreement,
Yucaipa and certain stockholders of the Company entered into the Stockholders
Agreement Amendment which amended the 1996 Stockholders Agreement. See "Item 3.
Identity and Background -- Stockholders Agreement Amendment" for a discussion of
the Stockholders Agreement Amendment.
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EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Chief Executive Officer and four most highly compensated executive officers
of the Company (the "Named Executive Officers"), whose total salary and bonus
for Fiscal 1997 exceeded $100,000 for services rendered in all capacities of the
Company and its subsidiaries.
LONG TERM
COMPENSATION(2)
---------------
ANNUAL COMPENSATION(1) SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR ENDED SALARY BONUS OPTIONS(#) COMPENSATION(4)
--------------------------- ----------------- ---------- ---------- --------------- ---------------
Robert A. Mariano(3)........... November 1, 1997 $522,300 $476,000 25,000 $ 15,467
President and Chief November 2, 1996 482,700 463,500 -- 14,700
Executive Officer............ October 28, 1995 334,200 216,000 146,379 3,463,700(5)
Darren W. Karst(6)............. November 1, 1997 $314,770 $286,000 11,500 $ 7,753
Executive Vice President, November 2, 1996 289,700 255,000 -- 7,100
Finance and Administration, October 28, 1995 151,570 -- 73,189 1,700
and Chief Financial Officer
Robert E. McCoy(8)............. November 1, 1997 $314,770 $286,000 11,500 $ 14,873
Executive Vice President, November 2, 1996 289,400 250,000 -- 878,600(7)
Operations October 28, 1995 236,400 216,000 146,379 2,916,300(5)
Alice F. Smedstad(9)........... November 1, 1997 $174,075 $ 45,260 3,750 $ 7,443
Group Vice President, November 2, 1996 155,800 17,000 -- 2,700
Human Resources October 28, 1995 -- -- 21,956 --
Herbert R. Young(8)............ November 1, 1997 $234,200 $214,200 3,750 $ 22,617
Group Vice President, Sales November 2, 1996 229,300 225,000 -- 865,100(7)
Marketing and Advertising October 28, 1995 225,600 210,900 146,379 2,923,000(5)
- ---------------
(1) Annual compensation is based on cash payments made during the fiscal period.
Bonus amounts paid relate to the prior year's performance. Fiscal 1997
salary amounts include an extra week related to salary earned in fiscal
1996, but paid in fiscal 1997.
(2) Information for Messrs. Mariano, McCoy and Young excludes equity-based
compensation of Dominick's which was extinguished in connection with the
Acquisition.
(3) Mr. Mariano was appointed President and Chief Operating Officer in March
1995 and was subsequently appointed Chief Executive Officer in January 1996.
(4) Includes (i) insurance premiums paid under senior management benefit plans,
(ii) benefits paid under a senior management financial planning plan, (iii)
profit sharing plan contributions made by the Company, and (iv) certain
other employee benefits.
(5) Includes the redemption for cash of all Dominick's stock appreciation rights
held by Messrs. Mariano, McCoy and Young at the time of the Acquisition in
the amounts of $3,450,093, $2,901,460, and $2,901,460, respectively.
(6) Mr. Karst joined the Company as Senior Vice President, Chief Financial
Officer and Secretary in March 1995 and was appointed Executive Vice
President, Finance and Administration in March 1996. Mr. Karst resigned as
an officer of the Company in August 1998. Mr. Karst is a general partner of
Yucaipa, which provides services to the Company pursuant to the Management
Agreement. See "Certain Relationships, Transactions and
Arrangements -- Management Agreement."
(7) Includes $864,000 and $843,708 paid to Messrs. McCoy and Young,
respectively, in connection with their respective employment agreements. See
"Employment Agreements."
(8) Messrs. Young and McCoy retired from the Company effective November 21,
1997.
(9) Ms. Smedstad was appointed Group Vice President, Human Resources in December
1996.
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EMPLOYMENT AGREEMENTS
On October 9, 1998, the Company entered into employment agreements (the
"Employment Agreements") and special bonus agreements (the "Special Bonus
Agreements") with 24 officers of the Company, including Messrs. Mariano, Boyle,
Fitzgerald, Nasshan and Rosanova, Ms. Paskin and Ms. Smedstad.
The Employment Agreements are for a term of from one to five years,
commencing on the date on which a change of control of the Company occurs
(including the date on which the Offer is consummated), provided that the
employee is employed by the Company on such date. The Employment Agreements
provide for the payment of salary and bonus and the continuation of benefits
upon a termination without cause, or a constructive termination, of the
employee's employment. The Employment Agreements also provide that the Company
will make additional payments to certain employees who receive payments,
benefits or distributions subject to the excise tax imposed by Section 4999 of
the Code under certain circumstances. A copy of the form of Employment Agreement
is attached hereto as Exhibit 9 and incorporated herein by reference.
The Special Bonus Agreements provide for the payment of a bonus ranging
from $93,750 to $750,000 on the closing date of a transaction involving a change
of control of the Company (including consummation of the Offer), provided that
the employee is employed by the Company on such date. The aggregate amount of
bonuses payable under the Special Bonus Agreements is approximately $3.8
million. A copy of the form of Special Bonus Agreement is attached hereto as
Exhibit 10 and incorporated herein by reference.
OPTION GRANTS TABLE
The following Option Grants Table sets forth, as to the Named Executive
Officers, certain information relating to stock options granted during fiscal
1997.
INDIVIDUAL GRANTS
--------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM(4)
OPTIONS IN FISCAL BASE PRICE EXPIRATION --------------------------------
NAME GRANTED(#) YEAR(1) ($/SHARE) DATE(2) 0%($)(3) 5%($) 10%($)
---- ----------- ---------- ----------- ---------- -------- -------- ----------
Robert A. Mariano............ 25,000 10.9% $26.5625 9/20/07 $-- $417,625 $1,058,345
Darren W. Karst.............. 11,500 5.0 26.5625 9/20/07 -- 192,108 486,839
Robert E. McCoy.............. 11,500 5.0 26.5625 9/20/07 -- 192,108 486,839
Alice F. Smedstad............ 3,750 1.6 26.5625 9/20/07 -- 62,644 158,752
Herbert Young................ 3,750 1.6 26.5625 9/20/07 -- 62,644 158,752
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(1) The total number of shares of Common Stock subject to options granted to
employees in the fiscal year ended November 1, 1997 was 228,960.
(2) Options may terminate before their expiration date if the optionee's status
as an employee or consultant is terminated or upon optionee's death.
(3) Based upon the fair market value of the Common Stock on the grant date, as
determined in good faith by the Board of Directors.
(4) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices. There can be no assurance that the amounts reflected in this table
will be achieved.
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YEAR-END OPTION VALUE TABLE
No Named Executive Officer exercised stock options during Fiscal 1997. The
following table sets forth certain information concerning the number of stock
options held by the Named Executive Officers as of November 1, 1997, and the
value of in-the-money options outstanding as of such date.
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT NOVEMBER 1, 1997 AT NOVEMBER 1, 1997(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Robert A. Mariano............................... 58,551 112,828 $1,737,091 $2,854,119
Darren W. Karst................................. 29,275 55,414 868,531 1,417,122
Robert E. McCoy................................. 109,788 48,091 3,757,247 1,199,863
Alice F. Smedstad............................... 5,489 20,217 162,848 525,809
Herbert R. Young................................ 109,788 40,341 3,757,247 1,122,847
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(1) Value is based upon the closing price of the Voting Common Stock on the
composite tape for the New York Stock Exchange on October 31, 1997 of $36.50
minus the exercise price.
MANAGEMENT INCENTIVE PLAN
The Company's Management Incentive Plan (the "MIP program") covers all
executive officers and other key managers. Its purpose is to provide a direct
financial incentive in the form of an annual bonus to achieve or exceed
pre-determined financial objectives. The MIP program provides for varying levels
of payout to participants depending on the individual's level within the
organization. The Chief Executive Officer may receive a bonus ranging from 0% up
to 200% of base salary. Executive Vice Presidents may receive a bonus of up to
100% of base salary and Group Vice Presidents may receive a bonus of up to 85%
of base salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a board committee performing the functions of a
compensation committee. Ronald W. Burkle, the Chairman of the Board, and Robert
A. Mariano, the President and Chief Executive Officer, made decisions with
regard to executive officer compensation for fiscal 1997, except that decisions
with regard to awards under the 1996 Plan (as defined below) were made by the
Board of Directors.
REPORT ON COMPENSATION OF EXECUTIVE OFFICERS
The Board of Directors is responsible for developing the Company's
executive compensation policies and approving on an annual basis the
compensation policies applicable to the Chief Executive Officer and other
executive officers of the Company. The objectives of the Company's executive
compensation program are to support the achievement of desired performance by
the Company, provide compensation that will attract and retain superior talent
and reward performance, and align the executive officers' personal interests and
financial remuneration with the success of the Company by basing a significant
portion of their compensation upon Company performance.
The executive compensation program provides an overall level of
compensation opportunity that is competitive within the retail food and drug
industry, including those companies which compete directly with the Company in
its region, as well as companies outside the industry with which the Company may
compete for executive talent. Companies are selected for the purpose of
comparing compensation practices on the basis of a number of factors relative to
the Company, such as their size and complexity, the nature of their businesses,
the regions in which they operate, the structure of their compensation programs
(including the extent to which they rely on bonuses and other contingent forms
of compensation) and the availability of compensation information. In reviewing
the compensation practices of other companies, the Board of Directors considers
the fact that the compensation structures of most peer companies tend to be
significantly different than those of the Company in a number of respects,
particularly in such areas as the amount of bonus relative to salary paid by
such companies, their use of stock appreciation rights and stock options, the
time
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35
period over which stock options vest and the nature and amount of pension
benefits made available to executive officers. For these reasons, although the
Board of Directors has considered the compensation policies of certain peer
companies, the Board of Directors does not believe that all such companies are
comparable to the Company for the purpose of setting the compensation for the
Company's executive officers. The Board of Directors uses its discretion to set
executive compensation at levels warranted by external, internal and individual
circumstances. Actual compensation levels may be greater or less than average
compensation levels in other companies based upon annual and long-term
performance of the Company and each individual executive officer's performance.
The Company's executive officer compensation program is comprised of base
salary, cash bonus compensation, long-term incentive compensation in the form of
stock options, and other benefits such as those available through the Company's
medical and defined contribution plans.
Base Salary. Base salary levels for the Company's executive officers,
including the Chief Executive Officer, are set such that the overall cash
compensation package for executive officers, including bonus opportunity
compares favorably to companies with which the Company competes for executive
talent. In determining salaries, the Board of Directors also takes into account
a number of factors, which primarily include individual experience and
performance, the officer's level of responsibility, the cost of living and
historical salary levels. The measures of individual performance considered
include, to the extent applicable to an individual executive officer, a number
of quantitative and qualitative factors such as the Company's historical and
recent financial performance, the individual's achievement within his or her
responsibility of particular financial and non-financial goals, and other
contributions made by the officer to the Company's success. Specific factors
related to an individual's performance considered by the Board of Directors
include financial measures such as EBITDA (as adjusted), net income, sales, same
store sales, and cost savings and non-financial measures such as store openings,
site acquisitions or other specific tasks. The Board of Directors has not found
it practicable, and has not attempted, to assign relative weights to the
specific factors considered in determining base salary levels, and the specific
factors used may vary among achievement of any specific, pre-determined
performance targets.
Cash Bonus. The Company's Management Incentive Plan ("MIP") covers all
executive officers and other key managers. Its purpose is to provide a direct
financial incentive in the form of an annual bonus to achieve or exceed
pre-determined financial and individual objectives. The MIP program provides for
varying levels of payout to participants depending on the individual's level
within the organization. The Chief Executive Officer may receive a bonus ranging
from 0% up to 200% of base salary. Executive Vice Presidents may receive a bonus
of up to 100% of base salary, and Group Vice Presidents may receive a bonus of
up to 85% of base salary. In fiscal 1997, the MIP program was based on actual
results achieved compared to targeted performance in two (2) categories: sales
and EBITDA (as adjusted).
1996 Equity Participation Plan. The Company's 1996 Equity Participation
Plan (the "1996 Plan") authorizes the Board of Directors to provide incentives
for officers, employees and consultants through granting of stock options,
restricted stock and other awards (collectively, "Awards"), thereby stimulating
their personal and active interest in the Company's development and financial
success, and inducing them to remain in the Company's employ. Grants of Awards
are made in amounts commensurate with the individual's responsibility and at a
level calculated to be competitive within the retail food and drug industries as
well as a broader group of companies of comparable size and complexity. Options
granted to date to executive officers vest over a five-year period after the
grant date, and do not include any specific, pre-determined performance targets
as a condition to vesting or granting. The Company believes that such long-term
grants serve the primary objective of retaining executives and key managers,
while also aligning executives and shareholder interests by creating a strong
and direct link between compensation and shareholder return and by enabling
executives and key managers to develop and maintain a significant, long-term
ownership interest in the Company. In fiscal 1997, awards of 55,500 options were
granted to Named Executive Officers. Grants of additional stock options to the
Named Executive Officers may be considered in future periods by the Board of
Directors.
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36
Benefits. The Company provides medical and certain other benefits to
executive officers, including the Chief Executive Officer, that are generally
available to the Company's employees. The Company also provides executive
officers with supplemental death and disability benefits. The benefits available
under such arrangements are substantially similar for each of the Company's
executive officers, including the Chief Executive Officer, except to the extent
benefits are payable based upon the length of an officer's employment with the
Company.
Chief Executive Officer Compensation. The Chief Executive Officer's
compensation is reviewed and approved independently by the Board of Directors
subject to the provisions of his employment agreement. The Board of Directors
determines the Chief Executive Officer's compensation based upon the factors
applicable to the Company's other executive officers, which are described in
detail above, as well as a number of additional qualitative and quantitative
factors appropriate to his position as the Company's principal executive.
In accordance with the Company's compensation policies for all executive
officers, a large component of the Chief Executive Officer's compensation is
paid in the form of bonus, which, in order to provide an appropriate incentive
to maximize the Company's financial performance, is determined based upon preset
bonus maximums and the amount of the Company's actual sales and EBITDA (as
adjusted) compared to targeted sales and EBITDA (as adjusted). For fiscal 1997,
the Company did not achieve its targeted levels of sales and EBITDA (as
adjusted). Accordingly, the maximum pre-determined Chief Executive Officer bonus
for fiscal 1997 was not paid. Rather, the Chief Executive Officer received a
bonus of $476,000.
The Board of Directors believes that the Chief Executive Officer's total
cash compensation is appropriate in light of the Company's performance in fiscal
1997 and other factors described above.
January 23, 1998 Ronald W. Burkle
Grace Barry
Evan Bayh
Peter P. Copses
Linda McLoughlin Figel
Patrick L. Graham
David B. Kaplan
Darren W. Karst
Robert A. Mariano
Antony P. Ressler
Ira L. Tochner
The Report on Compensation of Executive Officers shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Information Statement into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, and shall not
otherwise be deemed filed under such Acts.
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37
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the total cumulative return on
the Common Stock based on the market price of the Voting Common Stock since
November 1, 1996, when the Company's initial public offering of Common Stock was
completed.
[CUMULATIVE RETURN BAR CHART]
S&P Retail Stores
Dominick's -Food Chain
Supermarkets, Inc. S&P 500 Index
11/1/96 100 100 100
10/31/97 187 133 122
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* Total Cumulative Return assumes $100 invested on November 1, 1996 in the
Company, the S&P 500 Stock Index, and the S&P Retail Stores -- Food Chain
Index, with reinvestment of dividends. The Company's fiscal year ended
November 1, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes of ownership with the Commission and each exchange on
which the Company's securities are registered. Officers, directors and greater
than ten percent stockholders are required by Commission regulations to furnish
the Company with copies of all ownership forms they file.
Based solely on a review of copies of reporting forms furnished to it, or
written representations that no forms were required, the Company believes that,
except as set forth below, all filing requirements applicable to its officers,
directors and beneficial owners under Section 16(a) of the Exchange Act were
complied with during fiscal 1997. The Company notes that for Ira L. Tochner, who
was appointed to the Board on January 31, 1997, following the death of Mr. Mark
Resnik, a Form 3 was inadvertently not filed until January 22, 1998. In
addition, Form 5s for directors Ressler and Bayh were inadvertently not filed
until January 23, 1998 and January 17, 1998 respectively, for 1,745 restricted
shares of Common Stock awarded to them pursuant to the Directors Plan in fiscal
1997.
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38
1996 EQUITY PARTICIPATION PLAN
Under the Company's 1996 Equity Participation Plan (the "1996 Plan"), the
Board of Directors (or a committee appointed by the Board of Directors) may
grant or issue stock options, stock appreciation rights, restricted stock,
deferred stock, dividend equivalents, performance awards, stock payments and
other stock related benefits, or any combination thereof (collectively,
"Awards") to officers, employees and consultants of the Company. The 1996 Plan
also provides for the granting of options to the Company's independent non-
employee directors. The prices for shares of Common Stock subject to options and
stock appreciation rights or pursuant to other Awards which may be granted or
made under the 1996 Plan are set by the Board of Directors (or a committee
thereof), provided that such price shall be no less than the par value of a
share of Common Stock, unless otherwise permitted by applicable state law, and
(i) in the case of incentive stock options ("ISOs") and Non-Qualified Stock
Options ("NQSOs") intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, such price shall not be less than
100% of the Fair Market Value (as defined in the 1996 Plan) of a share of Common
Stock on the date the option is granted; (ii) in the case of ISOs granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code) such price shall not be less than 110% of the Fair
Market Value (as defined in the 1996 Plan) of a share of Common Stock on the
date the option is granted; and (iii) in the case of options granted to
independent non-employee directors, such price shall equal 100% of the Fair
Market Value of a share of Common Stock on the date the option is granted. Under
the 1996 Plan, not more than 1,000,000 shares of Common Stock are authorized for
issuance upon exercise of options, stock appreciation rights and other Awards.
RESTATED 1995 STOCK OPTION PLAN
Under the Company's Restated 1995 Stock Option Plan (the "1995 Plan"),
certain officers and key employees of the Company received grants of NQSOs and
ISOs. As required by the 1995 Plan, all ISOs granted thereunder have a per share
exercise price at least equal to 100% of the Fair Market Value (as defined in
the 1995 Plan) of Common Stock on the date of grant and all ISOs granted
thereunder to employees who at the time such option was granted owned (within
the meaning of Section 424(d) of the "Code") more than 10% of the total combined
voting power of all classes of capital stock of the Company have a per share
exercise price at least equal to 110% of the Fair Market Value of Common Stock
on the date of grant. The 1995 Plan is administered by the Board of Directors
which designates the individuals who shall receive options, whether an optionee
will receive ISOs, NQSOs or both, and the amount, price restrictions and all
other terms and provisions of such options. Options granted and presently
outstanding under the 1995 Plan have terms of ten years and become exercisable
either (i) as to at least 20% of the shares of Common Stock covered thereby on
each anniversary of the date such option is granted or (ii) as to at least 25%
of the shares of Common Stock covered thereby on each anniversary of the date
such option is granted commencing with the second anniversary of such date.
1997 EMPLOYEE STOCK PURCHASE PLAN
Under the Company's 1997 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan"), the Company offers options to purchase shares of Voting Common
Stock to all eligible employees in successive 3-month offering periods at an
exercise price equal to 90% of the lesser of the fair market value (as
determined in accordance with the provisions of the Employee Stock Purchase
Plan) of a share of Voting Common Stock on the date of grant or the date of
exercise (the "Option Price"). Each participant automatically and without any
act on such participant's part is deemed to exercise all options at the end of
the applicable offering period to the extent that the balance of such
participant's payroll deductions is sufficient to purchase shares of Voting
Common Stock at the Option Price. The Employee Stock Purchase Plan is
administered by a committee of the Board of Directors.
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39
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT AND PURCHASER
As of the date of this Information Statement, Purchaser has not determined
who will be Designees. However, such Designees will be selected from the
following list of directors and executive officers of Parent upon the purchase
by Purchaser pursuant to the Offer of Shares representing not less than a
majority of the outstanding shares of Common Stock on a fully diluted basis
(without giving effect to the shares issuable upon exercise of the Yucaipa
Warrant). The information contained herein concerning Parent and Purchaser and
their respective directors and executive officers has been furnished by Parent
and Purchaser. The Company assumes no responsibility for the accuracy or
completeness of such information.
The name, present principal occupation or employment and five-year
employment history of each director and executive officer of Parent and certain
other information is set forth below. Unless otherwise indicated below, the
business address of each director and executive officer is 5918 Stoneridge Mall
Road, Pleasanton, California 94588. Unless otherwise indicated, each occupation
described below refers to employment with Parent. Except as noted, none of the
persons listed below owns any Shares or has engaged in any transactions with
respect to Shares during the past 60 days. During the last five years, neither
Parent nor any director or executive officer of Parent indicated has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) nor was such person a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction, and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws. Unless otherwise
indicated, all directors and executive officers listed below are citizens of the
United States.
Steven A. Burd, age 48, was appointed Chairman of the Board of Directors of
Parent effective May 12, 1998. He has been Chief Executive Officer since April
30, 1993 and President since October 26, 1992. He was first elected to the Board
of Directors of Parent on September 7, 1993.
James H. Greene, Jr., age 48, has been a member of the Board of Directors
of Parent since December 17, 1987. Mr. Greene is a General Partner of KKR
Associates, L.P. ("KKR Associates") and was a General Partner of Kohlberg Kravis
Roberts & Co. ("KKR") from January 1, 1993 until January 1, 1996 when he became
a member of the limited liability company which serves as the general partner of
KKR. Mr. Greene is also a director of Accuride Corporation, Bruno's, Inc.,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., Randall's Food Markets, Inc.
and Union Texas Petroleum Holdings, Inc.
Henry R. Kravis, age 54, has been a member of the Board of Directors of
Parent since November 26, 1986. Mr. Kravis is a Founding Partner of KKR and KKR
Associates. Effective January 1, 1996, he became a managing member of the
limited liability company which serves as the general partner of KKR. Mr. Kravis
is also a director of Accuride Corporation, Amphenol Corporation, Borden, Inc.,
Bruno's, Inc., Evenflo & Spalding Holdings Corporation, The Gillette Company,
IDEX Corporation, Kindercare Learning Centers, Inc., KSL Recreation Group, Inc.,
Newsquest Capital, plc, Owens-Illinois, Inc., Owens-Illinois Group, Inc.,
PRIMEDIA, Inc., Randall's Food Markets, Inc., Sotheby's Holdings, Inc., Union
Texas Petroleum Holdings, Inc. and World Color Press, Inc.
Robert I. MacDonnell, age 60, has been a member of the Board of Directors
of Parent since November 26, 1986. Mr. MacDonnell is a General Partner of KKR
Associates and was a General Partner of KKR until January 1, 1996 when he became
a member of the limited liability company which serves as the general partner of
KKR. Mr. MacDonnell is also a director of Owens-Illinois, Inc. and
Owens-Illinois Group, Inc.
Peter A. Magowan, age 56, has been a member of the Board of Directors of
Parent since November 26, 1986 and served as Chairman of the Board of Parent
from such time to May 12, 1998. He served as Chief Executive Officer from
November 26, 1986 to April 30, 1993 and served as President from March 27, 1988
to October 26, 1992. From December 1979 to November 26, 1986, Mr. Magowan served
as Chairman of the Board and Chief Executive Officer of Parent's predecessor,
Safeway Stores, Incorporated, a Maryland
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40
corporation. Mr. Magowan is also a director of Caterpillar, Inc. and Chrysler
Corporation. Mr. Magowan is Managing General Partner and President of the San
Francisco Giants.
George R. Roberts, age 55, has been a member of the Board of Directors of
Parent since July 23, 1986. Mr. Roberts is a Founding Partner of KKR and KKR
Associates. Effective January 1, 1996, he became a managing member of the
limited liability company which serves as the general partner of KKR. Mr.
Roberts is also a director of Accuride Corporation, Amphenol Corporation,
Borden, Inc., Bruno's, Inc., Evenflo & Spalding Holdings Corporation, IDEX
Corporation, Kindercare Learning Centers, Inc., KSL Recreation Group, Inc.,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., PRIMEDIA, Inc., Randall's Food
Markets, Inc., Union Texas Petroleum Holdings, Inc. and World Color Press, Inc.
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41
EXHIBITS
Exhibit 1. Agreement and Plan of Merger, dated as of October 13, 1998,
by and among Safeway Inc., Windy City Acquisition Corp. and
Dominick's Supermarkets, Inc.
Exhibit 2. Press Release issued by the Company and Parent on October
13, 1998. (Incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated October 13,
1998).
Exhibit 3. Stockholders Agreement, dated as of October 13, 1998, by and
among Safeway Inc., Windy City Acquisition Corp., Yucaipa
Blackhawk Partners, L.P., Yucaipa Chicago Partners, L.P.,
Yucaipa Dominick's Partners, L.P., Apollo Investment Fund,
L.P., Apollo Investment Fund III, L.P., Apollo Overseas
Partners III, L.P. and Apollo (UK) Partners III, L.P.
Exhibit 4. Class A Common Stock Purchase Warrant dated as of March 22,
1995 issued by Dominick's Supermarkets, Inc. to The Yucaipa
Companies, as supplemented. (Incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K,
Number 1-12353).
Exhibit 5. Amendment to Class A Common Stock Purchase Warrant, dated as
of October 13, 1998, by and between Dominick's Supermarkets,
Inc. and The Yucaipa Companies.
Exhibit 6. Amended and Restated Stockholders Agreement, dated as of
November 1, 1996, by and among Dominick's Supermarkets,
Inc., DFF Supermarkets, Inc., Dominick's Finer Foods, Inc.
and the stockholders of the Company named therein.
(Incorporated by reference to Exhibit 10.8 to the Company's
1996 Annual Report on Form 10-K, Number 1-12353).
Exhibit 7. Amendment to Amended and Restated Stockholders Agreement,
dated as of October 13, 1998, by and among The Yucaipa
Companies, Yucaipa Blackhawk Partners, L.P., Yucaipa Chicago
Partners, L.P., Yucaipa Dominick's Partners, L.P., Apollo
Investment Fund, L.P., Apollo Investment Fund III, L.P.,
Apollo Overseas Partners III, L.P. and Apollo (UK) Partners
III, L.P.
Exhibit 8. Management Agreement, dated as of November 1, 1996, by and
among Dominick's Supermarkets, Inc., Dominick's Finer Foods,
Inc. and The Yucaipa Companies. (Incorporated by reference
to Exhibit 10.7 to the Company's 1996 Annual Report on Form
10-K, Number 1-12353).
Exhibit 9. Form of Employment Agreement.
Exhibit 10. Form of Special Bonus Agreement.
Exhibit 11. Letter to Stockholders dated as of October 19, 1998.*
Exhibit 12. Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation dated October 12, 1998.*
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* Included in materials being distributed to stockholders of the Company.
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