Hillshire Brands Co – ‘S-4’ on 9/8/99

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Registration of Securities Issued in a Business-Combination Transaction   —   Form S-4
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-4         Registration of Securities Issued in a               144    829K 
                          Business-Combination Transaction                       
 2: EX-5.1      Opinion of Roderick A Palmore, Esq.                    2     10K 
 3: EX-8.1      Opinion of Cahill Gordon                               3     13K 
 4: EX-23.1     Consent of Arthur Andersen LLP                         1      7K 
 5: EX-23.2     Consent of Ernst & Young                               1      6K 
 6: EX-23.3     Consent of Grant Thornton                              1      6K 
 7: EX-24.1     Powers of Attorney                                    16     36K 
 8: EX-99.1     Consent of Credit Suisse First Boston                  1      8K 
 9: EX-99.2     Form of Proxy of Chock Full O' Nuts                    2     10K 
10: EX-99.3     Form of Affiliate Letter                               4     16K 

S-4   —   Registration of Securities Issued in a Business-Combination Transaction
Document Table of Contents

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As filed with the Securities and Exchange Commission on September 8, 1999 
                                                 Registration No. 333-
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--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

--------------  

FORM S-4

REGISTRATION STATEMENT
under 
The Securities Act of 1933

--------------  

SARA LEE CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Maryland                    2000                    36-2089049
(State or Other          (Primary Standard           (I.R.S. Employer 
    Jurisdiction               Industrial           Identification Number)
of Incorporation or     Classification Code No.)                          
Organization)                                                       

Three First National Plaza, Suite 4600
Chicago, Illinois 60602-4260
(312) 726-2600
(Address, Including Zip Code, and Telephone Number, Including Area Code of
Registrant's Principal Executive Offices) 

--------------  

Roderick A. Palmore, Esq. 
Senior Vice President, Secretary and General Counsel
Sara Lee Corporation
Three First National Plaza, Suite 4600
Chicago, Illinois 60602-4260
(312) 726-2600
(Name, Address, Including Zip Code, and Telephone Number, Including Area code,
of Agent for Service) 

--------------  

Copies to:
Charles W. Mulaney, Jr., Esq.               W. Leslie Duffy, Esq.     
Skadden, Arps, Slate, Meagher & Flom          Cahill Gordon & Reindel       
    (Illinois)                          Eighty Pine Street
333 W. Wacker Drive, Suite 2100             New York, New York 10005    
Chicago, Illinois 60606-1285                   (212) 701-3000       
(312) 407-0700                                        

Approximate Date of Commencement of Proposed Sale of the Securities to the
Public: Upon consummation of the merger referred to herein.                     
If the securities being registered on this Form are being offered in      
connection with the formation of a holding company and there is compliance with 
General Instruction G, check the following box. [_]                             
If this form is filed to register additional securities for an offering   
pursuant to Rule 462(b) under the Securities Act, check the following box and   
list the Securities Act registration statement number of the earlier effective  
registration statement for the same offering. [_]                               
If this form is a post-effective amendment filed pursuant to Rule 462(d)  
under the Securities Act, check the following box and list the Securities Act   
registration statement number of the earlier effective registration statement   
for the same offering. [_]                                                      

CALCULATION OF REGISTRATION FEE 
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                                                        [Enlarge/Download Table]

                                                                                  Proposed                 
                                                                   Proposed       maximum                  
                                                     Amount        maximum       aggregate      Amount of  
             Title of each class of                  to be      offering price    offering     registration
          securities to be registered            registered(1)    per share       price(2)        fee(3)   
-----------------------------------------------------------------------------------------------------------
                                                                                                           
Common Stock, $.01 par value per share, and                                                                
 related preferred stock purchase rights(4)....    11,284,503        N/A        $254,239,853     $70,679   
-----------------------------------------------------------------------------------------------------------

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(1) Based on the maximum number of shares to be issued in connection with the   
 merger, calculated as the product of (a) 21,543,534, the aggregate number
of shares of Chock full o'Nuts Corporation common stock, par value $0.25
per share, outstanding on September 7, 1999 (other than shares owned by 
 Chock full o'Nuts, CFN Acquisition Corporation, a wholly owned subsidiary
  of the registrant, or the registrant) and issuable pursuant to outstanding
   options and outstanding convertible debentures prior to the date the merger
   is expected to be consummated and (b) an estimated exchange ratio of 0.5238
   shares of the registrant's common stock for each share of Chock full o'Nuts
common stock.                                                           
(2) Estimated solely for the purpose of calculating the registration fee        
  required by Section 6(b) of the Securities Act, and calculated pursuant to
  Rule 457(f) under the Securities Act. Pursuant to Rule 457(f)(1) under the
Securities Act, the proposed maximum aggregate offering price of the    
registrant's common stock was calculated in accordance with Rule 457(c) 
under the Securities Act as: (a) $22.53, the average of the high and low
  prices per share of Sara Lee common stock on September 1, 1999 as reported
   on The New York Stock Exchange, multiplied by (b) 21,543,534, the aggregate
   number of shares of Chock full o'Nuts common stock outstanding on September
7, 1999 or issuable pursuant to outstanding options and outstanding     
   convertible debentures on or prior to the date the merger is expected to be
completed.                                                              
(3) Pursuant to Rule 457(b) under the Securities Act, $22,965.35 of the         
   registration fee was paid on June 21, 1999 in connection with the filing of
  the preliminary proxy materials of Chock full o'Nuts on June 22, 1999, and
$47,713.65 of the registration fee was paid on September 8, 1999 in     
  connection with the filing of the registration statement by the registrant
on September 8, 1999.                                                   
(4) No separate consideration will be received for the rights, which initially  
will trade together with the common stock.                              

--------------  
The Registrant hereby amends this Registration Statement on such date or  
dates as may be necessary to delay its effective date until the Registrant      
shall file a further amendment which specifically states that this Registration 
Statement shall thereafter become effective in accordance with Section 8(a) of  
the Securities Act of 1933 or until the Registration Statement shall become     
effective on such date as the Commission, acting pursuant to said Section 8(a), 
may determine.                                                                  

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CHOCK FULL O'NUTS CORPORATION 
370 LEXINGTON AVENUE  
NEW YORK, NEW YORK 10017  

Dear Shareholder:                                                               

Chock full o'Nuts board of directors has unanimously approved a merger    
agreement between Chock full o'Nuts and Sara Lee Corporation. In the merger,    
for each share of Chock full o'Nuts common stock you own, you will receive a    
fraction between 0.5238 and 0.4231 of a share of Sara Lee common stock. We      
will determine the exact fraction by dividing:                                  

(1) $11.00, by                                                              

(2) the average price per share of Sara Lee common stock for the twenty     
consecutive trading days following the date this proxy statement is 
mailed.                                                             

If the average price exceeds $26.00, you will not receive less than 0.4231
of a share of Sara Lee common stock. If the average price is below $21.00, you  
will not receive more than 0.5238 of a share of Sara Lee common stock, unless   
Sara Lee elects to increase the ratio.                                          

 The aggregate number of shares of Sara Lee common stock that will be issued
in the merger will not be determined until after the twenty day trading         
period. However, based upon the range of possible exchange ratios and the       
current market price of Sara Lee common stock, we estimate that 9,115,069 to    
11,284,503 shares of Sara Lee common stock will be issued in the merger.        

 You may calculate the actual value you will receive for each of your shares
of Chock full o'Nuts common stock by multiplying the exchange ratio by the      
price per share of Sara Lee common stock on the date that the merger is         
completed. You may contact Sara Lee at (800)    -     to obtain a current       
price per share of Sara Lee common stock and the exchange ratio based on the    
prior twenty trading days. Sara Lee common stock is listed on the New York      
Stock Exchange under the trading symbol "SLE," and on September 7, 1999, Sara   
Lee common stock closed at $23 7/16 per share. You will receive cash for any    
fractional shares of Sara Lee common stock which you would otherwise receive    
in the merger.                                                                  

We cannot complete the merger unless the holders of two-thirds of the     
outstanding shares of Chock full o'Nuts common stock vote to adopt the merger   
agreement. Only shareholders who hold shares of Chock full o'Nuts common stock  
at the close of business on August 19, 1999 will be entitled to vote at the     
special meeting. The special meeting of shareholders will be held on October    
15, 1999, at 1:00 p.m., local time, at The Chase Manhattan Bank, 11th Floor,    
Room A, 270 Park Avenue, New York, New York 10017.                              

You should consider the matters discussed under "Risk Factors Relating to 
the Merger" on page 11 of this proxy statement/prospectus before voting. Also,  
please review carefully the entire proxy statement/prospectus.                  

After careful consideration, Chock full o'Nuts' board of directors        
unanimously approved the merger agreement and determined that the merger is     
fair to you and in your best interests and unanimously recommends that you      
vote for the adoption of the merger agreement.                                  

Thank you for your support.                                               

Sincerely,                                                                      
/s/ Norman E. Alexander                   /s/ Marvin I. Haas                    
Norman E. Alexander                       Marvin I. Haas                        
Chairman of the Board                     President and Chief Executive         
           Officer

Your vote is important. 
Please promptly complete, sign, date and return your proxy. 

Neither the Securities and Exchange Commission nor any state securities   
regulator has approved or disapproved of the merger described in the proxy      
statement/prospectus or the Sara Lee common stock to be issued in connection    
with the merger or determined if the proxy statement/prospectus is accurate or  
adequate. Any representation to the contrary is a criminal offense.             

The proxy statement/prospectus is dated September [ . ], 1999 
and is first being mailed to shareholders on or about September [ . ], 1999.  

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CHOCK FULL O'NUTS CORPORATION 
370 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS 
TO BE HELD ON OCTOBER 15, 1999

To the Shareholders of Chock full o'Nuts Corporation:                           

We will hold a special meeting of the shareholders of Chock full o'Nuts   
Corporation on Friday, October 15, 1999, at 1:00 p.m., local time, at The Chase 
Manhattan Bank, 11th Floor, Room A, 270 Park Avenue, New York, New York 10017,  
for the following purpose:                                                      

To consider and vote upon a proposal to adopt the merger agreement    
between Chock full o'Nuts and Sara Lee. Under the merger agreement, Chock   
full o'Nuts will become a wholly-owned subsidiary of Sara Lee, and each     
outstanding share of Chock full o'Nuts common stock will be converted into  
the right to receive a fraction of a share of Sara Lee common stock on the  
terms more fully described in this proxy statement.                         

We will transact no other business at the special meeting, except other   
business that may properly be brought before the special meeting or any         
adjournment of it.                                                              

Only holders of record of shares of Chock full o'Nuts common stock at the 
close of business on August 19, 1999, the record date for the special meeting,  
are entitled to notice of, and to vote at, the special meeting and any          
adjournments or postponements of it.                                            

We cannot complete the merger unless the holders of at least two-thirds of
the outstanding shares of Chock full o'Nuts common stock vote to adopt the      
merger agreement.                                                               

 For more information about the merger, please review the accompanying proxy
statement/ prospectus and the merger agreement attached as Annex 1.             

  Whether or not you plan to attend the special meeting, please complete, sign
and date the enclosed proxy and return it promptly in the enclosed postage-paid 
envelope. If you do not vote by proxy or in person at the special meeting, it   
will have the same effect as a vote against the merger agreement.               

Please do not send any stock certificates at this time.                   

                                       By Order of the Board of Directors,

                         /s/ Howard M. Leitner
                     Howard M. Leitner
                         Senior Vice President
                               and Chief Financial Officer

New York, New York                                                              
September [ . ], 1999                                                           

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QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: Why are Sara Lee and Chock full o'Nuts proposing to merge?                   

A: This is a unique opportunity for Chock full o'Nuts to join one of the        
world's leading food and consumer products companies and for Chock full o'Nuts  
shareholders to become stockholders of that company. We anticipate that the     
merger will create growth and business expansion opportunities for Chock full   
o'Nuts which are greater than those that would be available to Chock full       
o'Nuts as an independent company. We believe that the merger will improve Chock 
full o'Nuts manufacturing, sales, administration and distribution. We also      
believe that we will realize improvements in our Door Store Delivery business   
in which we deliver directly to our customers' business locations, rather than  
to a centralized warehouse, by route delivery drivers. In addition, we believe  
the greater financial resources available to Chock full o'Nuts, as a part of    
Sara Lee will enable us to expand further in the business of servicing national 
accounts. We believe the merger will enhance the geographical coverage of Sara  
Lee's existing coffee business, expand its channels of distribution and improve 
production flexibility.                                                         

Q: What do I need to do now?                                                    

A: After carefully reading and considering the information contained in this    
proxy statement/prospectus, please complete and sign your proxy and return it   
in the enclosed return envelope as soon as possible, so that your shares may be 
represented at the special meeting. If you sign and send in your proxy and do   
not indicate how you want to vote, we will count your proxy as a vote in favor  
of adoption of the merger agreement. If you abstain from voting or do not vote, 
it will have the same effect as a vote against adoption of the merger           
agreement. The special meeting will take place on October 15, 1999. You may     
attend the special meeting and vote your shares in person. However, even if you 
plan to attend the special meeting, we recommend that you complete, sign and    
date the enclosed proxy and return it promptly in the enclosed postage-paid     
envelope.                                                                       

Q: Can I change my vote after I have mailed my signed proxy?                    

A: Yes. You can change your vote at any time before your proxy is voted at the  
special meeting. You can do this in one of three ways. First, you can send a    
written notice stating that you would like to revoke your proxy. Second, you    
can complete and submit a new proxy. If you choose either of these two methods, 
you must submit your notice of revocation or your new proxy to the Secretary of 
Chock full o'Nuts at the address set forth below. Third, you can attend the     
special meeting and vote in person. If you hold your shares through a broker or 
bank, you should follow the instructions provided by that firm to revoke your   
proxy.                                                                          

Q: If my Chock full o'Nuts shares are held in "street name" by my broker, will  
my broker vote my shares for me?                                          

A: Your broker will not be able to vote your Chock full o'Nuts shares on your   
behalf unless you provide instructions on how to vote. You should follow the    
directions provided by your broker regarding how to instruct your broker to     
vote your shares. Without instructions, your shares will not be voted, which    
will have the same effect as a vote against adoption of the merger agreement.   

Q: Should I send in my stock certificates now?                                  

A: No. After the merger is completed, you will receive written instructions for 
exchanging your stock certificates. Please do not send in your stock            
certificates with your proxy.                                                   

Q: Who can help answer my questions?                                            

A: If you have any questions about the merger or if you need additional copies  
of this proxy statement/prospectus or the enclosed proxy, you should contact:   

Howard M. Leitner 
Senior Vice President and Chief Financial Officer 
Chock full o'Nuts Corporation 
370 Lexington Avenue
New York, New York 10017
Telephone: (212) 532-0300 

i 

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CHOCK FULL O'NUTS                                           SARA LEE CORPORATION
Proxy Statement                                                       Prospectus

TABLE OF CONTENTS 

                                                                [Download Table]

                                                                           Page
                                                                           ----
                                                                               
QUESTIONS AND ANSWERS ABOUT THE MERGER....................................   i 

SUMMARY...................................................................   1 
  General.................................................................   1 
  The Special Meeting.....................................................   4 
  The Merger..............................................................   4 
  The Companies...........................................................   6 
  Selected Consolidated Historical Financial Data.........................   7 
    Chock full o'Nuts.....................................................   7 
    Sara Lee..............................................................   8 
  Unaudited Comparative Per Share Information.............................   9 

RISK FACTORS RELATING TO THE MERGER.......................................  11 
  Chock full o'Nuts Shareholders May Receive Consideration Having a Value      
   of Less than $11.00 Per Share..........................................  11 
  Potential Conflicts of Interest of Chock full o'Nuts' Directors and          
   Officers...............................................................  11 
  The Price of Sara Lee Common Stock May Be Affected by Factors Different      
   From Those Affecting the Price of Chock full o'Nuts Common Stock.......  12 

THE SPECIAL MEETING.......................................................  13 
  Date; Time and Place....................................................  13 
  Purpose of Special Meeting..............................................  13 
  Record Date; Stock Entitled to Vote; Quorum.............................  13 
  Vote Required...........................................................  13 
  Voting by Chock full o'Nuts Directors and Executive Officers............  13 
  Voting of Proxies.......................................................  13 
  Revocability of Proxies.................................................  14 
  Solicitation of Proxies.................................................  14 

THE MERGER................................................................  14 
  Background to the Merger................................................  14 
  Reasons for the Merger and Board of Directors' Recommendation...........  16 
  Opinion of Credit Suisse First Boston Corporation.......................  17 
  Interests of Chock full o'Nuts Directors and Management in the Merger...  23 
  Agreements between Sara Lee and Chock full o'Nuts.......................  25 
  Accounting Treatment....................................................  25 
  Form of the Merger......................................................  25 
  Merger Consideration....................................................  26 
  Chock full o'Nuts' Option to Terminate the Merger Agreement if the           
   Average Price of Sara Lee Common Stock is Below $21.00 Per Share.......  26 
  Conversion of Shares; Procedures for Exchange of Certificates;               
   Fractional Shares......................................................  26 
  Effective Time of the Merger............................................  27 
  Stock Exchange Listing of Sara Lee Common Stock.........................  27 
  Delisting and Deregistration of Chock full o'Nuts Common Stock..........  28 
  Material United States Federal Income Tax Consequences of the Merger....  28 
  Regulatory Matters......................................................  30 
  Litigation..............................................................  30 
  Appraisal Rights........................................................  31 
  Effect on Awards Outstanding Under Chock full o'Nuts Stock Plans........  31 
  Resale of Sara Lee Common Stock.........................................  31 

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                                                                [Download Table]

                                                                           Page
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THE MERGER AGREEMENT......................................................  32 

DESCRIPTION OF SARA LEE CAPITAL STOCK.....................................  38 

COMPARISON OF RIGHTS OF COMMON SHAREHOLDERS OF SARA LEE AND CHOCK FULL         
 O'NUTS...................................................................  39 
  Capitalization..........................................................  39 
  Voting Rights...........................................................  39 
  Board of Directors......................................................  39 
  Amendments to Certificates of Incorporation.............................  40 
  Amendments to Bylaws....................................................  40 
  Shareholder Action......................................................  40 
  Notice of Shareholder Actions...........................................  41 
  Special Shareholder Meetings............................................  41 
  Limitation of Personal Liability of Directors...........................  41 
  Dividends...............................................................  42 
  Conversion..............................................................  42 
  Dissenters or Appraisal Rights..........................................  42 
  Business Combinations...................................................  43 
  Control Share Acquisitions..............................................  44 
  Rights Plan.............................................................  45 

COMPARATIVE STOCK PRICES AND DIVIDENDS....................................  48 

DESCRIPTION OF CHOCK FULL O'NUTS BUSINESS.................................  49 

CHOCK FULL O'NUTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL            
 CONDITION AND RESULTS OF OPERATIONS......................................  54 

MANAGEMENT OF CHOCK FULL O'NUTS...........................................  60 

EXECUTIVE COMPENSATION AND TRANSACTIONS WITH OFFICERS, DIRECTORS AND           
 PRINCIPAL HOLDERS OF CHOCK FULL O'NUTS...................................  61 

OWNERSHIP OF CHOCK FULL O'NUTS COMMON STOCK...............................  64 

CHANGE OF AUDITORS........................................................  66 

LEGAL MATTERS.............................................................  66 

EXPERTS...................................................................  66 

SHAREHOLDER PROPOSALS.....................................................  66 

WHERE YOU CAN FIND MORE INFORMATION.......................................  67 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.........................  68 

INDEX TO FINANCIAL STATEMENTS............................................. F-1 

Annexes                                                                        
  Annex 1 Agreement and Plan of Merger                                         
  Annex 2 Opinion of Credit Suisse First Boston Corporation                    

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SUMMARY 

This summary highlights selected information from this proxy              
statement/prospectus and does not contain all of the information that is        
important to you. To understand the merger fully and for a more complete        
description of the legal terms of the merger, you should carefully read this    
entire proxy statement/prospectus and the other documents to which we have      
referred you. See "Where You Can Find More Information" on page 67. We have     
included page references parenthetically to direct you to a more complete       
description of the topics presented in this summary.                            

General 

What Chock full o'Nuts Shareholders Will Receive in the Merger (page 26)        

In the merger, for each share of Chock full o'Nuts common stock that you  
own, you will receive a fraction between 0.5238 and 0.4231 of a share of Sara   
Lee common stock. We will determine the exact fraction by dividing (1) $11.00   
by (2) the average closing price per share of Sara Lee common stock on the New  
York Stock Exchange for the 20 consecutive trading days commencing on the date  
this proxy statement/prospectus is first mailed. This average price is referred 
to as the "average price of Sara Lee common stock" in this proxy                
statement/prospectus. You will receive cash for any fractional shares which you 
would otherwise receive in the merger.                                          

You may contact Sara Lee at (800)    -     to obtain a current price per  
share of Sara Lee common stock and an assumed exchange ratio based on the prior 
twenty trading days. Such assumed exchange ratio will not necessarily be the    
same as the exchange ratio as finally determined.                               

If the average price of Sara Lee common stock is greater than $26.00, then
the exchange ratio remains fixed at 0.4231. In this case, the value of the Sara 
Lee common stock you receive may exceed $11.00 per share of Chock full o'Nuts   
common stock. If the average price of Sara Lee common stock is less than        
$21.00, then Sara Lee may decide to increase the exchange ratio above 0.5238    
and/or make an additional cash payment so that the value of the consideration   
you receive in the merger for each share of Chock full o'Nuts common stock that 
you own is $11.00.                                                              

The following table sets forth the value of the Sara Lee common stock that
you would receive in exchange for one share of Chock full o'Nuts common stock   
and the applicable exchange ratio as if they were calculated:                   

(1) on April 22, 1999, the last full trading day before Sara Lee's public   
 announcement that it had acquired a greater than 5% interest in Chock
full o'Nuts,                                                        

(2) on June 7, 1999, the last full trading day before the public            
announcement of the merger, and                                     

(3) on September 3, 1999, the last day for which such information could be  
obtained before the date of this proxy statement/prospectus.        

The table also provides examples of the resulting value and exchange ratio      
assuming that the average price of Sara Lee common stock was $28.00, a price    
above the upper end of the range for calculating the exchange ratio, and        
$19.00, a price below the lower end of such range.                              

                                                        [Enlarge/Download Table]

                                                                          Shares of Sara Lee
                                                        Equivalent Price   Common Stock per 
                           Price of       Price of        per Share of      Share of Chock  
                           Sara Lee   Chock full o'Nuts Chock full o'Nuts    full o'Nuts    
    Date                 Common Stock   Common Stock      Common Stock       Common Stock   
    ----                 ------------ ----------------- ----------------- ------------------
                                                                                            
April 22, 1999..........     $ 24           $ 6 1/2          $11.00             .4469       
June 7, 1999............     $24 9/16       $10 1/2          $11.00             .4527       
September 7, 1999.......     $23 7/16       $10 1/2          $11.00             .4926       
Illustration--above                                                                         
 range..................     $ 28            --              $11.85             .4231       
Illustration--below                                                                         
 range..................     $ 19            --              $ 9.95             .5238       

The exchange ratio will be determined prior to the date of the special    
meeting to approve the merger.                                                  

1 

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Right of Chock full o'Nuts to Terminate Agreement if the Average Price of Sara  
Lee Common Stock is Below $21.00 Per Share (page 26)                            

If the average price of Sara Lee common stock is less than $21.00 and Sara
Lee does not increase the value of the consideration to $11.00 per share of     
Chock full o'Nuts common stock, the board of directors of Chock full o'Nuts     
may:                                                                            

.  accept 0.5238 of a share of Sara Lee common stock for each share of      
Chock full o'Nuts common stock, or                                    

.  terminate the merger agreement.                                          

If the Chock full o'Nuts board does not terminate the agreement, the value of   
the Sara Lee common stock that you receive in the merger may be less than       
$11.00 per share of Chock full o'Nuts common stock. In addition, if the average 
price of Sara Lee common stock is $21.00 at the determination date but it       
declines in price after the determination date through the effective time of    
the merger, the Sara Lee common stock that you receive in the merger will be    
valued at less than $11.00 per share of Chock full o'Nuts common stock.         

Appraisal Rights                                                                

Chock full o'Nuts shareholders have no appraisal rights in connection with
the merger.                                                                     

Material United States Federal Income Tax Consequences of the Merger (page 28)  

The merger is intended to qualify as a tax-free reorganization within the 
meaning of the Internal Revenue Code of 1986. It is a condition to the          
completion of the merger that Chock full o'Nuts receive an opinion from Cahill  
Gordon & Reindel and that Sara Lee receive an opinion from Skadden, Arps,       
Slate, Meagher & Flom (Illinois), in each case stating that the merger will     
qualify for United States federal income tax purposes as a tax-free             
reorganization within the meaning of Section 368(a) of the Internal Revenue     
Code.                                                                           

If Sara Lee pays all of the merger consideration in shares of Sara Lee    
common stock, except for cash instead of a fractional share, you will not       
recognize gain or loss for United States federal income tax purposes as a       
result of the exchange of your Chock full o'Nuts common stock for Sara Lee      
common stock in the merger, except for cash you receive instead of fractional   
shares of Sara Lee common stock. If Sara Lee makes a cash payment to you        
because the average price of Sara Lee common stock is less than $21.00 per      
share, you will recognize gain, but not loss, with respect to each block of     
Chock full o'Nuts common stock you surrender. The amount of the gain will be    
equal to the lesser of:                                                         

(1) the amount of gain you realize with respect to that block as a result   
of the merger; and                                                  

(2) the amount of cash received that is allocable to that block.            

Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your own 
tax advisors for a full understanding of the tax consequences of the merger to  
you.                                                                            

Board of Directors Recommendation to Shareholders (page 16)                     

The Chock full o'Nuts board of directors believes that the terms of the   
merger agreement and the merger are fair to and in the best interests of Chock  
full o'Nuts and its shareholders. The board unanimously recommends that the     
shareholders vote "for" the adoption of the merger agreement.                   

To review the background and reasons for the merger in greater detail, as 
well as risks related to the merger, see pages 11, 14-17.                       

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Opinion of Financial Advisor (page 17)                                          

Credit Suisse First Boston Corporation, Chock full o'Nuts' financial      
advisor, has delivered a written opinion dated June 8, 1999 to the Chock full   
o'Nuts board of directors to the effect that, as of the date of the opinion and 
based upon and subject to the matters described in the opinion, the exchange    
ratio in the merger was fair, from a financial point of view, to the holders of 
Chock full o'Nuts common stock, other than Sara Lee and its affiliates. The     
complete opinion is attached to this proxy statement/prospectus as Annex 2. We  
urge you to read it carefully in its entirety. Credit Suisse First Boston's     
opinion is directed to the Chock full o'Nuts board of directors and does not    
constitute a recommendation to any shareholder as to any matter relating to the 
merger.                                                                         

Interests of Chock full o'Nuts Directors and Management in the Merger (page 23) 

In considering the recommendation of the Chock full o'Nuts board of       
directors with respect to the merger, you should be aware of, and should        
carefully consider that, the Chock full o' Nuts board of directors and members  
of Chock full o'Nuts' management may have interests in the merger that are      
different from, or in addition to, yours. These differences may create          
potential conflicts of interest. In particular:                                 

.  Officers and directors of Chock full o'Nuts will be indemnified and      
 current directors' and officers' liability insurance will be continued,
in each case with respect to the merger and events or circumstances   
 occurring before the effective time of the merger or as a result of the
merger.                                                               

.  As of July 31, 1999, 10 officers, three of whom are also directors, and  
three employees of Chock full o'Nuts beneficially owned options to    
purchase an aggregate of 413,493 shares of Chock full o'Nuts common   
stock. Upon completion of the merger, all of these options will become
immediately exercisable. Each Chock full o'Nuts stock option will be  
assumed by Sara Lee.                                                  

.  Two officers, who are also directors, have restricted stock agreements   
  with Chock full o'Nuts. As a result of the merger, the vesting of shares
under these restricted stock agreements will be accelerated.          

.  Six Chock full o'Nuts officers, two of whom are also directors, have     
entered into employment agreements that become effective upon a change
in control such as the merger. The terms of the employment agreements 
generally include:                                                    

(1)a three year term beginning immediately after the change in control, 
and                                                                     

(2) base salary, bonus and other employee benefits at amounts existing  
immediately before the change in control. In addition, the chief        
executive officer, who is also a director, will receive an increase of  
$75,000 in his base salary upon a change of control.                    

.  Under the terms of the Chock full o'Nuts Annual Incentive Cash Bonus     
Plan, 11 executives, three of whom are also directors, of Chock full  
o'Nuts will receive the maximum bonus for which they are eligible for 
the fiscal year in which the merger occurs.                           

.  As a result of the merger, the severance benefits payable to all Chock   
full o'Nuts non-union employees who do not have employment agreements 
will be doubled under the Chock full o'Nuts severance plan.           

.  As a result of the merger, payments to three non-employee directors of   
Chock full o'Nuts under the Unfunded Directors Retirement Plan will be
accelerated.                                                          

.  Chock full o'Nuts has established a Benefits Protection Trust that is to 
  be used for litigation expenses incurred by Chock full o'Nuts employees,
  including all executive officers of Chock full o'Nuts. This trust may be
  used for specific expenses incurred after a change in control if the new
management of Chock full o'Nuts refuses to pay benefits under any     
  previously existing employment contract or benefit plan. The merger will
constitute a change in control.                                       

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.  Upon completion of the merger, Chock full o'Nuts must fund its non-      
qualified, unfunded Supplemental Employee Retirement Plan in the      
  approximate amount of $1,050,000. This plan covers participants of Chock
full o'Nuts' Pension Plan whose benefits would otherwise be limited by
Internal Revenue Code limitations on qualified plan benefits.         

  The board of directors of Chock full o'Nuts was aware of these interests and
considered them, among other matters, in approving the merger.                  

The Special Meeting (page 13) 

The special meeting of Chock full o'Nuts shareholders will be held at The 
Chase Manhattan Bank, 11th Floor, Room A, 270 Park Avenue, New York, New York   
10017, at 1:00 p.m., local time, on October 15, 1999. At the special meeting,   
shareholders will be asked to consider and vote upon:                           

.  the adoption of the merger agreement;                                    

.  the approval of any adjournment of the special meeting to solicit        
additional votes in favor of the merger; and                          

.  other business that may properly arise at the special meeting.           

Record Date; Voting Power                                                       

  You are entitled to vote at the special meeting if you owned shares of Chock
full o'Nuts common stock as of the close of business on August 19, 1999, the    
record date.                                                                    

  On the record date, there were 11,288,837 shares of Chock full o'Nuts common
stock entitled to vote at the special meeting. You will have one vote at the    
special meeting for each share of Chock full o'Nuts common stock that you owned 
on the record date.                                                             

Vote Required                                                                   

  The affirmative vote of two-thirds of the shares of Chock full o'Nuts common
stock outstanding on the record date is required to adopt the merger agreement. 
If you abstain from voting or do not vote, either in person or by proxy, it     
will have the same effect as a vote against adoption of the merger agreement.   

Voting by Chock full o'Nuts Directors and Executive Officers                    

On the record date, directors and executive officers of Chock full o'Nuts 
and their affiliates owned and were entitled to vote 985,404 shares of Chock    
full o'Nuts common stock, or approximately 8.7% of the shares of Chock full     
o'Nuts common stock then outstanding. The directors and executive officers of   
Chock full o'Nuts intend to vote the Chock full o'Nuts common stock owned by    
them "for" adoption of the merger agreement.                                    

The Merger (page 14)

The merger agreement is attached as Annex 1 to this proxy                 
statement/prospectus. We encourage you to read the merger agreement. It is the  
principal document governing the merger. The following summarizes some of the   
material terms of the merger agreement.                                         

Conditions to the Merger (page 32)                                              

  Sara Lee and Chock full o'Nuts will complete the merger only if they satisfy
or, in some cases, waive several conditions, including the following:           

.  approval of the merger agreement by holders of two-thirds of the         
outstanding shares of Chock full o'Nuts common stock;                 

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.  no legal restraints or prohibitions exist which prevent the completion   
of the merger;                                                        

.  approval of the Sara Lee common stock issuable to Chock full o'Nuts      
shareholders for listing on the New York Stock Exchange;              

.  from January 31, 1999 until the closing, there cannot be an event,       
subject to some exceptions, having a material adverse effect on Chock 
full o'Nuts other than those that have previously been disclosed;     

.  the representations and warranties of each of Sara Lee and Chock full    
o'Nuts must be true and correct; and                                  

.  Sara Lee and Chock full o'Nuts each must satisfy their respective        
covenants contained in the merger agreement.                          

Termination of the Merger Agreement (page 34)                                   

Sara Lee and Chock full o'Nuts may jointly agree to terminate the merger  
agreement at any time without completing the merger.                            

Sara Lee or Chock full o'Nuts may terminate the merger agreement if:      

.  Sara Lee and Chock full o'Nuts do not complete the merger by December
31, 1999;                                                         

.  the Chock full o'Nuts shareholders do not approve the merger         
agreement;                                                        

.  a governmental authority or other legal action permanently prohibits 
the completion of the merger; or                                  

.  the other party breached in any material respect any of its          
   representations, warranties or obligations under the merger agreement
and has not cured the breach within 30 days of receipt of written 
notice.                                                           

Chock full o'Nuts may terminate the merger agreement if:                  

.  (1) the Chock full o'Nuts board of directors receives an unsolicited 
 proposal by a third party to acquire Chock full o'Nuts on terms the
board determines to be more favorable to its shareholders than the
terms of the merger with Sara Lee;                                

 (2) the Chock full o'Nuts board in good faith determines that it must
accept the offer in order to comply with its fiduciary duties to its
shareholders; and                                                   

(3) the Chock full o'Nuts board enters into an agreement with the   
third party after (A) the board notifies Sara Lee of the proposal,  
(B) Sara Lee does not offer to match the offer, and (C) Chock full  
o'Nuts pays the termination fee described below; or                 

.  the average price of Sara Lee common stock is less than $21.00 per   
share and Sara Lee does not increase the value of the merger      
  consideration to $11.00 per share of Chock full o'Nuts common stock.

Sara Lee may terminate the merger agreement if the Chock full o'Nuts board
of directors withdraws or adversely modifies its approval or recommendation of  
the merger agreement or fails to reconfirm its recommendation upon request by   
Sara Lee. Sara Lee may also terminate the merger agreement if Chock full o'Nuts 
receives an unsolicited takeover proposal from a third party unless Chock full  
o'Nuts notifies Sara Lee of the proposal and rejects it or terminates           
negotiations with the third party.                                              

Termination Fee (page 35)                                                       

 Chock full o'Nuts must pay Sara Lee a termination fee of $7 million and all
documented, out-of-pocket expenses of Sara Lee in connection with the merger    
if:                                                                             

.  Chock full o'Nuts receives an acquisition proposal or an acquisition     
 proposal otherwise is publicly announced or the Chock full o'Nuts board
of directors withdraws or adversely modifies its                      

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  recommendation, and in either case the Chock full o'Nuts shareholders do
not approve the merger agreement.                                     

.  Chock full o'Nuts terminates the merger agreement because a superior     
proposal has been entered into and:                                   

(1) Chock full o'Nuts has provided notice of that proposal to Sara Lee, 

(2) Sara Lee has elected not to amend the merger agreement to match the 
terms of that proposal, and                                             

(3) in order for the Chock full o'Nuts board to comply with its         
fiduciary duty to its shareholders, it must accept the proposal.        

.  Chock full o'Nuts intentionally or in bad faith materially breaches any  
of its representations or warranties.                                 

.  Chock full o'Nuts enters into an agreement to complete or completes a    
superior proposal within 12 months of a termination of the merger     
 agreement for any other reason except for a material breach by Sara Lee
of its representations and warranties.                                

Accounting Treatment (page 25)                                                  

 The merger will be accounted for as a "purchase" transaction for accounting
and financial reporting purposes, in accordance with generally accepted         
accounting principles.                                                          

The Companies 

Chock full o'Nuts Corporation (page 49)                                         
370 Lexington Avenue                                                            
New York, New York 10017                                                        
(212) 532-0300                                                                  

Chock full o'Nuts is the fourth largest roaster, packer and marketer of   
coffee in the United States based upon coffee pounds sold. Its broad range of   
regular and decaffeinated, ground roast, instant and specialty coffees for the  
foodservice and retail grocery industries are sold regionally throughout the    
United States and Canada under various well known trademarks, including Chock   
full o'Nuts, La Touraine and Cain's. Chock full o'Nuts is also one of the       
largest marketers of foodservice and private label coffees in the United        
States. The balance of Chock full o'Nuts' business is derived from franchising  
its Quikava outlets and from real estate operations.                            

Sara Lee Corporation                                                            
Three First National Plaza, Suite 4600                                          
Chicago, Illinois 60602-4260                                                    
(312) 726-2600                                                                  

Sara Lee is a global food and consumer products company which markets a   
variety of products under leading brand names, including Hanes, Coach, L'eggs,  
Dim, Bali, Playtex, Champion, Kiwi, Hillshire Farm, Ball Park, Jimmy Dean,      
Douwe Egberts and Sara Lee. Sara Lee has operations in more than 40 countries   
and markets branded products in more than 140 countries. Sara Lee is organized  
into five lines of business: Sara Lee Foods, Coffee and Tea, Branded Apparel,   
Household and Body Care and Foodservice.                                        

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Selected Consolidated Historical Financial Data 

Chock full o'Nuts                                                               

The following selected consolidated financial data of Chock full o'Nuts at
July 31, 1998 and for the five fiscal years ended July 31, 1998 is derived from 
Chock full o'Nuts' audited consolidated financial statements. Chock full o'Nuts 
selected consolidated financial data as of July 31, 1998 and 1997 and for the   
years ended July 31, 1998, 1997 and 1996 have been derived from its audited     
financial statements included elsewhere in this proxy statement/prospectus. The 
selected financial data as of July 31, 1996, 1995 and 1994 and for the years    
ended July 31, 1995 and 1994 have been derived from Chock full o'Nuts' audited  
financial statements which are not included in this proxy statement/prospectus, 
but may be obtained as described under "Where You Can Find More Information."   
The selected consolidated financial data of Chock full o'Nuts as of and for the 
nine months ended April 30, 1999 and April 30, 1998 has been derived from       
unaudited consolidated financial statements of Chock full o'Nuts contained      
elsewhere in this proxy statement/prospectus. In the opinion of Chock full      
o'Nuts' management, the nine month financial data includes all necessary        
adjustments for a fair presentation of that data in conformity with generally   
accepted accounting principles. The per share data set forth below has been     
retroactively adjusted for a 3% stock dividend in July 1995 and 1994.           

                                                        [Enlarge/Download Table]

                                     Year Ended July 31,                 Nine Months Ended 
                         ---------------------------------------------- -------------------
                                                                            (Unaudited)    
                                                                        April 30, April 30,
                           1994      1995      1996     1997     1998     1999      1998   
                         --------  --------  -------- -------- -------- --------- ---------
                                 (Dollars in thousands, except per share amounts)          
                                                                                           
Net sales............... $263,511  $326,141  $321,135 $362,204 $394,357 $270,260  $306,295 
Income from continuing                                                                     
 operations.............    8,243     6,738     4,631    7,914    5,499      558     5,566 
Total assets............  208,807   207,005   199,435  217,330  201,184  200,359   204,185 
Long-term debt..........  110,427   106,569   105,235  106,066   92,247   88,349    98,018 
Shareholders' equity....   58,262    64,937    63,487   71,881   77,555   78,515    77,371 
Working capital.........   81,590    89,612    87,053   99,086   92,229   87,544   102,247 
Working capital ratio... 3.6 to 1  4.3 to 1  4.7 to 1 4.5 to 1 5.9 to 1 5.0 to 1  6.3 to 1 
PER COMMON SHARE:                                                                          
Income from continuing                                                                     
 operations:                                                                               
 Basic.................. $    .80  $    .65  $    .45 $    .76 $    .53 $    .05  $    .54 
 Diluted................      .57       .51       .41      .55      .45      .05       .40 
Stock dividends                                                                            
 distributed............        3%        3%      --       --       --       --        --  
Shareholders' equity....     5.43      6.05      5.91     6.70     7.16     7.24      7.16 
Average shares                                                                             
 outstanding--basic (in                                                                    
 thousands).............   10,364    10,333    10,308   10,395   10,416   10,532    10,392 
Average shares                                                                             
 outstanding--diluted                                                                      
 (in thousands).........   22,186    22,160    22,129   22,216   21,766   21,241    21,920 

--------                                                                        
The year ended July 31, 1994 includes a $6,244 after tax gain on sale of        
product line, $.61 per basic share and $.28 per diluted share.                  
The year ended July 31, 1997 includes a write-off of $1,500 relating to         
litigation, $.09 per basic share and $.05 per diluted share and $767 income tax 
credit relating to realization of prior year capital loss not previously        
recorded, $.07 per basic share and $.03 per diluted share.                      
The year ended July 31, 1998 includes an after tax gain on sale of real estate  
of $725, $.07 per basic share and $.03 per diluted share.                       

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Sara Lee                                                                        

The following selected consolidated financial data of Sara Lee at June 27,
1998, for the five years ended June 27, 1998 and for the nine-month periods     
ended March 27, 1999 and March 28, 1998 is derived from audited and unaudited   
consolidated financial statements incorporated by reference in this proxy       
statement/prospectus and, in the opinion of Sara Lee's management, includes all 
necessary adjustments for a fair presentation of such data in conformity with   
generally accepted accounting principles. The per share information has been    
adjusted to reflect a 2-for-1 stock split, in the form of a stock dividend,     
which was effective on December 1, 1998.                                        

                                                        [Enlarge/Download Table]

                                         Year Ended                       Nine Months Ended 
                         ----------------------------------------------  -------------------
                         July 2,  July 1,  June 29,  June 28,  June 27,  March 27, March 28,
                         1994(1)   1995      1996      1997    1998(2)     1999      1998   
                         -------  -------  --------  --------  --------  --------- ---------
                                (Dollars in millions, except per share amounts)             
                                                                                            
RESULTS OF OPERATIONS:                                                                      
Net sales............... $15,536  $17,719  $18,624   $19,734   $20,011    $14,810   $14,908 
Operating income (loss).     632    1,596    1,793     1,905       (97)     1,504      (642)
Income (loss) before                                                                        
 income taxes...........     389    1,219    1,378     1,484      (443)     1,268      (883)
Net income (loss).......     199      804      916     1,009      (523)       905      (826)
Effective tax rate......    39.9%    34.1%    33.5%     32.0%     18.0%       --        --  

FINANCIAL POSITION:                                                                         
Total assets............ $11,665  $12,431  $12,602   $12,953   $10,989    $10,580   $11,167 
Total debt..............   2,859    2,597    2,296     2,664     3,077      3,248     3,500 
Operating cash flow to                                                                      
 average total debt (3).    25.8%    40.6%    41.4%     49.3%     56.8%       --        --  
Return on invested                                                                          
 capital (4)............    12.6%    14.6%    15.0%     16.0%     17.5%       --        --  

PER COMMON SHARE:                                                                           
Net income (loss)--                                                                         
 basic.................. $   .18  $   .81  $   .92   $  1.02   $  (.57)   $   .99   $  (.89)
Average shares                                                                              
 outstanding (in                                                                            
 millions)..............     955      955      963       959       939        908       944 
Net income (loss)--                                                                         
 diluted................     .18      .79      .89       .99      (.57)       .95      (.89)
Average shares                                                                              
 outstanding (in                                                                            
 millions)..............     997      996    1,007     1,004       939        953       944 
Dividends...............    .313     .335     .370      .410      .450       .365      .335 
Book value at year-end..    3.46     4.10     4.45      4.46      1.97       1.87      2.15 
Market value at year-                                                                       
 end....................   10.31    14.25    16.25     21.03     28.31      26.13     30.94 

--------                                                                        
(1) In 1994, a restructuring provision reduced operating income and income      
 before income taxes by $732 and net income by $495. In addition, in 1994,
the cumulative effect of adopting a mandated change in the method of    
accounting for income taxes reduced net income by $35.                  
(2) In 1998, a restructuring provision reduced operating income and income      
before income taxes by $2,040 and net income by $1,625.                 
(3) Average total debt includes total balance sheet debt, imputed lease         
liabilities and auction preferred stock.                                
(4) Excludes unusual items.                                                     

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Unaudited Comparative Per Share Information 

We have summarized below the per share information for our respective     
companies on a historical and equivalent basis. The nine months ended 1999      
historical information presented represents Chock full o'Nuts' fiscal nine-     
month period ended on April 30, 1999, and Sara Lee's fiscal nine-month period   
ended March 27, 1999. The fiscal year 1998 historical information presented     
represents Chock full o'Nuts' fiscal year ended July 31, 1998, and Sara Lee's   
1998 fiscal year ended June 27, 1998. The Sara Lee and Chock full o'Nuts        
historical results for their respective fiscal year 1998 were audited. All      
other financial information is unaudited.                                       

You should read the pro forma, per share equivalent and historical        
information together with the audited consolidated financial statements and     
other financial information of Chock full o'Nuts included elsewhere in this     
proxy statement/prospectus and of Sara Lee contained in the Forms 10-K and      
Forms 10-Q filed by Sara Lee with the SEC and which are incorporated in this    
proxy statement/prospectus by reference and/or in historical financial data     
included in this document. We have presented the pro forma combined per share   
data and Chock full o'Nuts equivalent information for informational purposes.   
We do not know, and this table cannot represent, what the combined entities'    
results of operations would actually have been had the transaction in fact      
occurred at an earlier date or will be for any future date or period. Upon the  
consummation of the merger, the actual financial position and results of        
operations of the combined company may differ from the pro forma results        
presented in this proxy statement/prospectus due to a variety of factors,       
including, differences in operating results, additional purchase accounting     
adjustments, or items identified under "Risk Factors."                          

 We prepared the pro forma and Chock full o'Nuts per share equivalent income
statement information assuming the merger occurred at the beginning of its      
fiscal year 1998, using a conversion ratio of .44221. We prepared the pro forma 
and per share equivalent balance sheet information assuming the merger occurred 
at the end of the third quarter of its fiscal year 1999, also with a conversion 
ratio of .44221.                                                                

 On August 26, 1999, Chock full o'Nuts called the convertible debentures for
redemption on September 14, 1999 at their par value. Convertible debenture      
holders can convert their convertible debentures into Chock full o'Nuts common  
stock at any time on or prior to September 13, 1999. Any Chock full o'Nuts      
common stock issued as a result of the conversion of the convertible debentures 
will be converted into Sara Lee common stock using the merger conversion ratio. 
Convertible debentures that are redeemed at par value for cash will not receive 
the premium from the equity conversion into Sara Lee common stock. The premium  
received is equal to the difference between the value of Sara Lee common stock  
to be received and the par value of the convertible debentures. Due to the      
economic advantages of the equity conversion, in the pro forma information, we  
have assumed that all of the Chock full o'Nuts convertible debentures will be   
converted into Chock full o'Nuts common stock and then converted into Sara Lee  
common stock on the merger date, using the .44221 conversion ratio.             

 For purposes of this disclosure, we used the number of shares of Chock full
o'Nuts common stock outstanding, as adjusted for the conversion of the          
convertible debentures, and assumed an average price of Sara Lee common stock   
for the twenty-day period of $24.875. The $24.875 is the value of Sara Lee      
common stock on June 8, 1999, the date the merger agreement was signed. The     
actual price may be above or below the actual trading range for the twenty-day  
period. The conversion ratio is calculated by dividing $11 by the twenty-day    
average price of Sara Lee common stock. If the price for the twenty-day period  
is above $26 or below $21, Chock full o'Nuts and Sara Lee have rights relating  
to adjusting the consideration or terminating the merger agreement which are    
discussed in the "Summary" section of this proxy statement/prospectus.          

If the 20-day average price of Sara Lee common stock is $26 per share, the
conversion ratio would be calculated as .4231. The use of this exchange ratio   
would not modify the Pro Forma Combined disclosure presented in this table. The 
Chock full o'Nuts Per Share Equivalents would be calculated by multiplying the  
Pro Forma Combined amounts by the conversion ratio of .4231.                    

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If the 20-day average price of Sara Lee common stock is $21 per share, the
conversion ratio would be calculated as .5238. The use of this exchange ratio   
would not modify the Pro Forma Combined disclosures presented in this table,    
except for the Book Value Per Common Share for the fiscal year ended 1998 would 
be $2.19, rather than the disclosed amount of $2.20. With a 20-day average      
price of Sara Lee common stock of $21 per share, the Chock full o'Nuts' Per     
Share Equivalents would be calculated by multiplying the Pro Forma Combined     
amounts by the conversion ration of .5238.                                      

Sara Lee has accounted for the merger using the purchase method of        
accounting. Sara Lee has allocated all of the excess of the purchase price over 
the net assets acquired to goodwill. The purchase price allocation used in the  
pro forma information is preliminary.                                           

                                                                [Download Table]

                                                  As Of or For    As Of or For  
                                                 the Nine Fiscal the Fiscal Year
                                                  Months Ended        Ended     
                                                      1999            1998      
                                                 --------------- ---------------
                                                                                
Pro Forma Combined:                                                             
Net income (loss) per common share--basic.......     $0.98           $(0.56)    
Net income (loss) per common share--diluted.....      0.94            (0.56)    
Cash dividends declared per common share(1).....      0.363            0.447    
Book value per common share.....................      2.10             2.20     
Chock full o'Nuts Per Share Equivalents(2):                                     
Net income (loss) per common share--basic.......     $0.43           $(0.25)    
Net income (loss) per common share--diluted.....      0.42            (0.25)    
Cash dividends declared per common share........      0.16             0.20     
Book value per common share.....................      0.93             0.97     
Chock full o'Nuts--Historical:                                                  
Net income per common share--basic..............     $ .05           $  .53     
Net income per common share--diluted............       .05              .45     
Cash dividends declared per common share........       --               --      
Book value per common share.....................      7.24             7.16     
Sara Lee--Historical:                                                           
Net income (loss) per common share--basic.......     $ .99           $ (.57)    
Net income (loss) per common share--diluted.....       .95             (.57)    
Cash dividends declared per common share........       .365             .45     
Book value per common share.....................      1.87             1.97     

--------                                                                        
(1)  The Pro Forma Combined dividends per share are computed using actual       
dividends paid by each company divided by pro forma weighted average  
 shares outstanding. Sara Lee's current annual dividend rate is $.50 per
share and using the .44221 conversion ratio, each share of Chock full 
o'Nuts common stock would receive $.22 per share.                     
(2)  The Chock full o'Nuts per share equivalent information is calculated by    
  multiplying the pro forma amounts by the conversion ratio of .44221. The
 Chock full o'Nuts Per Share Equivalents amount represents the pro forma
dividends declared adjusted for the exchange ratio.                   

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RISK FACTORS RELATING TO THE MERGER 

 In addition to the other information included and incorporated by reference
in this proxy statement/prospectus, Chock full o'Nuts shareholders should       
consider carefully the matters described below in determining whether to adopt  
the merger agreement.                                                           

Chock full o'Nuts Shareholders May Receive Consideration Having a Value of Less 
than $11.00 Per Share.                                                          

  Under the merger agreement, the exchange ratio will not exceed 0.5238 shares
of Sara Lee common stock. If (1) the average price of Sara Lee common stock is  
below $21.00 per share, (2) Sara Lee does not elect to increase the merger      
consideration, and (3) your board decides to proceed with the transaction, you  
may receive consideration having a value of less than $11.00 per share. For     
example, if the average price is $19.00 per share and your board decides to     
proceed with the transaction, the exchange ratio would be 0.5238 or $9.95 per   
share.                                                                          

The prices of Sara Lee common stock and Chock full o'Nuts common stock at 
the closing of the merger may vary from their respective prices on the date of  
this proxy statement/prospectus and on the date of the special meeting as well  
as from the average price of Sara Lee common stock. Therefore, although we have 
structured the merger to provide you with a value of $11.00 per share of Chock  
full o'Nuts common stock, changing prices from the date of determination to the 
date of the merger may result in you receiving a value of less than $11.00 per  
share. In addition, significant declines in the price of Sara Lee common stock  
during the determination period which continue subsequent to the determination  
period may result in an average price of Sara Lee common stock being in excess  
of $21.00 per share, yet result in Chock full o'Nuts shareholders receiving     
stock with a value of less than $11.00 per share. These price fluctuations may  
be caused by changes in the business, operations or prospects of Sara Lee or    
Chock full o'Nuts, market assessments of the likelihood that the merger will be 
completed, the timing of the completion of the merger, the prospects of post-   
merger operations, regulatory considerations, general market and economic       
conditions or other factors. We urge you to obtain current market quotations    
for Sara Lee common stock and Chock full o'Nuts common stock.                   

Potential Conflicts of Interest of Chock full o'Nuts' Directors and Officers.   

In considering the Chock full o'Nuts board of directors' recommendation to
adopt and approve the merger, you should be aware that some officers and        
directors of Chock full o'Nuts may have potential conflicts of interest. The    
Chock full o'Nuts' board believes that it appropriately considered these        
conflicts of interest, together with other relevant factors, when recommending  
the merger to you. Potential conflicts of interest include:                     

.  the acceleration of the vesting of Chock full o'Nuts options to 10       
officers, three of whom are directors, and restricted stock to two    
officer/directors as a result of the merger,                          

.  the acceleration of retirement payments to three Chock full o'Nuts' non- 
employee directors,                                                   

.  the employment agreements of six executive officers, two of whom are     
also directors, becoming effective as a result of the merger,         

.  the fact that 11 executives of Chock full o'Nuts, three of whom are also 
directors, will receive the maximum bonus for which they are eligible 
under Chock full o'Nuts' Annual Incentive Cash Bonus Plan,            

.  the fact that, as a result of the merger agreement, the severance        
benefits of all non-union employees who do not have employment        
agreements will be doubled,                                           

.  the acceleration of the funding of benefits under the Supplemental       
Employee Retirement Plan, and                                         

.  the fact that benefits are accrued under the Benefits Protection Trust   
as a result of the merger.                                            

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Finally, under the terms of the merger agreement, Sara Lee will indemnify 
the directors and officers of Chock full o'Nuts for six years after the         
effective time of the merger. Sara Lee has also agreed to cause the surviving   
corporation to provide directors' and officers' liability insurance for the     
directors and officers of Chock full o'Nuts for three years after the effective 
date of the merger.                                                             

The Price of Sara Lee Common Stock May Be Affected by Factors Different From    
Those Affecting the Price of Chock full o'Nuts Common Stock.                    

Upon completion of the merger, holders of Chock full o'Nuts common stock  
will become holders of Sara Lee common stock. Sara Lee's business differs from  
that of Chock full o'Nuts since Sara Lee operates significant businesses        
outside of the coffee industry, and Sara Lee's results of operations, as well   
as the price of Sara Lee common stock, may be affected by factors different     
from those affecting Chock full o'Nuts' results of operations and the price of  
Chock full o'Nuts common stock. In particular Sara Lee's business and results   
of operations may be affected by, among others, the following:                  

.  the effect on future revenues and expenses of Sara Lee's December 1998   
 voluntary recall of certain packaged meat products and the governmental
investigation and litigation arising from the recall,                 

.  Sara Lee's ability to realize forecasted savings as well as improvements 
in productivity and efficiency from its restructuring program,        

.  significant competitive activity, including advertising, promotional and 
price competition, and changes in consumer demand for Sara Lee's      
products,                                                             

.  fluctuations in the cost and availability of various raw materials,      

.  inherent risks in the marketplace associated with new product            
introductions, including uncertainties about trade and consumer       
acceptance,                                                           

.  Sara Lee's ability to successfully integrate acquisitions into its       
existing operations and the availability of new acquisitions, joint   
ventures and alliance opportunities that build stockholder value, and 

.  Sara Lee's and our suppliers' and customers' ability, to adequately      
address the "Year 2000" computer issue.                               

In addition, Sara Lee's results may also be affected by general factors, such   
as economic conditions, political developments, currency exchange rates,        
including the impact of the conversion to the euro currency, interest and       
inflation rates, accounting standards, taxes, and laws and regulations          
affecting Sara Lee in markets where it competes.                                

 For more information regarding Sara Lee's and Chock full o'Nuts' businesses
and factors to consider in connection with each company's business, see Sara    
Lee's Annual Report on Form 10-K for the fiscal year ended June 27, 1998 and    
its Quarterly Report on Form 10-Q for the quarter ended March 27, 1999, which   
are incorporated by reference in this proxy statement/prospectus, and           
"Description of Chock Full O'Nuts Business" on page 49 of this proxy            
statement/prospectus.                                                           

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THE SPECIAL MEETING 

We are furnishing this proxy statement/prospectus to shareholders of Chock
full o'Nuts as part of the solicitation of proxies by the Chock full o'Nuts     
board of directors for use at the special meeting.                              

Date; Time and Place                                                            

We will hold the special meeting at The Chase Manhattan Bank, 11th Floor, 
Room A, 270 Park Avenue, New York, New York 10017, at 1:00 p.m., local time, on 
Friday, October 15, 1999.                                                       

Purpose of Special Meeting                                                      

  At the special meeting, we are asking you to adopt the merger agreement. The
Chock full o'Nuts board of directors has determined that the merger is fair to, 
and in the best interests of, Chock full o'Nuts shareholders. The board         
unanimously approved the merger agreement and the merger and unanimously        
recommends that Chock full o'Nuts shareholders vote "for" adoption of the       
merger agreement.                                                               

Record Date; Stock Entitled to Vote; Quorum                                     

You are entitled to vote at the special meeting if you owned shares as of 
the close of business on August 19, 1999, the record date. On the record date,  
there were 11,288,237 shares of Chock full o'Nuts common stock entitled to vote 
at the special meeting. You will have one vote at the special meeting for each  
share of Chock full o'Nuts common stock that you owned on the record date. A    
quorum is present at the special meeting if a majority of the shares of Chock   
full o'Nuts common stock issued and outstanding and entitled to vote on the     
record date is represented in person or by proxy. In the event that a quorum is 
not present at the special meeting, we expect that the meeting will be          
adjourned or postponed to solicit additional proxies.                           

Vote Required                                                                   

The affirmative vote of holders of two-thirds of the shares of Chock full 
o'Nuts common stock outstanding on the record date is required to adopt the     
merger agreement. If you abstain from voting or do not vote, either in person   
or by proxy, it will have the same effect as a vote against adoption of the     
merger agreement.                                                               

Voting by Chock full o'Nuts Directors and Executive Officers                    

On the record date, directors and executive officers of Chock full o'Nuts 
and their affiliates owned and were entitled to vote 985,404 shares of Chock    
full o'Nuts common stock, or approximately 8.7% of the shares of Chock full     
o'Nuts common stock outstanding on the record date. The directors and executive 
officers of Chock full o'Nuts intend to vote the Chock full o'Nuts common stock 
owned by them "for" adoption of the merger agreement.                           

Voting of Proxies                                                               

  All shares represented by properly executed proxies received in time for the
special meeting will be voted at the special meeting in the manner specified by 
the holders. Properly executed proxies that do not contain voting instructions  
will be voted "for" adoption of the merger agreement.                           

 Shares of Chock full o'Nuts common stock represented at the special meeting
but not voting will be treated as present at the special meeting for purposes   
of determining the presence or absence of a quorum for the transaction of all   
business. Shares of Chock full o'Nuts common stock for which proxies have been  
received but the holders have abstained will also count for determining a       
quorum.                                                                         

Only shares affirmatively voted for adoption of the merger agreement,     
including properly executed proxies that do not contain voting instructions,    
will be counted as favorable votes for that proposal. If you abstain from       
voting or do not vote, either in person or by proxy, it will have the same      
effect as a vote against adoption of the merger agreement. Brokers who hold     
shares of Chock full o'Nuts common stock in street name for customers who are   
the beneficial owners of those shares must receive specific instructions from   
those customers or they may not give a proxy to vote those customers' shares.   
These non-voted shares are referred to as broker non-                           

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votes and have the effect of votes against adoption of the merger agreement.    

The persons whom shareholders name as proxies may propose and vote for one
or more adjournments of the special meeting, including adjournments to permit   
further solicitations of proxies. No proxy voted against the proposal to adopt  
the merger agreement will be voted in favor of any adjournment or postponement. 

  Chock full o'Nuts does not expect that any matter other than the proposal to
adopt the merger agreement will be brought before the special meeting. If,      
however, the Chock full o'Nuts board of directors properly presents other       
matters, the persons named as proxies will vote in accordance with their        
judgment.                                                                       

Revocability of Proxies                                                         

If you grant a proxy on the enclosed form of proxy, you are not precluded 
from voting in person at the special meeting. If you are not the owner of       
record but hold your shares through a broker or bank, you should take           
appropriate steps to obtain a legal proxy from the owner of record if you wish  
to vote at the special meeting. You may revoke a proxy at any time before its   
exercise by: (1) filing with the Secretary of Chock full o'Nuts a duly executed 
revocation of proxy, (2) by submitting a duly executed proxy to the Secretary   
of Chock full o'Nuts bearing a later date or (3) by appearing at the special    
meeting and voting in person. Attendance at the special meeting will not itself 
constitute revocation of a proxy. If you hold your shares through a broker or   
bank, you should follow the instructions provided by that firm to revoke your   
proxy.                                                                          

Solicitation of Proxies                                                         

  Chock full o'Nuts will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and  
employees of Chock full o'Nuts and its subsidiaries may solicit proxies from    
shareholders by telephone or other electronic means or in person. Chock full    
o'Nuts will cause brokerage houses and other custodians, nominees and           
fiduciaries to forward solicitation materials to the beneficial owners of stock 
held of record by them. Chock full o'Nuts will reimburse these custodians,      
nominees and fiduciaries for their reasonable out-of-pocket expenses in doing   
so.                                                                             

The Altman Group will assist in the solicitation of proxies by Chock full 
o'Nuts. Chock full o'Nuts will pay a fee estimated at $15,000, plus expenses.   
If we request The Altman Group to contact individual shareholders, Chock full   
o'Nuts will separately pay The Altman Group its customary fee, plus expenses    
for providing these services. Chock full o'Nuts will also pay the reasonable    
mailing charges of brokerage firms and other custodians, as established by NYSE 
guidelines. Chock full o'Nuts will indemnify The Altman Group against any       
losses arising out of its proxy soliciting services on behalf of Chock full     
o'Nuts.                                                                         

Shareholders should not send stock certificates with their proxies. You   
should use the transmittal form with instructions for the surrender of Chock    
full o'Nuts common stock certificates which will be mailed to you as soon as    
practicable after completion of the merger.                                     

THE MERGER

The following discussion summarizes the background of the merger and the  
material terms of the merger. You should read carefully the remainder of this   
proxy statement/prospectus and the merger agreement, which is attached as Annex 
1 to this proxy statement/prospectus.                                           

Background to the Merger                                                        

In a letter dated August 15, 1997, Sara Lee invited Chock full o'Nuts to  
negotiate a business combination acceptable to both companies and their         
respective shareholders. On August 20, 1997, Chock full o'Nuts indicated that   
it was not interested in pursuing these negotiations.                           

On July 8, 1998, Sara Lee submitted a written proposal to the board of    
directors of Chock full o'Nuts proposing that Sara Lee acquire Chock full       
o'Nuts at a purchase price of $9.50 per share in cash or shares of Sara Lee     
common stock. On July 29, 1998, Sara Lee submitted another letter reiterating   
its offer. On August 12, 1998, the board of directors of Chock full o'Nuts      
responded that it was reviewing and evaluating the proposal with the assistance 
of Credit Suisse First Boston, its financial advisor.                           

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  On September 15, 1998, representatives of both companies and their financial
advisors met. At this meeting, the proposal and related matters were discussed. 
Several telephone conversations between representatives of Sara Lee and Chock   
full o'Nuts regarding the proposal occurred during September and October 1998.  
On October 2, 1998, Chock full o'Nuts and Sara Lee entered into a               
confidentiality agreement. Based upon its discussions with Chock full o'Nuts    
and its representatives, in a letter to the Chock full o'Nuts board of          
directors delivered on October 16, 1998, Sara Lee increased its proposal to     
$10.50 per share in cash or shares of Sara Lee common stock. On October 23,     
1998, the Chock full o'Nuts board of directors, through its financial advisors, 
rejected this second proposal but indicated that it would be willing to discuss 
a transaction at a higher price. On October 29, 1998, Credit Suisse First       
Boston relayed to the Chock full o'Nuts board of directors that Sara Lee had    
indicated that it was not interested in increasing its offer.                   

In a letter to the Chock full o'Nuts board of directors dated March 10,   
1999, Sara Lee again indicated its interest in acquiring Chock full o'Nuts. In  
light of Chock full o'Nuts' unfavorable operating performance and stock price   
decline, Sara Lee offered to acquire Chock full o'Nuts at a price of $9.50 per  
share. On March 22, 1999, Chock full o'Nuts rejected this proposal as           
inadequate. At the direction of Chock full o'Nuts, Credit Suisse First Boston   
subsequently approached, and held discussions with, selected third parties to   
solicit indications of interest in a possible acquisition of Chock full o'Nuts. 
None of these parties, however, submitted a firm offer regarding a transaction  
with Chock full o'Nuts.                                                         

 On April 12, 1999, representatives of Sara Lee informed Credit Suisse First
Boston that, as of that day, Sara Lee had acquired beneficial ownership of more 
than 5% of Chock full o'Nuts' common stock. Representatives of the parties had  
further discussions during the week of April 12 regarding a possible meeting    
between the parties. On April 16, 1999, Sara Lee's legal advisors delivered to  
Chock full o'Nuts' financial advisors a proposed form of merger agreement with  
respect to the acquisition of Chock full o'Nuts by Sara Lee. On April 19, 1999, 
representatives of Sara Lee and its financial advisors met with representatives 
of Chock full o'Nuts and its financial advisors to discuss the recent           
performance of Chock full o'Nuts, a possible transaction between the parties    
and related matters. Sara Lee indicated that it was willing to increase its     
offer above $10.00 per share in connection with negotiations regarding a        
merger.                                                                         

  On April 20, 1999, Sara Lee increased its offer to $10.50 per share in cash.
Credit Suisse First Boston, at the direction of Chock full o'Nuts, then told    
Sara Lee that the Chock full o'Nuts board of directors would consider a         
transaction at $12.50 per share in Sara Lee common stock. Later that day in a   
letter to the board of directors, Sara Lee proposed to acquire Chock full       
o'Nuts at a price of $10.50 per share with the consideration to be paid in the  
form of Sara Lee common stock. In the same letter, Sara Lee offered to amend    
the terms of this proposal to include structural elements which the Chock full  
o'Nuts' advisors had indicated would have value to its shareholders. Through a  
press release issued on April 22, 1999, Chock full o'Nuts also rejected this    
proposal as inadequate.                                                         

On April 22, 1999, Sara Lee filed a Schedule 13D with the SEC, which      
disclosed its acquisition of shares and convertible debentures representing     
5.29% of the then-outstanding shares of Chock full o'Nuts common stock and its  
intent to acquire Chock full o'Nuts.                                            

On May 4, 1999, Sara Lee issued a press release announcing that it would  
commence a tender offer to acquire all of the outstanding securities of Chock   
full o'Nuts not owned by Sara Lee. Sara Lee offered $10.50 per share of Chock   
full o'Nuts common stock, $1,275.82 net per $1,000 principal amount of Chock    
full o'Nuts 7% debentures and $1,344.43 net per $1,000 principal amount of      
Chock full o'Nuts 8% debentures. Sara Lee filed an amendment to its Schedule    
13D with the SEC disclosing its intention. The tender offer was commenced on    
May 7, 1999.                                                                    

On May 4, 1999, Sara Lee filed with the FTC and the Antitrust Division of 
the Department of Justice a Premerger Notification and Report Form under the    
Hart-Scott-Rodino Act with respect to its offer. At 11:59 p.m., New York City   
time, on May 19, 1999, the waiting period with respect to the acquisition under 
the Hart-Scott-Rodino Act expired.                                              

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On May 20, 1999, Chock full o'Nuts filed its Schedule 14D-9 with the SEC, 
urging its shareholders to reject the tender offer as not representing the      
potential value of the company achievable for its shareholders.                 

Between May 27, 1999 and June 7, 1999, representatives of both parties'   
financial advisors discussed generally the possible terms and structure of a    
potential transaction between Sara Lee and Chock full o'Nuts. The possible      
terms discussed included the form of consideration, the structure of the collar 
and values, in cash and/or Sara Lee common stock, to the Chock full o'Nuts      
shareholders of between $10.50, proposed by Sara Lee's financial advisors, and  
$11.50, proposed by Chock full o'Nuts financial advisors, per share of Chock    
full o'Nuts common stock. However, the parties did not reach an agreement and   
did not make any formal offers or counteroffers.                                

  On June 7, 1999, Sara Lee issued a press release announcing the extension of
the expiration date of the offer until 5:00 p.m., New York City time, on        
Friday, June 18, 1999. The offer was previously scheduled to expire at 12:00    
midnight on June 4, 1999. As of midnight, New York City time, on June 4, 1999,  
5,572,167 shares of common stock, $28,454,000 principal amount of the 7%        
debentures and $17,506,000 principal amount of the 8% debentures were validly   
tendered and not withdrawn. Sara Lee also disclosed that its representatives    
had held discussions over the prior few days with representatives of Chock full 
o'Nuts regarding a potential merger between the parties and that these          
discussions were continuing.                                                    

 Between June 7-8, 1999, as a result of preliminary discussions between both
parties' financial advisors, Sara Lee formally proposed a merger on the terms   
and conditions set forth in the merger agreement, which was approved by the     
Chock full o'Nuts board of directors.                                           

 On June 8, 1999, Sara Lee and Chock full o'Nuts jointly announced that they
had entered into the merger agreement. Sara Lee also announced that in          
connection with the merger agreement, it had terminated the cash tender offer.  
All securities tendered in the tender offer were returned to their holders      
after the termination of the cash tender offer.                                 

Reasons for the Merger and Board of Directors' Recommendation                   

Reasons for the Merger.                                                       

  The Chock full o'Nuts board of directors has unanimously approved the merger
agreement and the merger. The board believes that the merger is fair to, and in 
the best interests of, Chock full o'Nuts and its shareholders and unanimously   
recommends that Chock full o'Nuts shareholders vote "for" the adoption of the   
merger agreement.                                                               

In the course of reaching its decision to adopt the merger agreement, the 
Chock full o'Nuts board of directors consulted with Chock full o'Nuts'          
management, as well as its outside legal counsel and its financial advisors,    
and considered a number of factors, including the following:                    

1. Chock full o'Nuts Business, Conditions and Prospects. The Chock full     
o'Nuts board of directors considered information with respect to the  
financial condition, results of operations and business of Chock full 
o'Nuts, on both a historical and prospective basis, and current       
industry, economic and market conditions. Management and Chock full   
 o'Nuts legal and financial advisors reviewed with the Chock full o'Nuts
board of directors information regarding Chock full o'Nuts' financial 
condition and prospects after conducting financial, legal and business
due diligence.                                                        

2. Sara Lee's Business, Condition and Prospects. The Chock full o'Nuts      
 board of directors considered information with respect to the financial
condition, results of operations and business of Sara Lee, and current
industry, economic and market conditions. Chock full o'Nuts' advisors 
reviewed with the Chock full o'Nuts board of directors information    
regarding Sara Lee's financial condition based on publicly available  
information concerning Sara Lee and discussions with Sara Lee's       
 financial advisors. In evaluating Sara Lee, the Chock full o'Nuts board
 of directors considered, among other things, Sara Lee's operational and
market data in comparison to other companies engaged in similar       
industries.                                                           

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3. Opinion of Credit Suisse First Boston. The Chock full o'Nuts board of    
  directors considered the opinion of Credit Suisse First Boston as to the
fairness, from a financial point of view, of the exchange ratio in the
  merger to the holders of Chock full o'Nuts common stock, other than Sara
  Lee and its affiliates. This opinion is more fully described below under
the caption "Opinion of Credit Suisse First Boston."                  

4. Liquidity of Sara Lee's Common Stock. The Chock full o'Nuts board of     
directors considered the likely liquidity of the Sara Lee common stock
 which will be provided to Chock full o'Nuts shareholders as a result of
the merger.                                                           

5. Terms of the Merger. The Chock full o'Nuts board of directors considered 
a number of factors related to the terms of the merger including the  
following:                                                            

(a) Chock full o'Nuts Option to Refuse Any Exchange Value Below $11.00  
 per share. In the event that the average price of Sara Lee common
 stock, as of the determination date, falls to a value which would
 result in you receiving less than $11.00 in Sara Lee common stock
   for each share of Chock full o'Nuts common stock surrendered, Chock
   full o'Nuts has the option to terminate the merger agreement unless
 Sara Lee supplements the shares of Sara Lee stock with additional
stock and/or cash to provide $11.00 in value.                   

(b) Potential for Chock full o'Nuts Shareholders to Benefit from an     
Increase in the Value of Sara Lee Common Stock Prior to the     
Merger. In the event that the average price of Sara Lee common  
stock increases above $26.00 per share, the merger agreement    
provides that Chock full o'Nuts shareholders will participate in
any increase in value over $26.00.                              

  The foregoing discussion of the information and factors considered and given
weight by the Chock full o'Nuts board of directors is not exhaustive. The       
discussion includes all material factors considered by the Chock full o'Nuts    
board of directors. In reaching its determination to approve and recommend      
approval and adoption of the merger agreement and in view of the wide variety   
of factors considered in connection with its evaluation, the Chock full o' Nuts 
board of directors did not assign any relative or specific weights to the       
foregoing factors. Individual directors may have given differing weights to the 
different factors.                                                              

Recommendation of the Chock full o'Nuts Board of Directors.                   

After careful consideration, the Chock full o'Nuts board of directors has 
unanimously determined that the terms of the merger agreement and the merger    
are fair to, and in the best interests of, Chock full o'Nuts and its            
shareholders and has approved the merger agreement and the merger. The Chock    
full o'Nuts board of directors unanimously recommends that the shareholders of  
Chock full o'Nuts vote "for" the adoption of the merger agreement.              

Opinion of Credit Suisse First Boston Corporation                               

  Credit Suisse First Boston has acted as Chock full o'Nuts' financial advisor
in connection with the merger. Credit Suisse First Boston was selected by Chock 
full o'Nuts based on Credit Suisse First Boston's experience, expertise and     
familiarity with Chock full o'Nuts and its business. Credit Suisse First Boston 
is an internationally recognized investment banking firm and is regularly       
engaged in the valuation of businesses and securities in connection with        
mergers and acquisitions, leveraged buyouts, negotiated underwritings,          
competitive biddings, secondary distributions of listed and unlisted            
securities, private placements and valuations for corporate and other purposes. 

In connection with Credit Suisse First Boston's engagement, the Chock full
o'Nuts board requested that Credit Suisse First Boston evaluate the fairness,   
from a financial point of view, to the holders of Chock full o'Nuts common      
stock of the exchange ratio in the merger. On June 7, 1999, at a meeting of the 
Chock full o'Nuts board held to evaluate the merger, Credit Suisse First Boston 
rendered to the Chock full o'Nuts board an oral opinion to the effect that, as  
of the date of the opinion and based on and subject to the matters              

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described in the opinion, the exchange ratio in the merger was fair, from a     
financial point of view, to the holders of Chock full o'Nuts common stock,      
other than Sara Lee and its affiliates. This oral opinion was confirmed by      
delivery of a written opinion dated June 8, 1999, the date of the merger        
agreement.                                                                      

 The full text of Credit Suisse First Boston's written opinion dated June 8,
1999 to the Chock full o'Nuts board, which describes the procedures followed,   
assumptions made, matters considered and limitations on the review undertaken,  
is attached as Annex 2 to, and is incorporated by reference in, this proxy      
statement/prospectus. Credit Suisse First Boston has consented to the inclusion 
of its opinion letter as Annex 2 to this proxy statement/prospectus. In giving  
its consent, Credit Suisse First Boston does not admit that it comes within the 
category of persons whose consent is required under, and does not admit that it 
is an "expert" for purposes of, the Securities Act of 1933, as amended, and the 
rules and regulations promulgated thereunder. Credit Suisse First Boston's      
opinion is addressed to the Chock full o'Nuts board and relates only to the     
fairness, from a financial point of view, of the exchange ratio in the merger.  
It does not address any other aspect of the proposed merger or any related      
transaction and does not constitute a recommendation to any shareholder as to   
any matter relating to the merger. The summary of Credit Suisse First Boston's  
opinion included in this proxy statement/prospectus is qualified in its         
entirety by reference to the full text of the opinion.                          

In arriving at its opinion, Credit Suisse First Boston reviewed the merger
agreement and publicly available business and financial information relating to 
Chock full o'Nuts and Sara Lee. Credit Suisse First Boston also reviewed other  
information relating to Chock full o'Nuts, including financial forecasts for    
Chock full o'Nuts prepared by the management of Chock full o'Nuts, provided to  
or discussed with Credit Suisse First Boston by Chock full o'Nuts, and met with 
the management of Chock full o'Nuts to discuss the business and prospects of    
Chock full o'Nuts. In addition, Credit Suisse First Boston reviewed with        
representatives of Sara Lee management specific publicly available information  
and near-term analysts' earnings estimates for Sara Lee. Sara Lee management    
indicated they were not aware of anything that would lead them to believe that  
those estimates were unreasonable.                                              

Credit Suisse First Boston also considered financial and stock market data
of Chock full o'Nuts and Sara Lee and compared those data with similar data for 
other publicly held companies in businesses similar to Chock full o'Nuts and    
Sara Lee and considered, to the extent publicly available, the financial terms  
of other business combinations and other transactions recently effected. Credit 
Suisse First Boston also considered other information, financial studies,       
analyses and investigations and financial, economic and market criteria which   
Credit Suisse First Boston determined were relevant. In connection with its     
engagement, Credit Suisse First Boston was requested to approach, and hold      
discussions with, selected third parties to solicit indications of interest in  
a possible acquisition of Chock full o'Nuts.                                    

  In connection with its review, Credit Suisse First Boston did not assume any
responsibility for independent verification of any of the information that was  
provided to or otherwise reviewed by it and relied on the information being     
complete and accurate in all material respects. With respect to financial       
forecasts for Chock full o'Nuts, Credit Suisse First Boston was advised, and    
assumed, that the forecasts were reasonably prepared on bases reflecting the    
best currently available estimates and judgments of the management of Chock     
full o'Nuts as to the future financial performance of Chock full o'Nuts. Credit 
Suisse First Boston also reviewed with Sara Lee management the reasonableness   
of publicly available financial information relating to Sara Lee. With respect  
to the potential synergies and strategic benefits anticipated to result from    
the merger, Chock full o'Nuts management advised Credit Suisse First Boston,    
and Credit Suisse First Boston assumed, that the estimates represented the best 
currently available estimates of the management of Chock full o'Nuts, including 
as to the amount, timing and achievability of those synergies and strategic     
benefits. Credit Suisse First Boston also assumed, with the consent of Chock    
full o'Nuts and its legal advisors, that the merger will be treated as a tax-   
free reorganization for federal income tax purposes.                            

Credit Suisse First Boston was not requested to, and did not, make an     
independent evaluation or appraisal of the assets or liabilities, contingent or 
otherwise, of Chock full o'Nuts or Sara Lee, and was not furnished              

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with any evaluations or appraisals. Credit Suisse First Boston's opinion was    
necessarily based on information available to, and financial, economic, market  
and other conditions as they existed and could be evaluated by, Credit Suisse   
First Boston on the date of its opinion. Credit Suisse First Boston did not     
express any opinion as to the actual value of the Sara Lee common stock when    
issued in the merger or the prices at which the Sara Lee common stock will      
trade after the merger.                                                         

  In preparing its opinion to the Chock full o'Nuts board, Credit Suisse First
Boston performed a variety of financial and comparative analyses, including     
those described below. The summary of Credit Suisse First Boston's analyses     
described below is not a complete description of the analyses underlying Credit 
Suisse First Boston's opinion. The preparation of a fairness opinion is a       
complex analytic process involving various determinations as to the most        
appropriate and relevant methods of financial analyses and the application of   
those methods to the particular circumstances and, therefore, a fairness        
opinion is not readily susceptible to summary description. In arriving at its   
opinion, Credit Suisse First Boston made qualitative judgments as to the        
significance and relevance of each analysis and factor considered by it.        
Accordingly, Credit Suisse First Boston believes that its analyses must be      
considered as a whole and that selecting portions of its analyses and factors   
or focusing on information presented in tabular format, without considering all 
analyses and factors or the narrative description of the analyses, could create 
a misleading or incomplete view of the processes underlying its analyses and    
opinion.                                                                        

  In its analyses, Credit Suisse First Boston considered industry performance,
regulatory, general business, economic, market and financial conditions and     
other matters, many of which are beyond the control of Chock full o'Nuts and    
Sara Lee. No company, transaction or business used in Credit Suisse First       
Boston's analyses as a comparison is identical to Chock full o'Nuts or Sara Lee 
or the proposed merger, and an evaluation of the results of those analyses is   
not entirely mathematical. Rather, the analyses involve complex considerations  
and judgments concerning financial and operating characteristics and other      
factors that could affect the acquisition, public trading or other values of    
the companies, business segments or transactions being analyzed.                

The estimates contained in Credit Suisse First Boston's analyses and the  
ranges of valuations resulting from any particular analysis are not necessarily 
indicative of actual values or predictive of future results or values, which    
may be significantly more or less favorable than those suggested by the         
analyses. In addition, analyses relating to the value of businesses or          
securities do not purport to be appraisals or to reflect the prices at which    
businesses or securities actually may be sold. Accordingly, Credit Suisse First 
Boston's analyses and estimates are inherently subject to substantial           
uncertainty.                                                                    

  Credit Suisse First Boston's opinion and financial analyses were only one of
many factors considered by the Chock full o'Nuts board of directors in its      
evaluation of the proposed merger and should not be viewed as determinative of  
the views of the Chock full o'Nuts board of directors or management with        
respect to the exchange ratio or the merger.                                    

The following is a summary of the material analyses performed by Credit   
Suisse First Boston in connection with its opinion to the Chock full o'Nuts     
board dated June 8, 1999. The financial analyses summarized below include       
information presented in tabular format. In order to fully understand Credit    
Suisse First Boston's financial analyses, the tables must be read together with 
the text of each summary. The tables alone do not constitute a complete         
description of the financial analyses. Considering the data set forth in the    
tables below without considering the full narrative description of the          
financial analyses, including the methodologies and assumptions underlying the  
analyses, could create a misleading or incomplete view of Credit Suisse First   
Boston's financial analyses.                                                    

Discounted Cash Flow Analysis. Credit Suisse First Boston estimated the   
present value of the stand-alone, unlevered, after-tax free cash flows that     
Chock full o'Nuts could produce over the fiscal years 2000 through 2009 based   
on three scenarios. The first scenario, the management case, was based on       
estimates of the management of Chock full o'Nuts. The other scenarios, the      
adjusted management case I and the adjusted management case II, were based on   
adjustments to the management case developed with and reviewed by the           

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management of Chock full o'Nuts in order to examine areas of potential          
sensitivity that could impact growth and profitability. Specifically, the       
adjusted management cases reflected, among other things, a reduction of         
approximately 50% in the growth of coffee volume and the growth of sales of     
other non-coffee products, and an increase in selling, general and              
administrative costs as a percentage of total sales. In addition, the adjusted  
management case II reflected a reduction of approximately 10% in the spread     
between sales prices and the cost of coffee, as well as an increase in the cost 
of goods sold on non-coffee products. Credit Suisse First Boston reviewed the   
per share equity reference ranges implied in each scenario both with and        
without giving effect to the incremental value of the potential synergies that  
the management of Chock full o'Nuts believed that a buyer could realize in a    
merger with Chock full o'Nuts.                                                  

  Ranges of estimated terminal values, that is the estimated value of the cash
flows after 2009, for Chock full o'Nuts were calculated using multiples of 2009 
earnings before interest, taxes, depreciation and amortization, commonly        
referred to as EBITDA, of 5.0x to 7.0x and 4.0x to 6.0x estimated fiscal year   
2009 pre-tax synergies. The free cash flow streams and estimated terminal       
values were then discounted to present value using discount rates of 9.0% to    
10.0%, based on the weighted average cost of capital for Chock full o'Nuts.     

This analysis indicated the following implied approximate per share equity
reference ranges for Chock full o'Nuts:                                         

                                                                [Download Table]

                                              Adjusted           Adjusted     
                         Management Case  Management Case I Management Case II
                         ---------------- ----------------- ------------------
                                                                              
Without synergies....... $ 9.50 to $12.25 $ 7.25 to $10.00   $ 5.50 to $ 8.50 
With corporate overhead                                                       
 synergies.............. $12.25 to $14.50 $10.00 to $12.25   $ 8.50 to $10.75 
With food service and                                                         
 corporate overhead                                                           
 synergies.............. $14.50 to $16.75 $12.25 to $14.50   $10.75 to $13.00 

Selected Mergers and Acquisitions Analysis. Credit Suisse First Boston    
analyzed, among other things, the implied purchase prices and transaction       
multiples paid or proposed to be paid in the following selected merger and      
acquisition transactions in the branded food and foodservice sectors:           

Branded Food Transactions                                                     

                                                                [Download Table]

                                                                     Date   
           Acquiror                          Target                Announced
           --------                          ------                ---------
                                                                            
.  Cadbury Schweppes, PLC      The Procter & Gamble Company                 
                                (Hawaiian Punch brand)              4/16/99 
.  New World Pasta Company     Hershey Foods Corporation (pasta    12/15/98 
                                division)                                   
.  Agrilink Foods, Inc.        Dean Foods Company (vegetable        7/27/98 
                                division)                                   
.  ConAgra, Inc.               Nabisco, Inc. (Egg Beaters brand)    7/21/98 
.  PepsiCo, Inc.               Tropicana Products, Inc.             7/21/98 
.  ConAgra, Inc.               GoodMark Foods, Inc.                 6/18/98 
.  Desc, S.A. de C.V.          Authentic Specialty Foods, Inc.       5/8/98 
.  Suiza Foods Corporation     The Morningstar Group, Inc.          9/29/97 
.  Aurora Foods, Inc.          Kraft Foods, Inc. (Log Cabin         5/12/97 
                                brand)                                      
.  IBP, inc.                   Foodbrands America, Inc.              5/5/97 
.  Aurora Foods, Inc.          MB Foods Inc. (Mrs. Butterworth's   12/31/96 
                                brand)                                      
.  Kellogg Company             Kraft Foods, Inc. (Lender's Bagel   11/18/96 
                                brand)                                      
.  Hicks Muse Tate & Furst     American Home Food Corporation       11/1/96 
.  The Morningstar Group, Inc. Presto Food Products, Inc.          10/20/96 
.  General Mills, Inc.         Ralcorp Holdings, Inc. (branded              
                                cereal and snack businesses)        8/14/96 
.  Keebler Corporation         G.F. Industries, Inc. (Sunshine       6/5/96 
                                snack brand)                                

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Foodservice Transactions                                                      

                                                                [Download Table]

                                                                         Date   
              Acquiror                            Target               Announced
              --------                            ------               ---------
                                                                                
.  Sysco Corporation                  Doughtie's Foods, Inc.            2/17/99 
.  Sara Lee Corporation               The Quaker Oats Company                   
                                       (Continental Coffee division)    8/10/98 
.  AmeriServe Food Distribution, Inc. Prosource, Inc.                   1/30/98 
.  U.S. Foodservice                   Rykoff-Sexton, Inc.               6/30/97 
.  United Natural Foods, Inc.         Stow Mills, Inc.                  6/23/97 
.  Nash-Finch Company                 Super Food Services, Inc.         10/8/96 

For the selected transactions, Credit Suisse First Boston compared equity 
values as multiples of latest 12 months net income and enterprise values, that  
is equity market value plus debt and less cash, as multiples of latest 12       
months sales, EBITDA and earnings before interest and taxes, commonly referred  
to as EBIT. All multiples were based on financial information available at the  
time of the relevant transaction, except for the Sara Lee/The Quaker Oats       
Company transaction, which was based on information provided by Chock full      
o'Nuts management. Credit Suisse First Boston applied a range of selected       
multiples of sales, EBITDA, EBIT and net income statistics derived from the     
selected transactions to corresponding financial data of Chock full o'Nuts,     
after adjustment to exclude integration costs associated with Chock full o'Nuts 
acquisition of Park, operating losses from Chock full o'Nuts Quikava division   
and losses associated with changes in the price of green coffee. This analysis, 
using the management case estimates, indicated an implied equity reference      
range for Chock full o'Nuts of approximately $10.00 to $11.75 per share.        

Selected Companies Analysis.                                                  

Credit Suisse First Boston compared financial, operating and stock market 
data of Chock full o'Nuts to corresponding data of the following publicly       
traded companies in the branded food and foodservice sectors:                   

                                                                [Download Table]

Branded Food Companies                     Foodservice Companies         
----------------------                     ---------------------         
                                                                         
.  Celestial Seasonings, Inc.              Fleming Companies, Inc.       
.  Dean Foods Company                      Performance Food Group Company
.  International Home Foods, Inc.          Sysco Corporation             
.  J & J Snack Foods Corp.                 United Natural Foods, Inc.    
.  Lance, Inc.                             U.S. Foodservice              
.  McCormick & Company, Incorporated                                     
.  Ralcorp Holdings, Inc.                                                
.  Riviana Foods Inc.                                                    
.  Tasty Baking Company                                                  
.  Vlassic Foods International Inc.                                      

For the selected companies, Credit Suisse First Boston compared equity    
values as a multiple of estimated calendar years 1999 and 2000 net income, and  
enterprise values as a multiple of latest 12 months and estimated calendar      
years 1999 and 2000 sales, EBITDA and EBIT. Estimated financial data for the    
selected companies were based on estimates of selected investment banking       
firms. Credit Suisse First Boston then applied a range of selected multiples of 
estimated calendar years 1999 and 2000 sales, EBITDA, EBIT and net income       
statistics derived from the selected companies to corresponding financial data  
of Chock full o'Nuts, utilizing the management case estimates. This analysis    
indicated an implied equity reference range for Chock full o'Nuts of            
approximately $7.00 to $9.25 per share.                                         

  Premium and Multiples Overview. Credit Suisse First Boston derived an equity
value for Chock full o'Nuts implied in the merger by multiplying the total      
number of fully diluted shares of Chock full o'Nuts common stock outstanding on 
June 7, 1999 by the estimated consideration to be paid in the merger of $11.00  
per share. Credit Suisse First Boston then derived an enterprise value for      
Chock full o'Nuts implied in the                                                

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merger by adding the net debt of Chock full o'Nuts as of January 31, 1999 to    
this implied equity value. Using these results, Credit Suisse First Boston      
calculated the enterprise value multiples of Chock full o'Nuts' latest 12       
months and estimated fiscal 1999 sales, EBITDA and EBIT, and equity value       
multiples of Chock full o'Nuts' latest 12 months and estimated fiscal 1999 net  
income implied by the exchange ratio. Estimated financial data used in this     
analysis was based on the management case estimates. Credit Suisse First Boston 
also reviewed multiples of Chock full o'Nuts latest 12 months operational data  
and estimated fiscal 1999 operating results as adjusted to exclude integration  
costs associated with Chock full o'Nuts' acquisition of Park, operating losses  
from the Quikava division and losses or gains associated with changes in the    
price of green coffee. This review indicated the following multiples for Chock  
full o'Nuts implied by the exchange ratio:                                      

                                                                [Download Table]
                                                                          
Enterprise Value as a multiple of:                                        
Latest 12 months sales..............................................  0.6x
Latest 12 months EBITDA............................................. 10.1x
Latest 12 months EBIT............................................... 17.2x
Latest 12 months adjusted EBITDA....................................  7.4x
Latest 12 months adjusted EBIT...................................... 10.6x
Estimated 1999 sales................................................  0.7x
Estimated 1999 EBITDA............................................... 13.2x
Estimated 1999 EBIT................................................. 27.8x
Estimated 1999 adjusted EBITDA......................................  8.3x
Estimated 1999 adjusted EBIT........................................ 12.5x

Equity Value as a multiple of:                                            
Latest 12 months net income......................................... 30.1x
Latest 12 months adjusted net income................................ 18.3x
Estimated 1999 net income........................................... 53.7x
Estimated 1999 adjusted net income.................................. 11.5x

In addition, Credit Suisse First Boston reviewed the implied premiums to  
Chock full o'Nuts' closing share prices on April 22, 1999, immediately before   
Sara Lee's filing of its Schedule 13D relating to its acquisition of Chock full 
o'Nuts common stock, and on June 4, 1999, one week before the Chock full o'Nuts 
board meeting to approve the merger. This analysis indicated an implied premium 
to Chock full o'Nuts' closing share price on April 22, 1999 of approximately    
72% and an implied premium to its closing share price on June 4, 1999 of        
approximately 5%.                                                               

Miscellaneous. Under the terms of Credit Suisse First Boston's engagement,
Chock full o'Nuts has agreed to pay Credit Suisse First Boston for its          
financial advisory services upon completion of the merger an aggregate fee      
equal to the sum of 1.5% of the aggregate consideration, including liabilities  
assumed, payable in the merger up to and including aggregate consideration      
implied at $11.00 per share, plus 5.0% of the incremental amount of aggregate   
consideration in excess of $11.00 per share. Chock full o'Nuts also has agreed  
to reimburse Credit Suisse First Boston for its reasonable out-of-pocket        
expenses, including the fees and expenses of legal counsel and any other        
advisor retained by Credit Suisse First Boston, and to indemnify Credit Suisse  
First Boston and related parties against liabilities, including liabilities     
under the federal securities laws, arising out of Credit Suisse First Boston's  
engagement.                                                                     

Credit Suisse First Boston and its affiliates have in the past provided   
financial services to Chock full o'Nuts unrelated to the proposed merger, for   
which services Chock full o'Nuts has agreed to reimburse Credit Suisse First    
Boston for its expenses. In the ordinary course of business, Credit Suisse      
First Boston and its affiliates may actively trade the debt and equity          
securities of both Chock full o'Nuts and Sara Lee for their own accounts and    
for the accounts of customers and, accordingly, may at any time hold long or    
short positions in these securities.                                            

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Interests of Chock full o'Nuts Directors and Management in the Merger         

In considering the recommendation of the Chock full o'Nuts board of       
directors with respect to the merger, you should be aware of, and should        
carefully consider that, the Chock full o'Nuts board and members of Chock full  
o'Nuts' management may have interests in the merger that are different from, or 
in addition to, the interests of the other shareholders. These differences may  
create potential conflicts of interest. The following summarizes potential      
conflicts of interest with respect to the merger:                               

 The Chock full o'Nuts Board of Directors. Immediately following the merger,
the board of directors of Chock full o'Nuts will be replaced by the directors   
of CFN Acquisition Corporation. The Chock full o'Nuts Unfunded Directors        
Retirement Plan covers directors who are not and never have been employees of   
Chock full o'Nuts. Under the terms of the plan, each outside director who       
retires from the board of directors with at least five full years of service as 
a director of Chock full o'Nuts shall, at the later of age 65 or on the date on 
which such director retires from the Chock full o'Nuts board of directors,      
receive for a period of 10 years an annual cash benefit payment equal to the    
regular annual director's fee in effect upon such director's retirement. As a   
result of the merger, those outside directors who have reached the age of 65    
and have served on the board for at least five years will be immediately        
eligible for the payments. Others will be eligible immediately upon reaching    
age 65 provided they have served for five years before the merger.              

The following table sets forth those directors of Chock full o'Nuts that  
will be immediately eligible for payments under the Unfunded Directors          
Retirement Plan and the amount of the annual cash benefit payable to such       
director:                                                                       

                                                                [Download Table]

                             Amount of   
Director                   annual benefit
--------                   --------------
                                         
Norman E. Alexander.......    $16,000    
Stuart Z. Krinsly.........    $16,000    
David S. Weil.............    $16,000    

  Indemnification of Directors and Officers of Chock full o'Nuts. For a period
of six years from and after the effective time of the merger, Sara Lee must     
cause the surviving corporation to indemnify the current or former directors or 
officers of Chock full o'Nuts against any losses, claims, damages, judgments,   
settlements, liabilities, costs or expenses arising out of or pertaining to     
acts or omissions, or alleged acts or omissions, by them in their capacities as 
officers and directors occurring at or before the effective time of the merger. 
For a period of three years from and after the effective time, Sara Lee or the  
surviving corporation must maintain policies of directors' and officers'        
liability insurance with coverage of comparable scope and amount to Chock full  
o'Nuts' existing coverage, as long as the annual aggregate premium does not     
exceed 150% of the annual premium currently paid by Chock full o'Nuts for its   
existing coverage. If the annual premium does exceed this amount, Sara Lee or   
the surviving corporation must obtain a policy with the greatest coverage       
available for a cost not exceeding this amount.                                 

Employment Agreements:                                                        

Generally. Chock full o'Nuts has previously entered into employment       
agreements with Howard Leitner, Peter Baer, Al Hernandez, Richard Kassar and    
Stephen Weise. The employment agreements become effective in the event of a     
change in control. The merger will constitute a change in control under each of 
these employment agreements. The employment agreements provide, among other     
things, for:                                                                    

.  a three-year term beginning immediately after the change in control, and 

.  base salary, bonus and other employee benefits at amounts existing       
immediately before the change in control.                             

 Mr. Haas. Chock full o'Nuts has also previously entered into an amended and
restated employment agreement with Marvin Haas. The employment agreement with   
Mr. Haas is substantially similar to the agreements with the other officers set 
forth above. However, Mr. Haas' benefits are payable in the event of his        
voluntary resignation for any reason following a change in control and not just 
for specified reasons constituting "Good Reason." The other officers must have  
"Good Reason" for terminating their contracts.                                  

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Mr. Haas' base salary for the balance of the term after a termination of        
employment following a change in control is increased by $75,000 from that in   
effect immediately before the change in control.                                

Stock Options and Restricted Stock Agreements. Under the Chock full o'Nuts
1984 Incentive Compensation Plan, 10 officers and three employees of Chock full 
o'Nuts have options to purchase an aggregate of 413,493 shares of Chock full    
o'Nuts common stock. Of these options, 35,333 are not currently exercisable.    
All of these options are exercisable at prices of between $5.25 per share and   
$8.50 per share. Upon completion of the merger, all of these options will       
become immediately exercisable and will be converted into options to purchase a 
number of shares of Sara Lee common stock equal to:                             

.  (1) the number of shares of Chock full o'Nuts common stock that could    
have been purchased under the Chock full o'Nuts options multiplied by 

.  (2) the exchange ratio, at a price per share of Sara Lee common stock    
  equal to the per share option exercise price specified in the Chock full
o'Nuts stock options, divided by the exchange ratio.                  

In the merger agreement, Chock full o'Nuts agreed not to grant any        
additional options under the 1984 Incentive Compensation Plan. The following    
table lists the officers and employees of Chock full o'Nuts that will have      
their options vested as a result of the merger and the number of shares         
underlying those options:                                                       

                                                                [Download Table]

                                                         Number of shares 
Officer/Employee                                        underlying options
----------------                                        ------------------
                                                                          
Howard Leitner.........................................       5,333       
Richard Kassar.........................................       5,000       
Tom Donnell............................................       5,000       
Anthony Fazzari........................................       5,000       
Stephen Weise..........................................       5,000       
Al Hernandez...........................................       5,000       
Michael Goldman........................................       5,000       

Additionally, Howard Leitner and Martin Cullen had previously entered into
restricted stock agreements with Chock full o'Nuts. Under the terms of these    
agreements, 19,546 restricted shares which were to vest in 2001, will vest      
immediately upon consummation of the merger. Mr. Leitner will receive 17,769    
shares having an aggregate market value of $184,353, and Mr. Cullen will        
receive 1,777 shares having a market value of $18,436.                          

Incentive Cash Bonus Plan. Under the terms of the Chock full o'Nuts Annual
Incentive Cash Bonus Plan, 11 Chock full o'Nuts executives will receive the     
maximum bonus for which they are eligible with respect to any fiscal year in    
which a change in control occurs. These bonuses will be paid regardless of      
whether the performance criteria for the bonuses have been met. The merger      
constitutes a change in control as defined in the Annual Incentive Cash Bonus   
Plan. These bonuses are payable 30 days after completion of the merger. The     
following table sets forth the executives of Chock full o'Nuts that are         
entitled to benefits under the Incentive Cash Bonus Plan and the amount of      
bonus each executive is entitled to as a result of the merger:                  

                                                                [Download Table]

Executive                                                          Bonus  
---------                                                         --------
                                                                          
Marvin Haas...................................................... $300,000
Howard Leitner...................................................  135,000
Richard Kassar...................................................  120,000
Martin Cullen....................................................   66,000
Peter Baer.......................................................   56,000
Stephen Weise....................................................   70,000
Anthony Fazzari..................................................   74,000
Al Hernandez.....................................................   63,000
Scott Abbott.....................................................   63,000
Matthew Goldberg.................................................   42,000
Michael Goldman..................................................   72,000

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 Severance Plan. Under the terms of the Chock full o'Nuts severance plan, in
the event of a change in control, the severance benefits to which all non-union 
employees and employees who do not have employment agreements are entitled will 
be doubled. The merger will constitute a change in control under the severance  
plan.                                                                           

Benefits Protection Trust. Chock full o'Nuts has established a Benefits   
Protection Trust with State Street Bank and Trust Company and has contributed   
$700,000 to it. The trust fund is to be used for litigation expenses incurred   
by Chock full o'Nuts employees, including all executive officers of Chock full  
o'Nuts, if, after a change in control, the new management of Chock full o'Nuts  
refuses to pay benefits under any employment contract or any employee benefit   
plan maintained by Chock full o'Nuts. The merger will constitute a change in    
control under the trust.                                                        

Supplemental Employee Retirement Plan. Chock full o'Nuts maintains a non- 
qualified, unfunded Supplemental Employee Retirement Plan, which covers those   
participants of Chock full o'Nuts' Pension Plan whose benefits would otherwise  
be limited by Internal Revenue Code limitations on qualified plan benefits. A   
participant in the Supplemental Employee Retirement Plan is entitled to a       
benefit equaling the difference between: (1) the amount of benefits the         
participant is entitled to without reduction, limited to a maximum of $130,000  
at normal retirement, and (2) the amount of benefits the participant is         
entitled to after reduction, i.e., those payable under the pension plan. Chock  
full o'Nuts must fund the Supplemental Employee Retirement Plan, in the         
approximate amount of $1,050,000, immediately upon a change in control of Chock 
full o'Nuts. The merger constitutes a change in control under the Supplemental  
Employee Retirement Plan.                                                       

Agreements between Sara Lee and Chock full o'Nuts                               

 On August 26, 1999, Chock full o'Nuts called its outstanding 7% convertible
debentures and 8% convertible debentures for redemption on September 14, 1999.  
Sara Lee has entered into a credit agreement with Chock full o'Nuts in order to 
fund these redemptions. Sara Lee has committed to loan up to a total principal  
amount of $80.3 million. Of this amount, $50.7 million is committed to fund the 
redemption of the 7% convertible debentures, referred to as the "A loan," and   
$29.6 million is committed to fund the redemption of the 8% convertible         
debentures, referred to as the "B loan." The A loan will mature on April 1,     
2012 and amounts outstanding under this loan will bear interest, payable semi-  
annually, at the annual rate of 7%. The B loan will mature on September 15,     
2006 and amounts outstanding under this loan will bear interest, payable semi-  
annually, at the annual rate of 8%. These term loans are unsecured obligations  
of Chock full o'Nuts and are junior and subordinated to all of its senior       
indebtedness.                                                                   

Accounting Treatment                                                            

 The merger will be accounted for as a "purchase" transaction for accounting
and financial reporting purposes, in accordance with generally accepted         
accounting principles. Accordingly, Sara Lee will make a determination of the   
fair value of Chock full o'Nuts' assets and liabilities in order to allocate    
the purchase price to the assets acquired and the liabilities assumed. The      
purchase price allocation is subject to revision when additional information    
concerning asset and liability valuation is obtained.                           

Form of the Merger                                                              

Subject to the terms and conditions of the merger agreement and in        
accordance with New York law, at the effective time of the merger, CFN          
Acquisition Corp., a wholly-owned subsidiary of Sara Lee and a party to the     
merger agreement, will merge with and into Chock full o'Nuts. Chock full o'Nuts 
will survive the merger as a wholly-owned New York subsidiary of Sara Lee and   
will continue under the name "Chock full o'Nuts Corporation."                   

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Merger Consideration                                                            

At the effective time of the merger, for each share of Chock full o'Nuts  
common stock that you own, you will receive a fraction between 0.5238 and       
0.4231 of a share of Sara Lee common stock. We will determine the exact         
fraction by dividing:                                                           

(1) $11.00, by                                                              

(2) the average price of Sara Lee common stock on the New York Stock        
   Exchange for the 20 consecutive trading days beginning on the date this
proxy statement/prospectus is first mailed to Chock full o'Nuts     
shareholders.                                                       

If the average price of Sara Lee common stock is greater than $26.00, then
each share of Chock full o'Nuts common stock will be exchanged for 0.4231 of a  
share of Sara Lee common stock. In this case, the value of the Sara Lee common  
stock you receive may be more than $11.00 per share of Chock full o'Nuts common 
stock. If the average price of Sara Lee common stock is less than $21.00, then  
Sara Lee may elect to increase the exchange ratio above 0.5238 and/or make an   
additional cash payment so that the value of the consideration you receive in   
the merger for each share of Chock full o'Nuts common stock that you own is     
$11.00. Shareholders will receive cash for any fractional shares which they     
would otherwise receive in the merger.                                          

Chock full o'Nuts' Option to Terminate the Merger Agreement if the Average      
Price of Sara Lee Common Stock is Below $21.00 Per Share                        

 If the average price of Sara Lee common stock is less than $21.00, Sara Lee
may increase the exchange ratio and/or make an additional cash payment so that  
the value of consideration to the Chock full o'Nuts shareholders is $11.00 per  
share of Chock full o'Nuts. If Sara Lee does not elect to increase the          
consideration, then the Chock full o'Nuts board of directors may terminate the  
merger agreement. It is not possible to know whether the termination right will 
be triggered until after the determination date. The Chock full o'Nuts board of 
directors has not decided whether it will exercise its right to terminate the   
merger agreement if the termination right is triggered. In considering whether  
to exercise its termination right in this situation, the Chock full o'Nuts      
board of directors would, consistent with its fiduciary duties, take into       
account all relevant facts and circumstances that exist at that time and would  
consult with its financial advisors and legal counsel. Among the factors the    
Chock full o'Nuts board of directors would take into account in making this     
determination would be:                                                         

.  the likelihood of obtaining greater value for Chock full o'Nuts' current 
shareholders through a business combination or sale other than that   
contemplated by the merger agreement;                                 

.  the financial condition, results of operations and business of Chock     
full o'Nuts' and Sara Lee on both an historical and prospective basis;
and                                                                   

.  the financial prospects for Chock full o'Nuts' current shareholders if   
 they continue as shareholders of Chock full o'Nuts as compared to their
financial prospects as stockholders of Sara Lee.                      

Approval of the merger agreement by the shareholders of Chock full o'Nuts 
will confer on the Chock full o'Nuts board of directors the power, consistent   
with its fiduciary duties, to elect to consummate the merger in the event the   
termination right is triggered whether or not there is any increase in the      
merger consideration and without any further action by, or resolicitation of,   
the shareholders of Chock full o'Nuts.                                          

Conversion of Shares; Procedures for Exchange of Certificates; Fractional       
Shares                                                                          

Chock full o'Nuts common stock will be automatically converted into the   
right to receive Sara Lee common stock at the effective time of the merger. As  
soon as practicable after the effective time of the merger, The First National  
Bank of Chicago, the exchange agent, will send a transmittal letter to each     
former Chock full o'Nuts shareholder. The transmittal letter will contain       
instructions for obtaining shares of Sara Lee common stock in exchange for      
shares of Chock full o'Nuts common stock. Chock full o'Nuts shareholders should 
not return stock certificates with the enclosed proxy.                          

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After the effective time of the merger, each certificate that previously  
represented shares of Chock full o'Nuts common stock will represent only the    
right to receive the merger consideration. Until holders of certificates of     
Chock full o'Nuts common stock have surrendered those certificates to the       
exchange agent for exchange, they will not receive dividends or distributions   
on the Sara Lee common stock, with a record date after the effective time of    
the merger, into which these shares are to be converted. Until the certificates 
are surrendered, holders will also not receive any cash payment for fractional  
shares of Sara Lee common stock or additional cash merger consideration elected 
to be paid by Sara Lee, if any. When holders surrender these certificates, they 
will receive any unpaid dividends and any cash for fractional shares of Sara    
Lee common stock or additional cash payments without interest.                  

 If there has been a transfer of ownership of Chock full o'Nuts common stock
that is not registered in the records of Chock full o'Nuts' transfer agent, a   
certificate representing the proper number of shares of Sara Lee common stock   
may be issued to the non-registered holder if:                                  

.  the certificate is properly endorsed or otherwise is in proper form for  
transfer; and                                                         

.  the person requesting the issuance will (a) pay any transfer or other    
 taxes resulting from the issuance of shares of Sara Lee common stock to
a person other than the registered holder of the certificate or (b)   
 establish to Sara Lee that this tax has been paid or is not applicable.

All shares of Sara Lee common stock issued upon conversion of shares of   
Chock full o'Nuts common stock, including any cash paid instead of any          
fractional shares of Sara Lee common stock, will be issued in full satisfaction 
of all rights relating to the shares of Chock full o'Nuts common stock.         

No fractional shares of Sara Lee common stock will be issued to any Chock 
full o'Nuts shareholder upon surrender of certificates of Chock full o'Nuts     
common stock. Promptly after the effective time of the merger, the exchange     
agent will determine the excess of (1) the number of whole shares of Sara Lee   
common stock delivered to the exchange agent by Sara Lee over (2) the aggregate 
number of whole shares of Sara Lee common stock to be distributed to former     
holders of Chock full o'Nuts common stock. The exchange agent will sell the     
excess shares on the New York Stock Exchange and will hold the proceeds in      
trust for the former holders of Chock full o'Nuts common stock. The exchange    
agent will determine the portion of the proceeds to be paid to each former      
holder of Chock full o'Nuts common stock by multiplying:                        

(1) the amount of net aggregate proceeds held in trust, by                  

(2) a fraction, the numerator of which is the amount of the fractional      
share interest to which a holder would otherwise be entitled and the
denominator of which is the aggregate amount of fractional share    
interests to which all holders of Chock full o'Nuts common stock are
entitled.                                                           

Effective Time of the Merger                                                    

The merger will become effective upon the filing of the certificate of    
merger with the New York Secretary of State or any later time as is agreed upon 
by Sara Lee and Chock full o'Nuts and specified in the certificate of merger.   
We will file the certificate of merger as soon as practicable, but no later     
than the second business day, after satisfaction or waiver of the conditions to 
the completion of the merger.                                                   

Stock Exchange Listing of Sara Lee Common Stock                                 

It is a condition to the completion of the merger that the Sara Lee common
stock issuable to Chock full o'Nuts shareholders in the merger be approved for  
listing on the New York Stock Exchange, subject to official notice of issuance. 

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Delisting and Deregistration of Chock full o'Nuts Common Stock                  

 If the merger is completed, Chock full o'Nuts common stock will be delisted
from The New York Stock Exchange and will be deregistered under the Securities  
Exchange Act of 1934.                                                           

Material United States Federal Income Tax Consequences of the Merger            

The following general discussion summarizes the opinion of Cahill Gordon &
Reindel, special counsel to Chock full o'Nuts, as to the anticipated material   
United States federal income tax consequences of the merger to holders of Chock 
full o'Nuts common stock who exchange their stock for Sara Lee common stock or  
stock and cash in the merger, which opinion is filed as an exhibit to the       
registration statement of which this proxy statement/prospectus is a part. This 
discussion addresses only those shareholders who hold their Chock full o'Nuts   
common stock as a capital asset and does not address all of the United States   
federal income tax consequences that may be relevant to particular shareholders 
in light of their individual circumstances or to shareholders who are subject   
to special rules under United States federal income tax law, including          
financial institutions, tax-exempt organizations, insurance companies, dealers  
in securities or foreign currencies, foreign holders, persons who hold their    
shares as a hedge against currency risk, or as part of a constructive sale,     
straddle or conversion transaction, or holders who acquired their shares upon   
the exercise of employee stock options or otherwise as compensation. The        
following discussion is not binding on the Internal Revenue Service. It is      
based upon the Internal Revenue Code, Treasury regulations, administrative      
rulings and court decisions, all as in effect as of the date of this proxy      
statement/prospectus, all of which are subject to change, possibly with         
retroactive effect. Tax consequences of the merger under state, local and       
foreign laws are not addressed.                                                 

Holders of Chock full o'Nuts common stock are strongly urged to consult   
their tax advisors as to the specific tax consequences of the merger to them,   
including the applicability and effects of federal, state, local and foreign    
income and other tax laws in their particular circumstances.                    

 No ruling has been, or will be, sought from the Internal Revenue Service as
to the United States federal income tax consequences of the merger. It is a     
condition to the completion of the merger that Chock full o'Nuts receive an     
opinion from Cahill Gordon & Reindel and that Sara Lee receive an opinion from  
Skadden, Arps, Slate, Meagher & Flom (Illinois), special counsel to Sara Lee,   
in each case stating that the merger will qualify for United States federal     
income tax purposes as a reorganization within the meaning of Section 368(a) of 
the Internal Revenue Code. In rendering its tax opinions, each special counsel  
may require and rely, as to factual matters, upon assumptions, representations  
and covenants, including representations and covenants contained in             
certificates of officers of Chock full o'Nuts, CFN Acquisition Corporation,     
Sara Lee and others, reasonably satisfactory in form and substance to each      
counsel. An opinion of counsel represents counsel's best legal judgment and is  
not binding on the Internal Revenue Service or any court. Accordingly, the      
Internal Revenue Service may challenge the conclusion reached by counsel, and a 
court may sustain this challenge.                                               

Exchange of Chock full o'Nuts Common Stock Solely for Sara Lee Common     
Stock. Holders of Chock full o'Nuts common stock who exchange their Chock full  
o'Nuts common stock solely for Sara Lee common stock in the merger will not     
recognize gain or loss for United States federal income tax purposes, except    
with respect to gain, if any, realized with respect to a fractional share of    
Sara Lee common stock. Each holder's aggregate tax basis in the Sara Lee common 
stock received in the merger by holders of Chock full o'Nuts who exchanged all  
of their Chock full o'Nuts common stock solely for Sara Lee common stock,       
including any fractional share of Sara Lee common stock, will be the same as    
his or her aggregate tax basis in the Chock full o'Nuts common stock            
surrendered in the merger. The holding period of the Sara Lee common stock      
received in the merger by a holder of Chock full o'Nuts common stock will       
include the holding period of Chock full o'Nuts common stock that he or she     
surrendered in the merger.                                                      

Exchange of Chock full o'Nuts Common Stock for Sara Lee Common Stock and  
Cash. If Sara Lee elects to make a cash payment to Chock full o'Nuts            
shareholders because the average price of Sara Lee common stock is less than    
$21.00, each Chock full o'Nuts holder will recognize gain, but not loss, with   
respect to each block of Chock full o'Nuts stock owned by the holder, in an     
amount equal to the lesser of (1) the amount of                                 

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gain, if any, realized by a Chock full o'Nuts shareholder as a result of the    
merger, which would be the excess of the amount of cash, other than cash        
received with respect to a fractional share of Sara Lee common stock, and the   
fair market value of the Sara Lee common stock, including fractional shares,    
received in the merger that is allocable to this block of Chock full o'Nuts     
common stock over the tax basis of this block, and (2) the amount of cash       
received, other than cash received with respect to a fractional share of Sara   
Lee common stock, that is allocable to this block of Chock full o'Nuts common   
stock. A "block" is each group of shares with the same tax basis and holding    
period. For purposes of this calculation, the aggregate amount of cash and Sara 
Lee common stock will be allocated proportionately among the shares of Chock    
full o'Nuts common stock surrendered. Any recognized gain will be treated as    
capital gain unless the cash received, other than cash received with respect to 
a fractional share of Sara Lee common stock, has the effect of the distribution 
of a dividend, in which case the gain should be treated as a dividend to the    
extent of the shareholder's ratable share of Chock full o'Nuts undistributed    
earnings and profits.                                                           

In general, the determination as to whether the gain recognized in the    
exchange will be treated as capital gain or dividend income depends upon        
whether and to what extent that exchange reduces the holder's actual and        
constructive percentage stock ownership of Sara Lee. For purposes of that       
determination, the holder is treated as if it first exchanged all of its shares 
of Chock full o'Nuts common stock solely for Sara Lee common stock and then     
Sara Lee immediately redeemed (the "hypothetical redemption") a portion of this 
Sara Lee common stock in exchange for the cash the holder actually received,    
other than cash received with respect to a fractional share of Sara Lee common  
stock. The gain recognized in that exchange will be treated as capital gain if  
under Section 302 of the Internal Revenue Code the hypothetical redemption is   
(1) "not essentially equivalent to a dividend" or (2) "substantially            
disproportionate" with respect to the holder.                                   

Whether the hypothetical redemption is "not essentially equivalent to a   
dividend" with respect to a holder will depend upon the holder's particular     
circumstances. At a minimum, however, in order for the hypothetical redemption  
to be "not essentially equivalent to a dividend," the deemed redemption must    
result in a "meaningful reduction" in the holder's hypothetical percentage      
stock ownership of Sara Lee. In general, that determination requires a          
comparison of (1) the percentage of the outstanding stock of Sara Lee the       
holder actually and constructively owns immediately before the hypothetical     
redemption and (2) the percentage of the outstanding stock of Sara Lee the      
holder actually and constructively owns immediately after the hypothetical      
redemption.                                                                     

The hypothetical redemption will be "substantially disproportionate" with 
respect to a holder if the percentage of the outstanding voting stock of Sara   
Lee actually and constructively owned by the holder immediately after the       
hypothetical redemption is less than 80% of the percentage of the outstanding   
voting stock of Sara Lee actually and constructively owned by the holder        
immediately before the hypothetical redemption, treating the Sara Lee common    
stock acquired by Sara Lee in the hypothetical redemption as outstanding.       
However, the hypothetical redemption will not be treated as substantially       
disproportionate unless the holder's actual and constructive ownership of Sara  
Lee common stock immediately following and before the hypothetical redemption   
also meets the 80% requirement of the preceding sentence.                       

  In applying the foregoing tests, under attribution rules, a shareholder will
be treated as owning stock owned and, in some cases, constructively owned by    
family members, by estates and trusts of which the holder is a beneficiary, and 
by affiliated entities, as well as stock subject to an option actually or       
constructively owned by the stockholder or these other persons. As the rules    
are complex, each holder that believes it may be subject to these rules should  
consult its tax advisor.                                                        

Under the foregoing tests, in most circumstances, gain recognized by a    
holder that exchanges its share of Chock full o'Nuts common stock for a         
combination of Sara Lee common stock and cash is expected to be treated as      
capital gain, and will be long-term gain if the holding period for these shares 
was greater than one year as of the date of the merger. However, holders of     
Chock full o'Nuts common stock who receive these cash payments should consult   
their own tax advisors to determine the proper treatment of these cash payments 
in their individual situations, including the impact, if any, of Chock full     
o'Nuts common stock or Sara Lee common stock owned by related persons.          

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The aggregate tax basis of Sara Lee common stock received by a holder,    
including any fractional share of Sara Lee common stock, that exchanges a block 
of shares of Chock full o'Nuts common stock for a combination of Sara Lee       
common stock and cash, other than cash received with respect to a fractional    
share of Sara Lee common stock, pursuant to the merger, will be the same as the 
aggregate tax basis of the exchange block of shares of Chock full o'Nuts common 
stock, decreased by the cash received, other than cash received with respect to 
a fractional share of Sara Lee common stock, and increased by any recognized    
gain, whether capital gain or dividend income, other than gain recognized with  
respect to a fractional share of Sara Lee common stock. The holding period of   
Sara Lee common stock will include the holding period of the exchange block of  
shares of Chock full o'Nuts common stock.                                       

If a holder has differing basis and/or holding periods in respect of its  
shares of Chock full o'Nuts common stock, it should consult its tax advisor     
before the exchange with regard to identifying the particular basis and/or      
holding period of the shares of Chock full o'Nuts to be surrendered in the      
merger and the particular basis and/or holding period of the particular shares  
of Sara Lee common stock it receives in the merger since several methods of     
determination may be available.                                                 

  Cash Received for Fractional Shares. Cash received by a holder of Chock full
o'Nuts common stock instead of a fractional share interest in Sara Lee common   
stock will be treated as proceeds of the sale of the fractional share interest, 
and a holder of Chock full o'Nuts common stock should generally recognize       
capital gain or loss for United States federal income tax purposes. The gain or 
loss will be measured by the difference between the amount of cash received and 
the portion of the tax basis of the share of Chock full o'Nuts allocable to     
this fractional share interest. Any capital gain or loss will be long-term      
capital gain or loss if the holding period for the share of Chock full o'Nuts   
was greater than one year as of the date of the merger.                         

Maximum Tax Rates. The maximum individual federal income tax rate, that   
applies to ordinary income and gains from the sale or exchange of capital       
assets held for one year or less, is 39.6%. The maximum individual federal      
income tax rate on gains from the sale of capital assets held for more than one 
year is 20%. The maximum corporate federal income tax rate, that applies to     
ordinary income and all capital gains, is 35%.                                  

Regulatory Matters                                                              

Under the Hart-Scott-Rodino Act and related rules, the merger may not be  
completed unless the waiting period requirements have been satisfied. On May 4, 
1999, Sara Lee filed its Notification and Report Form with the Antitrust        
Division of the Department of Justice and the Federal Trade Commission. On May  
14, 1999, Chock full o'Nuts filed its Notification and Report Form with the     
Antitrust Division of the Department of Justice and the Federal Trade           
Commission. On May 19, 1999, the waiting period expired. At any time before or  
after the effective time of the merger, the Antitrust Division, the Federal     
Trade Commission or others could take action under the antitrust laws,          
including seeking to prevent the merger. We cannot be sure that a third party   
will not challenge the merger on antitrust grounds and that any challenge will  
not be successful.                                                              

See "The Merger Agreement--Conditions to the Completion of the Merger."   

Litigation                                                                      

Since April 26, 1999, seven putative class action lawsuits have been filed
by alleged shareholders of Chock full o'Nuts against certain officers and       
directors of Chock full o'Nuts and Chock full o'Nuts, in the Supreme Court of   
the State of New York, styled Laura Benjamin v. Chock Full o'Nuts Corp., et     
al., C.A. No. 999108759, Sandra Kafenbaum, et al. v. Mark A. Alexander, et al., 
C.A. No. 99602054, Staniloff v. Alexander, et al., C.A. No. 99602054, Victor v. 
Chock Full o'Nuts Corp., et al., C.A. No. 99602254, Gutterman v. Alexander, et  
al., C.A. No. 99602412, Janner v. Chock Full o'Nuts Corp., et al., C.A. No.     
9910826, and Bollinger v. Chock Full o'Nuts et al., C.A. No. 99109951. A motion 
to consolidate the pending class actions for pre-trial and trial purposes has   
been filed by plaintiffs' counsel with the Court. In addition, since April 26,  
1999, three shareholder's derivative complaints have been filed by alleged      
shareholders of Chock full o'Nuts against certain officers and directors of     
Chock full o'Nuts and, nominally, Chock full o'Nuts, (1) in the Supreme Court   
of the State of New York, styled Harbor Finance Partners and Alan Freburg v.    
Marvin I. Haas, et al., No. 99-602013, and Josh Staniloff v. Marvin Haas, et    
al., No. 99-111658, (2) in the United States                                    

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District Court for the Southern District of New York, styled Richard A. Ash v.  
Norman E. Alexander, et al., No. 99 Civ. 3820. Each of the class action suits   
and the shareholder's derivative suits set forth substantially similar          
allegations of purported misconduct and breach of fiduciary duties by several   
of the officers and directors of Chock full o'Nuts and its board of directors   
related to their conduct and consideration of the business combination between  
Chock full o'Nuts and Sara Lee. Additionally, in the Ash action, plaintiff,     
purportedly on behalf of Chock full o'Nuts, has alleged a claim arising under   
the Federal securities laws. The shareholders plaintiffs seek, in each case     
unspecified damages, attorneys' fees and equitable relief, including, among     
other things, orders requiring the individual defendants to carry out their     
fiduciary duties, enjoining them from proceeding with alleged violations        
complained of in the complaints, and requiring certain directors to disgorge    
all profits allegedly earned from purported insider stock transactions during   
the relevant time period. The board of directors of Chock full o'Nuts has       
received a letter from another shareholder demanding that Chock full o'Nuts     
bring direct claims against the directors substantially similar to the claims   
set forth above. By letter dated May 14, 1999, Chock full o'Nuts counsel        
informed counsel for the shareholder who had lodged the demand that the board   
of directors of Chock full o' Nuts had unanimously rejected the demand.         

Appraisal Rights                                                                

 Under New York corporate law, holders of Chock full o'Nuts common stock are
not entitled to appraisal rights in connection with the merger. This is         
because, on the record date, Chock full o'Nuts common stock was listed for      
trading on The New York Stock Exchange and will be converted into shares of     
Sara Lee common stock, which at the effective time of the merger will also be   
listed on the New York Stock Exchange.                                          

Effect on Awards Outstanding Under Chock full o'Nuts Stock Plans                

 At the effective time of the merger, Sara Lee will assume each stock option
plan of Chock full o'Nuts and all outstanding equity-based awards. Each option  
to acquire shares of Chock full o'Nuts common stock under these plans will be   
converted into an option to acquire Sara Lee common stock on the same terms and 
conditions. The number of shares of Sara Lee common stock to be subject to the  
option will be equal to the number of shares of Chock full o'Nuts common stock  
subject to the Chock full o'Nuts option multiplied by the applicable exchange   
ratio and rounded to the nearest whole share. The exercise price per share of   
Sara Lee common stock under an option will be equal to the aggregate exercise   
price for the shares of Chock full o'Nuts common stock subject to the Chock     
full o'Nuts option divided by the total number of shares of Sara Lee common     
stock to be subject to the option. As of July 31, 1999, the number of shares of 
Chock full o'Nuts common stock reserved for issuance under the plans was        
413,493.                                                                        

Resale of Sara Lee Common Stock                                                 

Sara Lee common stock issued in the merger will not be subject to any     
restrictions on transfer under the Securities Act of 1933, except for shares    
issued to any Chock full o'Nuts shareholder who is an "affiliate" of Chock full 
o'Nuts or Sara Lee for purposes of Rule 145 under the Securities Act. We expect 
that each affiliate will agree not to transfer any Sara Lee common stock        
received in the merger except in compliance with the resale provisions of Rule  
144 or 145 or another provision of the Securities Act. We also expect that each 
affiliate will not dispose of any Sara Lee common stock received in connection  
with the merger unless, in the opinion of counsel to Sara Lee, the transaction  
will not have any adverse consequences for Sara Lee with respect to the         
treatment of the merger for tax purposes. Chock full o'Nuts must use reasonable 
efforts to cause its affiliates to enter into these agreements. Chock full      
o'Nuts has also agreed to use reasonable efforts to cause its affiliates to     
comply with the transfer restrictions referred to in this section. This proxy   
statement/prospectus does not cover resales of Sara Lee common stock received   
by any person upon completion of the merger. We have not authorized any person  
to use this proxy statement/prospectus in connection with any resale.           

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THE MERGER AGREEMENT

The following description summarizes the material provisions of the merger
agreement. Shareholders should read carefully the merger agreement, which is    
attached as Annex 1 to this proxy statement/prospectus.                         

Conditions to the Completion of the Merger. The closing of the merger will
take place two days after the satisfaction of the conditions described in the   
merger agreement or another date as is agreed to by the parties. Each party's   
obligation to effect the merger is subject to the satisfaction or waiver of     
various conditions which include, in addition to other customary closing        
conditions, the following:                                                      

.  approval of the merger agreement by holders of two-thirds of the         
outstanding shares of Chock full o'Nuts common stock;                 

.  no court or other governmental entity of competent jurisdiction          
entering, enacting, enforcing or issuing any judgment, order, statute,
law or regulation, no other legal restraint or prohibition being in   
effect, and no suit, action or proceeding by any governmental entity  
being pending that would prevent the completion of the merger;        

.  all material consents, approvals, and authorizations, except the filing  
  of the merger certificate, from any governmental entity having been made
or obtained;                                                          

.  the Commission declaring the registration statement on Form S-4, of      
 which this proxy statement/prospectus forms a part, effective under the
Securities Act and not subjecting it to any stop order or proceedings 
seeking a stop order; and                                             

.  approval of the Sara Lee common stock issuable to Chock full o'Nuts      
shareholders in the merger for listing on the New York Stock Exchange,
subject to official notice of issuance.                               

  In addition, each party's obligation to effect the merger is further subject
to the satisfaction or waiver of the following additional conditions:           

.  the representations and warranties of the other party in the merger      
agreement must be true and correct for those representations and      
  warranties expressly limited by "material" or "material adverse effect,"
and must be true in all material respects for those not so limited, as
of the effective time of the merger;                                  

.  the other party to the merger agreement must have performed in all       
material respects all obligations required to be performed by it under
 the merger agreement on or before the date on which the merger is to be
completed; and                                                        

.  Chock full o'Nuts having received from Cahill Gordon and Reindel, its    
  special counsel, and Sara Lee having received from Skadden, Arps, Slate,
 Meagher & Flom (Illinois), its special counsel, an opinion in each case
dated as of the closing date stating that the merger will qualify for 
  United States federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.               

  Finally, Sara Lee does not have to effect the merger if there has occurred a
material adverse effect to Chock full o'Nuts since January 31, 1999 that has    
not been disclosed publicly in SEC filings and/or to Sara Lee in the merger     
agreement.                                                                      

 The merger agreement provides that a "material adverse change" or "material
adverse effect" means, when used in connection with a party, any adverse change 
or effect that is material to the business, financial condition, results of     
operations or assets of the party and its subsidiaries taken as a whole, other  
than any change or effect: (1) relating to the economy or securities markets in 
general and (2) relating generally to the industries in which the party         
operates, including without limitation, fluctuations in coffee prices           
generally, but not specifically relating to the party.                          

Chock full o'Nuts cannot be sure that all of the conditions to the merger 
will be satisfied or waived by the party permitted to do so. Chock full o'Nuts  
cannot at this point determine whether it would resolicit proxies in            

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the event that it decides to waive any of the items listed above. This decision 
would depend upon the facts and circumstances leading to Chock full o'Nuts'     
decision to complete the merger and whether Chock full o'Nuts believes there    
has been a material change in the terms of the merger and its effect on Chock   
full o'Nuts shareholders. In making this determination, Chock full o'Nuts would 
consider, among other factors:                                                  

.  the reasons for the waiver, the effect of the waiver on the terms of the 
merger,                                                               

.  whether the requirement being waived was necessary in order to make the  
deal fair to the shareholders from a financial point of view,         

.  the availability of alternative transactions and                         

.  the prospects of Chock full o'Nuts as an independent entity.             

If Chock full o'Nuts determines that a waiver of a condition would        
materially change the terms of the merger, including the expected qualification 
of the merger as a reorganization within the meaning of Section 368(a) of the   
Internal Revenue Code, it will resolicit proxies.                               

No Solicitation. Under the merger agreement, Chock full o'Nuts will not   
directly or indirectly:                                                         

.  solicit, initiate, facilitate or encourage any inquiries or acquisition  
proposals, as described below;                                        

.  engage in any negotiations or discussions concerning, or provide any     
non-public information or data to any person or entity relating to, an
acquisition proposal; or                                              

.  agree to, approve or recommend any acquisition proposal, or otherwise    
facilitate any effort or attempt to make or implement an acquisition  
proposal.                                                             

 If the Chock full o'Nuts board of directors determines in good faith, after
consultation with its financial and legal advisors, that any of these actions   
is necessary in order to comply with its fiduciary duties under applicable law, 
Chock full o'Nuts, in response to an unsolicited superior proposal, subject to  
providing prior oral and written notice of its decision to do so to Sara Lee,   
may:                                                                            

.  furnish under a customary confidentiality agreement information about    
Chock full o'Nuts and its subsidiaries to any person making a superior
proposal and                                                          

.  participate in negotiations regarding a superior proposal.               

The term "acquisition proposal" means any offer or proposal for, or any   
indication of interest in, a merger or other business combination with Chock    
full o'Nuts or any subsidiary or the acquisition of any equity interest in, or  
a substantial portion of the assets of Chock full o'Nuts or any subsidiary; and 

The term "superior proposal" means any bona fide written acquisition      
proposal, not subject to any financing condition or which includes written      
commitments to finance the transaction from one or more financial institutions  
capable of providing these commitments. The proposal must be for all of the     
outstanding shares of Chock full o'Nuts common stock and/or the outstanding     
debentures of Chock full o'Nuts. The proposal must also be on terms that the    
Chock full o'Nuts board of directors determines, in good faith, after receiving 
the advice of a financial advisor of nationally recognized reputation, are more 
favorable and provide greater value to all Chock full o'Nuts shareholders,      
except Sara Lee, than does the merger with Sara Lee.                            

  Except as expressly permitted by the merger agreement, the Chock full o'Nuts
board of directors or any committee of the board may not:                       

.  withdraw or modify, or propose publicly to withdraw or modify, in a      
 manner adverse to Sara Lee, the approval or recommendation by the Chock
 full o'Nuts board of directors or committee of the merger or the merger
agreement;                                                            

.  approve or recommend, or propose publicly to approve or recommend, any   
takeover proposal; or                                                 

.  cause Chock full o'Nuts to enter into any letter of intent, agreement in 
principle, acquisition agreement or other similar agreement related to
any takeover proposal, other than any agreement entered into          
concurrently with a termination as described in the next sentence in  
order to facilitate this action.                                      

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 Notwithstanding the foregoing, in response to a superior proposal which was
not solicited by Chock full o'Nuts and which did not otherwise result from a    
breach of the provisions of the merger agreement described above, the Chock     
full o'Nuts board of directors may terminate the merger agreement. However, the 
board may only terminate the merger agreement if                                

.  the Chock full o'Nuts board of directors determines in good faith that   
  it is necessary to comply with its fiduciary duties to its shareholders,

.  the Chock full o'Nuts board of directors has delivered written notice to 
  Sara Lee advising Sara Lee that the Chock full o'Nuts board of directors
is prepared to accept a superior proposal, and                        

.  Sara Lee has not elected to amend the merger agreement to match the      
terms of the superior proposal.                                       

  Chock full o'Nuts must pay a fee in the amount of $7 million, plus expenses,
to Sara Lee if it terminates the merger agreement to pursue a superior          
proposal. See "--Termination" and "--Termination Fee."                          

Termination. The merger agreement may be terminated at any time before the
effective time of the merger, whether before or after adoption of the merger    
agreement, by the shareholders of Chock full o'Nuts as follows:                 

.  Sara Lee and Chock full o'Nuts may jointly agree to terminate the merger 
agreement at any time without completing the merger.                  

.  Sara Lee or Chock full o'Nuts may terminate the merger agreement if:     

1. Sara Lee and Chock full o'Nuts do not complete the merger by         
  December 31, 1999; provided, however, that a party may not terminate
the merger agreement if its failure to perform any of its         
obligations under the merger agreement has resulted in the failure
of the merger to be completed by that date;                       

2. the Chock full o'Nuts shareholders do not adopt the merger           
agreement;                                                        

3. a statute, rule, regulation or executive order has been enacted,     
entered or promulgated, which prohibits the completion of the     
merger;                                                           

4. an order, decree, ruling or injunction has been entered and is final 
 and non-appealable, permanently restraining, enjoining or otherwise
prohibiting the merger; or                                        

5. the other party breached in any material respect any of its          
representations, warranties or obligations under the merger       
 agreement and has not cured the breach within 30 days of receipt of
notice.                                                           

.  Chock full o'Nuts may terminate the merger agreement if:                 

1. the Chock full o'Nuts board of directors receives an unsolicited     
superior proposal, and                                            

2. the Chock full o'Nuts board enters into an agreement with the third  
party making a superior proposal after it (A) notifies Sara Lee of
the proposal, (B) Sara Lee does not offer to amend the merger     
agreement to match the offer, and (C) Chock full o'Nuts pays the  
termination fee described below.                                  

.  Chock full o'Nuts may terminate the merger agreement if the average      
price of Sara Lee common stock is less than $21.00 per share and Sara 
Lee does not increase the merger consideration to a value, as of the  
determination date, of $11.00 per share of Chock full o'Nuts common   
stock.                                                                

.  Sara Lee may terminate the merger agreement if the Chock full o'Nuts     
board of directors withdraws or adversely modifies its approval or    
recommendation of the merger agreement or fails to reconfirm its      
recommendation upon request by Sara Lee.                              

.  Sara Lee may also terminate the merger agreement if Chock full o'Nuts or 
any of its directors or officers receives an unsolicited proposal and 
  Chock full o'Nuts fails to notify Sara Lee, within 30 days of receipt by
Sara Lee of notice of the existence of the proposal that (1) the      
proposal has been rejected or withdrawn or (2) Chock full o'Nuts is no
longer engaged in negotiations or discussions regarding the proposal. 

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  Termination Fee. Chock full o'Nuts must pay Sara Lee a termination fee of $7
million and all documented, out-of-pocket expenses reasonably incurred by Sara  
Lee and CFN in connection with the merger agreement and the merger if:          

.  Chock full o'Nuts shareholders receive an acquisition proposal, or an    
  acquisition proposal otherwise becomes publicly known, or the Chock full
o'Nuts board of directors withdraws or adversely modifies its         
recommendation, and in either case the Chock full o'Nuts shareholders 
fail to approve the merger agreement.                                 

.  Chock full o'Nuts terminates the merger agreement because a superior     
proposal has been received.                                           

.  Chock full o'Nuts intentionally or in bad faith materially breaches any  
of its representations or warranties.                                 

.  Chock full o'Nuts accepts a written offer for, or enters into an         
agreement to complete or completes, a superior proposal with another  
person within twelve months of termination of the merger agreement for
any other reason, except if Sara Lee materially breached its          
representations and warranties or covenants and agreements and did not
cure the breach within 30 days of notice of breach.                   

Under the merger agreement, if Chock full o'Nuts fails to pay any         
termination fee due, Chock full o'Nuts must pay the costs and expenses in       
connection with any action taken to collect payment, together with interest on  
the amount of the termination fee.                                              

Conduct of Business Pending the Merger. Under the merger agreement, Chock 
full o'Nuts has agreed that, before the effective time of the merger, it will:  

.  preserve in all material respects its business organization intact, and  

.  conduct its operations in the ordinary and usual course of business      
consistent in all material respects with past practice, including,    
retaining the services of employees and conducting business with      
  suppliers, customers, creditors and others having business relationships
with it.                                                              

 In addition, Chock full o'Nuts has agreed, subject to some exceptions, that
it and its subsidiaries will comply with specific restrictions relating to the  
following:                                                                      

.  the issuance or disposition of securities;                               

.  the issuance of dividends and distributions;                             

.  modification of the Chock full o'Nuts restated certificate of            
incorporation and the amended and restated bylaws or other comparable 
organizational documents;                                             

.  the corporate structure or ownership of any subsidiary;                  

.  employees and employee benefits;                                         

.  entrance into or modification of contracts;                              

.  affiliate transactions;                                                  

.  the acquisition of assets or other entities;                             

.  capital expenditures;                                                    

.  settlement of litigation and claims;                                     

.  accounting policies and procedures;                                      

.  the incurrence of indebtedness;                                          

.  modification or action taken with respect to the rights agreement or     
Section 912 of the NYBCL, which governs takeover attempts; and        

.  purchase contracts for green coffee.                                     

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The agreements related to the conduct of Chock full o'Nuts business in the
merger agreement are complicated and not easily summarized. We urge you to      
carefully read the section of the merger agreement entitled "Conduct of         
Business by the Company."                                                       

 Amendment; Extension and Waiver. Subject to applicable law, the parties may
amend the merger agreement by mutual agreement, in writing at any time.         
However, after the merger agreement has been adopted by the shareholders of     
Chock full o'Nuts, they may not amend the merger agreement to reduce the amount 
or change the type of merger consideration without the consent of the           
shareholders.                                                                   

In addition, at any time before the effective time of the merger, either  
party may:                                                                      

.  extend the time for performance of the obligations of any other party,   

.  waive inaccuracies in representations and warranties of any other party  
contained in the merger agreement or in any related document, and     

.  except as provided in the merger agreement, waive compliance by any      
other party with any agreements or conditions in the merger agreement.

Expenses. Whether or not the merger is completed, each party will pay its 
own fees and expenses incurred in connection with the merger and the merger     
agreement, except as otherwise provided in the merger agreement.                

Representations and Warranties. The merger agreement contains customary   
representations and warranties relating to, among other things:                 

.  corporate organization and similar corporate matters of Sara Lee and     
Chock full o'Nuts;                                                    

.  the capital structure of Chock full o'Nuts;                              

.  authorization, execution, delivery, performance and enforceability of,   
and required consents, approvals, orders and authorizations of        
governmental authorities relating to, the merger agreement and related
matters of Sara Lee and Chock full o'Nuts;                            

.  documents filed by each of Sara Lee and Chock full o'Nuts with the SEC,  
 the accuracy of information contained in such documents and the absence
of undisclosed liabilities of each of Sara Lee and Chock full o'Nuts; 

.  the accuracy of information supplied by each of Sara Lee and Chock full  
o'Nuts in connection with this proxy statement/prospectus and the     
registration statement of which it is a part;                         

.  absence of material changes or events concerning Chock full o'Nuts;      

.  compliance with applicable laws by Chock full o'Nuts;                    

.  existing benefit plans of Chock full o'Nuts;                             

.  matters relating to the Employee Retirement Income Security Act for      
Chock full o'Nuts;                                                    

.  filing of tax returns and payment of taxes by Chock full o'Nuts;         

.  required shareholder vote of Chock full o'Nuts;                          

.  satisfaction or inapplicability of state takeover statutes' requirements 
for Chock full o'Nuts;                                                

.  engagement and payment of fees of brokers, investment bankers, finders   
and financial advisors by Chock full o'Nuts;                          

.  receipt of a fairness opinion by Chock full o'Nuts from its financial    
advisor;                                                              

.  intangible assets of Chock full o'Nuts;                                  

.  environmental matters of Chock full o'Nuts;                              

.  permits, licenses , approvals, exemptions, qualifications and            
governmental authorizations necessary to conduct Chock full o'Nuts'   
business;                                                             

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.  Chock full o'Nuts having taken necessary action under its rights         
agreement to ensure that the rights plan will not trigger the         
  distribution of rights as a result of entering into the merger agreement
and/or consummating the merger;                                       

.  intellectual property and year 2000 matters of Chock full o'Nuts;        

.  outstanding and pending material litigation of Chock full o'Nuts;        

.  performance of contracts of Chock full o'Nuts; and                       

.  interim operations of CFN Acquisition Corporation.                       

 Amendments to the Chock full o'Nuts Certificate of Incorporation. As of the
effective time of the merger, the Chock full o'Nuts restated certificate of     
incorporation will be substantially identical to the certificate of             
incorporation of CFN Acquisition Corporation immediately before the merger. For 
a summary of certain provisions of the Chock full o'Nuts restated certificate   
of incorporation and the associated rights of Chock full o'Nuts shareholders,   
see "Comparison of Rights of Common Shareholders of Sara Lee and Chock full     
o'Nuts."                                                                        

Amendments to the Chock full o'Nuts By-laws. The merger agreement provides
that the bylaws of CFN Acquisition Corporation, as in effect immediately before 
the effective time of the merger, will be the bylaws of the surviving           
corporation following the merger until changed or amended. For a summary of     
certain provisions of the Chock full o'Nuts bylaws and the associated rights of 
Chock full o'Nuts shareholders, see "Comparison of Rights of Common             
Shareholders of Sara Lee and Chock full o'Nuts."                                

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DESCRIPTION OF SARA LEE CAPITAL STOCK 

The following summary of the capital stock of Sara Lee is subject in all  
respects to applicable Maryland law, Sara Lee's charter and bylaws and Sara     
Lee's rights agreement. See "Comparison of Rights of Common Shareholders of     
Sara Lee and Chock full o'Nuts" and "Where You Can Find More Information."      

The total authorized shares of capital stock of Sara Lee consist of:      

.  1.2 billion shares of common stock, $.01 par value per share,            

.  12 million shares of preferred stock, without par value, of which 6      
million shares have been designated as Series A Junior Participating  
Preferred Stock, and                                                  

.  1.5 million shares of convertible adjustable preferred stock, without    
par value.                                                            

  At the close of business on August 7, 1999, approximately 882 million shares
of Sara Lee common stock were issued and outstanding, and no shares of Sara Lee 
preferred stock or convertible preferred stock were issued and outstanding.     
Under Maryland law, stockholders generally are not liable for a corporation's   
debts and obligations.                                                          

Sara Lee's charter authorizes its board of directors to classify any      
unissued shares of preferred stock and to reclassify any previously classified  
but unissued shares of any series, as authorized by the board. Before the board 
may issue shares of any series, it is required by Maryland law and the charter  
to set the terms, preferences, conversion or other rights, voting powers,       
restrictions, limitations as to dividends or other distributions,               
qualifications and terms or conditions of redemption for each series. The board 
could authorize the issuance of shares of preferred stock with terms and        
conditions which could have the effect of delaying, deferring or preventing a   
transaction or a change in control of Sara Lee that might involve a premium     
price for holders of common stock or otherwise be in their best interest.       

The additional classes or series, as well as the common stock, will be    
available for issuance without further action of Sara Lee's stockholders,       
unless action is required by applicable law or the rules of any stock exchange  
or automated quotation system on which Sara Lee's securities may be listed or   
traded. Although the Sara Lee board of directors has no intention at the        
present time of doing so, it could authorize the issuance of a class or series  
that could, depending upon the terms of the class or series, delay, defer or    
prevent a transaction or a change in control of Sara Lee that might involve a   
premium price for holders of common stock or otherwise be in their best         
interest.                                                                       

 Holders of shares of common stock have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and have no preemptive rights to   
subscribe for any securities of Sara Lee. Shares of Sara Lee common stock have  
equal dividend, liquidation and other rights. Cumulative dividends, dividend    
preferences and conversion, exchange and redemption provisions, to the extent   
that some or all of these features may be present when shares of Sara Lee       
preferred stock are issued, could have an adverse effect on the availability of 
earnings for distribution to the holders of Sara Lee common stock or for other  
corporate purposes.                                                             

For a description of the rights to acquire Sara Lee junior preferred stock
that are attached to shares of Sara Lee common stock, see "Comparison of Rights 
of Common Shareholders of Sara Lee and Chock full o'Nuts--Rights Plan."         

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COMPARISON OF RIGHTS OF COMMON SHAREHOLDERS 
OF SARA LEE AND CHOCK FULL O'NUTS 

The rights of Sara Lee stockholders are currently governed by the Maryland
General Corporation Law, Sara Lee's charter and Sara Lee's bylaws. The rights   
of Chock full o'Nuts shareholders are currently governed by the New York        
Business Corporation Law, Chock full o'Nuts' restated certificate of            
incorporation and Chock full o'Nuts' amended and restated bylaws. Upon          
completion of the merger, the rights of Chock full o'Nuts shareholders who      
become stockholders of Sara Lee in the merger will be governed by the Maryland  
General Corporation Law, Sara Lee's charter and Sara Lee's bylaws.              

The following description summarizes the material differences which may   
affect the rights of stockholders of Sara Lee and shareholders of Chock full    
o'Nuts but is not a complete statement of all such differences, or a complete   
description of the specific provisions referred to in this summary. We urge you 
to read carefully the relevant provisions of the Maryland General Corporation   
Law, Sara Lee's charter, Sara Lee's bylaws, the New York Business Corporation   
Law, Chock full o'Nuts' restated certificate of incorporation and Chock full    
o'Nuts' amended and restated bylaws.                                            

   SARA LEE                              CHOCK FULL O'NUTS

Capitalization

1.2 billion shares of common stock,       50 million shares of common stock,    
$.01 par value per share, 12 million      $.25 par value per share. At the      
shares of preferred stock, without        close of business on September 2,     
par value, of which 6 million shares      1999, there were approximately        
have been designated as Series A          11,561,000 shares of Chock full       
Junior Participating Preferred            o'Nuts common stock outstanding.      
Stock, and 1.5 million shares of                                                
convertible adjustable preferred                                                
stock, without par value. Sara Lee's                                            
authorized capital stock is more                                                
fully described above under                                                     
"Description of Sara Lee Capital                                                
Stock."                                                                         

Voting Rights 

One vote for each share held of           One vote for each share held of       
record on all matters submitted to a      record on all matters submitted to a  
vote of the stockholders; no              vote of the shareholders; no          
cumulative voting for the election        cumulative voting for the election    
of directors.                             of directors.                         

Board of Directors

Number. 17 members currently; must        Number. 10 members currently; must    
always be at least 3 directors and        always be at least 9 and no more      
no more than 25 directors; number of      than 27 directors; number of          
directors may be changed from time        directors to be determined by a       
to time by the majority of the            majority of the entire board of       
entire board of directors. No             directors. Has a staggered board      
staggered board.                          with three classes. Each class of     
                                       directors is elected for three-year
                                      terms, and each class consists, as
                                       nearly as possible, of one-third of
                                 the total number of directors
                                    constituting the entire board of
              directors.

Vacancy. A vacancy on the Sara Lee        Vacancy. A vacancy on the Chock full  
board of directors, for any reason        o'Nuts board of directors and newly   
other than by reason of an increase       created directorships resulting from  
in the number of directors, will be       any increase in the authorized        
filled by the affirmative vote of a       number of directors may be filled by  
majority of the remaining directors       the majority vote of the remaining    
then in office, even though less          directors, even though less than a    
than a quorum. A vacancy as a result      quorum.                               
of an increase in the number of                                                 
directors may be filled by action of                                            
a majority of the entire board of                                               
directors.                                                                      

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   SARA LEE                              CHOCK FULL O'NUTS

Removal. Sara Lee's charter does not      Removal. Any director or the entire   
address removal of directors.             Chock full o'Nuts board of directors  
Consequently, Maryland law provides       may be removed for cause, at a        
that the stockholders of a                special meeting of shareholders, by   
corporation may remove any director,      the affirmative vote of the holders   
with or without cause, by the             of at least a majority of the voting  
affirmative vote of a majority of         power of all of the then outstanding  
all of the votes entitled to be cast      shares of capital stock entitled to   
for the election of directors.            vote generally in the election of     
              directors.

Amendments to Certificates of Incorporation 

Two-thirds of all votes entitled to       Majority of outstanding shares        
be cast required to amend.                required to amend.                    

Maryland law allows a corporation's       75% of the voting power of all of     
charter to contain a provision            the outstanding shares of capital     
allowing its board of directors, by       stock entitled to vote generally in   
a majority vote of the entire board       the election of directors required    
of directors, to amend the                to amend or repeal paragraphs 1, 2    
corporation's charter to increase or      or 5 of Article VI of Chock full      
decrease the aggregate number of          o'Nuts' restated certificate of       
authorized shares of stock without        incorporation, which relate to the    
stockholder approval.                     Chock full o'Nuts board of            
                                        directors, vacancies on the board of
                                       directors, removal of directors and
                              amending these paragraphs.

Maryland law also permits non-                                                  
economic changes to be made to the                                              
charter with the approval of a                                                  
majority of the entire board of                                                 
directors, without shareholder                                                  
approval, including: changing the                                               
name of a corporation, changing the                                             
name or designation of any class or                                             
series of a corporation's shares and                                            
changing the aggregate par value of                                             
a corporation's shares.                                                         

Amendments to Bylaws

The board has the exclusive power         The board, by majority vote of the    
and right to make, alter or repeal        total number of directors, may        
any or all of its bylaws at any           adopt, amend or repeal the bylaws; a  
time.                                     majority of the voting power of the   
                                       then outstanding shares entitled to
                                  vote at any regular or special
                                        meeting of the shareholders may also
                                      adopt, amend or repeal the bylaws.

Shareholder Action

Action may be taken without a             Any action required or permitted to   
meeting if (1) a unanimous written        be taken by shareholders may be       
consent setting forth the action is       effected by written consent of all    
signed by each stockholder entitled       of the shareholders.                  
to vote on the matter and (2) a                                                 
written waiver of any right to                                                  
dissent is signed by each                                                       
stockholder entitled to notice of                                               
the meeting but not entitled to vote                                            
at it are filed with the records of                                             
the stockholders' meetings.                                                     

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   SARA LEE                              CHOCK FULL O'NUTS

Notice of Shareholder Actions 

Advance written notice of (1)             Advance written notice of             
nominations for election of               nominations for election of           
directors and (2) business to be          directors at a meeting of             
properly brought before an annual         shareholders required. Must be        
meeting of stockholders is required.      received by the secretary not less    
Must generally be delivered to the        than 30 days nor more than 60 days    
secretary not later than 60 days nor      before the meeting. If less than 40   
earlier than 90 days before the           days' notice or prior public          
first anniversary of the preceding        disclosure of the date of the         
year's annual meeting. If the annual      meeting is given or made to           
meeting is advanced by more than 30       shareholders, any notice of           
days or delayed by more than 60 days      nomination must be received not       
from the anniversary date, notice         later than the close of business on   
must be delivered not earlier than        the tenth day following the earlier   
90 days nor later than 60 days            of (1) the day on which notice of     
before the annual meeting or the          the meeting was mailed or (2) the     
tenth day following the day on which      day on which public disclosure was    
public announcement of the date of        made.                                 
the meeting is first made.                                                      

If Sara Lee calls a special meeting                                             
of stockholders for the purpose of                                              
electing one or more directors, any                                             
stockholder who is a stockholder of                                             
record both at the time of giving                                               
notice to Sara Lee and at the time                                              
of the special meeting may nominate                                             
a director or directors. Written                                                
notice must be delivered not earlier                                            
than 90 days before the special                                                 
meeting and not later than the later                                            
of (1) 60 days before the special                                               
meeting or (2) 10 days following the                                            
day on which public announcement is                                             
first made of the date of the                                                   
special meeting and of the proposed                                             
nominees proposed to be elected.                                                

Special Shareholder Meetings

May be called by: (1) the chairman        May be called by: (1) the chairman    
of the board, (2) the board or (3)        of the board, (2) the chief           
stockholders entitled to cast at          executive officer or (3) a majority   
least a majority of all of the votes      of the board then in office.          
entitled to be cast at the special                                              
meeting by request to the secretary.                                            

A stockholder request for a special                                             
meeting must state the purpose or                                               
purposes of the meeting and the                                                 
matters proposed to be acted upon.                                              
The request must also be delivered                                              
to the secretary.                                                               

Limitation of Personal Liability of Directors 

Under Maryland law, permitted to          Under New York law, permitted to      
limit the liability of directors and      eliminate or limit the personal       
officers to the corporation and its       liability of directors to the         
stockholders for money damages.           corporation or its shareholders for   
            damages.

May not limit liability resulting         May not limit liability:              
from:                                                                           

(1) actual receipt of an improper         (1) if a judgment or other final      
benefit or profit in money, property      adjudication adverse to the director  
or services or                            establishes bad faith, intentional    
                                        misconduct or a knowing violation of
                                        law, or that the director personally
                                        gained in fact a financial profit or
                                       other advantage to which he was not
                                legally entitled or that the
                                  director's acts violated other
                                        specific provisions of New York law;
      or

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   SARA LEE                              CHOCK FULL O'NUTS

(2) active and deliberate dishonesty      (2) for any act or omission before a  
established by a final judgment as        limitation on indemnification is      
being material to the case of             included as an amendment to the       
action.                                   certificate of incorporation.         

Sara Lee's charter contains a             Chock full o'Nuts' restated           
provision which limits this               certificate of incorporation          
liability to the fullest extent           contains a provision limiting the     
permissible under Maryland law.           personal liability of directors to    
                                        the corporation and the shareholders
                                   to the fullest extent permitted
                       under New York law.

Dividends 

Subject to any preferential rights        The board may declare dividends on    
of any other class or series of           its outstanding shares in accordance  
stock, the board may authorize and        with law.                             
declare dividends out of assets                                                 
legally available for distributions.                                            

Conversion

No rights to convert their shares         No rights to convert their shares     
into any other securities.                into any other securities.            

Dissenters or Appraisal Rights

Stockholders have the right to            Shareholders of a New York            
demand and to receive payment of the      corporation have the right to         
fair value of their stock, except as      dissent and receive payment of the    
otherwise provided by Maryland law,       fair value of their shares, except    
in the event of:                          as otherwise provided by New York     
                         law, in the event of:

.  a merger or consolidation,              .  amendments or changes to the  
                                            certificate of incorporation
                                         adversely affecting their
                       shares,

.  a share exchange,                                                        

.  sales of all or substantially                                            
all of the assets,                      .  mergers or consolidations, 

.  a charter amendment altering            .  sales, leases, exchanges or   
 contract rights of                         other dispositions of all or
outstanding stock, as                      substantially all the      
expressly set forth in the                 corporation's assets and   
charter, and substantially                                            
adversely affecting the                                               
stockholder's rights, or                                              

                             .  share exchanges.

                                   The right to demand and receive
.  business combinations with           payment of fair value does not apply
interested shareholders that         to stock listed on a national    
are subject to or exempted           securities exchange or The Nasdaq
from Maryland's business             National Market.                 
combination statute and in                                            
connection with the approval                                          
of voting rights of                                                   
stockholders under Maryland's                                         
control share acquisition                                             
statute.                                                              

                                        Shareholders of Chock full o'Nuts do
                                    not have appraisal rights in the
           merger.

Except with respect to specific                                                 
business combinations and in                                                    
connection with appraisal and                                                   
dissenters' rights existing as a                                                
result of Maryland's control share                                              
acquisition statute, the right to                                               
demand and receive payment of fair                                              
value does not apply to the                                                     
following:                                                                      

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   SARA LEE                              CHOCK FULL O'NUTS

.  stock listed on a national                                               
securities exchange or The                                            
Nasdaq National Market;                                               

.  stock of the successor in a                                              
merger, unless the merger (1)                                         
alters the contract rights of                                         
the stock, as expressly set                                           
forth in the charter and the                                          
charter does not reserve the                                          
right to do so or (2)                                                 
converts the stock in whole                                           
or in part into something                                             
other than stock, cash, scrip                                         
or other interests, or                                                

.  stock of an open-end                                                     
investment company registered                                         
with the SEC under the                                                
Investment Company Act of                                             
1940 and the stock is valued                                          
in the transaction at its net                                         
asset value.                                                          

Stockholders of Sara Lee do not have                                            
appraisal rights in the merger.                                                 

The following sections describe in relative detail the different rights   
relating to business combinations and takeover attempts applicable to the       
shareholders of Sara Lee and Chock full o'Nuts, respectively. These rights are  
complicated and not easily summarized. We urge you to refer to the relevant     
laws, governing documents and rights plans for a complete understanding of the  
rights relating to these important matters.                                     

Business Combinations                                                           

Sara Lee. Under Maryland law, a number of business combinations between a 
Maryland corporation and an interested stockholder are prohibited for five      
years after the most recent date on which the interested stockholder became an  
interested stockholder and after that time must be recommended by the board of  
directors of the corporation and approved by:                                   

(a) at least 80% of the votes entitled to be cast of its outstanding
voting shares, voting together as a single voting group, and                

(b) two-thirds of the votes entitled to be cast of the outstanding  
voting shares, other than shares held by the interested stockholder with    
whom the business combination is to be effected;                            

unless the "fair price" provisions are complied with or the business            
combination is either approved or exempted by the board of directors before the 
interested stockholder becomes an interested stockholder.                       

  Business combinations include mergers, consolidation, share exchanges or, in
some circumstances, asset transfers or issuances or reclassifications of equity 
securities.                                                                     

 An "interested stockholder" is: (1) any person who beneficially owns 10% or
more of the voting power of the corporation's shares, unless before the person  
beneficially owning voting power, the board of directors approved the           
transaction making the person an interested stockholder, (2) an affiliate of    
the corporation who, at any time within the two-year period before the date in  
question, was the beneficial owner of 10% or more of the voting power of the    
then outstanding voting stock of the corporation, or (3) any affiliate of an    
interested stockholder.                                                         

The business combinations statute could have the effect of delaying,      
deferring or preventing unsolicited offers to acquire Sara Lee and of           
increasing the difficulty of consummating an unsolicited offer.                 

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 Chock full o'Nuts. Under New York law, a New York corporation is prohibited
from engaging in a "business combination" with an "interested shareholder" for  
a period of five years following the date the person became an interested       
shareholder, unless, before becoming an interested shareholder, the board of    
directors approved either the business combination or the transaction in which  
the shareholder became an interested shareholder. After the five-year period,   
the business combination must be approved by a majority of shareholders other   
than the interested shareholder or the price paid to all shareholders must meet 
conditions relating to the type and minimum amount of consideration to be paid  
to shareholders.                                                                

For purposes of the New York business combination law, a "business        
combination" includes:                                                          

.  a merger or consolidation,                                               

.  a sale, lease, pledge or other disposition of assets,                    

.  a stock issuance or transfer,                                            

.  a liquidation or dissolution,                                            

.  a reclassification of securities,                                        

.  a recapitalization, or                                                   

.  any transaction in which an interested shareholder benefits              
disproportionately in relation to any other shareholder.              

An "interested shareholder" is defined as any person or entity that       
currently owns, directly or indirectly, or in the case of affiliates and        
associates of the corporation, that owned at any time during the past five      
years, more than 20% of the outstanding voting stock of the corporation.        

Control Share Acquisitions                                                      

Sara Lee. Maryland law provides that control shares of a Maryland         
corporation acquired in a control share acquisition have no voting rights       
unless approved by two-thirds of the votes entitled to be cast by stockholders, 
excluding shares of stock owned by the acquiring person, officers of the        
corporation and directors of the corporation who are employees of the           
corporation.                                                                    

  Control shares are voting shares of stock over which the acquiror is able to
exercise or direct the exercise of voting power, except solely by virtue of a   
revocable proxy, that would entitle the acquiror to exercise voting power       
electing directors within one of the following ranges: (1) one-fifth or more    
but less than one-third, (2) one-third or more but less than a majority or (3)  
a majority of all voting power.                                                 

 Control shares do not include shares which the acquiring person is entitled
to vote as a result of having previously obtained stockholder approval. A       
control share acquisition generally means the acquisition of control shares.    

Once a person who has made or proposes to make a control share acquisition
has agreed to pay expenses and satisfied other conditions, the person may       
compel the board of directors to call a special meeting of stockholders. The    
special meeting must be held within 30 to 50 days of the demand to consider the 
voting rights of the control shares. If no request is made, the corporation may 
itself present the question at any stockholders meeting.                        

 If voting rights are not approved at the meeting or if the acquiring person
does not deliver the acquiring person statement as required by Maryland law,    
then, in general, the corporation may redeem any or all of the control shares.  
It may not redeem those shares for which voting rights have previously been     
approved. Fair value is determined without regard to voting rights, as of the   
date of the last control share acquisition or of any meeting of stockholders at 
which the voting rights of the control shares are considered and not approved.  
If voting rights for control shares are approved at a stockholders meeting and  
the acquiring person becomes entitled to vote a majority of the shares entitled 
to vote, all other stockholders may exercise appraisal rights. The fair value   
of the shares as determined for purposes of appraisal rights may not be less    
than the highest                                                                

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price per share paid in the control share acquisition. Some of the limitations  
and restrictions otherwise applicable to the exercise of dissenters' rights do  
not apply in the context of control share acquisitions.                         

  The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the    
transaction or to acquisitions approved or excepted by the charter or the       
bylaws of the corporation.                                                      

Sara Lee's bylaws provide that the control share acquisition statute does 
not apply to any acquisition by any person of shares of Sara Lee stock.         
However, this bylaw may be repealed by the board of directors at any time.      

The control share acquisition statute could have the effect of delaying,  
deferring or preventing unsolicited offers to acquire Sara Lee and of           
increasing the difficulty of consummating an unsolicited offer.                 

Chock full o'Nuts. New York does not have a control share acquisition     
statute.                                                                        

Rights Plan                                                                     

 Sara Lee. On March 26, 1998, the Sara Lee board of directors authorized and
Sara Lee declared a dividend distribution of one preferred stock purchase right 
for each outstanding share of the Sara Lee common stock. The Sara Lee board of  
directors also authorized the issuance of one right for each share of Sara Lee  
common stock issued after the record date and before the earliest of the        
distribution date, the redemption, exchange or expiration of the rights. Except 
as set forth below and subject to adjustment as provided in the Sara Lee rights 
agreement, each right entitles the registered holder to purchase from Sara Lee  
one one-hundredth of a share of Series A Junior Participating Preferred Stock,  
at a purchase price of $215 per right. The purchase price is subject to         
adjustment from time to time to prevent dilution upon specified changes in Sara 
Lee's capitalization. Sara Lee has reserved six million shares of preferred     
stock for issuance upon exercise of the rights. The terms and conditions        
relating to the rights are set forth in the Sara Lee rights agreement, dated    
March 26, 1998.                                                                 

  The rights will separate from the Sara Lee common stock upon the earlier of:

.  ten days following a public announcement that a person or group, known   
  as an "acquiring person," together with persons affiliated or associated
with it, has acquired, or obtained the right to acquire, beneficial   
ownership of 15% or more of the outstanding shares of Sara Lee common 
stock. This date is referred to as the "stock acquisition date"; or   

.  ten business days, or any later date determined by the Sara Lee board of 
directors, following the commencement of a tender offer or exchange   
 offer that would result in a person or group beneficially owning 15% or
more of the outstanding shares of Sara Lee common stock;              

provided, however, that a person that beneficially owns less than 25% of the    
outstanding Sara Lee common stock will not be an acquiring person and will not  
cause the rights to be distributed if the person has reported or is required to 
report its ownership of Sara Lee common stock on Schedule 13G or Schedule 13D   
under the Exchange Act and the Schedule 13D does not state any intention to, or 
reserve the right to, control or influence Sara Lee or engage in certain other  
actions, so long as the person neither reports nor is required to report this   
ownership other than as described in this proviso. The earlier of these dates   
is referred to as the "distribution date."                                      

The rights will first become exercisable on the distribution date and will
expire at the close of business on May 31, 2008, unless earlier redeemed or     
exchanged by Sara Lee. Notwithstanding the foregoing, the rights will not be    
exercisable after the occurrence of a triggering event until Sara Lee's right   
of redemption has expired.                                                      

As soon as practicable after the distribution date, separate certificates 
evidencing the rights will be mailed to holders of record of the Sara Lee       
common stock as of the close of business on the distribution date. Then the     

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separate rights certificates alone will evidence the rights. Subject to some    
exceptions, only shares of Sara Lee common stock issued before the distribution 
date will be issued with rights.                                                

If a person becomes an acquiring person, except pursuant to a qualifying  
offer, it is referred to as a "triggering event." If a triggering event occurs, 
the rights will "flip-in" and entitle each holder of a right, except as         
provided below, to purchase, upon exercise at the then-current purchase price,  
that number of shares of Sara Lee common stock having a market value of two     
times the purchase price.                                                       

A "qualifying offer" is an offer for all outstanding shares of Sara Lee   
common stock which the independent directors determine to be fair to, and       
otherwise in the best interest of, Sara Lee and its stockholders after          
receiving advice from one or more investment banking firms.                     

Any rights beneficially owned at any time on or after the earlier of the  
distribution date and the stock acquisition date by an acquiring person or an   
affiliate or associate of an acquiring person, whether or not such ownership is 
subsequently transferred, will become null and void upon the occurrence of a    
triggering event. Then any holder of the rights will have no right to exercise  
them.                                                                           

 If, following a triggering event, Sara Lee is acquired in a merger or other
business combination in which its common stock does not remain outstanding or   
is changed or 50% of the assets or earning power of Sara Lee and its            
subsidiaries taken as a whole is sold or otherwise transferred to any person,   
other than Sara Lee or any subsidiary of Sara Lee, in one or more related       
transactions, the rights will "flip-over." Each holder of a right, except as    
provided in the preceding paragraph, will be entitled to purchase that number   
of shares of common stock of the acquiring company, or, in some circumstances,  
one of its affiliates, which at the time of this transaction would have a       
market value of two times the then-current purchase price. This provision does  
not apply to a qualifying offer.                                                

  At any time until the earlier of (1) 15 days following the stock acquisition
date and (2) the expiration date, Sara Lee may redeem the rights in whole, but  
not in part, at a price of $0.01 per right, subject to adjustments. Sara Lee    
may, at its option, pay the redemption price in cash, shares of its common      
stock or any other form of consideration determined to be appropriate by the    
board of directors.                                                             

Under circumstances involving redemption after an acquiring person becomes
so or after a change of a majority of directors, redemption of the rights       
requires the concurrence of a majority of continuing directors. Immediately     
upon the action of Sara Lee's board of directors ordering redemption of the     
rights, the right to exercise the rights will terminate and the holders of      
rights will be entitled to receive only the applicable redemption price. In     
addition, after a triggering event, at the election of the board of directors,  
the outstanding rights not beneficially owned by an acquiring person or an      
affiliate or associate of an acquiring person may be exchanged, in whole or in  
part, for shares of Sara Lee common stock, or shares of preferred stock of Sara 
Lee having essentially the same value or economic rights as the common stock    
shares. Immediately upon the action of the board of directors authorizing any   
exchange, and without any further action or notice, the rights subject to       
exchange will terminate and will only entitle holders to receive the shares     
issuable upon the exchange.                                                     

 Until a right is exercised, the holder will have no rights as a stockholder
of Sara Lee, including, without limitation, the right to vote or to receive     
dividends. While the distribution of the rights will not be taxable to          
stockholders or to Sara Lee, stockholders may, depending upon the               
circumstances, recognize taxable income if the rights become exercisable for    
Sara Lee common stock, other consideration or common stock of the acquiring     
company.                                                                        

  At any time before the distribution date, Sara Lee may, without the approval
of any holder of the rights, supplement or amend any provision of the rights    
agreement. After a distribution date, the rights agreement may be amended only: 

.  to cure ambiguities,                                                     

.  to correct inconsistent provisions,                                      

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.  to shorten or lengthen any time period, under some circumstances only    
with the concurrence of a majority of the continuing directors, or    

.  in ways that do not adversely affect the rights holders other than an    
acquiring person.                                                     

From and after the distribution date, the rights agreement may not be     
amended to lengthen (x) a time period relating to when the rights may be        
redeemed when the rights are not then redeemable, or (y) any other time period  
unless this lengthening is for the purpose of protecting, enhancing or          
clarifying the rights of, and/or the benefits to, the holders of rights, other  
than an acquiring person.                                                       

Chock full o'Nuts. On December 30, 1987, the Chock full o'Nuts board of   
directors authorized and declared a dividend distribution of one right for each 
outstanding share of its common stock on January 22, 1988 pursuant to the       
original rights agreement dated as of December 30, 1987. This rights agreement  
was subsequently amended and restated by the final rights agreement, which is   
referred to throughout this proxy statement/prospectus as the "rights           
agreement." Under the rights agreement, each right entitles the holder to       
purchase one share at an exercise price of $28.00, subject to adjustment.       

 Under the rights agreement, until the close of business on the distribution
date, the rights will be evidenced by the certificates evidencing shares and    
will be transferred with and only with share certificates. As soon as           
practicable after the distribution date, certificates evidencing the rights     
will be mailed to holders of record of the shares as of the close of business   
on the distribution date, and then the separate rights certificates alone will  
evidence the rights.                                                            

The "distribution date" occurs on the earlier of (1) 10 days following a  
public announcement that, without Chock full o'Nuts' prior consent, a person or 
group of affiliated or associated persons has acquired or obtained the right to 
acquire, after December 30, 1987, beneficial ownership of securities having 20% 
or more of the voting power of all outstanding voting securities of Chock full  
o'Nuts or a person or group of affiliated persons that, on December 30, 1987,   
beneficially owned securities having 20% or more of Chock full o'Nuts' voting   
power, has acquired or obtained the right to acquire, after December 30, 1987,  
beneficial ownership of securities representing an additional 2% of Chock full  
o'Nuts' voting power, any such person or group being an "acquiring person," or  
(2) 10 business days, or any later date as Chock full o'Nuts' board of          
directors determines, following the commencement of, or a public announcement   
of an intention to make, a tender offer or exchange offer which would result in 
any person or group of related persons becoming an acquiring person without the 
prior consent of Chock full o'Nuts.                                             

  In the event that a person becomes an acquiring person, unless pursuant to a
permitted offer, each holder of a right will for a 60-day period have the right 
to receive, upon exercise, that number of shares having a market value of two   
times the then-current exercise price of the right, subject to the availability 
of a sufficient number of authorized but unissued shares. However, an acquiring 
person's rights become void.                                                    

  A "permitted offer" is a tender or exchange offer for all outstanding shares
at a price and on terms determined by at least a majority of the members of the 
board of directors, who are not themselves acquiring persons or affiliates or   
associates of an acquiring person, to be both adequate and otherwise in the     
best interests of Chock full o'Nuts and its various constituents, including,    
without limitation, both the long term and short term interests of Chock full   
o'Nuts and its shareholders.                                                    

 The rights are not exercisable until the distribution date. The rights will
expire at the earliest of (1) December 30, 2007, (2) consummation of a merger   
transaction in connection with a permitted offer or (3) the date the rights are 
redeemed by Chock full o'Nuts. At any time before there being an acquiring      
person or the expiration of the rights, Chock full o'Nuts may redeem the rights 
in whole, but not in part, at a redemption price of $.01 per right. Upon the    
action of the board of directors ordering redemption of the rights, the rights  
will terminate and the holders of rights will be entitled to receive only the   
redemption price.                                                               

At any time after the acquisition by a person or group of beneficial      
ownership of 20% or more of Chock full o'Nuts' voting power and before the      
acquisition by that person or group of 50% or more of Chock full o'Nuts' voting 
power, the board of directors may, at its option, exchange all or part of the   
then outstanding                                                                

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rights for shares at an exchange ratio of one share per right, subject to       
adjustment. However, the rights owned by the person or group become void.       

Pursuant to the merger agreement, Chock full o'Nuts has amended its rights
agreement to exempt Sara Lee and the merger from operation of the rights        
agreement, subject to Sara Lee's compliance with the terms of the merger        
agreement.                                                                      

COMPARATIVE STOCK PRICES AND DIVIDENDS

Sara Lee common stock is listed for trading on the New York Stock Exchange
under the trading symbol "SLE," and Chock full o'Nuts common stock is also      
listed for trading on the New York Stock Exchange under the trading symbol      
"CHF." The following table sets forth, for the periods indicated, dividends and 
the high and low sales prices per share of both Sara Lee and Chock full o'Nuts  
common stock on the New York Stock Exchange Composite Transaction Tape. We have 
adjusted the price per share of Sara Lee common stock to reflect a 2-for-1      
stock split in the form of a stock dividend which was effective on December 1,  
1998. For current price information, shareholders are urged to consult publicly 
available sources.                                                              

                                                                [Download Table]

                                                        Sara Lee          
                                               ---------------------------
                                                 High     Low    Dividends
                                               -------- -------- ---------
                                                                          
Fiscal Year Ended June 27, 1998                                           
First Quarter................................. 26 1/8   19 1/2     .105   
Second Quarter................................ 28 1/2   23 3/4     .115   
Third Quarter................................. 31 5/32  26 19/32   .115   
Fourth Quarter................................ 31 13/16 28 7/32    .115   
Fiscal Year Ended July 3, 1999                                            
First Quarter................................. 29 19/32 22 5/32    .115   
Second Quarter................................ 30 13/16 26 1/8     .125   
Third Quarter................................. 29 7/8   23 1/2     .125   
Fourth Quarter................................ 26 5/16  21 1/2     .125   
Fiscal Year Ending July 1, 2000                                           
First Quarter (through September 7, 1999)..... 24 7/16  21 3/16    .125   

In fiscal 1998, Sara Lee announced plans to repurchase $3 billion of its  
common stock over a three-year period. Sara Lee repurchased $2.778 billion of   
its common stock during fiscal 1998 and fiscal 1999. Sara Lee does not intend   
to repurchase any shares of its common stock from the date of this proxy        
statement/prospectus until the completion of the merger.                        

                                                                [Download Table]

                                                    Chock full o'Nuts     
                                               ---------------------------
                                                 High     Low    Dividends
                                               -------- -------- ---------
                                                                          
Fiscal Year Ended July 31, 1998                                           
First Quarter.................................  8 3/4    6 1/4      --    
Second Quarter................................  7 5/8    6          --    
Third Quarter.................................  8 1/8    6 5/8      --    
Fourth Quarter................................  8 5/8    6 1/4      --    

Fiscal Year Ended July 31, 1999                                           
First Quarter.................................  7 1/2    4 3/4      --    
Second Quarter................................  7 7/8    5 1/16     --    
Third Quarter.................................  9 15/16  4 13/16    --    
Fourth Quarter................................ 10 7/8    9 3/8      --    

Fiscal Year Ending July 31, 2000                                          
First Quarter (through September 7, 1999)..... 10 9/16  10 5/16     --    

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DESCRIPTION OF CHOCK FULL O'NUTS BUSINESS 

Chock full o'Nuts is the fourth largest roaster, packer and marketer of   
coffee in the United States based on coffee pounds sold by Chock full o'Nuts.   
Its broad range of regular and decaffeinated, ground roast, instant and         
specialty coffees for the foodservice and retail grocery industries are sold    
regionally throughout the United States and Canada under various well known     
trademarks, including Chock full o'Nuts, LaTouraine and Cain's. Best known      
among its products is Chock full o'Nuts brand premium, vacuum packed, all-      
method grind coffee. Chock full o'Nuts is also one of the largest marketers of  
foodservice and private label coffees. The balance of Chock full o'Nuts'        
business is derived from its developing Quikava outlets and from real estate    
operations.                                                                     

Chock full o'Nuts was incorporated in 1932, and for many years, Chock full
o'Nuts' primary business was the operation of counter service restaurants,      
under the Chock full o'Nuts name. In 1953, Chock full o'Nuts expanded its       
business by marketing the coffee made famous in its restaurants to consumers    
via supermarkets and other retail grocery outlets. Impactful advertising,       
featuring the "Heavenly Coffee" jingle, made Chock full o'Nuts brand premium    
coffee a market leader. In 1983, management discontinued Chock full o'Nuts'     
restaurant operations and concentrated its efforts on the sale of coffee and    
related food products. In 1994, Chock full o'Nuts commenced opening a limited   
number of Chock Cafes in the New York metropolitan area. Chock Cafes offered    
moderately priced specialty coffees, sandwiches, salads, bakery products,       
snacks and other assorted food and beverage products. In October 1996, Chock    
full o'Nuts adopted a plan to discontinue operations of these company-owned     
cafes.                                                                          

In July 1998, Chock full o'Nuts acquired the hot beverage business of Park
Foods, LLP, whose business consists primarily of sales of coffee, cappuccino,   
cocoa and leaf tea to a nationwide customer base. See Note 2 of Notes to        
Consolidated Financial Statements for the year ended July 31, 1998 for a more   
detailed description of this transaction.                                       

 In January 1997, Chock full o'Nuts acquired substantially all of the assets
and assumed substantially all of the liabilities of Ireland Coffee & Tea        
Company a leading roaster and distributor of coffees to hotels, restaurants and 
institutions on the East Coast of the United States.                            

 In March 1994, Chock full o'Nuts acquired all the assets and liabilities of
Quikava, a company whose menu features a full assortment of the most popular    
specialty coffee beverages, plus a variety of freshly prepared foods and snacks 
specifically suited for in-car consumption. Quikava's unique "double drive-     
thru" format targets the suburban commuter and is uniquely suited to take       
advantage of the growth of specialty coffees "away from home," where annual     
growth rates are significant.                                                   

 In December 1992, Chock full o'Nuts acquired the stock of Cain's Coffee Co.
and several trademarks related to that business. Cain's primary business is the 
direct sale and distribution of coffee and related products under the Cain's    
label to foodservice customers in twelve states primarily West of the           
Mississippi. Cain's also sells coffee and tea to retail customers, using a      
direct store distribution system.                                               

In November 1992, Chock full o'Nuts acquired a controlling interest in a  
partnership, which owned Dana Brown Private Brands, Inc., a company which       
markets and sells private label coffee and tea products to food retailers and   
distributors, located primarily in the Midwest.                                 

In December 1986, Chock full o'Nuts acquired Greenwich Mills Company.     
Established in 1912, Greenwich Mills Co. is a leading manufacturer and supplier 
of coffee, tea and allied products to foodservice and private label customers.  
The majority of their customers are located in markets east of the Mississippi. 
Greenwich Mills's best known trademark is LaTouraine.                           

Corporate management is currently focused on the following growth         
initiatives: (1) maximizing its foodservice franchise by significantly          
broadening its customer base for Cain's, Chock full o'Nuts and LaTouraine brand 
coffee, tea and allied products; (2) increasing retail grocery market shares    
for such higher margin products as Chock full o'Nuts brand Cafe Blend,          
decaffeinated, instant and Rich French Roast coffees;                           

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(3) selectively pursuing new business development opportunities that will       
deliver significant volume and profit growth; and (4) expansion of its          
developing Quikava drive-thru outlets through franchising.                      

Coffee and Related Products                                                     

According to certain available industry surveys and Chock full o'Nuts     
estimates, total United States coffee sales by manufacturers in 1998 were       
approximately $6 billion. Approximately 36% of total United States coffee sales 
in 1998 were to foodservice customers.                                          

Beverage Products Operations                                                    

Foodservice Sales and Marketing. In January 1985, Chock full o'Nuts began 
using Chock full o'Nuts sales personnel and independent food brokers to market  
its coffee and allied products to foodservice customers. These include chain    
and independent restaurants, hospitals, airlines, schools, governmental         
institutions, vending and office coffee service operators and other             
institutional distributors. In December 1986, Chock full o'Nuts acquired        
Greenwich Mills Company, which is a major direct sales and distribution         
supplier in the eastern United States of coffee, tea and allied products to     
foodservice customers and private label customers. Greenwich's best-known label 
is LaTouraine, which enjoys a reputation for high quality. LaTouraine also      
distributes spices, international coffee mixes, specialty coffees, whole bean   
and pod espresso, hot chocolate, iced and hot tea, powdered soft drinks, soup   
bases, and portion controlled jams, jellies and condiments.                     

In December 1992, Chock full o'Nuts acquired Cain's Coffee Co., which is a
major supplier in the Midwest and Southwest of products similar to those sold   
by Greenwich Mills Company and LaTouraine to foodservice customers.             

In the nine months ended April 30, 1999 and in fiscal 1998, respectively, 
approximately 53% and 48% of sales were derived from processing and marketing   
coffee and allied products for sale to foodservice customers. In fiscal 1997    
and 1996, sales derived from processing and marketing of coffee and allied      
products to food service customers accounted for 49% and 46% of sales,          
respectively. Sales of coffee products to foodservice customers have            
traditionally been less price-sensitive and depend more on the level of         
customer service provided. These sales also tend to generate higher operating   
margins, due to lower marketing and advertising expenses, than do sales of      
coffee products to retail customers. In addition, the absence of competitors    
with a dominant market position, makes Chock full o'Nuts' pricing to            
foodservice customers less susceptible, as compared to pricing to retail        
customers, to changes in price in response to pricing actions of any single     
competitor.                                                                     

Retail Sales and Marketing                                                      

  Chock full o'Nuts currently sells most of its retail grocery coffee products
to supermarket chains, wholesalers and independent food outlets through         
independent food brokers. Chock full o'Nuts' retail products include coffees    
sold under the Chock full o'Nuts, Cain's, Ireland and Safari labels. Chock full 
o'Nuts believes that its best known product, Chock full o'Nuts premium, vacuum  
packed, all-method grind coffee, is superior to most competitors in being able  
to produce a more consistent, better tasting, finished brew from a single,      
"all-method grind," regardless of the coffee maker used. Chock full o'Nuts also 
sells an "extended yield" coffee, which produces more cups than equivalent      
quantities of standard yield coffee. Additionally, Chock full o'Nuts sells      
decaffeinated roast and ground coffee, instant coffees, a premium quality Cafe  
blend and a Rich French Roast coffee.                                           

Chock full o'Nuts and Greenwich Mills Company roast, pack and market      
regular, decaffeinated and instant coffees for sale by others under a variety   
of private labels.                                                              

In the nine months ended April 30, 1999 and in fiscal 1998, respectively, 
Chock full o'Nuts' coffee sales to retail customers accounted for approximately 
43% and 46% of sales. In fiscal 1997 and 1996, coffee sales to retail customers 
accounted for 44% and 48% of sales, respectively. Coffee sales under the Chock  
full o'Nuts label represented approximately 4% of total branded retail grocery  
coffee sales in the United States in the nine months ended April 30, 1999 and   
in fiscal 1998.                                                                 

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Chock full o'Nuts' all-method grind coffee is sold in most major          
metropolitan areas of the United States and in the provinces of Ontario and     
Quebec, Canada. Sales are concentrated in the New York metropolitan area,       
upstate New York, New England, Philadelphia, Washington, D.C. and Florida.      
Chock full o'Nuts believes that its distinctive packaging design and one grind  
concept are important factors in the marketing of its coffee products.          
Marketing a single grind coffee has enabled Chock full o'Nuts' all-method       
grind coffee to be consistently one of the fastest moving items off             
supermarket shelves in markets where its sales are concentrated.                

The sales of Cain's, Ireland and Safari brand products are concentrated in
the Midwest, East and Southwest, respectively.                                  

Suppliers and Manufacturing                                                     

 Chock full o'Nuts' coffee is primarily a blend of readily available Central
and South American coffees. Chock full o'Nuts purchases approximately 100       
million pounds of green coffee beans annually. All green coffee is purchased    
from approximately 25 importers located in New York City, New Orleans and       
Miami, who assume the risk of delivering beans that meet Chock full o'Nuts'     
quality requirements at a guaranteed price. Chock full o'Nuts generally buys    
its coffee through contracts providing for delivery in 4 to 12 weeks and        
supplements these contracts with purchases on the spot market. All purchases    
are subject to inspection and approval by the United States Food and Drug       
Administration.                                                                 

Manufacturing activities for coffee and related products are presently    
conducted at the following facilities:                                          

                                                                [Download Table]

        Location                              Principal Use                     
------------------------  ------------------------------------------------------
                                                                                
Brooklyn, New York......  Coffee Roasting Plant, Warehouse                      
St. Louis, Missouri.....  Coffee Roasting Plant, Warehouse                      
Hialeah, Florida........  Coffee Roasting Plant, Warehouse                      
Rochester, New York.....  Coffee Roasting Plant, Warehouse                      
Oklahoma City, Oklahoma.  Coffee Roasting Plant and Processing Plant for Tea and
                          Related Food Products, Warehouse                      
Springfield, Missouri...  Processing Plant for Spices, Warehouse                
Pleasantville, New        Coffee Roasting Plant, Warehouse                      
 Jersey.................                                                        

All of the above facilities are owned, except the Rochester, New York,    
Springfield, Missouri and Pleasantville, New Jersey facilities, which are       
leased. Chock full o'Nuts believes that it has sufficient production capacity   
to meet its current and future needs.                                           

Chock full o'Nuts also rents executive office space in New York City and  
maintains warehousing facilities in over forty-five locations throughout the    
United States. None of these facilities are material to Chock full o'Nuts's     
operations.                                                                     

Competition                                                                     

The coffee business is highly competitive. Chock full o'Nuts competes for 
retail customers with a number of nationally and regionally established         
brands. Its largest competitors are Maxwell House, Yuban and Sanka Coffees      
owned by Kraft Foods, Folger's Coffee owned by Procter & Gamble and Hills, MJB  
and Chase & Sanborn owned by The Nestle Company, with combined annual sales     
accounting for approximately 80% of the United States coffee market. The        
profitability of Chock full o'Nuts' coffee sales to retail customers is         
largely dependent on competitive pricing conditions.                            

 There are many competitors in the business of selling coffee to foodservice
customers. However, Chock full o'Nuts believes that no single competitor's      
sales constitute more than 15% of this market, other than Sara Lee with         
approximately 25%. Sales of coffee, tea and allied products to foodservice      
customers have                                                                  

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traditionally been less price-sensitive and more dependent on the level of      
service provided to such customers than sales of the same products to retail    
customers. In addition, the absence of direct competitors with a dominant       
market position has traditionally made Chock full o'Nuts's pricing to           
foodservice customers less susceptible, as compared to pricing to retail        
customers, to changes in price in response to pricing actions of any single     
competitor.                                                                     

Quikava Operations                                                              

Quikava is the operator and franchiser of double-drive thru outlets, which
offer a variety of specialty coffees, espresso-based drinks, fresh baked goods, 
sandwiches, other "finger foods" and snacks. Quikava units are situated on      
major commuter thoroughfares in suburban markets and offer quick-service of     
quality beverages and snacks. Chock full o'Nuts intends to develop additional   
Quikava units, most of which will be franchised. At July 31, 1999, Chock full   
o'Nuts was operating six company owned units and there were 42 operating        
franchised units.                                                               

Cafes                                                                           

In June 1994, with the opening of a flagship store in Midtown Manhattan,  
Chock full o'Nuts began to develop the business of operating retail cafes which 
offered moderately priced specialty coffees, sandwiches, salads, bakery         
products, snacks, and other assorted food and beverage products. In October     
1996, Chock full o'Nuts discontinued the operations of its cafes due to store   
operating losses resulting from high food and labor costs and insufficient      
volume to cover high fixed and operating costs related to Midtown Manhattan     
operations as well as a cafe corporate structure organized to support a much    
higher number of locations.                                                     

Research and Development                                                        

 Chock full o'Nuts invested a nominal amount in research and development for
the three years ended July 31, 1998 and the nine months ended April 30, 1999.   

Trademarks                                                                      

Certain trademarks (i.e., Chock full o'Nuts, LaTouraine, Eppen Smith,     
Cain's, Safari and Ireland) are important to Chock full o'Nuts' business.       

Employees                                                                       

Chock full o'Nuts has approximately 1,440 employees, 15% of whom are      
represented by labor unions. Chock full o'Nuts believes that its relations with 
both union and non-union employees are good.                                    

Real Estate Operations                                                          

Chock full o'Nuts is both lessor and lessee on several properties. These  
properties had been part of Chock full o'Nuts original restaurant operations.   
Additionally, Chock full o'Nuts owns a coffee roasting facility in Castroville, 
California which it leases to another coffee company.                           

Properties                                                                      

  Chock full o'Nuts leases various premises under long-term leases expiring on
various dates through 2009. Several of these leases contain renewal options. No 
Chock full o'Nuts-leased premises are owned by any of its officers or           
directors. The following table sets forth the location and certain information  
about Chock full o'Nuts' plants and other properties as of July 31, 1999. Chock 
full o'Nuts considers all of these premises adequate for its present and        
anticipated needs.                                                              

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Plants and Other Properties                                                     

                                                                [Download Table]

                                                         Approximate   Whether 
                                                         Square Feet   Owned or
   Location                  Principal Use              of Floor Space  Leased 
   --------                  -------------              -------------- --------
                                                                               
Brooklyn, New   Coffee Roasting, Plant, Warehouse           55,000      Owned  
York                                                                           
St. Louis,      Coffee Roasting, Plant, Warehouse           77,000      Owned  
Missouri                                                                       
Secaucus, New   Warehouse and Offices                      104,000      Owned  
Jersey                                                                         
Hialeah,        Coffee Roasting, Plant, Warehouse           50,000      Owned  
Florida                                                                        
Rochester, New  Coffee Roasting, Plant, Warehouse           50,000      Leased 
York                                                                           
Oklahoma City,  Coffee Roasting Plant, and Processing      150,000      Owned  
Oklahoma        Plant for Tea and Related Food                                 
                Products, Warehouse                                            
Springfield,    Processing Plant for Spices, Warehouse      30,000      Leased 
Missouri                                                                       
Pleasantville,  Coffee Roasting Plant, Warehouse            47,000      Leased 
New Jersey                                                                     
574 Fifth       Real Estate Operation                       13,000      Leased 
Avenue                                                                         
New York, New                                                                  
York                                                                           
422 Madison     Real Estate Operation                        8,750      Leased 
Avenue                                                                         
New York, New                                                                  
York                                                                           
532 Madison     Real Estate Operation                       12,250      Leased 
Avenue                                                                         
New York, New                                                                  
York                                                                           
49 Broadway     Real Estate Operation                       12,000      Leased 
New York, New                                                                  
York                                                                           
1420 Broadway   Real Estate Operation                        6,750      Leased 
New York, New                                                                  
York                                                                           
370 Lexington   Corporate Headquarters                      11,000      Leased 
Avenue                                                                         
New York, New                                                                  
York                                                                           
Waverly Place   Real Estate Operation                        2,500      Leased 
Corner                                                                         
Green Street                                                                   
New York, New                                                                  
York                                                                           
Castroville,    Real Estate Operation                       66,000      Owned  
California                                                                     
Queen Ann       Quikava Operation                              250      Leased 
Plaza                                                                          
Norwell, Mass.                                                                 
1184 Main       Quikava Operation                              600      Leased 
Street                                                                         
Haverhill,                                                                     
Mass.                                                                          
84 Milford      Quikava Operation                              600      Leased 
Road                                                                           
Amherst, New                                                                   
Hampshire                                                                      
374 Bridge      Quikava Operation                              600      Leased 
Street                                                                         
N. Weymouth,                                                                   
Mass.                                                                          
895 Bald Hill   Quikava Operation                              600      Leased 
Road Warwick,                                                                  
Rhode Island                                                                   
190 Old Derby   Quikava Operation Headquarters               1,196      Leased 
Street                                                                         
Hingham, Mass.                                                                 
83 Brockton     Quikava Operations                             600      Leased 
Avenue                                                                         
Abington,                                                                      
Mass.                                                                          

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CHOCK FULL O'NUTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

Certain statements in this "Management's Discussion and Analysis of       
Financial Condition and Results of Operations" constitute "forward-looking      
statements" within the meaning of the Private Securities Litigation Reform Act  
of 1995, see "Special Note Regarding Forward-Looking Statements" elsewhere in   
this proxy statement/prospectus.                                                

Operations                                                                      

The following is Chock full o'Nuts management's discussion and analysis of
significant factors that have affected Chock full o'Nuts operations during the  
nine month periods ended April 30, 1998 and April 30, 1999 as reflected in its  
unaudited condensed consolidated statements of operations and the fiscal years  
ended July 31, 1996, July 31, 1997 and July 31, 1998 as reflected in the        
audited consolidated statements of operations.                                  

Nine Months Ended April 30, 1999 Compared to Nine Months Ended April 30, 1998   

 Net sales from beverage products decreased to $268,386,000 or 11.7% for the
nine months ended April 30, 1999 compared to $304,042,000 for the comparable    
period of the prior year. The decrease was due to a decrease in the average     
selling price of coffee of $.56 per pound, approximately $44,000,000 and in     
commodity sales of approximately $7,000,000, offset by a 7.7%, or $15,000,000,  
net increase in coffee pounds sold. The net increase in coffee pounds sold      
during this period was primarily due to additional sales of $21,750,000 as a    
result of the Park Coffee Company acquisition in July 1998. Operating profit    
from beverage products was $7,192,000, a decrease of 52% for the nine months    
ended April 30, 1999 compared to the prior year's comparable period. The        
decrease for operations other than Park Coffee Company for the nine months      
resulted from decreases in gross margins of approximately $6,500,000 and        
increases in selling, general and administrative expenses of approximately      
$1,500,000. Decreases in total gross margins were primarily due to (1) an       
increase in manufacturing costs resulting from labor and overhead               
inefficiencies in the manufacturing transition period for Park Coffee Company   
of approximately $4,500,000 and (2) a decrease in the average selling price of  
coffee that was greater, by $.08 per pound, than the decrease in the average    
cost of green coffee, representing approximately $6,500,000. During the nine    
months ended April 30, 1999 prices of green coffee ranged from a high of $1.35  
to a low of $.97 per pound. Selling, general and administrative expenses        
increased, other than those applicable to Park Coffee Company. The major        
categories accounting for this increase were delivery costs of approximately    
$1,085,000, resulting from the manufacturing transition period for Park Coffee  
Company and increased coffee pounds sold, coupon costs of approximately         
$585,000 compensation costs of approximately $550,000 and costs applicable to   
the acquisition of Chock full o'Nuts by Sara Lee of approximately $600,000. The 
increases in selling, general and administrative expenses were partially offset 
by decreased amortization of purchased intangibles of approximately $525,000    
and insurance costs of approximately $545,000.                                  

 Quikava's growth plans involve franchising the concept in order to generate
initial franchise fees and continuing royalty income to cover headquarters'     
expenses. Franchise operated shop sales were $3,521,000 for nine months ended   
April 30, 1999 versus $2,364,000, an increase of 49%, over the comparable 1998  
period. Quikava company-operated shop sales were $1,874,000 for the nine months 
ended April 30, 1999 compared to $2,253,000 in the comparable period of the     
prior year. Company operated shops generate potential franchise interest and    
provide exposure to the concept. Operating losses amounted to $936,000 for the  
nine months ended April 30, 1999 compared to $1,367,000 in the comparable       
period of the prior year. The operating losses consist primarily of             
headquarters' expenses, such as payroll and related expenses for franchising    
infrastructure and shop level losses, partially offset by initial franchise fee 
income and royalty income on franchisee sales.                                  

Net income was $558,000 ($.05 per basic share and diluted share) for the  
nine months ended April 30, 1999, compared to $5,566,000 ($.54 per basic share  
and $.40 per diluted share) for the comparable period of the prior year. The    
decrease was primarily due to decreased operating profits from beverage         
products and the                                                                

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gain on sale of real estate in fiscal 1998. This decrease was partially offset  
by decreased income taxes, attributable to decreased income before income       
taxes, and to a lesser extent decreased interest expense resulting from reduced 
amounts of debt outstanding, increased interest income, resulting from          
increased invested funds, and decreased operating losses from Quikava.          

Year Ended July 31, 1998 Compared to Year Ended July 31, 1997                   

Net sales from beverage products increased to $390,731,000 or 8.4% for the
year ended July 31, 1998 compared to $360,467,000 for the prior year. The       
increase was primarily due to increases in the average selling price of coffee  
and to a lesser extent a 2.8% increase in coffee pounds sold. Operating profit  
from beverage products was $17,854,000, a decrease of 24% for the year ended    
July 31, 1998 compared to the prior year. The decrease resulted primarily from  
decreased gross margins attributable to an increase in the average cost of      
green coffee greater than the increase in the average selling price of coffee   
and increased manufacturing costs, partially offset by increased coffee pounds  
sold and increased sales of allied products. During the year ended July 31,     
1998 prices for green coffee ranged from a high of $2.11 to a low of $1.06 per  
pound. Selling, general and administrative expenses decreased slightly          
primarily due to reduced coupon, compensation and bad debt costs and decreased  
amortization of purchased intangibles, partially offset by increased            
advertising, delivery and legal costs. Certain of Chock full o'Nuts' brokerage, 
delivery and commission costs vary with the number of pounds sold, therefore    
these selling expenses have increased in 1998 compared to 1997.                 

Quikava franchise operated shop sales were $3,531,000 for the year ended  
July 31, 1998 versus $2,437,000 an increase of 45% over 1997. Quikava company-  
operated shop sales were $3,626,000 for the year ended July 31, 1998 compared   
to $3,737,000 in 1997. Operating losses amounted to $1,781,000 for the year     
ended July 31, 1998, compared to $1,998,000 in the prior year. The operating    
losses consisted primarily of headquarters' expenses such as payroll and        
related expenses for franchising infrastructure and shop level losses,          
partially offset by initial franchise fee income in 1998 and royalty income on  
franchisee sales.                                                               

 Net income was $5,499,000 ($.53 per basic share and $.45 per diluted share)
for the year ended July 31, 1998, compared to $7,914,000 ($.76 per basic share  
and $.55 per diluted share). The difference was primarily due to reduced        
operating profits from beverage products and to a lesser extent reduced         
interest income resulting from decreased invested funds. This decrease in net   
income was partially offset by decreased income taxes attributable to decreased 
income before income taxes, the unfavorable litigation result in fiscal 1997,   
the gain on sale of real estate in 1998 ($.07 per basic share and $.03 per      
diluted share) and to a lesser extent reduced interest expense resulting from   
reduced amounts of debt outstanding in the second half of the year.             

Year End July 31, 1997 Compared to Year Ended July 31, 1996                     

 In January 1997, Chock full o'Nuts acquired substantially all of the assets
and assumed substantially all of the liabilities of Ireland Coffee and Tea      
Company, whose business consists of roasting and distributing coffees to        
hotels, restaurants and institutions on the East Coast.                         

Net sales from beverage products increased $41,254,000 or 13% for the year
ended July 31, 1997, compared to the prior year. The increase was primarily due 
to a 15% increase in coffee pounds sold. Operating profits from beverage        
products were $23,498,000, an increase of 41% for the year ended July 31, 1997  
compared to the prior year. The increase resulted primarily from increased      
gross margins and the operations of Ireland Coffee and Tea Company from date of 
acquisition, partially offset by increased selling, general and administrative  
expenses. Increased gross margins were primarily due to increased coffee pounds 
sold and a decrease in the average cost of green coffee. During the year ended  
July 31, 1997 prices for green coffee ranged from a high of $3.15 to a low of   
$1.03 per pound. Selling, general and administrative expenses increased         
primarily due to increased advertising, brokerage and data processing costs and 
salaries. Chock full o'Nuts' brokerage, delivery and commission costs vary with 
the number of pounds sold, therefore these selling expenses have increased in   
1997 compared to 1996.                                                          

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Net sales of Quikava franchise operated shops increased to $2,437,000 for 
the year ended July 31, 1997 from $1,747,000 in the prior year. Quikava         
company-operated shops with net sales of $3,737,000 in fiscal 1997 and          
$1,922,000 in fiscal 1996 were opened in new markets to generate potential      
franchisee interest and gain exposure to the concept. Operating losses          
increased to $1,998,000 for the year ended July 31, 1997 compared to $1,649,000 
in the prior year. The increase in operating losses consisted primarily of      
increased headquarters' expenses such as payroll and related expenses for       
franchising infrastructure and pre-opening costs and increased shop level       
losses that were primarily due to the number of shops open less than 12 months, 
partially offset by increased royalty income on increased franchisee sales. The 
first year shops opening in new markets with lack of brand recognition resulted 
in slower sales growth and greater shop level losses than established           
comparable shops.                                                               

  Income from continuing operations was $7,914,000 or $.76 per basic share and
$.55 per diluted share for the year ended July 31, 1997, compared to $4,631,000 
or $.45 per basic share and $.41 per diluted share for the prior year. The      
difference was primarily due to increased operating profits from beverage       
products and to a lesser extent increased interest income resulting from        
increased invested funds in the early part of fiscal 1997 and reduced interest  
expense resulting from lower amounts of debt outstanding, partially offset by   
increased income taxes, the write-off of amounts due from the previous owner of 
an acquired business due to the result of unfavorable litigation and increased  
operating losses from Quikava. Increased income taxes are primarily             
attributable to increased income before income taxes, partially offset by       
realization of a prior year capital loss not previously recorded. The net loss  
for 1996 is due to a loss from discontinued operations of $6,167,000 or $.60    
per basic share and $.28 per diluted share. See Note 5 of Notes to Consolidated 
Financial Statements for the fiscal year ended July 31, 1998, included          
elsewhere in this proxy statement/prospectus, for a more detailed description   
of discontinued operations.                                                     

General inflation has been relatively low for the last several years;     
however, green coffee prices have changed significantly during the nine months  
ended April 30, 1999 and fiscal 1998, 1997 and 1996. While Chock full o'Nuts    
manages its inventory to have rapid turnover, the changes in green coffee       
prices have required Chock full o'Nuts at times to carry higher inventory       
dollars than it might otherwise have done in a more stable green coffee market  
and impacted Chock full o'Nuts' gross profit percentage.                        

Liquidity and Capital Resources                                                 

 As of April 30, 1999, working capital was approximately $87,500,000 and the
ratio of current assets to current liabilities was 5.0 to 1.                    

  As of April 30, 1999, the Chock full o'Nuts had unused borrowing capacity of
approximately $36 million under its credit facilities of $40 million with Fleet 
Bank, N.A. and The Chase Manhattan Bank. See Note D of Notes to Unaudited       
Condensed Consolidated Financial Statements for the nine months ended April 30, 
1999 included elsewhere in this proxy statement/prospectus for a more detailed  
description of bank credit facilities.                                          

On December 4, 1998, Chock full o'Nuts redeemed $5,000,000 of its 8%      
Convertible Subordinated Debentures using existing invested funds. Subsequent   
to April 30, 1999 through September 2, 1999, $2,498,000 of Chock full o'Nuts 8% 
Convertible Subordinated Debentures and $3,206,000 of Chock full o'Nuts 7%      
Convertible Senior Subordinated Debentures were converted into 709,353 shares   
of Chock full o'Nuts common stock. On August 26, 1999, Chock full o'Nuts called 
its outstanding 8% Convertible Subordinated Debentures and 7% Convertible       
Senior Subordinated Debentures for redemption on September 14, 1999. Sara Lee   
has agreed to provide the necessary funds for redemption on terms substantially 
identical to those in the existing indentures for the debentures, other than    
the convertibility feature.                                                     

Chock full o'Nuts plans on expanding its Quikava franchised operations,   
which, as of July 31, 1999, were operating in 42 locations. The sales of        
Quikava operated and franchised units are not material to its consolidated      
sales. Total Quikava store level operations are not currently profitable but    
are being partially offset                                                      

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by franchise fee and royalty income, however, overhead expenses related to      
Quikava headquarters are currently resulting in losses of approximately         
$1,000,000 on an annual basis.                                                  

Chock full o'Nuts believes that its cash flow from operations, its cash   
equivalents and funds available under its amended and restated revolving credit 
and term loan agreements with its Banks provide sufficient liquidity to meet    
its working capital, expansion and capital requirements for at least the next   
twelve months.                                                                  

Green Coffee Market                                                             

Coffee is one of the leading commodities traded on futures exchanges.     
Supplies fluctuate with the weather and prices can be and have been volatile.   
The supply and price is affected by multiple factors, such as weather, weather  
forecasts, consumption trends, changes in stock levels, export restrictions     
observed by members of the Association of Coffee Producing Countries,           
activities of hedge funds, politics and economics in the coffee producing       
countries, many of which are lesser developed nations. While coffee trades      
primarily on the futures market, coffee of the quality level sought by Chock    
full o'Nuts can trade on a negotiated basis at a substantial premium above      
commodity coffee pricing, depending upon the supply and demand at the time of   
purchase.                                                                       

In the sixties some coffee exporting countries plus a group of coffee     
importing countries together formed the International Coffee Organization, or   
the ICO. The principal aim of the organization was to stabilize coffee prices   
in the world market. One of the instruments used to achieve this result was a   
system allocating an export quota to each of the coffee producing countries. In 
July 1989, this system was abandoned due to disagreements involving several     
exporting as well as importing countries. In 1994, a new International Coffee   
Agreement came into force which no longer included the price stability          
mechanism. As a consequence, the function of the ICO changed. This organization 
now provides a forum where exporting and importing countries can discuss        
matters pertaining to coffee. In addition, the ICO publishes statistics about   
the coffee market. It has thus become an administrative organization.           

When the export quota system was abandoned in 1989, coffee prices declined
in the global market. Certain exporting countries were dissatisfied with the    
new situation and tried to regain their grip on the international coffee        
market. In 1993, they established the Association of Coffee Producing Countries 
to boost coffee prices in the global market by keeping part of annual           
production out of the world market. The members of the Association of Coffee    
Producing Countries account for around 70% of world coffee exports. The         
Association of Coffee Producing Countries attempts to achieve better prices by  
agreeing export quotas for each member country and an export volume ceiling for 
the organization as a whole.                                                    

  The effect of the Association of Coffee Producing Countries on coffee prices
is difficult to determine in light of the dramatic price increases resulting    
from the 1994 frosts in Brazil discussed below. Nonetheless, the Association of 
Coffee Producing Countries met in November 1994 and resolved to sustain green   
coffee prices. In January 1996, the Association of Coffee Producing Countries   
agreed to extend its current limitations on the supply of green coffee which    
were scheduled to expire in June 1996 through the 1996/1997 green coffee year.  
No further actions have been taken by the Association of Coffee Producing       
Countries subsequent to that date. Chock full o'Nuts is unable to predict       
whether the Association of Coffee Producing Countries will be successful in     
achieving its goals. Based on published statistics, as of July 31, 1999, the    
supplies of green coffees held by roasters and buyers are near historically low 
levels.                                                                         

 Brazil, the world's largest coffee producer, experienced frosts in June and
July of 1994 which reportedly damaged approximately 40% of the green coffee     
crop. The announcement of the Brazilian frost damage caused a substantial       
increase in green coffee prices and other coffee-product prices worldwide.      
Chock full o'Nuts purchases a modest amount of its green coffee from Brazil. In 
the third and fourth quarter of 1994 Chock full o'Nuts experienced a            
significant increase in the price of green coffee which carried over into the   
first three quarters of 1995. Chock full o'Nuts was not able to immediately     
pass through to customers all of the price increases in the third and fourth    
quarters of 1994 and the first quarter of 1995 following the significant        
increase                                                                        

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in green coffee prices that resulted from the Brazilian aforementioned frosts.  
Subsequent to such period through January 1997, Chock full o'Nuts's green       
purchases and commitments returned to pricing levels closer to those that       
existed prior to the frosts. In February 1997, green coffee bean prices began   
to rise significantly reaching a high of $3.18 per pound in May 1997. This bull 
market was somewhat unique in that the fundamental cause was very tight stocks  
of arabica coffee in consuming countries. Historically, bull markets have been  
the direct result of weather developments in Brazil, specifically cold weather  
and drought that damages the following crop.                                    

During fiscal 1998, the green coffee market was in the $1.06 to $2.11 per 
pound range, and towards the end of that year at the lower end of this range.   
From August 1997 until February 1998, coffee remained relatively high, most of  
the time at above $1.70 per pound, when a fast, substantial and sustained drop  
occurred caused by a significantly large Brazilian crop. This left Chock full   
o'Nuts with large quantities of high-priced inventory while sales slowed as     
retailers waited for the green coffee market to affect the price they pay for   
roasted coffee and pressure intensified as major competitors cut prices in      
response. The result was lower net income in the third quarter of fiscal 1998   
compared to the first and second quarters and an approximate break-even in the  
fourth quarter.                                                                 

During the first nine months of fiscal 1999, the coffee market was in the 
$.97 to $1.35 per pound range. The large Brazilian crop continues to overhang   
the coffee market, notwithstanding the effects in Central America of Hurricane  
Mitch, and the price of coffee, as of August 11, 1999, is at the lower end of   
that range.                                                                     

Chock full o'Nuts is unable to predict weather events in particular       
countries that may adversely affect coffee supplies and price. Except for late  
1994 and early 1995, Chock full o'Nuts generally has been able to pass green    
coffee price increases through to its customers, thereby maintaining its gross  
margins. Chock full o'Nuts cannot predict whether it will be able to pass       
inventory price increases through to its customers in full in the future.       

A significant portion of the green coffee supply of Chock full o'Nuts is  
contracted for future delivery, generally between three and twelve months       
forward with declining percentages of the supply being subject to future        
contracts in the latter portions of each year, to ensure both an adequate       
supply and reduced risk of price fluctuations. In addition, Chock full o'Nuts   
uses options and futures for hedging purposes to reduce the risks of changing   
green coffee prices. Green coffee is a large market with well-established       
brokers, importers and warehousemen through which Chock full o'Nuts manages its 
requirements. In addition to forward purchases, Chock full o'Nuts keeps         
physical inventory in each of its production facilities and third-party         
warehouses representing anywhere from four to ten weeks of supply requirements. 

All coffee purchase transactions are in U.S. dollars, the industry's      
standard currency. Chock full o'Nuts believes that it is not dependent upon any 
one importer or broker for its supply of green coffee from any particular       
country.                                                                        

Retail customers are very price-sensitive about the purchase of coffee in 
supermarkets. When retail prices increase dramatically, take away declines and  
consumers switch to less expensive brands and high yield roasts. Likewise, food 
service customers in times of price increase tend to stretch the use of         
inventory.                                                                      

Year 2000 Issue                                                                 

  In 1998, Chock full o'Nuts established an oversight committee, to review all
of its computer systems and programs, as well as the computer systems of the    
third parties upon whose data or functionality Chock full o'Nuts relies in any  
material respect, and to assess their ability to process transactions in the    
Year 2000. Chock full o'Nuts has a formal Year 2000 Program focusing on three   
key readiness areas: (1) Internal hardware/software and non-information         
technology systems; (2) Supplier readiness; and (3) Customer readiness. For     
each readiness area, Chock full o'Nuts has identified steps to perform and      
developed timetables for Year 2000 compliance. Chock full o'Nuts has conducted  
an assessment of internal applications and                                      

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hardware. Some software applications have been made Year 2000 compliant and     
resources have been assigned to address other applications based on their       
criticality and the time required to make them Year 2000 compliant. All         
software remediation is scheduled to be completed no later than the Fall of     
1999. The Year 2000 compliance evaluation of hardware, including roasters,      
grinders, bagging machines, telecommunication equipment, workstations and other 
items, is complete. Chock full o'Nuts has identified and contacted key          
suppliers. As of July 31, 1999, Chock full o'Nuts has received responses from   
the majority of its key suppliers, most of which indicate that the suppliers    
are in the process of developing remediation plans. Based on the supplier's     
progress to adequately address the Year 2000 issue, Chock full o'Nuts is        
developing a supplier action list and contingency plan to include alternative   
sources of supply. Chock full o'Nuts has identified and been in contact with    
its key customers. The customers have responded that they are or will be Year   
2000 compliant.                                                                 

  Chock full o'Nuts has expensed approximately $350,000 for Year 2000 costs in
fiscal 1998, approximately $100,000 for Year 2000 costs in the first nine       
months of fiscal 1999 and estimates future expenditures for Year 2000           
compliance to be approximately $150,000. There can be no assurance, however,    
that there will not be a delay in, or increased costs associated with, the      
programs described in this section. Since the programs described in this        
section are ongoing, all potential Year 2000 complications have not yet been    
identified. Therefore, the potential impact of these complications on Chock     
full o'Nuts financial condition and results of operations cannot be determined  
at this time. If computer systems used by Chock full o'Nuts, its suppliers or   
customers fail or experience significant difficulties related to the Year 2000, 
Chock full o'Nuts results of operations and financial conditions could be       
materially affected.                                                            

  Chock full o'Nuts believes that the greatest risk presented by the Year 2000
problem is from third parties, such as its suppliers and utility providers that 
may not have adequately addressed the problem. A failure of any such third      
party's computer or other systems of sufficient magnitude could materially and  
adversely affect the Company. The Company is not presently able to quantify     
this risk. Chock full o'Nuts is monitoring news and progress reports pertaining 
to those critical services performed by these third parties to determine the    
effect on Chock full o'Nuts' ability to conduct its business.                   

Chock full o'Nuts believes its worst case scenario involves not being able
to produce at full capacity at one or two of its manufacturing plants. In such  
a situation, the shortfall would be taken up by its other manufacturing         
facilities. The Company intends to build up inventory before the end of the     
calendar year and arrange for additional shifts for production during this      
period of time.                                                                 

Disclosure About Interest Rate Risk                                             

  Chock full o'Nuts is subject to market risk from exposure to fluctuations in
interest rates. At April 30, 1999, Chock full o'Nuts' long-term debt, other     
than capitalized leases, consisted of $84 million of fixed rate long-term debt  
(its convertible subordinated debentures) and $4 million of variable rate debt  
under its revolving credit and term loans. Chock full o'Nuts does not enter     
into derivative financial instruments for trading or speculative purposes.      
Chock full o'Nuts does not expect changes in interest rates to have a material  
effect on income or cash flows in fiscal 1999, although there can be no         
assurance that interest rates will not significantly change.                    

Disclosure About Commodity Price Risk                                           

Chock full o'Nuts uses coffee futures and options for hedging purposes to 
reduce the effect of changing green coffee prices. At April 30, 1999, the total 
value of coffee contracts was approximately $12.9 million. These contracts meet 
the risk reduction and correlation criteria for hedge accounting and gains and  
losses are deferred and recorded as a component of the underlying inventory     
purchase. If the market value of green coffee at April 30, 1999 ($1.04) were to 
increase by $.15, the effect would be to decrease inventory by approximately    
$300,000. The effect of a $.15 decrease in the market value of green coffee     
would not be significant. Chock full o'Nuts generally has been able to pass     
green coffee prices increases through to its customers, thereby maintaining its 
gross margins. Chock full o'Nuts cannot predict whether it will be able to pass 
inventory price increases through to its customers in full in the future.       

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MANAGEMENT OF CHOCK FULL O'NUTS 

Executive Officers                                                              

The following lists the current executive officers of Chock full o'Nuts.  
Upon the completion of the merger, the directors of CFN Acquisition Corporation 
will become directors of Chock full o'Nuts.                                     

  Marvin I. Haas--Mr. Haas was elected to the Board of Directors of Chock full
o'Nuts in December 1990. In August 1993, Mr. Haas was elected Chief Executive   
Officer of Chock full o'Nuts and in February 1995, he was elected President of  
Chock full o'Nuts. He was Vice Chairman of the Board and Chief Operating        
Officer of Chock full o'Nuts from October 1991 until February 1995. He was a    
consultant to Chock full o'Nuts from September 1989 to May 1990. Mr. Haas was   
President and Chief Operating Officer of Swissrose International, a dairy       
products importer, for a period of more than five years through April 1987 and  
subsequently was a self-employed consultant until joining Chock full o'Nuts. He 
is 57 years old.                                                                

Richard Kassar--Mr. Kassar joined Chock full o'Nuts in October 1986 as    
Corporate Controller and in 1992 became a Vice President. In 1995, he became    
Vice President Operations in addition to Controller and in 1999 he became       
Senior Vice President and Chief Operating Officer. He has been a Certified      
Public Accountant for more than 20 years. Prior to joining Chock full o'Nuts,   
he was a Manager of Finance and Administration of Amerada Hess Corporation for  
over 5 years. He is fifty-two years old.                                        

Howard M. Leitner--Mr. Leitner joined Chock full o'Nuts in August 1980 as 
Chief Financial and Accounting Officer and later that year was elected a        
director. He was President of Chock full o'Nuts from August 1986 until February 
1995 and currently is a Senior Vice President. He has been a Certified Public   
Accountant for more than 20 years and for two years prior to joining Chock full 
o'Nuts he was an Audit Manager for Ernst & Whinney, now known as Ernst & Young  
LLP and the successor to S. D. Leidesdorf & Co., with whom Mr. Leitner had been 
employed as an accountant for the 15 preceding years. He is 58 years old.       

Significant Employees                                                           

The following lists certain significant employees of Chock full o'Nuts.   

Anthony Fazzari--Mr. Fazzari is currently Senior Vice President for Retail
Marketing and Sales for Chock full o'Nuts. He has been with Chock full o'Nuts   
for over 13 years in charge of the retail and private label operations. He has  
been in the coffee industry in a sales capacity for over 35 years working for   
S.A. Schonbrunn, American Maize Company and Tetley Inc.                         

 Thomas Donnell--Mr. Donnell has been the Chief Executive Officer for Cain's
Coffee Co. for over 18 years and has been affiliated with Cain's for over 30    
years.                                                                          

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EXECUTIVE COMPENSATION AND TRANSACTIONS WITH
OFFICERS, DIRECTORS AND PRINCIPAL HOLDERS OF CHOCK FULL O'NUTS

  The following information is furnished with respect to each of the executive
officers of Chock full o'Nuts who were executive officers of Chock full o'Nuts  
at any time during the fiscal year ended July 31, 1999 and the two other        
highest paid employees of Chock full o'Nuts that were not executive officers    
during the fiscal year ended July 31, 1999:                                     

Compensation Table

                                                                [Download Table]

                                                       Annual Compensation     
                                                         (in thousands)        
                                                  -----------------------------
                                           Fiscal                Other Annual  
Name and Principal Position                 Year  Salary Bonus Compensation (a)
---------------------------                ------ ------ ----- ----------------
                                                                               
Marvin I. Haas............................  1999   $318              $20       
President and                               1998    268                        
Chief Executive Officer                     1997    269  $205                  
Howard M. Leitner.........................  1999    241    45         20       
Senior Vice President and                   1998    222                        
Chief Financial Officer                     1997    221    84                  
Thomas Donnell............................  1999    181    25          5       
Senior Vice President--Direct Store         1998    170    34                  
Deliveries                                  1997    163    65                  
Richard Kassar............................  1999    206    40         20       
Senior Vice President and Chief             1998    180                        
Operating Officer                           1997    186    74                  
Anthony Fazzari...........................  1999    183    25         11       
Senior Vice President--Retail               1998    172     8                  
Sales and Marketing                         1997    170    50                  

--------                                                                        
(a) Perquisites include use of corporate automobiles ranging between $1,000 and 
$10,000, and life insurance ranging between $2,000 and $10,000.         

  On August 5, 1998, Chock full o'Nuts entered into employment agreements with
Marvin I. Haas, Howard M. Leitner, Richard Kassar and three other officers. The 
agreements are effective in the event of a change in control and provide, among 
other matters, for a term of three years beginning immediately after the change 
in control and for base salary, bonus and other employee benefits at amounts    
existing immediately prior to the change in control.                            

Options/SAR Grants in Last Fiscal Year                                          

There were no options/SARs granted during fiscal 1999 to the named        
executives and officers of Chock full o'Nuts.                                   

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Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End         
Option/SAR Values                                                               

  The following table summarizes options and SARs exercised during fiscal 1999
and presents the value of unexercised options and SARs held by the named        
executives and the two other highest paid employees of Chock full o'Nuts at     
fiscal year end:                                                                

                                                                [Download Table]

                                                                  Value of     
                                                Number of        Unexercised   
                                               Unexercised      In-the-Money   
                                             Options/SARs at   Options/SARs at 
                         Shares              Fiscal Year-End   Fiscal Year-End 
                        Acquired    Valued   Exercisable (E)   Exercisable (E) 
Name                   on Exercise Realized Unexercisable (U) Unexercisable (U)
----                   ----------- -------- ----------------- -----------------
                                                                               
Marvin I. Haas........       0         0        257,500E         $1,190,938    

Howard M. Leitner.....       0         0         19,641E             40,987    
                                                  5,333U             18,319    

Thomas Donnell........       0         0         13,109E             20,480    
                                                  5,000U             17,175    

Richard Kassar........       0         0         13,109E             20,480    
                                                  5,000U             17,175    

Anthony Fazzari.......       0         0         13,109E             20,480    
                                                  5,000U             17,175    

 Restricted stock share holdings at July 31, 1999 for Mr. Leitner and Martin
J. Cullen, a director, amounted to 17,769 shares ($184,353) and 1,777 shares    
($18,436), respectively. These shares are to vest in March 2001. The unvested   
portion of the shares are subject to forfeiture in the event Chock full o'Nuts  
terminates employment for cause or the employee terminates employment for a     
reason other than death, disability, retirement at or after normal retirement   
date or good reason and to accelerated vesting in the event of termination of   
employment by the employee for good reason, death, disability or retirement, or 
after a change in control.                                                      

Chock full o'Nuts has established a Benefits Protection Trust with State  
Street Bank and Trust Company and has contributed $700,000 thereto. It is to be 
used for litigation expenses incurred by Chock full o'Nuts employees, including 
all executive officers of Chock full o'Nuts, in the event that after a change   
in control the new management of Chock full o'Nuts refuses to pay benefits      
under any employment contract or any employee benefit plan maintained by Chock  
full o'Nuts. At the present time, Chock full o'Nuts has no intention of making  
additional contributions to the Benefits Protection Trust Fund.                 

Pension Plan                                                                    

 The Chock full o'Nuts Corporation Pension Plan is a noncontributory defined
benefit plan covering all non-union employees of Chock full o'Nuts. Employees   
become eligible for membership in the Chock full o'Nuts Corporation Pension     
Plan on the anniversary dates coinciding with or next following the date of     
attainment of age 20 1/2 and completion of six months of service. Participants  
become fully vested after 5 years of service.                                   

The Chock full o'Nuts Corporation Pension Plan provides normal retirement 
benefits, reduced early retirement benefits and increased post-retirement       
benefits which are available at the employee's option. Benefits are payable in  
the form of a straight life annuity or a 50% joint and survivor annuity. At     
Normal Retirement (age 65) or Postponed Retirement (age 70), a participant      
receives an annual pension payable in equal monthly installments equal to 2% of 
his final 5 year average compensation times credited service to a maximum of    
50% of the final 5 year average compensation. Credited service includes years   
of service rendered after reaching age 22. The years of credited service under  
the Chock full o'Nuts Corporation Pension Plan at July 31, 1999 of Messrs.      
Haas, Leitner, Donnell, Kassar and Fazzari are 10, 20, 6, 12, and 12,           
respectively.                                                                   

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Marvin I. Haas and Howard M. Leitner are the Trustees of the plan.        

 Chock full o'Nuts maintains a non qualified, unfunded Supplemental Employee
Retirement Plan, which covers those participants of the plan whose benefits     
would otherwise be denied by reason of certain Internal Revenue Code            
limitations on qualified plan benefits. A participant in the Supplemental       
Employee Retirement Plan is entitled to a benefit equaling the difference       
between the amount of benefits the participant is entitled to without           
reduction, limited to $130,000 at normal retirement, and the amount of benefits 
the participant is entitled to after the reduction. The Supplemental Employee   
Retirement Plan provides for immediate funding in the event of a change in      
control of Chock full o'Nuts and currently, would be approximately $1,050,000.  

The table below shows the estimated annual pension benefits at normal     
retirement age to an employee upon retirement under the Chock full o'Nuts       
Corporation Pension Plan, taking into account the Supplemental Employee         
Retirement Plan.                                                                

                                                                [Download Table]

                                       15                                       
Final Average Earnings                Years  20 Years 25 Years 30 Years 35 Years
----------------------               ------- -------- -------- -------- --------
                                                                                
$300,000 and higher................. $78,000 $104,000 $130,000 $130,000 $130,000
$250,000............................  75,000  100,000  125,000  125,000  125,000
$200,000............................  60,000   80,000  100,000  100,000  100,000
$150,000............................  45,000   60,000   75,000   75,000   75,000
$100,000............................  30,000   40,000   50,000   50,000   50,000

401(k) Cash or Deferred Compensation Plan                                       

Chock full o'Nuts maintains a tax-qualified 401(k) cash or deferred       
compensation plan that covers certain employees who have completed one year of  
service and attained age 20. Participants are permitted, within the limitations 
imposed by the Internal Revenue Code, to make pre-tax contributions to the plan 
pursuant to salary reduction agreements. The contributions of the participants  
are held in separate accounts which are always fully vested.                    

Employee Stock Ownership Plan                                                   

In November 1988, the Board of Directors of Chock full o'Nuts approved the
Chock full o'Nuts Corporation Employee Stock Ownership Plan which is a          
noncontributory plan established to acquire shares of Chock full o'Nuts' common 
stock for the benefit of all eligible employees. In May 1995, September 1995    
and August 1997 Chock full o'Nuts loaned the Chock full o'Nuts Corporation      
Employee Stock Ownership Plan $500,000, $500,000 and $1,000,000, respectively,  
to be repaid in equal annual installments over eight years from the date of the 
loan with interest primarily at 9% and 10%. Each full-time employee of Chock    
full o'Nuts who is not represented by a labor union is eligible to participate  
in the Chock full o'Nuts Corporation Employee Stock Ownership Plan on the date  
which is one year after the date of his employment by Chock full o'Nuts. All    
such participating employees are vested in those shares allocated to their      
specific accounts after a period of five years or in the event of a change in   
control (as defined). Shares are allocated to participant's accounts annually   
based upon the annual compensation (up to $160,000) earned by each participant. 
As Chock full o'Nuts makes annual contributions to the Chock full o'Nuts        
Corporation Employee Stock Ownership Plan, these contributions are used to      
repay the loans to Chock full o'Nuts, together with accrued interest. Deferred  
compensation equal to the loans has been recorded as a reduction of             
stockholders' equity representing Chock full o'Nuts' prepayment of future       
compensation expense. As contributions are made, common stock is allocated to   
ESOP participants and deferred compensation is reduced by the amount of the     
principal payment on the loans. Marvin I. Haas and Howard M. Leitner are the    
administrators of the Chock full o'Nuts Corporation Employee Stock Ownership    
Plan.                                                                           

As of the date of this proxy statement/prospectus a total of 5,039 shares,
4,907 shares, 2,130 shares, 5,691 shares and 5,966 shares of common stock were  
allocated to each of the accounts of Messrs. Haas, Leitner, Donnell, Kassar and 
Fazzari, respectively.                                                          

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OWNERSHIP OF CHOCK FULL O'NUTS COMMON STOCK 

The following table sets forth, as of July 31, 1999, the shares of Chock  
full o'Nuts' common stock owned beneficially by each of the present directors   
and named executive officers of Chock full o'Nuts individually and by all       
present directors and executive officers of Chock full o'Nuts as a group:       

                                                                [Download Table]

                                                      Common Stock      Percent 
Name of Beneficial Owner                           Beneficially Owned   of Class
------------------------                           ------------------   --------
                                                                                
Marvin I. Haas....................................       448,324(1)        3.9% 
Howard M. Leitner.................................        58,948(1)        *    
Mark A. Alexander.................................         3,020(2)        *    
Norman E. Alexander...............................       579,279(3)        5.1  
Martin J. Cullen..................................        27,388(1)        *    
Stuart Z. Krinsly.................................         1,280(4)        *    
Henry Salzhauer...................................       135,675(5)        1.1  
R. Scott Schafler.................................         3,182           *    
David S. Weil.....................................         6,796           *    
Jerry Columbus....................................         3,000           *    
Richard Kassar....................................        10,609(1)        *    
All directors and executive officers as a group                                 
 (11 persons), including the above named persons..     2,041,641(1)(6)    17.6  

--------                                                                        
*  Less than 1% of class.                                                       
(1) Includes for Messrs. Haas, Leitner, Cullen, Kassar and all directors and    
officers as a group, respectively, 257,500, 19,641, 10,609, 10,609 and  
298,359 shares granted under stock option agreements which are currently
exercisable.                                                            
(2) Includes 1,920 shares which would be received upon conversion of $15,000 of 
the Chock full o'Nuts' 8% Convertible Subordinated Debentures.          
(3) Includes shares owned by Galleon Syndication Corporation of which Norman E. 
Alexander owns 100% of the issued and outstanding capital stock.        
(4) Represents shares which would be received upon the conversion of $10,000 of 
Chock full o'Nuts' 8% Convertible Subordinated Debentures.              
(5) Includes 6,075 shares which would be received upon the conversion of        
$50,000 of Chock full o'Nuts' 7% Convertible Senior Subordinated        
Debentures.                                                             
(6) Includes 764,140 shares owned by the Chock full o'Nuts Employees Stock      
Ownership Plan of which Marvin I. Haas and Howard M. Leitner are the    
administrators.                                                         

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The following table sets forth, as of July 31, 1999, the shares of Chock  
full o' Nuts' common stock owned beneficially by persons known by Chock full o' 
Nuts to own more than five percent of the outstanding shares of Chock full o'   
Nuts common stock:                                                              

                                                                [Download Table]

Name and Address of Beneficial      Common Stock    Percent 
Owner                            Beneficially Owned of Class
------------------------------   ------------------ --------
                                                            
Chock full o'Nuts Corporation         764,140(1)      6.8%  
Employee Stock Ownership Plan                               
Chock full o'Nuts Corporation                               
370 Lexington Avenue                                        
New York, New York 10017                                    
Gabelli Funds, Inc.                 2,266,828(2)     19.1%  
One Corporate Center                                        
Rye, New York 10580                                         
Dimensional Fund Advisors, Inc.       742,276(3)      6.6%  
1299 Ocean Avenue                                           
11th Floor                                                  
Santa Monica, California 90401                              
WTG & Co., L.P.                       745,000(4)      6.6%  
500 Park Avenue                                             
New York, New York 10022                                    
Norman E. Alexander                   579,279(5)      5.1%  
Chock full o'Nuts Corporation                               
370 Lexington Avenue                                        
New York, NY 10017                                          
Sara Lee Corporation                  598,328(6)      5.1%  
Three First National Plaza                                  
Chicago, Illinois 60602                                     

--------                                                                        
(1) See "Employee Stock Ownership Plan" included elsewhere in this proxy        
statement/prospectus.                                                   
(2) This information has been reported as of April 28, 1999 on Amendment No. 30 
 to Schedule 13D dated May 6, 1999. Includes 581,755 shares which would be
received upon conversion of Chock full o'Nuts' 7% Convertible Senior    
  Subordinated Debentures and Chock full o'Nuts' 8% Convertible Subordinated
Debentures.                                                             
(3) This information has been reported as of December 31, 1998 on a Schedule    
13G dated February 12, 1999.                                            
(4) This information has been confirmed as of July 31, 1999 on September 1,     
1999.                                                                   
(5) Includes shares of common stock owned by Galleon Syndication Corporation of 
 which Norman E. Alexander owns 100% of the issued and outstanding capital
stock.                                                                  
(6) This information has been reported as of April 12, 1999 on a Schedule 13D   
 dated April 22, 1999. Includes 487,128 shares of common stock which would
be received upon conversion of Chock full o'Nuts' 7% Convertible Senior 
  Subordinated Debentures and Chock full o'Nuts' 8% Convertible Subordinated
Debentures.                                                             

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CHANGE OF AUDITORS

In 1998, Chock full o'Nuts retained Grant Thornton LLP as its independent 
auditors for the year ending July 31, 1998 after the Executive Committee of the 
Board of Directors decided to replace Ernst & Young LLP. During the years 1996  
and 1997 there were no disagreements on any matters of accounting principles or 
practices, financial statement disclosure or auditing scope and procedures      
which, if not resolved to the satisfaction of Ernst & Young LLP would have      
caused Ernst & Young to make reference to the matter in their report. The       
reports of Ernst & Young LLP, on the Chock full o'Nuts' financial statements    
for the 1996 and 1997 fiscal years did not contain an adverse opinion or a      
disclaimer of opinion and were not qualified or modified as to uncertainty,     
audit scope or accounting principles.                                           

LEGAL MATTERS 

The validity of the shares of Sara Lee common stock to be issued in       
connection with the merger will be passed upon for Sara Lee by Roderick A.      
Palmore, Senior Vice President, General Counsel and Secretary of Sara Lee. The  
tax opinion to be delivered to Chock full o'Nuts in connection with the merger  
will be delivered by Cahill Gordon & Reindel. The tax opinion to be delivered   
to Sara Lee in connection with the merger will be delivered by Skadden, Arps,   
Slate, Meagher & Flom (Illinois).                                               

EXPERTS 

The consolidated financial statements and financial statement schedule of 
Sara Lee at June 28, 1997 and June 27, 1998 and for each of the three years in  
the period ended June 27, 1998 incorporated by reference in the proxy statement 
to be delivered to Chock full o'Nuts' shareholders, which is referred to and    
made a part of this proxy statement/prospectus, have been audited by Arthur     
Andersen LLP, independent auditors, as set forth in their report on the audited 
statements incorporated by reference elsewhere in this proxy                    
statement/prospectus which are included in reliance upon the report given upon  
the authority of the firm as experts in accounting and auditing.                

 The consolidated financial statements of Chock full o'Nuts at July 31, 1998
and for the year then ended, appearing in this proxy statement/prospectus have  
been audited by Grant Thornton LLP, independent certified public accountants.   
The consolidated financial statements of Chock full o'Nuts at July 31, 1997 and 
for each of the two years in the period ended July 31, 1997 have been audited   
by Ernst & Young LLP, independent auditors. The reports of Grant Thornton LLP   
and Ernst & Young LLP appearing elsewhere in this proxy statement/prospectus    
are included in reliance upon such reports given upon the authority of such     
firms as experts in accounting and auditing.                                    

SHAREHOLDER PROPOSALS 

  If the merger is not consummated, we anticipate that the 1999 Annual Meeting
of shareholders of Chock full o'Nuts will be held on or about December 15,      
1999. All shareholder proposals must have been submitted to Martin J. Cullen,   
Secretary of Chock full o'Nuts, no later than July 27, 1999, in order to be     
considered for inclusion in the proxy materials for the meeting. The inclusion  
of any proposal will be subject to applicable rules of the SEC.                 

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WHERE YOU CAN FIND MORE INFORMATION 

Sara Lee and Chock full o'Nuts file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any  
reports, statements or other information that Sara Lee and Chock full o'Nuts    
file with the SEC at the SEC's public reference rooms at the following          
locations:                                                                      

                                                                [Download Table]
                                                                           
Public Reference Room    New York Regional Office   Chicago Regional Office
450 Fifth Street, N.W.   7 World Trade Center       Citicorp Center        
Room 1024                Suite 1300                 500 West Madison Street
Washington, D.C. 20549   New York, NY 10048         Suite 1400             
                                                    Chicago, IL 60661-2511 

 Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. These SEC filings are also available to the public from        
commercial document retrieval services and at the Internet world wide web site  
maintained by the SEC at "http://www.sec.gov." Reports, proxy statements and    
other information concerning Sara Lee and Chock full o'Nuts may also be         
inspected at the offices of the New York Stock Exchange at 20 Broad Street, New 
York, New York 10005. Reports, proxy statements and other information           
pertaining to Sara Lee are also available for inspection at the offices of the  
Pacific Stock Exchange at 301 Pine Street, San Francisco, California 94104 and  
the Chicago Stock Exchange at One Financial Place, 440 S. LaSalle Street,       
Chicago, Illinois 60605. Reports, proxy statements and other information        
pertaining to Chock full o'Nuts are also available for inspection at the        
offices of The American Stock Exchange, 86 Trinity Place, New York, New York    
10006.                                                                          

 Sara Lee filed a registration statement on Form S-4 on September 8, 1999 to
register with the SEC the Sara Lee common stock to be issued to Chock full      
o'Nuts shareholders in the merger. This proxy statement/prospectus is a part of 
that registration statement and constitutes a prospectus of Sara Lee in         
addition to being a proxy statement of Chock full o'Nuts. As allowed by SEC     
rules, this proxy statement/prospectus does not contain all the information you 
can find in Sara Lee's registration statement or the exhibits to the            
registration statement.                                                         

 The SEC allows Sara Lee to "incorporate by reference" information into this
proxy statement/prospectus, which means that Sara Lee can disclose important    
information to you by referring you to other documents filed separately with    
the SEC. The information incorporated by reference is considered part of this   
proxy statement/prospectus, except for any information superseded by            
information contained directly in this proxy statement/prospectus or in later   
filed documents incorporated by reference in this proxy statement/prospectus.   

 This proxy statement/prospectus incorporates by reference the documents set
forth below that Sara Lee has previously filed with the SEC. These documents    
contain important business and financial information about Sara Lee that is not 
included in or delivered with this proxy statement/prospectus.                  

Sara Lee Filings (File No. 1-3344):                                             

1. Annual Report on Form 10-K for the year ended June 27, 1998;             

2. Quarterly Reports on Form 10-Q for the quarters ended September 26,      
1998, December 26, 1998 and March 27, 1999;                           

3. Current Report on Form 8-K filed on December 23, 1998;                   

4. Definitive Proxy Statement filed on September 21, 1998; and              

5. The description of Sara Lee common stock filed under Section 12 of the   
  Exchange Act on May 11, 1988, as subsequently amended (File No. 1-3344),
and Sara Lee's rights to acquire junior participating preferred stock 
set forth in the Sara Lee Registration Statement on Form 8/A filed on 
May 15, 1998.                                                         

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Sara Lee also incorporates by reference additional documents that may be  
filed with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act  
between the date of this proxy statement/prospectus and the date of the special 
meeting. These include periodic reports, such as Annual Reports on Form 10-K,   
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as      
proxy statements.                                                               

  Sara Lee has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to Sara Lee and Chock full o'Nuts   
has supplied all such information contained or incorporated by reference in     
this proxy statement/prospectus relating to Chock full o'Nuts.                  

Chock full o'Nuts shareholders should not send in their Chock full o'Nuts 
certificates until they receive the transmittal materials from the exchange     
agent. Chock full o'Nuts shareholders of record who have further questions      
about their share certificates or the exchange of their Chock full o'Nuts       
common stock for Sara Lee common stock should call the exchange agent.          

If you are a shareholder, we may have sent you some of the documents      
incorporated by reference, but you can obtain any of them through the           
companies, the SEC or the SEC's Internet web site as described above. Documents 
incorporated by reference are available from Sara Lee without charge, excluding 
all exhibits, except that if the companies have specifically incorporated by    
reference an exhibit in this proxy statement/prospectus, the exhibit will also  
be provided without charge. Shareholders may obtain documents incorporated by   
reference or otherwise referred to in this proxy statement/prospectus by        
requesting them in writing or by telephone from the appropriate company at the  
following addresses:                                                            

                                                                [Download Table]
                                                                       
Sara Lee Corporation                      Chock full o'Nuts Corporation
Three First National Plaza, Suite 4600    370 Lexington Avenue         
Chicago, Illinois 60602-4260              New York, New York 10017     
Attention: Stockholder Services           Attention: Howard Leitner    
Telephone: (312) 726-6200                 Telephone: (212) 532-0300    

You should rely only on the information contained or incorporated by      
reference in this proxy statement/prospectus. We have not authorized anyone to  
provide you with information that is different from what is contained in this   
proxy statement/prospectus. This proxy statement/ prospectus is dated September 
[ . ], 1999. You should not assume that the information contained in this proxy 
statement/prospectus is accurate as of any date other than that date. Neither   
the mailing of this proxy statement/prospectus to shareholders nor the issuance 
of Sara Lee common stock in the merger creates any implication to the contrary. 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 

This proxy statement/prospectus contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 with        
respect to the financial condition, results of operations, business strategies, 
operating efficiencies or synergies, competitive positions, growth              
opportunities for existing products, plans and objectives of management,        
markets for stock of Sara Lee and Chock full o'Nuts and other matters.          
Statements in this proxy statement/prospectus that are not historical facts are 
hereby identified as "forward-looking statements" for the purpose of the safe   
harbor provided by Section 21E of the Exchange Act and Section 27A of the       
Securities Act. Such forward-looking statements, including, without limitation, 
those relating to the future business prospects, revenues and income, in each   
case relating to Sara Lee and Chock full o'Nuts, wherever they occur in this    
proxy statement/prospectus, are necessarily estimates reflecting the best       
judgment of the senior management of Sara Lee and Chock full o'Nuts, as the     
case may be, and involve a number of risks and uncertainties that could cause   
actual results to differ materially from those suggested by the forward-looking 
statements. Such forward-looking statements should, therefore, be considered in 
light of various important factors, including those set forth in this proxy     
statement/prospectus. Important factors that                                    

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could cause actual results to differ materially from estimates or projections   
contained in the forward-looking statements include, without limitation:        

.  the ability to integrate the operations of Sara Lee and Chock full       
o'Nuts, including their respective product lines; and                 

.  the effects of vigorous competition in the markets in which Sara Lee and 
Chock full o'Nuts operate.                                            

  In addition, factors that could cause actual results of Chock full o'Nuts to
differ materially from estimates or projections contained in the forward-       
looking statements include, without limitation:                                 

.  the availability of green coffee;                                        

.  green coffee prices;                                                     

.  the success of operating initiatives;                                    

.  the ability to control development and operating costs;                  

.  the success of advertising and promotional efforts;                      

.  extensiveness of brand awareness;                                        

.  the ability to adhere to existing development schedules;                 

.  the existence of adverse publicity;                                      

.  availability, locations and terms of sites for Quikava franchised        
outlets;                                                              

.  changes in business strategy or development plans;                       

.  quality of management;                                                   

.  availability, terms and deployment of capital;                           

.  business abilities and judgment of personnel;                            

.  availability of qualified personnel;                                     

.  labor and employee benefit costs;                                        

.  changes in or failure to comply with government regulations;             

.  construction costs; and                                                  

.  the Year 2000 issue.                                                     

Words such as "estimate," "project," "plan," "intend," "expect," "believe"
and similar expressions are intended to identify forward-looking statements.    
These forward-looking statements are found at various places throughout this    
proxy statement/prospectus and the other documents incorporated by reference,   
including, but not limited to, the Annual Report on Form 10-K for the year      
ended June 27, 1998 of Sara Lee, including any amendments. Readers are          
cautioned not to place undue reliance on these forward-looking statements,      
which speak only as of the date of this proxy statement/prospectus. Neither     
Sara Lee nor Chock full o'Nuts undertakes any obligation to publicly update or  
release any revisions to these forward-looking statements to reflect events or  
circumstances after the date of this proxy statement/prospectus or to reflect   
the occurrence of unanticipated events.                                         

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INDEX TO FINANCIAL STATEMENTS 

Chock full o'Nuts Corporation                                                   

                                                                [Download Table]

                                                                            Page
                                                                            ----
                                                                                
Unaudited Condensed Consolidated Balance Sheets as of April 30, 1999 and        
 July 31, 1998............................................................   F-2

Unaudited Condensed Consolidated Statements of Income for the Nine Month        
 Periods Ended                                                                  
 April 30, 1999 and April 30, 1998........................................   F-4

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine          
 Month Periods Ended April 30, 1999 and April 30, 1998....................   F-5

Unaudited Condensed Consolidated Statement of Stockholders' Equity for the      
 Nine Months Ended April 30, 1999.........................................   F-6

Notes to Unaudited Condensed Consolidated Financial Statements............   F-8

Report of Independent Certified Public Accountants--Grant Thornton LLP....  F-10

Independent Auditors' Report of Ernst & Young LLP.........................  F-11

Consolidated Balance Sheets as of July 31, 1998 and July 31, 1997.........  F-12

Consolidated Statements of Operations for the Fiscal Years Ended July 31,       
 1998, July 31, 1997 and July 31, 1996....................................  F-13

Consolidated Statements of Cash Flows for the Fiscal Years Ended July 31,       
 1998, July 31, 1997                                                            
 and July 31, 1996........................................................  F-14

Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended       
 July 31, 1998,                                                                 
 July 31, 1997 and July 31, 1996..........................................  F-15

Notes to Consolidated Financial Statements................................  F-17

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS 

                                                                [Download Table]

                                        April 30,                   July 31,    
                                           1999                       1998      
                                       ------------               ------------  
                                       (Unaudited)                   (Note)     
                                                                                
ASSETS                                                                          
Current assets:                                                                 
  Cash and cash equivalents..........  $  5,468,420               $  6,148,068  
  Receivables, principally trade,                                               
   less allowances for doubtful                                                 
   accounts and discounts of                                                    
   $1,438,000 and $1,329,000.........    34,761,406                 40,559,581  
  Inventories........................    62,576,303                 60,641,309  
  Prepaid expense and other..........     6,413,699                  3,636,446  
                                       ------------               ------------  
    Total current assets.............   109,219,828                110,985,404  
Property, plant and                                                             
 equipment-at cost...... $112,837,702               $105,372,427                
  Less allowances for                                                           
   depreciation and                                                             
   amortization.........  (60,877,584)   51,960,118  (56,346,824)   49,025,603  
                         ------------               ------------                
Real estate held for development or                                             
 sale, at cost.......................     2,133,463                  2,175,344  
Other assets and deferred charges....    21,445,531                 23,223,366  
Excess of cost over net assets                                                  
 acquired ...........................    15,600,317                 15,773,875  
                                       ------------               ------------  
                                       $200,359,257               $201,183,592  
                                       ============               ============  

--------                                                                        
Note: The balance sheet at July 31, 1998 has been derived from the audited      
financial statements at that date.                                              

See notes to unaudited condensed consolidated financial statements. 

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS 

                                                                [Download Table]

                                                     April 30,      July 31,   
                                                        1999          1998     
                                                    ------------  ------------ 
                                                    (Unaudited)      (Note)    
                                                                               
LIABILITIES AND STOCKHOLDERS' EQUITY                                           
Current Liabilities:                                                           
  Current installments of long-term debt........... $    266,052               
  Accounts payable.................................   12,655,070  $  8,502,778 
  Accrued expenses.................................    7,498,227     9,159,994 
  Income taxes.....................................    1,256,114     1,093,979 
                                                    ------------  ------------ 
    Total current liabilities......................   21,675,463    18,756,751 
Long-term debt, excluding current installments.....   88,348,675    92,246,967 
Other non-current liabilities......................    3,049,759     3,854,833 
Deferred income taxes..............................    8,770,000     8,770,000 
Stockholders' equity:                                                          
  Common stock, par value $.25 per share;                                      
   Authorized 50,000,000 shares:                                               
   Issued 11,326,924 and 11,306,444 shares.........    2,831,731     2,826,611 
  Additional paid-in-capital.......................   52,216,913    52,064,121 
  Retained earnings................................   31,406,008    30,848,452 
  Cost of 475,522 shares in treasury...............   (6,573,719)   (6,573,719)
  Deferred compensation under stock bonus plan and                             
   employees' stock ownership plan.................   (1,365,573)   (1,610,424)
                                                    ------------  ------------ 
    Total stockholders' equity.....................   78,515,360    77,555,041 
                                                    ------------  ------------ 
                                                    $200,359,257  $201,183,592 
                                                    ============  ============ 

--------                                                                        
Note: The balance sheet at July 31, 1998 has been derived from the audited      
financial statements at that date.                                              

See notes to unaudited condensed consolidated financial statements. 

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME 

                                                                [Download Table]

                                                      Nine Months Ended April   
                                                                30,             
                                                     -------------------------- 
                                                         1999          1998     
                                                     ------------  ------------ 
                                                                                
Revenues:                                                                       
  Net sales......................................... $270,260,223  $306,294,851 
  Rentals from real estate..........................    1,587,256     1,519,010 
                                                     ------------  ------------ 
                                                      271,847,479   307,813,861 
Cost and expenses:                                                              
  Cost of sales.....................................  194,947,136   227,998,972 
  Selling, general and administrative expenses......   69,057,221    64,648,948 
  Expenses of real estate...........................    1,244,720     1,257,948 
                                                     ------------  ------------ 
                                                      265,249,077   293,905,868 
                                                     ------------  ------------ 
  Operating profit:.................................    6,598,402    13,907,993 
Gain on sale of real estate.........................                  1,281,698 
Interest income.....................................      545,831       418,165 
Interest expense....................................   (5,618,405)   (6,084,065)
Other (deductions)--net.............................     (458,274)      (41,675)
                                                     ------------  ------------ 
  Income before income taxes........................    1,067,554     9,482,116 
Income taxes........................................      510,000     3,916,000 
                                                     ------------  ------------ 
  Net income........................................ $    557,554  $  5,566,116 
                                                     ============  ============ 
Income per share:                                                               
  Basic............................................. $        .05  $        .54 
                                                     ============  ============ 
  Diluted........................................... $        .05  $        .40 
                                                     ============  ============ 

See notes to unaudited condensed consolidated financial statements. 

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                                [Download Table]

                                                      Nine Months Ended April  
                                                                30,            
                                                      ------------------------ 
                                                         1999         1998     
                                                      -----------  ----------- 
                                                                               
Operating Activities:                                                          
  Net income......................................... $   557,554    5,566,116 
  Adjustments to reconcile net income to net cash                              
   provided by operating activities:                                           
    Depreciation and amortization of property, plant                           
     and equipment...................................   4,530,760    4,994,908 
    Amortization of deferred compensation and                                  
     deferred charges................................   2,302,656    2,952,056 
    Gain on sale of real estate......................               (1,281,698)
    Other, net.......................................  (1,123,494)  (1,889,791)
    Changes in operating assets and liabilities:                               
      Decrease in accounts receivable................   5,689,554    3,024,062 
      (Increase)/decrease in inventory...............  (1,934,994)  11,627,740 
      (Increase) in prepaid expenses.................  (2,900,185)    (679,302)
      Increase/(decrease) in accounts payable,                                 
       accrued expenses and income taxes.............   2,652,660   (8,558,241)
                                                      -----------  ----------- 
NET CASH PROVIDED BY OPERATING ACTIVITIES............   9,774,511   15,755,850 
                                                      -----------  ----------- 
Investing Activities:                                                          
  Proceeds from sale of real estate..................                6,685,941 
  Sales/(purchases) of marketable securities.........     122,932      (33,333)
  Purchases of property, plant and equipment.........  (6,306,482)  (3,802,970)
  Proceeds from/(advances to) co-packer, net.........     359,424   (1,014,768)
                                                      -----------  ----------- 
NET CASH (USED IN)/PROVIDED BY INVESTING ACTIVITIES..  (5,824,126)   1,834,870 
                                                      -----------  ----------- 
Financing Activities:                                                          
  Proceeds from/(payments of) revolving credit and                             
   term loans, net...................................     369,967   (2,930,688)
  (Payment of) convertible subordinated debentures...  (5,000,000)  (5,281,000)
  Loan to employees' stock ownership plan............               (1,000,000)
                                                      -----------  ----------- 
NET CASH (USED IN) FINANCING ACTIVITIES..............  (4,630,033)  (9,211,688)
                                                      -----------  ----------- 
(Decrease)/increase in Cash and Cash Equivalents.....    (679,648)   8,379,032 
Cash and Cash Equivalents at Beginning of Period.....   6,148,068    4,585,633 
                                                      -----------  ----------- 
Cash and Cash Equivalents at End of Period........... $ 5,468,420  $12,964,665 
                                                      ===========  =========== 

See notes to unaudited condensed financial statements.

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS 
OF STOCKHOLDERS' EQUITY 

                                                                [Download Table]

                                                          Common Stock        
                                                   ---------------------------
                                                      Issued      In Treasury 
                                                   ------------- -------------
                                                   Shares Amount Shares Amount
                                                   ------ ------ ------ ------
                                                         (In Thousands)       
                                                                              
Balance at July 31, 1998.......................... 11,306 $2,827  476   $6,574
Net Income........................................                            
Conversion of debentures..........................     21      5              
Deferred compensation under stock bonus plan and                              
 employees' stock ownership plan:                                             
  Amortization....................................                            
                                                   ------ ------  ---   ------
Balance at April 30, 1999......................... 11,327 $2,832  476   $6,574
                                                   ====== ======  ===   ======

See notes to unaudited condensed consolidated financial statements. 

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY--(Continued)

                                                                [Download Table]

                                               Deferred                       
                                             Compensation                     
                                             Under Stock                      
                                            Bonus Plan and                    
                                              Employees'   Additional         
                                                Stock       Paid-In   Retained
                                            Ownership Plan  Capital   Earnings
                                            -------------- ---------- --------
                                                      (In Thousands)          
                                                                              
Balance at July 31, 1998...................     $1,610      $52,064   $30,848 
Net Income.................................                               558 
Conversion of debentures...................                     153           
Deferred compensation under stock bonus                                       
 plan and employees' stock ownership plan:                                    
  Amortization.............................        244                        
                                                ------      -------   ------- 
Balance at April 30, 1999..................     $1,366      $52,217   $31,406 
                                                ======      =======   ======= 

See notes to unaudited condensed consolidated financial statements. 

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 1999

A. The accompanying unaudited condensed consolidated financial statements have  
been prepared in accordance with generally accepted accounting principles 
  for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the 
information and footnotes required by generally accepted accounting       
 principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered      
 necessary for a fair presentation have been included. Operating results for
  the nine months ended April 30, 1999 and 1998 are not necessarily indicative
of the results that may be expected for a full fiscal year. For further   
information, refer to the consolidated financial statements and footnotes 
thereto as of and for the year ended July 31, 1998 included elsewhere in  
this proxy statement/prospectus.                                          

B. Basic per share data is based on the weighted average number of common       
shares outstanding of 10,532,000 and 10,392,000 for the nine months ended 
April 30, 1999 and 1998, respectively. Diluted per share data, assuming   
conversion of debentures, is based on 21,241,000 and 21,920,000 shares    
 outstanding for the nine months ended April 30, 1999 and 1998. In addition,
net income is increased due to a reduction of interest and amortization   
charges, net of income taxes, on the assumed conversion of debentures of  
  $2,996,000 and $3,205,000 for the nine months ended April 30, 1999 and 1998.
However for the nine month period ended April 30, 1999 the effect of the  
assumed conversion is anti-dilutive and is therefore excluded from the    
earnings per share calculation.                                           

C. Inventories are stated at the lower of cost (first-in, first-out) or market. 
The components of inventory consist of the following:                     

                                                                [Download Table]

                                                    April 30,   July 31,  
                                                      1999        1998    
                                                   ----------- -----------
                                                                          
Finished goods.................................... $38,771,425 $35,775,998
Raw materials.....................................  16,496,717  17,539,666
Supplies..........................................   7,308,161   7,325,645
                                                   ----------- -----------
                                                   $62,576,303 $60,641,309
                                                   =========== ===========

D. Under the Company's amended and restated revolving credit and term loan      
agreements (collectively, the "Loan Agreements") with Fleet Bank, N.A. and
 The Chase Manhattan Bank (the "Banks"), the Company may, from time to time,
  borrow funds from the Banks, provided that the total principal amount of all
 such loans outstanding through November 30, 1999 may not exceed $40,000,000
and after such date may not exceed $20,000,000. Interest on all such loans
is equal to the prime rate or at the Company's option the London Interbank
  Offering Rate ("LIBOR") plus 1.25%, subject to adjustment based on the level
  of loans outstanding (7.75% at prime and 6.19% at LIBOR, at April 30, 1999).
Outstanding borrowings under the Loan Agreements may not exceed certain   
percentages of and are collateralized by, among other things, the trade   
 accounts receivable and inventories, and substantially all of the machinery
  and equipment and real estate of the Company and its subsidiaries. All loans
 made under the term loan agreement ($3,000,000 at April 30, 1999) are to be
repaid in January 2003. Outstanding loans under the revolving credit      
agreements are to be repaid in January 2003. Pursuant to the terms of the 
 Loan Agreements, the Company and its subsidiaries, among other things, must
maintain a minimum net worth and meet ratio tests for liabilities to net  
worth and coverage of fixed charges and interest, all as defined. The Loan
Agreements also provide, among other things, for restrictions on dividends
  (except for stock dividends) and require repayment of outstanding loans with
excess cash flow, as defined.                                             

E. Prepaid expenses and other on the unaudited condensed consolidated balance   
sheets includes deferred income taxes of $951,000.                        

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

F. As of August 1, 1998, the Company adopted Statement of Financial Accounting  
  Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). The adoption
  of this Statement had no impact on the Company's net income or stockholders'
equity. This pronouncement sets forth requirements for disclosure of the  
Company's comprehensive income and accumulated other comprehensive items. 
  Comprehensive income is defined as the change in equity during a period from
transactions or other events and circumstances unrelated to net income    
(e.g., foreign currency translation gains and losses). In June 1997, the  
 FASB also issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," which is effective for the Company's fiscal year
 ending July 31, 1999. The statement changes the way public companies report
information about segments of their business in their annual financial    
  statements and requires them to report selected segment information in their
quarterly reports. However, information is not to be presented for interim
financial statements in the first year of implementation. Adoption of SFAS
  No. 131 is not expected to have a material effect on the Company's financial
statement disclosures. In June 1998, the FASB issued Statement No. 133,   
"Accounting for Derivative Instruments and Hedging Activities," which is  
 effective for the Company's fiscal year ending July 31, 2001. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
  issuance. The Company expects to adopt the new Statement effective August 1,
2000. The Statement will require the Company to recognize all derivatives,
as defined, on the balance sheet at fair value. Derivatives that are not  
  hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of 
derivatives will either be offset against the change in fair value of the 
hedged assets, liabilities, or firm commitments through earnings or       
  recognized in other comprehensive income until the hedged item is recognized
 in earnings. The ineffective portion of a derivative's change in fair value
will be immediately recognized in earnings. The Company has not yet       
 determined what the effect of Statement No. 133 will be on the earnings and
financial position of the Company.                                        

G. On December 4, 1998, the Company redeemed $5,000,000 of its 8% Convertible   
Subordinated Debentures using existing invested funds. Subsequent to April
30, 1999 through September 2, 1999, $2,498,000 of the Company's 8%        
Convertible Subordinated Debentures and $3,206,000 of the Company's 7%    
Convertible Senior Subordinated Debentures were converted into 709,353    
shares of Company Common Stock. On August 26, 1999, the Company called its
  outstanding 8% Convertible Subordinated Debentures and 7% Convertible Senior
Subordinated Debentures for redemption on September 14, 1999. Sara Lee    
Corporation has agreed to provide the necessary funds for redemption on   
terms substantially identical to those in the existing indentures for the 
debentures, other than the convertibility feature.                        

H. The Company uses coffee futures and options for hedging purposes to reduce   
the effect of changing green coffee prices. The contracts that effectively
meet the risk reduction and correlation criteria are recorded using hedge 
accounting. Effectiveness is measured based upon high correlation between 
 commodity gains and losses on the futures and options and those on the firm
commitment. Under hedge accounting, the gain or loss on the hedge is      
deferred and recorded as a component of the underlying inventory purchase.
 Gains and losses on hedges that are terminated prior to inventory purchases
are recorded in inventory until the inventory is sold.                    

I. In November 1997, the Company sold one of its downtown Manhattan properties  
for approximately $6,900,000. The sale resulted in a pre-tax gain of      
$1,282,000 or on an after tax basis approximately $750,000, $.07 per basic
share and $.03 per diluted share. The proceeds from this sale were used to
reduce outstanding bank indebtedness.                                     

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders                                         
Chock full o'Nuts Corporation                                                   
New York, New York                                                              

We have audited the accompanying consolidated balance sheet of Chock full 
o'Nuts Corporation and subsidiaries as of July 31, 1998, and the related        
consolidated statements of operations, stockholders' equity, and cash flows for 
the year then ended. These financial statements are the responsibility of the   
Company's management. Our responsibility is to express an opinion on these      
financial statements based on our audit.                                        

We conducted our audit in accordance with generally accepted auditing     
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of         
material misstatement. An audit includes examining, on a test basis, evidence   
supporting the amounts and disclosures in the financial statements. An audit    
also includes assessing the accounting principles used and significant          
estimates made by management, as well as evaluating the overall financial       
statement presentation. We believe that our audit provides a reasonable basis   
for our opinion.                                                                

In our opinion, the consolidated financial statements referred to above   
present fairly, in all material respects, the consolidated financial position   
of Chock full o'Nuts Corporation and subsidiaries as of July 31, 1998, and the  
consolidated results of their operations and their cash flows for the year then 
ended to conformity with generally accepted accounting principles.              

                      Grant Thornton LLP

New York, New York                                                              
October 15, 1998                                                                

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders                                         
Chock full o'Nuts Corporation                                                   
New York, New York                                                              

We have audited the accompanying consolidated balance sheet of Chock full 
o'Nuts Corporation and subsidiaries as of July 31, 1997, and the related        
consolidated statements of operations, stockholders' equity, and cash flows for 
each of the two years in the period ended July 31, 1997. These financial        
statements are the responsibility of the Company's management. Our              
responsibility is to express an opinion on these financial statements based on  
our audit.                                                                      

We conducted our audits in accordance with generally accepted auditing    
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of         
material misstatement. An audit includes examining, on a test basis, evidence   
supporting the amounts and disclosures in the financial statements. An audit    
also includes assessing the accounting principles used and significant          
estimates made by management, as well as evaluating the overall financial       
statement presentation. We believe that our audits provides a reasonable basis  
for our opinion.                                                                

In our opinion, the consolidated financial statements referred to above   
present fairly, in all material respects, the consolidated financial position   
of Chock full o'Nuts Corporation and subsidiaries as of July 31, 1997, and the  
consolidated results of their operations and their cash flows for each of the   
two years in the period ended July 31, 1997 in conformity with generally        
accepted accounting principles.                                                 

                     Ernst & Young LLP

New York, New York                                                              
September 30, 1997                                                              

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CONSOLIDATED BALANCE SHEETS 

CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

July 31, 1998 and 1997

                                                                [Download Table]

                      ASSETS                             1998          1997     
                      ------                         ------------  ------------ 
                                                                                
Current assets:                                                                 
  Cash and cash equivalents........................  $  6,148,068  $  4,585,633 
  Receivables, principally trade, less allowances                               
   for doubtful accounts and discounts of                                       
   $1,329,000 and $1,422,000--Notes 3 and 10(a)....    40,559,581    37,554,412 
  Inventories--Notes 1 and 3.......................    60,641,309    82,951,688 
  Prepaid expenses and other--Note 4...............     3,636,446     2,457,221 
                                                     ------------  ------------ 
    Total current assets...........................   110,985,404   127,548,954 
Property, plant and equipment, at cost--Note 3:                                 
  Land.............................................     3,127,640     3,114,889 
  Buildings and improvements.......................    15,161,611    14,805,429 
  Leaseholds and leasehold improvements............     2,304,715     2,526,691 
  Machinery and equipment..........................    84,778,461    78,162,457 
                                                     ------------  ------------ 
                                                      105,372,427    98,609,466 
  Less allowances for depreciation and                                          
   amortization....................................    56,346,824    49,933,489 
                                                     ------------  ------------ 
                                                       49,025,603    48,675,977 
Real estate held for development or sale, at cost                               
 --Note 3..........................................     2,175,344     7,635,427 
Other assets and deferred charges, net--Note 10(b).    23,223,366    23,799,057 
Excess of cost over net assets acquired, net.......    15,773,875     9,670,551 
                                                     ------------  ------------ 
                                                     $201,183,592  $217,329,966 
                                                     ============  ============ 

       LIABILITIES AND STOCKHOLDERS' EQUITY              1998          1997     
       ------------------------------------          ------------  ------------ 
                                                                                
Current Liabilities:                                                            
  Accounts payable.................................  $  8,502,778  $ 13,590,697 
  Accrued expenses.................................     9,159,994    12,148,313 
  Income taxes--Note 4.............................     1,093,979     1,957,788 
  Current installments of long-term debt--Note 3...                     766,000 
                                                     ------------  ------------ 
    Total current liabilities......................    18,756,751    28,462,798 
Long-term debt, excluding current installments--                                
 Note 3............................................    92,246,967   106,065,753 
Other non-current liabilities......................     3,854,833     3,265,078 
Deferred income taxes--Note 4......................     8,770,000     7,655,000 
Stockholders' equity--Notes 3 and 7:                                            
  Common stock, par value $.25 per share;                                       
   Authorized 50,000,000 shares;                                                
   Issued 11,306,444 and 11,211,068 shares.........     2,826,611     2,802,767 
  Additional paid-in capital.......................    52,064,121    51,357,008 
  Retained earnings................................    30,848,452    25,349,146 
                                                     ------------  ------------ 
                                                       85,739,184    79,508,921 
  Deduct:                                                                       
  Cost of 475,522 shares in treasury...............    (6,573,719)   (6,573,719)
  Deferred compensation under stock bonus plan and                              
   employees' stock ownership plan.................    (1,610,424)   (1,053,865)
                                                     ------------  ------------ 
    Total stockholders' equity.....................    77,555,041    71,881,337 
                                                     ------------  ------------ 
Leases--Note 6                                                                  
                                                     $201,183,592  $217,329,966 
                                                     ============  ============ 

See notes to consolidated financial statements

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS 

Years ended July 31, 1998, 1997 and 1996

                                                                [Download Table]

                                           1998          1997          1996     
                                       ------------  ------------  ------------ 
                                                                                
Revenues:                                                                       
  Net sales..........................  $394,356,822  $364,203,601  $321,134,537 
  Rentals from real estate...........     2,011,257     2,091,307     2,156,070 
                                       ------------  ------------  ------------ 
                                        396,368,079   366,294,908   323,290,607 
Costs and expenses:                                                             
  Cost of sales......................   293,304,109   257,078,504   229,477,193 
  Selling, general and administrative                                           
   expenses..........................    85,682,621    86,018,181    77,223,407 
  Expenses of real estate............     1,751,005     1,951,137     1,484,681 
                                       ------------  ------------  ------------ 
                                        380,737,735   345,047,822   308,185,281 
                                       ------------  ------------  ------------ 
Operating profit.....................    15,630,344    21,247,086    15,105,326 
Gain on sale of real estate--Note                                               
 10(c)...............................     1,281,698                     460,000 
Interest and dividend income.........       628,333     1,061,160       865,145 
Interest expense.....................    (7,903,211)   (8,599,963)   (8,783,798)
Other (deductions)/income--Notes                                                
 10(d) and (e).......................      (166,859)   (1,495,891)       60,692 
                                       ------------  ------------  ------------ 
Income before income taxes...........     9,470,305    12,212,392     7,707,365 
                                       ------------  ------------  ------------ 
Income taxes--Note 4:                                                           
  Current:                                                                      
    Federal..........................     2,126,000     1,885,000     1,905,000 
    State and local..................       709,000       753,000       488,000 
  Deferred...........................     1,136,000     1,660,000       683,000 
                                       ------------  ------------  ------------ 
                                          3,971,000     4,298,000     3,076,000 
                                       ------------  ------------  ------------ 
Income from continuing operations....     5,499,305     7,914,392     4,631,365 
                                       ------------  ------------  ------------ 
Discontinued operations--Note 5:                                                
(Loss) from operations, net of income                                           
 tax credits of $1,073,000...........                                (1,757,044)
(Loss) on disposition, net of                                                   
 deferred income tax credit of                                                  
 $2,590,000..........................                                (4,410,000)
                                                                   ------------ 
                                                                     (6,167,044)
                                       ------------  ------------  ------------ 
Net income/(loss)....................  $  5,499,305  $  7,914,392  $ (1,535,679)
                                       ============  ============  ============ 
Income /(loss) per share--Note 1:                                               
  Basic:                                                                        
    Continuing operations............  $        .53  $        .76  $        .45 
    Discontinued operations..........                                      (.60)
                                       ------------  ------------  ------------ 
    Net income/(loss)................  $        .53  $        .76  $       (.15)
                                       ============  ============  ============ 
  Diluted:                                                                      
    Continuing operations............  $        .45  $        .55  $        .41 
    Discontinued operations..........                                      (.28)
                                       ------------  ------------  ------------ 
    Net income.......................  $        .45  $        .55  $        .13 
                                       ============  ============  ============ 

See notes to consolidated financial statements. 

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS 

Years ended July 31, 1998, 1997 and 1996

                                                                [Download Table]

                                         1998          1997          1996      
                                     ------------  ------------  ------------- 
                                                                               
Operating Activities--Continuing                                               
Operations:                                                                    
 Income from continuing operations                                             
  before income taxes..............  $  9,470,305  $ 12,212,392  $   7,707,365 
 Adjustments to reconcile pretax                                               
  income from continuing operations                                            
  to net cash provided by                                                      
  continuing operations:                                                       
   Depreciation and amortization of                                            
    property, plant and equipment..     6,724,977     7,386,215      6,380,262 
   Amortization of deferred                                                    
    compensation and deferred                                                  
    charges........................     3,732,609     4,437,262      4,561,305 
   Gain on sale of real estate.....    (1,281,698)                    (460,000)
   Other, net......................      (443,670)     (312,060)    (1,000,099)
   Changes in operating assets and                                             
    liabilities, net of                                                        
    acquisitions:                                                              
     (Increase)/decrease in                                                    
      receivables..................      (407,866)   (4,889,186)     6,818,278 
     Decrease/(increase) in                                                    
      inventories..................    28,875,289   (21,960,180)       913,733 
     (Increase)/decrease in prepaid                                            
      expenses.....................    (1,455,579)    1,600,484       (281,086)
     (Decrease)/increase in                                                    
      accounts payable, accrued                                                
      expenses and income taxes....    (9,871,375)    1,259,724     (5,098,044)
                                     ------------  ------------  ------------- 
      Net cash provided by/(used                                               
       in) operating activities--                                              
       continuing operations.......    35,342,992      (265,349)    19,541,714 
                                     ------------  ------------  ------------- 
Operating Activities--Discontinued                                             
 Operations:                                                                   
 Discontinued operations exclusive                                             
  of income taxes..................                                 (9,830,044)
 Adjustments to reconcile pretax                                               
  loss from discontinued operations                                            
  to net cash used in discontinued                                             
  operations:                                                                  
   Provision for close down and                                                
    write-off of equipment.........                                  7,000,000 
   Depreciation and amortization...                                    431,623 
   Other...........................                                   (192,929)
                                                                 ------------- 
      Net cash (used in)                                                       
       discontinued operations.....                                 (2,591,350)
                                     ------------  ------------  ------------- 
Income taxes--current..............    (2,835,000)   (2,638,000)    (1,320,000)
                                     ------------  ------------  ------------- 
      Net cash provided by/(used                                               
       in) operating activities....    32,507,992    (2,903,349)    15,630,364 
                                     ------------  ------------  ------------- 
Investing Activities--Continuing                                               
 Operations:                                                                   
 Purchases of marketable                                                       
  securities.......................       (41,646)      (34,026)  (152,018,726)
 Proceeds from sale and collection                                             
  of principal of marketable                                                   
  securities.......................                      79,993    158,863,555 
 Purchases of property, plant and                                              
  equipment........................    (6,926,061)   (6,123,523)    (7,411,199)
 Acquisition of businesses.........   (14,900,112)   (5,872,858)               
 (Advances to)/proceeds from co-                                               
  packer...........................      (923,893)    1,549,328     (3,132,245)
 Proceeds from sale of real-estate.     6,685,941                      460,000 
 Other.............................                                    (13,147)
                                     ------------  ------------  ------------- 
      Net cash (used in) investing                                             
       activities--continuing                                                  
       operations..................   (16,105,771)  (10,401,086)    (3,251,762)
                                     ------------  ------------  ------------- 
      Net cash (used in) investing                                             
       activities--discontinued                                                
       operations--Purchases of                                                
       property and equipment......                                 (2,608,543)
                                                                 ------------- 
      Net cash (used in) investing                                             
       activities..................   (16,105,771)  (10,401,086)    (5,860,305)
                                     ------------  ------------  ------------- 
Financing activities--Continuing                                               
 Operations:                                                                   
 Loan to employees' stock ownership                                            
  plan.............................    (1,000,000)                    (500,000)
 Net (payments of)/proceeds from                                               
  long-term debt...................   (13,839,786)    1,596,285     (1,333,428)
                                     ------------  ------------  ------------- 
      Net cash (used in)/ provided                                             
       by financing activities.....   (14,839,786)    1,596,285     (1,833,428)
                                     ------------  ------------  ------------- 
Increase/(decrease) in cash and                                                
 cash equivalents--continuing                                                  
 operations........................     1,562,435   (11,708,150)     7,936,631 
Cash and cash equivalents at                                                   
 beginning of year--continuing                                                 
 operations........................     4,585,633    16,293,783      8,357,152 
                                     ------------  ------------  ------------- 
Cash and cash equivalents at end of                                            
 year--continuing operations.......  $  6,148,068  $  4,585,633  $  16,293,783 
                                     ============  ============  ============= 
Supplemental Information                                                       
 Cash paid during the year:                                                    
   Interest........................  $  7,688,931  $  8,143,201  $   8,259,325 
   Income taxes....................     3,958,061     2,168,425        848,539 

See notes to consolidated financial statements. 

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

Years Ended July 31, 1998, 1997 and 1996

                                                                [Download Table]

                                                          Common Stock        
                                                   ---------------------------
                                                      Issued      In Treasury 
                                                   ------------- -------------
                                                   Shares Amount Shares Amount
                                                   ------ ------ ------ ------
                                                         (In Thousands)       
                                                                              
Balance at July 31, 1995.......................... 11,211 $2,803  476   $6,574
Net (loss)........................................                            
Deferred compensation under stock bonus plan and                              
 employees' stock ownership plan:                                             
  Amortization....................................                            
  Loan to employees' stock ownership plan.........                            
                                                   ------ ------  ---   ------
Balance at July 31, 1996.......................... 11,211  2,803  476    6,574
Net income........................................                            
Deferred compensation under stock bonus plan and                              
 employees' stock ownership plan:                                             
  Amortization....................................                            
                                                   ------ ------  ---   ------
Balance at July 31, 1997.......................... 11,211  2,803  476    6,574
Net income                                                                    
Conversion of debentures..........................     95     24              
Deferred compensation under stock bonus plan and                              
 employees' stock ownership plan:                                             
  Loan to employees' stock ownership plan.........                            
  Amortization....................................                            
                                                   ------ ------  ---   ------
Balance at July 31, 1998.......................... 11,306 $2,827  476   $6,574
                                                   ====== ======  ===   ======

See notes to consolidated financial statements. 

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(Continued)

Years Ended July 31, 1998, 1997 and 1996

                                                                [Download Table]

                                              Deferred                        
                                            Compensation                      
                                            Under Stock                       
                                           Bonus Plan and  Additional         
                                          Employees' Stock  Paid-In   Retained
                                           Ownership Plan   Capital   Earnings
                                          ---------------- ---------- --------
                                                     (In Thousands)           
                                                                              
Balance at July 31, 1995.................      $1,620       $51,357   $18,970 
Net (loss)...............................                              (1,535)
Deferred compensation under stock bonus                                       
 plan and employees' stock ownership                                          
 plan:                                                                        
  Amortization...........................        (586)                        
  Loan to employees' stock ownership                                          
   plan..................................         500                         
                                               ------       -------   ------- 
Balance at July 31, 1996.................       1,534        51,357    17,435 
Net income...............................                               7,914 
Deferred compensation under stock bonus                                       
 plan and employees' stock ownership                                          
 plan:                                                                        
  Amortization...........................        (480)                        
                                               ------       -------   ------- 
Balance at July 31, 1997.................       1,054        51,357    25,349 
Net income...............................                               5,499 
Conversion of debentures.................                       707           
Deferred compensation under stock bonus                                       
 plan and employees' stock ownership                                          
 plan:                                                                        
  Loan to employees' stock ownership                                          
   plan..................................       1,000                         
  Amortization...........................        (444)                        
                                               ------       -------   ------- 
Balance at July 31, 1998.................      $1,610       $52,064   $30,848 
                                               ======       =======   ======= 

See notes to consolidated financial statements. 

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 1998, 1997 and 1996

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES                                         

Fiscal year: The Company's year ends on the last Friday in July. Fiscal   
years are designated as ending July 31 for convenience of reference.            

Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries. Significant intercompany      
accounts and transactions have been eliminated in consolidation.                

 Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make       
estimates and assumptions that affect the amounts reported in the financial     
statements and accompanying notes. Actual results could differ from those       
estimates.                                                                      

  Receivables--Concentration of Credit Risk: The Company's primary business is
the roasting, packing and marketing of a broad range of regular and             
decaffeinated, ground roast, instant and specialty coffees for the Foodservice  
and Retail Grocery Industries. These products are sold regionally throughout    
the United States and Canada. The Company performs periodic credit evaluations  
of its customers' financial condition and generally does not require            
collateral. Credit losses relating to customers have consistently been within   
management's expectations.                                                      

  Cash Equivalents: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.         

Inventories: Inventories are stated at the lower of cost (first-in, first-
out) or market and consist of:                                                  

                                                                [Download Table]

                                                          July 31,        
                                                   -----------------------
                                                      1998        1997    
                                                   ----------- -----------
                                                                          
Finished goods.................................... $35,775,998 $41,747,129
Raw materials.....................................  17,539,666  36,412,728
Supplies..........................................   7,325,645   4,791,831
                                                   ----------- -----------
                                                   $60,641,309 $82,951,688
                                                   =========== ===========

Commodities: The Company uses coffee futures and options for hedging      
purposes to reduce the effect of changing green coffee prices. The contracts    
that effectively meet the risk reduction and correlation criteria are recorded  
using hedge accounting. Effectiveness is measured based upon high correlation   
between commodity gains and losses on the futures and options and those on the  
firm commitment. Under hedge accounting, the gain or loss on the hedge is       
deferred and recorded as a component of the underlying inventory purchase.      
Gains and losses on hedges that are terminated prior to inventory purchases are 
recorded in inventory until the inventory is sold.                              

Property, Plant and Equipment: Depreciation and amortization of property, 
plant and equipment are computed by the straight-line method for financial      
reporting purposes and by accelerated methods for income tax purposes.          

Long-Lived Assets: In accordance with Financial Accounting Standards Board
("FASB") Statement No. 121, "Accounting for the Impairment of Long-Lived Assets 
and for Long-Lived Assets to be Disposed of", the Company records impairment    
losses on long-lived assets used in operations, including intangible assets,    
when events and circumstances indicate that the assets might be impaired and    
the undiscounted cash flows estimated to be generated by those assets are less  
than the carrying amounts of those assets.                                      

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

 Pre-opening Costs: Pre-opening costs are charged to operations as incurred.

Excess of Cost over Net Assets Acquired: The Company evaluates goodwill   
impairment at the end of each quarter based on recoverability measured by       
undiscounted estimated operating profits (i.e., pretax earnings before interest 
expense and goodwill amortization). Under this approach, the carrying value     
would be reduced to estimated realizable value if it is probable that           
Management's best estimate of future operating profits during the goodwill      
amortization period will be less than the carrying amount of the related        
goodwill. Excess of cost over net assets acquired is being amortized on a       
straight-line basis over periods of 40 and 15 years. Accumulated amortization   
amounted to $2,319,000 and $2,010,000 at July 31, 1998 and 1997, respectively.  

Other Intangibles: Other intangibles consist principally of trademarks,   
covenants not to compete and customer lists. Such items are being amortized on  
a straight-line basis over periods of 40, 5 and 7.5 years, respectively. See    
Note 10(b). The Company evaluates any impairment of these assets on a basis     
similar to goodwill.                                                            

Advertising Expenses: The cost of advertising is expensed as incurred. The
Company incurred $4,632,000, $4,253,000 and $3,130,000 in advertising costs     
during 1998, 1997 and 1996, respectively.                                       

Stock-Based Compensation: In October 1995, the FASB issued Statement of   
Financial Accounting Standards No. 123, Accounting for Stock-Based              
Compensation, which provides an alternative to APB Opinion No. 25, Accounting   
for Stock Issued to Employees, in accounting for stock-based compensation       
issued to employees. The Statement allows for a fair value based method of      
accounting for employee stock options and similar equity instruments. The       
Company has determined it will continue to use APB Opinion No. 25 in accounting 
for stock-based compensation for all options that are issued.                   

Per Share Data: Basic per share data is based on the following weighted   
average number of common shares outstanding during each year adjusted for       
unallocated shares in the employees' stock ownership plan and contingent        
shares: 10,416,000, 10,395,000 and 10,308,000 in 1998, 1997 and 1996,           
respectively. Diluted per share data, assuming conversion of debentures, the    
aforementioned unallocated and contingent shares and the dilutive effect of     
stock options, is based on 21,766,000, 22,216,000 and 22,129,000 common shares  
outstanding in 1998, 1997 and 1996, respectively. In addition, net              
income/(loss) is increased/(decreased) due to a reduction in interest and       
amortization charges, net of income taxes, on the assumed conversion of         
debentures of $4,237,000, $4,392,000 and ($4,396,000) for the years ended July  
31, 1998, 1997 and 1996, respectively.                                          

  Recently Issued Accounting Standards: In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income," which is effective for the Company's     
fiscal year ending July 31, 1999. The statement addresses the reporting and     
displaying of comprehensive income and its components. Adoption of SFAS No. 130 
is not expected to have a material effect on the Company's financial statement  
disclosures.                                                                    

  In June 1997, the FASB also issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," which is effective for the Company's 
fiscal year ending July 31, 1999. The statement changes the way public          
companies report information about segments of their business in their annual   
financial statements and requires them to report selected segment information   
in their quarterly reports. Adoption of SFAS No. 131 is not expected to have a  
material effect on the Company's financial statement disclosures.               

In June 1998, the FASB issued Statement No. 133, accounting for Derivative
Instruments and Hedging Activities, which is effective for the Company's fiscal 
year ending July 31, 2001. The Statement permits early adoption as of the       
beginning of any fiscal quarter after its issuance. The Company expects to      
adopt the new Statement effective August 1, 2000. The Statement will require    
the Company to recognize all derivatives on the balance sheet at fair value.    
Derivatives that are not hedges must be adjusted to fair value through income.  
If the derivative is a hedge, depending on the nature of the hedge, changes in  
the fair value of derivatives will either                                       

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

be offset against the change in fair value of the hedged assets, liabilities,   
or firm commitments through earnings or recognized in other comprehensive       
income until the hedged item is recognized in earnings. The ineffective portion 
of a derivative's change in fair value will be immediately recognized in        
earnings. The Company has not yet determined what the effect of Statement 133   
will be on the earnings and financial position of the Company.                  

NOTE 2--ACQUISITIONS                                                            

In July 1998, the Company acquired the hot beverage business of Park Foods
LLP ("Park") for an adjusted purchase price of approximately $11,300,000 which  
includes $750,000 for contingent payments. Park's business consists primarily   
of sales of coffee, cappuccino, cocoa and leaf tea to a nationwide customer     
base. In connection with the acquisition, which has been accounted for as a     
purchase transaction, the Company acquired identifiable net tangible and        
intangible assets with an estimated fair value of approximately $5,300,000. The 
excess of cost over net assets acquired (approximately $6,000,000) is being     
amortized over a period of 40 years using the straight-line method. The Company 
used its existing cash to fund the purchase price. The Company is still         
gathering certain information required to complete the allocation of the        
purchase price. Further adjustments may arise as a result of the finalization   
of the ongoing study.                                                           

The following unaudited pro forma results of operations assume the        
acquisition of Park occurred at the beginning of fiscal 1997 and give effect to 
certain adjustments, including amortization of excess of cost over net assets   
acquired and reduced interest income, resulting from the acquisition and        
related cash funding. Amounts for 1998 and 1997 include the pre-acquisition     
results of operations for Park for the year ended June 30, 1998 and 1997. The   
results are not necessarily indicative of what actually would have occurred if  
the acquisition had been in effect for the entire period presented.             

                                                                [Download Table]

                                                          Year Ended July 
                                                                31        
                                                         -----------------
                                                           1998     1997  
                                                         -------- --------
                                                                (in       
                                                         thousands,except 
                                                            per share)    
                                                                          
Net sales............................................... $461,523 $415,540
Net income..............................................    5,740    8,629
Net income per share:                                                     
Basic...................................................      .55      .83
Diluted.................................................      .46      .59

In January 1997, the Company acquired substantially all of the assets and 
assumed substantially all of the liabilities of Ireland Coffee & Tea Company, a 
leading roaster and distributor of coffees to hotels, restaurants and           
institutions on the East Coast for approximately $8,000,000 which includes      
$1,500,000 for contingent payments. In connection with the acquisition which is 
being accounted for as a purchase, the Company acquired identifiable net        
tangible and intangible assets with an estimated fair value of approximately    
$3,900,000. The excess of cost over net assets acquired (approximately          
$4,100,000) is being amortized over a period of 40 years using the straight-    
line method. The pro forma effects on the Company's operations as if this       
business had been acquired on August 1, 1995 are not material.                  

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

NOTE 3--LONG TERM DEBT                                                          

Long-term debt consists of the following:                                 

                                                                [Download Table]

                                                         July 31,        
                                                 ------------------------
                                                    1998         1997    
                                                 ----------- ------------
                                                                         
7% Convertible senior subordinated debentures                            
 due 2012......................................  $51,693,000 $ 51,693,000
8% Convertible subordinated debentures due 2006   37,240,000   43,266,000
Revolving credit and term loan.................    3,313,967   11,872,753
                                                 ----------- ------------
                                                  92,246,967  106,831,753
Less current installments......................                   766,000
                                                 ----------- ------------
                                                 $92,246,967 $106,065,753
                                                 =========== ============

 The 7% and 8% debentures require annual sinking fund payments of $3,000,000
and $3,750,000, respectively, which after giving effect to previous conversions 
and redemptions, commence April 1, 2000 and September 15, 1999, respectively,   
and provide for balloon payments of $18,000,000 and $12,500,000 on April 1,     
2012 and September 15, 2006, respectively. The debentures are convertible at    
the option of the debenture holders into shares of the Company's common stock   
at a price of $8.23 per share and $7.81 per share, respectively (subject to     
adjustment). As of July 31, 1998, approximately 11,049,000 common shares are    
reserved for issuance upon conversion of debentures.                            

Under the Company's amended and restated revolving credit and term loan   
agreements (collectively the "Loan Agreements") with Fleet Bank, N.A. and The   
Chase Manhattan Bank (the "Banks"), the Company may, from time to time, borrow  
funds from the Banks, provided that the total principal amount of all such      
loans outstanding through November 30, 1998 may not exceed $40,000,000 and      
after such date may not exceed $20,000,000. Interest on all such loans is equal 
to the prime rate or at the Company's option the London Interbank Offering Rate 
("LIBOR") plus 1.75%, subject to adjustment based on the level of loans         
outstanding (8.5% at prime and 7.44% at LIBOR, at July 31, 1998). Outstanding   
borrowings under the Loan Agreements may not exceed certain percentages of and  
are collateralized by, among other things, the trade accounts receivable and    
inventories, and substantially all of the machinery and equipment and real      
estate of the Company and its subsidiaries. All loans made under the term loan  
agreement ($3,000,000 at July 31, 1998) are to be repaid in December 1999.      

 Outstanding loans under the revolving credit agreements are to be repaid in
December 1999. Pursuant to the terms of the Loan Agreements, the Company and    
its subsidiaries, among other things, must maintain a minimum net worth and     
meet ratio tests for liabilities to net worth and coverage of fixed charges and 
interest, all as defined.                                                       

The Loan Agreements also provide, among other things, for restrictions on 
dividends (except for stock dividends) and require repayment of outstanding     
loans with excess cash flow, as defined.                                        

As of July 31, 1998, long-term debt matures as follows: $6,246,967 (year  
ending July 31, 2000),$6,750,000 (years ending July 31, 2001, 2002, and 2003)   
and $65,750,000 thereafter.                                                     

The Company believes that the fair value of its 7% and 8% convertible     
subordinated debentures approximates $50,659,000 and $37,240,000, respectively, 
as indicated by the public trading prices of such debt.                         

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

NOTE 4--INCOME TAXES                                                            

The provision for income taxes for continuing operations differs from the 
expected Federal income tax for the reasons shown in the following table:       

                                                                [Download Table]

                                            1998       1997        1996   
                                         ---------- ----------  ----------
                                                                          
Federal income tax provision expected                                     
 at the statutory rate.................  $3,219,800 $4,152,213  $2,620,504
Effect on Federal income tax of:                                          
State and local income taxes, net of                                      
 Federal income tax benefit............     467,940    496,980     322,080
Amortization of excess of cost over net                                   
 assets acquired                             69,020     68,000      68,000
Other..................................     214,240    347,807      65,416
Realization of prior year capital loss                                    
 not previously recorded...............               (767,000)           
                                         ---------- ----------  ----------
                                         $3,971,000 $4,298,000  $3,076,000
                                         ========== ==========  ==========

Deferred tax liabilities and assets are comprised of the following at July
31,                                                                             

                                                                [Download Table]

                                                   1998         1997     
                                                -----------  ----------- 
                                                                         
Net deferred non-current tax liabilities:                                
  Net difference between tax and book basis of                           
   property, plant and equipment...............  $8,477,000   $7,755,000 
  Prepaid pension expense......................   1,143,000      779,000 
  Compensation under stock bonus plan,                                   
   employees' stock ownership plan and other                             
   qualified plans.............................    (501,000)    (387,000)
  Other........................................    (349,000)    (492,000)
                                                -----------  ----------- 
                                                 $8,770,000  $ 7,655,000 
                                                ===========  =========== 
Net deferred current tax assets:                                         
  Net difference between tax and book basis of                           
   inventory................................... $   339,000  $   356,000 
  Allowance for doubtful accounts and                                    
   discounts...................................     485,000      463,000 
  Accrued expenses--close-down.................      28,000      169,000 
  Accrued cash bonus...........................      20,000      208,000 
  Other........................................      79,000       72,000 
                                                -----------  ----------- 
                                                   $951,000  $ 1,268,000 
                                                ===========  =========== 

NOTE 5--DISCONTINUED OPERATIONS                                                 

In October 1996, the Company's Board of Directors adopted a plan to       
discontinue operations of the Chock Cafes. Accordingly, the operating results   
of the Chock Cafe operations, including provisions for estimated lease          
termination costs, employee benefits and losses during the phase-out period of  
approximately $1,800,000 and a write-off of leasehold improvements and          
equipment and deferred charges of approximately $5,200,000 have been segregated 
from continuing operations and reported as a separate line item on the          
statement of operations. During the years ended July 31, 1998 and 1997,         
respectively, approximately $480,000 and $1,250,000 were charged against the    
previously established reserves.                                                

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

Operating results for the year ended July 31, 1996 (exclusive of any      
corporate charges or interest expense and the aforementioned provisions)from    
discontinued operations are as follows: Net sales $3,783,397; Cost of sales     
$5,903,142; Selling, general and administrative expenses $710,299; Operating    
loss $2,830,044; Income tax credits $1,073,000; and Loss from operations        
$1,757,044.                                                                     

NOTE 6--LEASES                                                                  

 The Company and subsidiaries lease manufacturing plants, warehouses, office
space and Quikava locations and related premises. Leases which provide for      
payment of property taxes, utilities and certain other expenses, expire on      
various dates through 2009 and contain renewal options. As of July 31, 1998,    
the Company's obligation for future minimum rental payments, assuming the       
exercise of renewal options, aggregated $17,674,000. Payments required in the   
following five fiscal years amount to $4,654,000 (1999), $3,983,000 (2000),     
$2,747,000 (2001), $1,577,000 (2002) and $1,115,000 (2003). Rental expense      
charged to continuing operations under operating leases for the years ended     
July 31, 1998, 1997 and 1996 was $4,531,000, $4,751,000 and $4,150,000,         
respectively.                                                                   

As of July 31, 1998, future minimum rental payments due from tenants under
sub-leases of retail facilities and related premises aggregated $16,313,000.    
Amounts receivable in the following five fiscal years amount to $2,000,000      
(1999), $2,014,000 (2000), $1,954,000 (2001), $1,820,000 (2002) and $1,778,000  
(2003).                                                                         

NOTE 7--STOCKHOLDERS' EQUITY                                                    

  A non-contributory employee stock ownership plan ("ESOP") acquires shares of
the Company's common stock for the benefit of all eligible employees. The       
Company has made loans to the ESOP to be repaid in equal annual installments    
over 8 years with interest primarily at 9% and 10%. Deferred compensation equal 
to the loans has been recorded as a reduction of stockholders' equity           
representing the Company's prepayment of future compensation expense. As the    
Company makes annual contributions to the ESOP, these contributions will be     
used to repay the loans to the Company, together with accrued interest, and     
common stock is allocated to ESOP participants and deferred compensation is     
reduced.                                                                        

As of December 30, 1997, the Company's Board of Directors extended the    
Company's Shareholder Rights Plan through December 30, 2007. The original       
Shareholder Rights Plan was adopted in 1987 and would have expired on December  
30, 1997. The Company's Shareholder Rights Plan is designed to deter coercive   
or unfair takeover tactics and to prevent a person or group from gaining        
control of the Company without offering a fair price to all shareholders. The   
Company's Shareholder Rights Plan provides for distribution to shareholders of  
a right to purchase one share of the Company's common stock currently for $28   
(subject to anti-dilution adjustments) as a dividend on each of the Company's   
outstanding common shares. These rights are not currently exercisable and will  
only become exercisable upon the happening of certain events. Under certain     
circumstances, the rights entitle the holders to receive, upon payment of the   
then current exercise price of the right, that number of shares of Company      
common stock having a market value of two times the then current exercise price 
of the right. The rights are redeemable at $.01 per right at any time prior to  
the occurrence of certain events.                                               

 The Company's incentive compensation plan provides, among other things, for
incentive or non-qualified stock options, stock appreciation rights,            
performance units, restricted stock and incentive bonus awards. During the      
years ended July 31, 1998 and 1996, respectively, non-qualified stock options   
for the purchase of 53,000 and 16,000 shares, at prices of $6.94 and $5.25 per  
share were granted to key executives under the plan. During the year ended July 
31, 1998 options to purchase 8,500 shares with an exercise price of $8.50 per   
share were forfeited. At July 31, 1998, there were outstanding options for      
401,000 shares with an average exercise                                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

price of $6.52 per share. Options granted are exercisable at the fair market    
value at date of grant and, subject to termination of employment (a) expire     
five years from the date of grant with respect to the fiscal 1998 grants and    
(b) expire ten years from the date of grant with respect to all prior grants,   
are non-transferable other than on death, and are exercisable in three equal    
annual installments commencing (a) one year from date of grant with respect to  
the fiscal 1998 grants (b) three years from date of grant with respect to all   
prior grants.                                                                   

Had compensation cost for the Company's stock option plan been determined 
based on the fair market value at the grant date for awards in 1998 and 1996    
consistent with the provisions of SFAS 123, the Company's net income would have 
been reduced by approximately $25,000 in 1998 and $1,000 in 1997 and net loss   
would have been increased by approximately $2,000 in 1996, with no affect on    
per share amounts. These pro forma amounts may not be representative of future  
disclosures since the estimated fair value of stock options is amortized to     
expense over the vesting period, and additional options may be granted in       
future years. The fair value for the options awarded was estimated at the date  
of grant using the Black-Scholes model with the following assumptions: expected 
dividend yield--0, expected stock price volatility : 1998--24%, 1997 and 1996-- 
22%, risk-free interest rate: 1998--5.69%, 1997--6.15% and 1996--5.34% and      
expected life of options--4 years.                                              

Under the incentive compensation plan, as of July 31, 1998, 31,000 common 
shares are outstanding which were issued to key executives in 1987 and 1988.    
These shares are subject to restricted stock agreements which provide that the  
shares will vest ratably over periods through 2001. Such shares are subject,    
upon the occurrence of certain events, to either forfeiture or accelerated      
vesting. The fair value of the shares on the dates of issuance is being charged 
to operations as compensation during the period the restrictions remain in      
effect. At July 31, 1998, 76,500 shares were available under the plan.          

NOTE 8--PENSION PLANS                                                           

 The Company has non-contributory defined benefit pension plans covering all
employees who have completed six months of service, have attained age twenty    
and one-half and are not covered by union-sponsored plans. The benefits are     
based on years of service and the employee's compensation during the last 60    
months of employment. The pension plans are funded to accumulate sufficient     
assets to provide for accrued benefits. In addition, contributions are made to  
multi-employer plans which provide defined benefits to union employees.         

A summary of the components of net periodic pension cost for the defined  
benefit plans for the three years ended July 31, 1998 and total contributions   
charged to pension expense for the union-sponsored plans follows (in            
thousands):                                                                     

                                                                [Download Table]

                               1998     1997     1996   
                              -------  -------  ------- 
                                                        
Service cost-benefits earned                            
 during the year............  $ 1,886  $ 1,681  $ 1,729 
Interest cost on projected                              
 benefit obligation.........    2,441    2,246    1,985 
Actual return on plan                                   
 assets.....................   (2,370)  (2,021)  (1,866)
Net amortization and                                    
 deferral...................      174      211      144 
                              -------  -------  ------- 
Net pension cost of defined                             
 benefit plans                  2,131    2,117    1,992 
Union-sponsored plans.......      339      335      319 
                              -------  -------  ------- 
    Total pension expense...   $2,470   $2,452   $2,311 
                              =======  =======  ======= 

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

The following table sets forth the funded status and amounts recognized in
the consolidated balance sheet at July 31, for the defined benefit pension      
plans (in thousands):                                                           

                                                                [Download Table]

                                                       1998        1997    
                                                    ----------- -----------
                                                    Plans Whose Plans Whose
                                                      Assets      Assets   
                                                      Exceed      Exceed   
                                                    Accumulated Accumulated
                                                     Benefits    Benefits  
                                                    ----------- -----------
                                                                           
Actuarial present value of benefit obligations:                            
  Vested benefit obligation.......................   $(29,263)   $(27,641) 
                                                     ========    ========  
  Accumulated benefit obligation..................   $(29,937)   $(27,967) 
                                                     ========    ========  
  Projected benefit obligation....................   $(33,991)   $(31,141) 
  Plan assets, consisting primarily of U.S.                                
   treasury notes, other U.S. agency issues,                               
   guaranteed insurance contracts and corporate                            
   investments, at fair value.....................     31,923      29,404  
                                                     --------    --------  
Projected benefit obligation (in excess of) plan                           
 assets...........................................     (2,068)     (1,737) 
  Unrecognized prior service cost.................        333         280  
  Unrecognized net loss...........................      6,862       5,586  
  Unrecognized net asset at August 1, 1987; net of                         
   amortization...................................       (397)       (484) 
                                                     --------    --------  
    Net pension asset recognized in the                                    
     consolidated balance sheet...................   $  4,730    $  3,645  
                                                     ========    ========  

The weighted-average discount rate and rate of increase in future         
compensation levels used in determining the actuarial present value of the      
projected benefit obligation were 7.5% and 4% and 8% and 4%, respectively, at   
July 31, 1998 and 1997. The expected long-term rate of return on plan assets    
was 8.0% in 1998, 1997 and 1996, respectively.                                  

During fiscal 1998, the Company adopted an unfunded supplemental executive
retirement plan for certain key executives. The plan provides for benefits that 
supplement those provided by a defined benefit plan and for immediate funding   
in the event of a change in control of the Company (as defined). At July 31,    
1998, the projected benefit obligation for this plan was approximately $450,000 
and expense for this plan was approximately $50,000.                            

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

NOTE 9--QUARTERLY FINANCIAL DATA (UNAUDITED)                                    

 The following is a summary of the unaudited quarterly results of operations
for the years ended July 31, 1998 and 1997:                                     

                                                                [Download Table]

                                            Fiscal 1998                   
                                            -----------                   
                                         Three Months Ended               
                                         ------------------               
                                                        April             
                               October 31 January 31     30    July 31    
                               ---------- ----------   ------- --------   
                               (Thousands of Dollars Except Per Share     
                                               Data)                      
                                                                          
Net sales.....................  $108,275   $102,124    $95,896 $ 88,062   
                                ========   ========    ======= ========   
Gross profit..................  $ 26,740   $ 26,529    $25,026 $ 22,757   
                                ========   ========    ======= ========   
  Net income/(loss)...........  $  1,568   $  2,685    $ 1,313 $    (67)  
                                ========   ========    ======= ========   
Per share:                                                                
  Basic.......................  $    .15   $    .26(1) $   .13 $   (.01)  
                                ========   ========    ======= ========   
  Diluted.....................  $    .12   $    .17(1) $   .11 $   (.01)  
                                ========   ========    ======= ========   

                                            Fiscal 1997                   
                                            -----------                   
                                         Three Months Ended               
                                         ------------------               
                                                        April             
                               October 31 January 31     30    July 31    
                               ---------- ----------   ------- --------   
                               (Thousands of Dollars Except Per Share     
                                               Data)                      
                                                                          
Net sales.....................  $ 82,577   $ 84,242    $95,306 $102,079   
                                ========   ========    ======= ========   
Gross profit..................  $ 23,421   $ 25,787    $29,110 $ 28,807   
                                ========   ========    ======= ========   
  Net income..................  $  1,451   $  1,748    $ 2,236 $  2,479(2)
                                ========   ========    ======= ========   
Per share:                                                                
  Basic.......................  $    .14   $    .17    $   .21 $    .24(2)
                                ========   ========    ======= ========   
  Diluted.....................  $    .11   $    .13    $   .15 $    .16   
                                ========   ========    ======= ========   

--------                                                                        
(1) Includes gain on sale of real estate of $725,000 or $.07 per basic share    
and $.03 per diluted share (see Note 10(c)).                            
(2) Includes write-off of $1,500,000 relating to litigation, $.09 per basic     
   share and $.05 per diluted share and $767,000 income tax credit relating to
 realization of prior year capital loss not previously recorded , $.07 per
basic share and $.03 per diluted share, (see Notes 10(d) and 4).        

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

NOTE 10--OTHER ITEMS                                                            

a. Receivables other than trade at July 31, 1998 and 1997 amount to $4,352,000  
and $576,000, respectively. The 1998 amount includes $2,400,000 from the  
 seller of Park resulting from an adjustment to the purchase price (see Note
2) and the amount of an insurance claim (see Note 10(e)).                 

b. Other assets and deferred charges consist of (in thousands):                 

                                                                [Download Table]

                                                             July 31,    
                                                          ---------------
                                                           1998    1997  
                                                          ------- -------
                                                                         
Deferred financing costs (1)............................. $ 2,051 $ 2,460
Non-compete agreements, net..............................     854   1,424
Trademarks, net..........................................   5,062   5,207
Customer lists, net......................................   2,359   3,512
Due from co-packer.......................................   2,574   1,711
Prepaid pension expense..................................   4,730   3,645
Other....................................................   5,593   5,840
                                                          ------- -------
                                                          $23,223 $23,799
                                                          ======= =======

--------                                                                        
(1) Being amortized over the terms of the related indebtedness (see Note 3).    
c. In November 1997, the Company consummated the sale of one of its downtown    
Manhattan properties for $6,900,000, resulting in an after tax gain of    
$725,000.                                                                 
d. In connection with closing a business and termination of a pension plan the  
Company paid a liability for an underfunded pension plan of approximately 
$1,500,000 and recorded a similar amount receivable at July 31, 1994 from 
the previous owner of such business pursuant to certain provisions of the 
acquisition agreement. The previous owner of the business contested the   
liability to the Company and the Company commenced litigation seeking     
 collection of such amount. In August 1997, the United States District Court
Southern District of New York granted the previous owner's motion for     
summary judgment. The Company then appealed the decision to the Second    
Circuit. However, due to the then uncertainty surrounding the outcome of  
 such appeal and in light of the aforementioned decision, the Company wrote-
off the $1,500,000 due from the previous owner. Such amount is included in
  other deductions in fiscal 1997. In August 1998, the Second Circuit affirmed
the decision of the District Court.                                       
e. Other deductions in fiscal 1998, includes a $650,000 charge for the write-   
off of leasehold improvements and equipment and provision for estimated   
lease termination costs related to the Quikava operations. Other income in
fiscal 1998, includes $570,000 of income resulting from an insurance claim
 of approximately $1,000,000 (the balance is shown as a reduction of cost of
sales) related to the unauthorized distribution of inventory.             

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CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded) 

NOTE 11--INDUSTRY SEGMENT INFORMATION                                           

                                                                [Download Table]

                                                       Year Ended July 31       
                                                   ---------------------------- 
                                                     1998      1997      1996   
                                                   --------  --------  -------- 
                                                     (Amounts in Thousands)     
                                                                                
Net sales--Beverage products...................... $390,731  $360,467  $319,213 
Net sales--Quikava................................    3,626     3,737     1,922 
                                                   --------  --------  -------- 
                                                   $394,357  $364,204  $321,135 
                                                   ========  ========  ======== 
Rental revenues................................... $  2,011  $  2,091  $  2,156 
                                                   ========  ========  ======== 
Operating profit/(loss):                                                        
  Beverage products............................... $ 17,854  $ 23,498  $ 16,708 
  Quikava.........................................   (1,781)   (1,998)   (1,649)
  Real estate.....................................      260       140       671 
  Eliminations....................................     (703)     (393)     (625)
                                                   --------  --------  -------- 
                                                   $ 15,630  $ 21,247  $ 15,105 
                                                   ========  ========  ======== 
Identifiable assets:                                                            
  Beverage products............................... $171,642  $186,304  $152,168 
  Quikava.........................................    4,198     4,835     4,720 
  Real estate.....................................    3,901     9,356     9,493 
  Corporate.......................................   21,443    16,835    33,054 
                                                   --------  --------  -------- 
                                                   $201,184  $217,330  $199,435 
                                                   ========  ========  ======== 
Depreciation and amortization:                                                  
  Beverage products............................... $  6,170  $  6,843  $  6,006 
  Quikava.........................................      378       366       197 
  Corporate.......................................      177       177       177 
                                                   --------  --------  -------- 
                                                   $  6,725  $  7,386  $  6,380 
                                                   ========  ========  ======== 
Capital expenditures:                                                           
  Beverage products............................... $  6,648  $  5,154  $  4,831 
  Quikava.........................................      170       953     2,566 
  Corporate.......................................      108        17        14 
                                                   --------  --------  -------- 
                                                   $  6,926  $  6,124  $  7,411 
                                                   ========  ========  ======== 

The beverage products segment is engaged in the (a) roasting, packing and 
marketing of regular, instant, decaffeinated and specialty coffees and (b)      
packing and marketing of regular and decaffeinated tea for sale to Retail,      
Foodservice and Private Label customers. Additionally, other related food       
products are marketed and sold to Foodservice customers. Quikava operations     
feature a full assortment of specialty coffee beverages and a variety of        
freshly prepared foods and baked goods specifically suited for in-car           
consumption. See Note 5 of Notes to Consolidated Financial Statements for       
discontinued cafe operations. Operations of real estate represent rental and    
other income principally from the Company's original restaurant facilities.     

All of the Company's operations are located in the United States. Export  
sales are not significant.                                                      

 Identifiable assets under the caption "Corporate" include (1) cash and cash
equivalents, investments in marketable securities and short-term investments of 
$5,214,000 (1998), $3,781,000 (1997) and $15,180,000 (1996) and (2) net assets  
of discontinued operations of $895,000 (1997) and $941,000 (1996).              

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--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                                                         Annex 1

AGREEMENT AND PLAN OF MERGER

among 

SARA LEE CORPORATION

CFN ACQUISITION CORPORATION 

and 

CHOCK FULL O'NUTS CORPORATION 

Dated as of June 8, 1999

--------------------------------------------------------------------------------
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TABLE OF CONTENTS 

                                                                [Download Table]

                                                                          Page
                                                                          ----
                                  ARTICLE I                                   

                                                                              
The Merger...............................................................   1 
   Section 1.1  The Merger..............................................    1 
   Section 1.2  Closing.................................................    1 
   Section 1.3  Effective Time..........................................    1 
   Section 1.4  Effects of the Merger...................................    1 
   Section 1.5  Certificate of Incorporation; By-Laws...................    1 
   Section 1.6  Directors and Officers of Surviving Corporation.........    2 

                                  ARTICLE II                                  

Exchange of Shares.......................................................   2 
   Section 2.1  Conversion of Securities................................    2 
   Section 2.2  Exchange of Certificates................................    3 
   Section 2.3  Transfer of Shares After the Effective Time.............    4 
   Section 2.4  Company Stock Options...................................    4 

                                 ARTICLE III                                  

Representations and Warranties of the Company............................   5 
   Section 3.1  Due Incorporation and Authority.........................    5 
   Section 3.2  Capitalization..........................................    5 
   Section 3.3  Authorization; Enforceability...........................    6 
   Section 3.4  No Violation or Conflict................................    6 
                SEC Reports; Financial Statements; Indebtedness; Other        
   Section 3.5  Information.............................................    7 
   Section 3.6  Litigation..............................................    7 
   Section 3.7  Absence of Certain Changes..............................    8 
   Section 3.8  Performance of Contracts................................    8 
   Section 3.9  Employee Benefit Plans..................................    8 
   Section 3.10 Taxes...................................................    9 
   Section 3.11 Governmental Approvals..................................   10 
   Section 3.12 Labor Matters...........................................   10 
   Section 3.13 Existing Permits and Violations of Law..................   10 
   Section 3.14 Intangible Assets.......................................   11 
   Section 3.15 Year 2000...............................................   11 
   Section 3.16 Customers and Suppliers.................................   11 
   Section 3.17 Environmental Matters...................................   11 
   Section 3.18 Disclosure Documents....................................   12 
   Section 3.19 Opinion of Financial Advisor............................   12 
   Section 3.20 Certain Agreements......................................   12 
   Section 3.21 Rights Agreement........................................   13 
   Section 3.22 Vote Required...........................................   13 
   Section 3.23 Finders or Brokers......................................   13 

                                  ARTICLE IV                                  

Representations and Warranties of the Parent and the Sub.................  13 
   Section 4.1  Due Incorporation and Authority.........................   13 
   Section 4.2  Authorization; Enforceability...........................   13 
   Section 4.3  No Violation or Conflict................................   14 

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                                                                          Page
                                                                          ----
                                                                              
   Section 4.4  SEC Reports; Financial Statements.......................   14 
   Section 4.5  Disclosure Documents....................................   14 
   Section 4.6  Governmental Approvals..................................   15 
   Section 4.7  Authorization of Parent Common Stock....................   15 
   Section 4.8  Finders or Brokers......................................   15 
   Section 4.9  Interim Operations of the Sub...........................   15 

                                  ARTICLE V                                   

Covenants and Agreements.................................................  15 
   Section 5.1  Conduct of Business by the Company......................   15 
                Shareholders Meeting; Registration Statement and Proxy        
   Section 5.2  Statement/Prospectus....................................   17 
   Section 5.3  Listing of Parent Common Stock..........................   17 
   Section 5.4  Access..................................................   17 
   Section 5.5  Commercially Reasonable Efforts; Further Assurances.....   18 
   Section 5.6  Takeover Statute........................................   18 
   Section 5.7  No Solicitation.........................................   18 
   Section 5.8  Public Announcement.....................................   19 
   Section 5.9  Notices of Certain Events...............................   19 
   Section 5.10 Indemnification and Insurance...........................   20 
   Section 5.11 Additional Reports......................................   20 
   Section 5.12 Affiliates..............................................   20 
   Section 5.13 Tax-Free Reorganization.................................   21 
   Section 5.14 Actions Regarding Debentures............................   21 

                                  ARTICLE VI                                  

Conditions to the Merger.................................................  21 
                Conditions to Each Party's Obligation to Effect the           
   Section 6.1  Merger..................................................   21 
                Conditions to the Parent's and the Sub's Obligations to       
   Section 6.2  Effect the Merger.......................................   22 
                Conditions to the Company's Obligations to Effect the         
   Section 6.3  Merger..................................................   22 

                                 ARTICLE VII                                  

Termination..............................................................  23 
   Section 7.1  Termination.............................................   23 
   Section 7.2  Rights on Termination...................................   24 
   Section 7.3  Termination Fee Payable to Parent.......................   24 
   Section 7.4  Other Remedies..........................................   24 

                                 ARTICLE VIII                                 

Miscellaneous............................................................  25 
   Section 8.1  No Survival of Representations and Warranties...........   25 
   Section 8.2  Expenses................................................   25 
   Section 8.3  Counterparts; Effectiveness.............................   25 
   Section 8.4  Governing Law...........................................   25 
   Section 8.5  Notices.................................................   25 
   Section 8.6  Assignment; Binding Effect..............................   26 
   Section 8.7  Severability............................................   26 
   Section 8.8  Enforcement of Agreement................................   26 
   Section 8.9  Entire Agreement; No Third-Party Beneficiaries..........   26 
   Section 8.10 Headings................................................   26 

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                                                                           Page
                                                                           ----
                                                                               
   Section 8.11 Finders or Brokers.......................................   26 
   Section 8.12 Amendment or Supplement..................................   27 
   Section 8.13 Extension of Time, Waiver, Etc...........................   27 

                                  ARTICLE IX                                   

Definitions...............................................................  27 
   Section 9.1  Affiliate................................................   27 
   Section 9.2  Agreement................................................   27 
   Section 9.3  Code.....................................................   27 
   Section 9.4  Company Disclosure Schedule..............................   27 
   Section 9.5  Company Financial Statements.............................   27 
   Section 9.6  Computer Programs........................................   27 
   Section 9.7  Contracts................................................   28 
   Section 9.8  Control..................................................   28 
   Section 9.9  Employees................................................   28 
   Section 9.10 Employee Benefit Plans...................................   28 
   Section 9.11 Environmental Claim......................................   28 
   Section 9.12 Environmental Laws.......................................   28 
   Section 9.13 ERISA....................................................   28 
   Section 9.14 Existing Liens...........................................   28 
   Section 9.15 Existing Permits.........................................   28 
   Section 9.16 Existing Plans...........................................   28 
   Section 9.17 Hazardous Materials......................................   28 
   Section 9.18 Indebtedness.............................................   29 
   Section 9.19 Intangible Assets........................................   29 
   Section 9.20 Investment...............................................   29 
   Section 9.21 Law......................................................   29 
   Section 9.22 Lien.....................................................   29 
   Section 9.23 Material Adverse Effect..................................   29 
   Section 9.24 Merger...................................................   29 
   Section 9.25 NYBCL....................................................   29 
   Section 9.26 Parent Financial Statements..............................   29 
   Section 9.27 Parent Material Adverse Effect...........................   29 
   Section 9.28 Person...................................................   30 
   Section 9.29 Significant Subsidiary...................................   30 
   Section 9.30 Subsidiary...............................................   30 
   Section 9.31 Taxes....................................................   30 
   Section 9.32 Tax Return...............................................   30 

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AGREEMENT AND PLAN OF MERGER, dated as of June 8, 1999 (the "Agreement"), 
among Sara Lee Corporation, a Maryland corporation (the "Parent"), CFN          
Acquisition Corporation, a New York corporation (the "Sub"), and Chock Full     
O'Nuts Corporation, a New York corporation (the "Company"). Capitalized terms   
used herein without definition shall have the meanings ascribed to them in      
Article IX.                                                                     

  WHEREAS, the Boards of Directors of the Parent, the Sub and the Company have
approved and deem it advisable and in the best interests of their respective    
stockholders to consummate the acquisition of the Company by the Parent upon    
the terms and subject to the conditions provided for in this Agreement;         

WHEREAS, in furtherance thereof it is proposed that the acquisition be    
accomplished by a merger of the Sub with and into the Company (the "Merger")    
pursuant to which each outstanding share of common stock, par value $.25 per    
share, of the Company (the "Company Common Stock," and together with the common 
stock purchase rights (the "Rights"), issued pursuant to the Amended and        
Restated Rights Agreement, dated as of December 30, 1997, by and between the    
Company and the American Stock Transfer & Trust Company as Rights Agent (the    
"Rights Agreement") associated with such shares, the "Shares") will be          
converted into the right to receive the Merger Consideration (as hereinafter    
defined), upon the terms and conditions set forth in this Agreement; and        

WHEREAS, for federal income tax purposes, it is intended that the Merger  
shall qualify as a reorganization within the meaning of Section 368(a) of the   
Internal Revenue Code of 1986, as amended (the "Code").                         

NOW, THEREFORE, in consideration of the representations, warranties,      
covenants and agreements contained in this Agreement, and intending to be       
legally bound hereby, the Parent, the Sub and the Company agree as follows:     

ARTICLE I 

The Merger

Section 1.1 The Merger. Upon the terms and subject to the conditions set  
forth in this Agreement, and in accordance with the NYBCL, the Sub shall merge  
with and into the Company, and the separate corporate existence of the Sub      
shall thereupon cease, and the Company shall be the surviving corporation in    
the Merger (the "Surviving Corporation") . The Surviving Corporation shall      
possess all the rights, privileges, powers and franchises, and shall be subject 
to all of the restrictions, disabilities, duties, debts and obligations, of the 
Company and the Sub, all as provided in the NYBCL.                              

Section 1.2 Closing. The closing of the Merger (the "Closing") will take  
place at 10:00 a.m., Chicago time, on the later of August 26, 1999 or the date  
that is no later than the second business day after satisfaction of the         
conditions set forth in Article VI, unless another time or date is agreed to in 
writing by the parties hereto. The Closing will be held at the offices of       
Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 West Wacker Drive,         
Chicago, Illinois, unless another place is agreed to in writing by the parties  
hereto.                                                                         

 Section 1.3 Effective Time. Subject to the provisions of this Agreement, on
the Closing Date, the parties shall file with the Secretary of State of the     
State of New York a certificate of merger (the "Certificate of Merger")         
executed in accordance with the relevant provisions of the NYBCL and shall make 
all other filings or recordings required under the NYBCL in order to effect the 
Merger. The Merger shall become effective upon the filing of the Certificate of 
Merger or at such other time as is specified in the Certificate of Merger (the  
time at which the Merger becomes fully effective being hereinafter referred to  
as the "Effective Time").                                                       

Section 1.4 Effects of the Merger. The Merger shall have the effects set  
forth in the applicable provisions of the NYBCL.                                

Section 1.5 Certificate of Incorporation; By-Laws. (a) At the Effective   
Time, the Restated Certificate of Incorporation of the Company, as in effect    
immediately prior to the Effective Time, shall be the Certificate of            
Incorporation of the Surviving Corporation until thereafter amended in          
accordance with its terms and the NYBCL.                                        

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   (b) At the Effective Time, the By-Laws of the Sub, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation  
until thereafter amended as provided by the NYBCL, the Certificate of           
Incorporation of the Surviving Corporation and the By-Laws.                     

Section 1.6 Directors and Officers of Surviving Corporation. (a) The      
directors of the Sub at the Effective Time shall be the directors of the        
Surviving Corporation until their respective successors are duly elected and    
qualified or their earlier death, resignation or removal in accordance with the 
Certificate of Incorporation and By-Laws of the Surviving Corporation.          

 (b) The officers of the Company at the Effective Time shall be the officers
of the Surviving Corporation until their respective successors are duly elected 
and qualified or their earlier death, resignation or removal in accordance with 
the Certificate of Incorporation and By-Laws of the Surviving Corporation.      

ARTICLE II

Exchange of Shares

Section 2.1 Conversion of Securities. At the Effective Time, by virtue of 
the Merger and without any action on the part of the holders of any securities  
of the Sub or the Company:                                                      

(a) The Shares (including the associated Rights) that are issued and  
outstanding immediately prior to the Effective Time (other than Shares      
owned by the Parent, the Sub or any direct or indirect wholly owned         
subsidiary of the Parent (collectively, "Parent Companies") or any of the   
Company's direct or indirect wholly owned subsidiaries or shares held in    
the treasury of the Company) shall, by virtue of the Merger and without any 
action on the part of the Sub, the Company or the holder thereof, be        
cancelled and extinguished and converted into the right to receive the      
number of validly issued, fully paid and non-assessable shares of common    
stock, par value $0.01 per share, of the Parent (the "Parent Common Stock") 
equal to the ratio (the "Exchange Ratio") determined by dividing $11.00 by  
the average of the per share last sales prices, regular way (rounded to     
four decimal points, the "Average Parent Price") of Parent Common Stock as  
reported on the New York Stock Exchange, Inc. (the "NYSE") composite        
transactions reporting system (as reported in the New York City edition of  
The Wall Street Journal or, if not reported thereby, another authoritative  
source) for the twenty (20) consecutive trading days (the "Averaging        
Period") commencing on the date that the Proxy Statement/Prospectus (as     
hereinafter defined) is mailed to the shareholders of the Company (the      
"Merger Consideration"); provided, however, that in no event shall the      
Exchange Ratio exceed .5238 (except, at the election of Parent, as provided 
in Section 7.1(c)(iii)) or be less than .4231.                              

 (b) Each Share (and associated Rights) issued and outstanding and owned
by the Parent Companies or any of the Company's direct or indirect wholly   
owned subsidiaries or authorized but unissued shares held by the Company    
immediately prior to the Effective Time shall cease to be outstanding, be   
cancelled and retired without payment of any consideration therefor and     
cease to exist.                                                             

(c) Each share of common stock of the Sub issued and outstanding      
immediately prior to the Effective Time shall be converted into one validly 
issued, fully paid and non-assessable share of common stock of the          
Surviving Corporation.                                                      

 (d) The Exchange Ratio shall be adjusted to reflect fully the effect of
any stock split, reverse split, stock dividend (including any dividend or   
distribution of securities convertible into Company Common Stock or Parent  
Common Stock, as applicable), extraordinary dividend, reorganization,       
recapitalization or any other like change with respect to Company Common    
Stock or Parent Common Stock occurring after the date hereof and prior to   
the Effective Time. References to the Exchange Ratio elsewhere in this      
Agreement shall be deemed to refer to the Exchange Ratio as it may have     
been adjusted pursuant to this Section 2.1(d).                              

  (e) No fractional shares of Parent Common Stock shall be issued pursuant
hereto. In lieu of any such fractional share of Parent Common Stock, the    
Parent shall pay to each former shareholder of the Company                  

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who otherwise would be entitled to receive a fractional share of Parent     
Common Stock an amount in cash equal to the fraction of such share of       
Parent Common Stock multiplied by the per share Merger Consideration. No    
interest shall be paid on such amount.                                      

  Section 2.2 Exchange of Certificates. The manner of exchanging Shares in the
Merger shall be as follows:                                                     

(a) At or prior to the Effective Time, the Parent shall deposit with  
Harris Trust and Savings Bank (the "Exchange Agent"), or such other         
exchange agent selected by the Parent and reasonably acceptable to the      
Company, for the benefit of the holders of Shares outstanding immediately   
prior to the Effective Time, for exchange in accordance with this Section   
2.2, through the Exchange Agent, certificates evidencing the shares of      
Parent Common Stock issuable pursuant to Section 2.1(a) in exchange for     
outstanding Shares (the shares of Parent Common Stock so deposited,         
together with any dividends or distributions with respect to such shares of 
Parent Common Stock payable after the Effective Time which also shall be    
deposited with the Exchange Agent, the "Exchange Fund"). The Exchange Agent 
shall, pursuant to irrevocable instructions, deliver the Merger             
Consideration out of the Exchange Fund.                                     

  (b) As soon as practicable after the Effective Time, but in any event no
later than five (5) business days thereafter, the Exchange Agent shall mail 
to each holder of record (other than holders of certificates representing   
Shares referred to in Section 2.1(b)) of a certificate or certificates      
which immediately prior to the Effective Time represented outstanding       
Shares (the "Certificates") (i) a letter of transmittal (which shall        
specify that delivery shall be effected, and risk of loss and title to the  
Certificates shall pass, only upon proper delivery of the Certificates to   
the Exchange Agent and shall be in such form and have such other customary  
provisions as the Parent and the Company may reasonably specify) and (ii)   
instructions for use in effecting the surrender of the Certificates in      
exchange for payment of the Merger Consideration. Upon surrender of a       
Certificate for cancellation to the Exchange Agent, together with such      
letter of transmittal, duly executed, and such other documents as may       
reasonably be required by the Exchange Agent, the holder of such            
Certificate shall be entitled to receive in exchange therefor the Merger    
Consideration without any interest thereon, less any applicable withholding 
of taxes, and the Certificate so surrendered shall forthwith be canceled.   
The Merger Consideration with respect to the Shares represented thereby may 
be paid to a person other than the person in whose name the Certificate so  
surrendered is registered if such Certificate shall be properly endorsed or 
otherwise be in proper form for transfer and the person requesting such     
issuance shall pay any transfer or other nonincome taxes required by reason 
of the payment of the Merger Consideration to a person other than the       
registered holder or establish to the satisfaction of the Exchange Agent    
that such tax has been paid or is not applicable. Until surrendered as      
contemplated by this Section 2.2, each Certificate shall be deemed at any   
time after the Effective Time to represent only the right to receive upon   
such surrender thereof, the Merger Consideration with respect to each of    
the Shares represented thereby.                                             

 (c) Whenever a dividend or other distribution is declared by the Parent
on the Parent Common Stock, the record date for which is at or after the    
Effective Time, the declaration shall include dividends or other            
distributions on all shares issuable pursuant to this Agreement, provided   
that no such dividends or other distributions declared or made shall be     
paid to the holder of an unsurrendered Certificate with respect to the      
shares of Parent Common Stock represented thereby until the holder of such  
Certificate shall surrender such Certificate in accordance with this        
Article II.                                                                 

 (d) Any portion of the Exchange Fund which remains undistributed to the
holders of the Certificates as of the date which is six months after the    
Effective Time shall be delivered to the Parent, upon demand, and any       
holders of the Certificates who have not theretofore complied with this     
Article II shall thereafter look only to the Parent or the Surviving        
Corporation for payment of their claim for Merger Consideration.            

  (e) None of the Parent, the Company, the Sub or the Exchange Agent shall
be liable to any person in respect of any Shares or cash from the Exchange  
Fund delivered to a public official pursuant to any applicable abandoned    
property, escheat or similar law. If any Certificate shall not have been    
surrendered prior to seven years after the Effective Time (or immediately   
prior to such earlier date on which any                                     

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Merger Consideration, would otherwise escheat to or become the property of  
any governmental body or authority), any such Merger Consideration, to the  
extent permitted by applicable law, shall become the property of the        
Surviving Corporation, free and clear of all claims or interest of any      
person previously entitled thereto.                                         

(f) The Exchange Agent shall invest any cash included in the Exchange 
Fund, as directed by the Parent, on a daily basis. Any interest and other   
income resulting from such investments shall be paid to the Parent.         

(g) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such         
Certificate to be lost, stolen or destroyed and, if required by the         
Surviving Corporation, the posting by such person of a bond in such         
reasonable amount as the Surviving Corporation may direct as indemnity      
against any claim that may be made against it with respect to such          
Certificate, the Exchange Agent will issue in exchange for such lost,       
stolen or destroyed Certificate the Merger Consideration.                   

(h) Holders of unsurrendered Certificates will not be entitled to vote
at any meeting of shareholders of the Parent.                               

(i) Notwithstanding anything herein to the contrary, Certificates     
surrendered for exchange into Merger Consideration by any "affiliate" (as   
determined pursuant to Section 5.12) of the Company shall not be exchanged  
until the Parent has received a written agreement from such Person as       
provided in Section 5.12 hereof.                                            

(j) The Exchange Agent or Parent shall be entitled to deduct and      
withhold from the consideration otherwise payable pursuant to this          
Agreement to any holder of Company Common Stock such amounts as the         
Exchange Agent, Parent or the Surviving Corporation, as the case may be, is 
required to deduct and withhold with respect to such payment under the Code 
or any provisions of state, local or foreign tax law. Any amounts so        
withheld shall be treated for all purposes of this Agreement as having been 
paid to the holder of the Company Common Stock in respect of which such     
deduction and withholding was made.                                         

Section 2.3 Transfer of Shares After the Effective Time. No transfers of  
Shares shall be made on the stock transfer books of the Company after the       
Effective Time.                                                                 

Section 2.4 Company Stock Options. (a) At the Effective Time, by virtue of
the Merger and without any further action on the part of the Company or the     
holder of each unexpired and unexercised option to purchase shares of Company   
Common Stock (a "Company Stock Option"), under the Company Stock Plans (as      
hereinafter defined) or otherwise granted by the Company outside of any Company 
Stock Plan, each Company Stock Option shall be assumed by the Parent as         
hereinafter provided. At the Effective Time, by virtue of the Merger and        
without any further action on the part of the Company or the holder thereof,    
each Company Stock Option will be automatically converted into an option (a     
"Parent Stock Option") to purchase a number of shares of Parent Common Stock    
equal to the number of shares of Company Common Stock that could have been      
purchased under such Company Stock Option multiplied by the Exchange Ratio      
(rounded to the nearest whole share), at a price per share of Parent Common     
Stock equal to the per share option exercise price specified in the Company     
Stock Option, divided by the Exchange Ratio (rounded to the nearest whole       
cent); provided, however, that any Company Stock Option that is intended to     
qualify as an "incentive stock option" under the Code shall be converted to a   
Parent Stock Option in a manner that results in any such converted Company      
Stock Option retaining its incentive stock option status. Such Parent Stock     
Option shall otherwise be subject to the same terms and conditions as such      
Company Stock Option. At the Effective Time, (i) all references in the Company  
Stock Plans, the applicable stock option or other awards agreements issued      
thereunder and in any other Company Stock Options to the Company shall be       
deemed to refer to the Parent; and (ii) the Parent shall assume the Company     
Stock Plans and all of the Company's obligations with respect to the Company    
Stock Options.                                                                  

  (b) In respect of each Company Stock Option as converted into a Parent Stock
Option pursuant to Section 2.4(a) and assumed by the Parent, and the shares of  
Parent Common Stock underlying such option, the Parent                          

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shall file as soon as practicable after the Effective Time with the Securities  
and Exchange Commission (the "SEC"), and keep current the effectiveness of, a   
registration statement on Form S-8 (which may be accomplished by amendment of   
the Registration Statement (as hereinafter defined)) or other appropriate form  
for as long as such options remain outstanding (and maintain the current status 
of the prospectus with respect thereto). The Parent agrees to reserve a number  
of shares of Parent Common Stock equal to the number of shares of Parent Common 
Stock issuable upon the exercise of such Company Stock Options.                 

(c) Prior to the Effective Time, the Company shall use its best efforts to
(i) obtain all necessary consents from, and provide any required notices to,    
holders of Company Stock Options and (ii) amend the terms of the applicable     
Company Stock Option Plan, in each case as is necessary to give effect to the   
provisions of this Section 2.4.                                                 

(d) The Company agrees that, from the date hereof through the Effective   
Time, it will not grant any stock options, restricted stock, stock appreciation 
rights or similar rights.                                                       

ARTICLE III 

Representations and Warranties of the Company 

 The Company hereby represents and warrants to the Parent and the Sub on the
date of this Agreement that:                                                    

Section 3.1 Due Incorporation and Authority. The Company is a corporation 
duly organized, validly existing and in good standing under the laws of the     
State of New York, has the corporate power and authority to own its properties  
and assets and to carry on its business as it is now being conducted and is     
duly qualified to do business and is in good standing in each of the            
jurisdictions in which the ownership of its properties or the conduct of its    
business requires such qualification, except for jurisdictions in which the     
failure to be so qualified would not, individually or in the aggregate, have a  
Material Adverse Effect. The Company has delivered to the Parent copies of the  
certificates of incorporation and by-laws or other organizational documents of  
the Company. Such certificates of incorporation and by-laws or other            
organizational documents are complete and correct and in full force and effect, 
and neither the Company nor any of its Subsidiaries is in violation of any of   
the provisions of their respective certificates of incorporation, by-laws or    
similar organizational documents. Each of the Company's Subsidiaries is a       
corporation duly organized, validly existing and in good standing under the     
laws of its jurisdiction of incorporation or organization, has the corporate    
power and authority to own its properties and assets and to carry on its        
business as it is now being conducted and is duly qualified to do business and  
is in good standing in each jurisdiction in which the ownership of its          
properties or the conduct of its business requires such qualification, except   
for jurisdictions in which the failure to be so qualified would not,            
individually or in the aggregate, have a Material Adverse Effect. All the       
outstanding shares of capital stock of, or other ownership interests in, the    
Company's Subsidiaries are duly authorized, validly issued, fully paid and non- 
assessable and are owned by the Company, directly or indirectly, free and clear 
of all liens, claims, mortgages, encumbrances, pledges, security interests,     
equities or charges of any kind except the liens resulting from the pledge of   
all of the outstanding shares of capital stock of the Company's Subsidiaries to 
Fleet Bank, N.A. under the Amended and Restated Revolving Credit and Term Loan  
Agreements with Fleet Bank, N.A. and The Chase Manhattan Bank, dated as of      
January 1, 1996 (the "Company Credit Facility"). Other than the Subsidiaries,   
there are no other Persons in which the Company owns, of record or              
beneficially, any direct or indirect equity interest or any right (including    
contingent rights) to acquire the same; provided, however, the Company has the  
right (but not the obligation) to acquire an interest in Industrias Marino      
and/or Cafe El Marino.                                                          

Section 3.2 Capitalization. The authorized capital stock of the Company   
consists of 50,000,000 shares of Company Common Stock. As of the date hereof,   
(i) 10,996,510 shares of Company Common Stock are issued and outstanding; (ii)  
401,000 shares of Company Common Stock are subject to outstanding options       

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issued pursuant to the Company's 1984 Incentive Compensation Plan ("1984        
Plan"), and 76,500 additional shares of Company Common Stock are reserved for   
issuance under the 1984 Plan; (iii) 475,522 shares of Company Common Stock are  
issued and held in the treasury of the Company; (iv) 6,232,077 shares of        
Company Common Stock are reserved for issuance upon the conversion of the       
Company's outstanding 7% Convertible Senior Subordinated Debentures due April   
1, 2012 (the "7% Debentures"); and (v) 4,012,676 shares of Company Common Stock 
are reserved for issuance upon the conversion of the Company's outstanding 8%   
Convertible Subordinated Debentures due September 15, 2006 (the "8% Debentures" 
and, together with the 7% Debentures, the "Debentures"). All the outstanding    
shares are duly authorized, validly issued, fully paid and non-assessable.      
Except with respect to the capital stock of the Company's Subsidiaries which is 
pledged to Fleet Bank, N.A. pursuant to the Company Credit Facility and except  
as set forth above or in Section 3.2 of the Company Disclosure Schedule, other  
than the Company's obligations under the Rights Agreement and the transactions  
contemplated by this Agreement, (1) there are no shares of capital stock of the 
Company authorized, issued or outstanding, (2) there are no authorized or       
outstanding options, warrants, calls, preemptive rights, subscriptions or other 
rights, agreements, arrangements or commitments of any character relating to    
the issued or unissued capital stock of the Company or any of its Subsidiaries, 
obligating the Company or any of its Subsidiaries to issue, transfer or sell or 
cause to be issued, transferred or sold any shares of capital stock or other    
equity interest in the Company or any of its Subsidiaries or securities         
convertible into or exchangeable for such shares or equity interests, or        
obligating the Company or any of its Subsidiaries to grant, extend or enter     
into any such option, warrant, call, subscription, agreement, arrangement or    
commitment, and (3) there are no outstanding contractual obligations of the     
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire   
any Shares or other capital stock of the Company or any Subsidiary or to        
provide funds to make any investment (in the form of a loan, capital            
contribution or otherwise) in any Subsidiary or any other entity other than     
loans to Subsidiaries in the ordinary course of business.                       

Section 3.3 Authorization; Enforceability. (a) The execution, delivery and
performance of this Agreement and the consummation of the transactions          
contemplated hereby are within the corporate power and authority of the Company 
and, subject to the provisions hereof, have been duly authorized by the Board   
of Directors of the Company. Except for the requisite approval and              
authorization of this Agreement and the Merger by the Company's Shareholders    
pursuant to the NYBCL (the "Company Shareholder Approval"), no other corporate  
proceeding or action on the part of the Company or the holders of any class or  
series of the Company's capital stock is necessary to authorize the execution   
and delivery by the Company of this Agreement and the consummation by it of the 
transactions contemplated hereby. This Agreement is the valid and binding       
obligation of the Company, enforceable against the Company in accordance with   
its terms, except as the enforcement thereof may be limited by applicable       
bankruptcy, insolvency, reorganization, moratorium or similar Laws generally    
affecting the rights of creditors and subject to general equitable principles   
(regardless of whether such enforceability is considered in a proceeding in     
equity or at law).                                                              

(b) Prior to execution and delivery of this Agreement, the Board of       
Directors of the Company has (at a meeting duly called and held) unanimously    
(i) approved this Agreement and the transactions contemplated hereby in         
accordance with the NYBCL, (ii) resolved to recommend the approval of this      
Agreement by the Company's shareholders and (iii) directed that this agreement  
be submitted to the Company's shareholders for their approval.                  

(c) No state antitakeover, "fair price," "moratorium," "control share     
acquisition" or similar statute or regulation applicable to the Company         
(including Section 912 of the NYBCL) would have the effect of invalidating or   
voiding this Agreement or any material provision hereof or would subject the    
Parent or the Sub to any impediment or condition in connection with the         
exercise of any of their respective rights under this Agreement.                

 Section 3.4 No Violation or Conflict. Except as set forth in Section 3.4 of
the Company Disclosure Schedule, the execution and delivery of this Agreement   
and all documents and instruments required by this Agreement to be executed and 
delivered by the Company do not, and the consummation of the transactions       

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contemplated hereby and compliance with the provisions hereof will not, (i)     
result in any violation of, or default (with or without notice or lapse of      
time, or both) under, or give rise to a right of termination, cancellation or   
acceleration of any Contract or to the loss of a material benefit under any     
Contract, or result in the creation of any Lien upon any of the properties or   
assets of the Company or its Subsidiaries, (ii) conflict with or result in any  
violation of any provision of the Restated Certificate of Incorporation or the  
Amended and Restated By-Laws, in each case as amended, of the Company, (iii)    
violate any Existing Permits or any Law applicable to the Company or its        
Subsidiaries or any of their respective properties or assets, other than, in    
the case of clauses (i) and (iii), any such violations, defaults, rights,       
losses or Liens that, individually or in the aggregate, would not have a        
Material Adverse Effect or would not affect adversely the ability of the        
Company to consummate the transactions contemplated by this Agreement.          

Section 3.5 SEC Reports; Financial Statements; Indebtedness; Other        
Information. (a) The Company has filed with the SEC true and complete copies of 
all forms, reports, schedules, statements and other documents required to be    
filed by it since July 31, 1996 under the Securities Exchange Act of 1934, as   
amended, and the rules and regulations thereunder (collectively, the "Exchange  
Act"), or the Securities Act of 1933, as amended, and the rules and regulations 
thereunder (collectively, the "Securities Act") (as such documents have been    
amended since the time of their filing, collectively, the "Company SEC          
Reports"). As of their respective dates or, if amended, as of the date of the   
last such amendment, the Company SEC Reports, including, without limitation,    
any financial statements or schedules included therein (a) did not contain any  
untrue statement of a material fact or omit to state a material fact required   
to be stated therein or necessary in order to make the statements therein, in   
light of the circumstances under which they were made, not misleading and (b)   
complied in all material respects with the applicable requirements of the       
Exchange Act and the Securities Act, as the case may be, and the applicable     
rules and regulations of the SEC thereunder at such time of filing.             

  (b) Company Financial Statements. The Company Financial Statements comply in
all material respects with the applicable accounting requirements and the       
published rules and regulations of the SEC with respect thereto and have been   
prepared in accordance with generally accepted accounting principles applied on 
a consistent basis by the Company during the periods involved, except as        
otherwise described in the notes thereto and, in the case of the unaudited      
interim financial statements, subject to usual and recurring year-end           
adjustments that have not been and are not expected to be material in amount.   
The Company Financial Statements fairly present in all material respects the    
financial position of the Company as of the date set forth on each of such      
Company Financial Statements and the results of operations of the Company for   
the periods indicated. Except as set forth in Section 3.5(b) of the Company     
Disclosure Schedule and except as set forth in the Company SEC Reports filed    
and publicly available and except for liabilities and obligations incurred in   
the ordinary course of business consistent with past practice since the date of 
the most recent Company Financial Statements included in the Company SEC        
Reports filed and publicly available prior to the date hereof, neither the      
Company nor any of its Subsidiaries has any liabilities or obligations of any   
nature (whether accrued, absolute, contingent or otherwise) which are           
reasonably likely to have a Material Adverse Effect, including any liabilities  
arising or required to be accrued as a result of the consummation of the        
transactions contemplated hereby.                                               

(c) Indebtedness. As of June 7, 1999, the Company had outstanding         
Indebtedness of $86,504,000 (including the Debentures).                         

(d) Additional Company Information. The information set forth in Section  
3.5(d) of the Company Disclosure Schedule (including the financial information  
with respect to the nine-month period ending April 30, 1999 (the "1999          
Financial Information")), which was provided to the Parent prior to the date    
hereof are accurate and complete statements of the matters set forth therein.   
The information contained in the Company's Quarterly Report on Form 10-Q for    
the nine months ended April 30, 1999 will not differ in any material respect    
from the 1999 Financial Information.                                            

Section 3.6 Litigation. (a) Except as disclosed in the Company SEC Reports
filed prior to the date hereof or in Section 3.6 of the Company Disclosure      
Schedule, as of the date hereof, there are no actions, suits,                   

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claims (including worker's compensation claims), litigation or other            
governmental or judicial proceedings or investigations or arbitrations pending  
against the Company, its Subsidiaries or any of its properties, assets or       
businesses, or, to the knowledge of the Company, any of the Company's or any    
Subsidiary's current or former directors or officers or any other Person whom   
the Company or any Subsidiary has agreed to indemnify that is reasonably likely 
to have, individually or in the aggregate, a Material Adverse Effect; (b) there 
are no actions, suits or proceedings pending or, to the knowledge of the        
Company, threatened against the Company by any Person which question the        
legality or validity of the transactions contemplated by this Agreement; and    
(c) there are no outstanding orders, judgments, injunctions, awards or decrees  
of any Governmental Entity against the Company, its Subsidiaries, any of its    
properties, assets or businesses, or, to the knowledge of the Company, any of   
the Company's or its Subsidiaries' current or former directors or officers or   
any other person whom the Company or any Subsidiary has agreed to indemnify     
that is reasonably likely to have, individually or in the aggregate, a Material 
Adverse Effect.                                                                 

Section 3.7 Absence of Certain Changes. Except as disclosed in the Company
SEC Reports filed prior to the date hereof or as set forth in Section 3.7 of    
the Company Disclosure Schedule and except for matters directly resulting from  
(x) the filing by Parent with the SEC of its Schedule 13D or its tender offer   
with respect to the Company or (y) the execution of this Agreement and the      
consummation of the transactions contemplated hereby, since January 31, 1999,   
(a) the businesses of the Company and its Subsidiaries have been conducted in   
the ordinary course consistent with past practice, (b) there has not been any   
event, occurrence, development or state of circumstances or facts that has had, 
or is reasonably likely to have, individually or in the aggregate, a Material   
Adverse Effect, and (c) neither the Company nor any of its Subsidiaries has     
taken any action, which if taken after the date hereof, would constitute a      
material breach of any provision set forth in Section 5.1 hereof (other than    
paragraphs (d) and (g) of such Section 5.1).                                    

  Section 3.8 Performance of Contracts. Each of the Contracts is in full force
and effect and constitutes the legal and binding obligation of the Company and, 
to the knowledge of the Company, constitutes the legal and binding obligation   
of the other parties thereto, except where the failure to be in full force and  
effect is not reasonably likely to have a Material Adverse Effect. There are no 
existing breaches or defaults by the Company or, to the knowledge of the        
Company, any other party under any Contract the effect of which would           
constitute a Material Adverse Effect and, to the knowledge of the Company, no   
event has occurred which, with the passage of time or the giving of notice or   
both, could reasonably be expected to constitute such a breach or default. The  
Company is not subject to the terms of any non-competition or other agreement   
(including any area restrictions) which restrict in any material respect the    
conduct of the respective businesses of the Company and its Subsidiaries as     
presently conducted.                                                            

 Section 3.9 Employee Benefit Plans. (a) Existing Plans. Except as set forth
in Section 3.9(a) of the Company Disclosure Schedule, neither the Company nor   
any Company ERISA Affiliate (as hereinafter defined) maintains or contributes   
to, nor is it bound by, nor has it maintained or contributed to at any time     
during the three (3) years prior to the date hereof, any Existing Plan. To the  
knowledge of the Company, all of the Existing Plans that are subject to ERISA   
or the Code are in compliance in all material respects with ERISA and the Code. 
Except as set forth in Section 3.9(b) of the Company Disclosure Schedule, no    
Existing Plans have been adopted or modified in any material respect since July 
31, 1998. All of the Existing Plans which are intended to meet the requirements 
of Section 401(a) of the Code have been determined by the Internal Revenue      
Service to be "qualified" within the meaning of the Code or have been filed     
with the Internal Revenue Service with a request for a determination letter on  
or prior to the end of the applicable remedial amendment period and, to the     
knowledge of the Company, there are no facts which would adversely affect the   
tax qualified status of any of the Existing Plans. "Company ERISA Affiliate"    
shall mean any Person which together with the Company would be deemed a "single 
employer" within the meaning of Section 4001 of ERISA.                          

(b) ERISA Code. There is no accumulated funding deficiency, within the    
meaning of Section 302 of ERISA or Section 412 of the Code, in connection with  
the Existing Plans. No reportable event, as defined in ERISA (other than        
reportable events for which the 30-day notice requirement has been waived) has  
occurred in                                                                     

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connection with the Existing Plans since January 1, 1995. Except as set forth   
in Section 3.9(c) of the Company Disclosure Schedule, neither the Company nor   
any Company ERISA Affiliate is contributing to or has any material liability    
with respect to any multiemployer plan within the meaning of Section 3(37) of   
ERISA.                                                                          

(c) Compliance. Neither the Company nor any Company ERISA Affiliate has   
incurred, directly or indirectly, any material liability to or on account of an 
Existing Plan pursuant to Title IV, Subtitle D of ERISA, and, to the knowledge  
of the Company, no proceedings have been instituted to terminate any Existing   
Plan that is subject to Title IV, Subtitle D of ERISA.                          

(d) ESOP. With respect to any Existing Plan that is an employee stock     
ownership plan within the meaning of Section 4975(e)(7) of the Code (an "ESOP") 
any indebtedness owed to the Company by any such ESOP is secured by the shares  
of Company Common Stock acquired by such ESOP with the proceeds of such         
indebtedness, provided, however, that in the event of a change in control of    
the Company, any such indebtedness is forgiven or the Company is required to    
make sufficient contributions to enable the ESOP to repay such indebtedness in  
full.                                                                           

(e) Funding. As of the last valuation date of each Existing Plan that is  
subject to Title IV, Subtitle D of ERISA, the current value of the assets of    
each such Existing Plan is at least ninety (90) percent of the present value of 
the accrued benefits under each such Existing Plan, based upon the actuarial    
assumptions used for funding purposes in the most recent actuarial report       
prepared by such Existing Plan's actuary with respect to such Existing Plan;    
and all contributions or other amounts payable by the Company as of the         
Effective Time with respect to the current or prior plan year of each Existing  
Plan have been either paid or accrued on the balance sheet of the Company.      
There are no material pending, or, to the knowledge of the Company, threatened  
or anticipated claims (other than routine claims for benefits) by, on behalf of 
or against any of the Existing Plans or any trusts related thereto.             

(f) Other Plan Obligations. To the knowledge of the Company, neither the  
Company nor any Company ERISA Affiliate, nor any Existing Plan, nor any trust   
created thereunder, nor any trustee or administrator thereof, has engaged in a  
transaction in connection with which the Company or any Company ERISA           
Affiliate, any Existing Plan, any such trust, or any trustee or administrator   
thereof, or any party dealing with any Existing Plan or any such trust could be 
subject to either a civil penalty assessed pursuant to Section 409 or 502(j) of 
ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code. No         
Existing Plan provides death or medical benefits (whether or not insured), with 
respect to current or former employees of the Company or any Company ERISA      
Affiliate beyond their retirement other than (i) coverage mandated by           
applicable Law or (ii) death benefits under any "employee pension plan," as     
that term is defined in Section 3(2) of ERISA.                                  

Section 3.10 Taxes. Except as disclosed in Section 3.10 of the Company    
Disclosure Schedule and except as would not have a Material Adverse Effect:     

(a) the Company and each of its Subsidiaries have timely filed or   
caused to be filed (except where the failure to file on a timely basis has  
not or will not result in the imposition of any material additional tax     
liability and taking into account all extensions) all Tax Returns required  
to be filed by them and all such Tax Returns were true, correct and         
complete in all material respects when filed.                               

(b) the Company and each of its Subsidiaries have paid (or have had 
paid on their behalf) or, where payment is not yet due, have established    
(or have had established on their behalf and for their sole benefit and     
recourse) an adequate accrual for the payment of all material Taxes due     
with respect to any period ending on or prior to the Closing;               

   (c) none of the Company or any of its Subsidiaries has received written
notice of any ongoing, pending or threatened federal, state, local or       
foreign tax audit or examination of any Tax Returns;                        

  (d) there are no outstanding written requests, agreements, consents or
waivers to extend the statutory period of limitations applicable to the     
assessment of any material Taxes or deficiencies against the Company or any 
of its Subsidiaries;                                                        

(e) none of the Company or any of its Subsidiaries is a party to an 
agreement or arrangement providing for the allocation or sharing of any     
material Taxes;                                                             

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 (f) there are no statutory liens for any material Taxes upon the assets
of the Company or any of its Subsidiaries, except liens for Taxes not yet   
due and payable and liens for Taxes that are being contested in good faith  
(and for which adequate accruals have been established);                    

(g) no consent to the application of Section 341(f)(2) of the Code has
been made or filed by or with respect to the Company, any of its            
Subsidiaries or any of their assets or properties;                          

  (h) none of the Company or any of its Subsidiaries have taken any action
that would require an adjustment pursuant to Section 481 of the Code by     
reason of a change in accounting method or otherwise;                       

(i) except as disclosed in Section 3.10(i) of the Company Disclosure  
Schedule, there have not been, nor will there be from the date hereof       
through and including the Closing Date, any payments, or any agreements to  
make payments, which would be "excess parachute payments" under Section     
280G of the Code;                                                           

(j) none of the Company or any of its Subsidiaries has executed or    
entered into any closing agreement pursuant to Section 7121 of the Code or  
any predecessor provisions thereof or any similar provision of state or     
other law with respect to any period for which the statue of limitations    
has not expired;                                                            

(k) none of the Company or any of its Subsidiaries has been or is in  
violation (or with notice or lapse of time or both, would be in violation)  
of any applicable law relating to the payment or withholding of Taxes. The  
Company and each of its Subsidiaries have duly and timely withheld from     
employee salaries, wages and other compensation, and paid over to the       
appropriate taxing authorities all amounts required to be so withheld and   
paid over for all periods under all applicable laws; and                    

(l) none of the Company or any of its Subsidiaries is or has been a   
"United States real property holding company" (as defined in Code Section   
897(c)(2)) during the applicable period specified in Code Section           
897(c)(1)(ii).                                                              

  Section 3.11 Governmental Approvals. No permission, approval, determination,
consent or waiver by, or any declaration, filing or registration with, any      
federal, state, local or foreign court, arbitral tribunal, administrative       
agency or commission or other governmental or regulatory authority or           
administrative agency (a "Governmental Entity") is required by the Company in   
connection with the execution and delivery of this Agreement by the Company or  
the consummation by the Company of the transactions contemplated hereby,        
except: (a) the approvals described in Section 3.11 of the Company Disclosure   
Schedule; (b) in connection with the applicable requirements of the Hart-Scott- 
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and      
antitrust or other competition laws of other jurisdictions; (c) pursuant to the 
applicable requirements of the Securities Act, the Exchange Act, state blue sky 
laws, the NYSE, and the rules and regulations promulgated thereby; and (d) the  
filing of the Certificate of Merger as described in this Agreement.             

Section 3.12 Labor Matters. Except as described in Section 3.12 of the    
Company Disclosure Schedule, there is (i) no pending, nor has the Company       
experienced since July 31, 1997 any, labor dispute, strike or organized work    
stoppage and, to the knowledge of the Company, there is no threatened material  
labor dispute, strike or organized work stoppage against the Company and (ii)   
(A) to the knowledge of the Company, no union organizing activities are in      
process or have been proposed or threatened involving any employees of the      
Company not presently organized, and (B) no petitions have been filed or, to    
the knowledge of the Company, have been threatened or proposed to be filed, for 
union organization or representation of employees of the Company not presently  
organized except with respect to matters in clauses (i) and (ii) which do not   
have a Material Adverse Effect.                                                 

Section 3.13 Existing Permits and Violations of Law. The Company has all  
licenses, permits, approvals, exemptions, orders, approvals, franchises,        
qualifications, permissions, agreements and governmental authorizations which   
the Company is required to have for the conduct of its business as currently    
conducted, except where the failure to have the same would not have a Material  
Adverse Effect. No action or proceeding is pending or, to the knowledge of the  
Company, threatened that is reasonably likely to result in a revocation, non-   
renewal, termination, suspension or other material impairment of any Existing   
Permits, except for such revocations, non-renewals, terminations, suspensions   
or other impairments as would not be reasonably likely to                       

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result in a Material Adverse Effect. The business of the Company is not being   
conducted in violation of any applicable Law, except for such violations which  
would not have a Material Adverse Effect. No Governmental Entity has indicated  
to the Company an intention to conduct an investigation or review with respect  
to the Company other than, in each case, those which would not have a Material  
Adverse Effect.                                                                 

Section 3.14 Intangible Assets. (i) There are no claims, demands or       
proceedings instituted, pending or, to the knowledge of the Company, threatened 
by any Person contesting or challenging the right of the Company or any of its  
Subsidiaries to use any of its Intangible Assets; (ii) each trademark           
registration, service mark registration, copyright registration and patent used 
by the Company is owned by or licensed pursuant to a valid license agreement to 
the Company or its Subsidiaries and, with respect to those owned by the Company 
or its Subsidiaries, has been maintained in good standing and, with respect to  
those licensed to the Company or its Subsidiaries, to the Company's knowledge,  
has been maintained in good standing; (iii) to the knowledge of the Company,    
there are no Intangible Assets owned by a third Person which the Company or any 
of its Subsidiaries is using without license to do so; (iv) the Company and     
each of its Subsidiaries owns or possesses adequate licenses or other rights to 
use all Intangible Assets necessary to conduct its business as now conducted;   
and (v) the consummation of the Merger and the transactions contemplated by     
this Agreement will not impair the validity, enforceability, ownership or right 
of the Company and each of its Subsidiaries to use its Intangible Assets;       
except, in each of clauses (i) through (v), as would not result in a Material   
Adverse Effect.                                                                 

 Section 3.15 Year 2000. Except as, individually or in the aggregate, is not
reasonably likely to result in a Material Adverse Effect:                       

(a) all of the Computer Programs, computer firmware, computer hardware
(whether general or special purpose) and other similar or related items of  
automated, computerized and/or software system(s) that are used or relied   
on by the Company or by any of its Subsidiaries in the conduct of their     
respective businesses will not malfunction, will not cease to function,     
will not generate incorrect data, and will not provide incorrect results    
when processing, providing and/or receiving (i) date-related data into and  
between the twentieth and twenty-first centuries and (ii) date-related data 
in connection with any valid date in the twentieth and twenty-first         
centuries; and                                                              

(b) all of the products and services sold, licensed, rendered or      
otherwise provided by the Company or by any of its Subsidiaries in the      
conduct of their respective businesses will not malfunction, will not cease 
to function, will not generate incorrect data and will not produce          
incorrect results when processing, providing and/or receiving (i) date-     
related data into and between the twentieth and twenty-first centuries and  
(ii) date-related data in connection with any valid date in the twentieth   
and twenty-first centuries; and neither the Company nor any of its          
Subsidiaries is or shall be subject to claims or liabilities arising from   
their failure to do so; and                                                 

(c) neither the Company nor any of its Subsidiaries has made other    
representations or warranties regarding the ability of any product or       
service sold, licensed, rendered or otherwise provided by the Company or by 
any of its Subsidiaries in the conduct of their respective businesses to    
operate without malfunction, to operate without ceasing to function, to     
generate correct data and to produce correct results when processing,       
providing and/or receiving (i) date-related data into and between the       
twentieth and twenty-first centuries and (ii) date-related data in          
connection with any valid date in the twentieth and twenty-first centuries. 

 Section 3.16 Customers and Suppliers. Since January 31, 1999, other than as
a result of the execution of this Agreement and the consummation of the         
transactions contemplated hereby, there has been no termination, cancellation   
or material curtailment of the business relationship of the Company with any    
customer or supplier or group of affiliated customers or suppliers which would  
result in a Material Adverse Effect nor, to the knowledge of the Company, any   
written notice of intent to so terminate, cancel or materially curtail such     
business relationships.                                                         

 Section 3.17 Environmental Matters. (a) Except as described in Section 3.17
of the Company Disclosure Schedule and except as is not reasonably likely to    
result in a Material Adverse Effect, the Company                                

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is, and at all times has been, in full compliance with and has not been and is  
not in violation of or liable under, any Environmental Law. The Company has not 
received, any actual or threatened order, notice or other communication         
(written or oral) from (i) any Governmental Body or third party or (ii) the     
current or prior owner or operator of any property, of any actual or potential  
violation or failure to comply with any Environmental Law, or of any actual or  
threatened obligation to undertake or bear the cost of any Environmental Claim  
with respect to any property or assets (whether real, personal or mixed) in     
which the Company has had an interest except as is not reasonably likely to     
result in a Material Adverse Effect.                                            

(b) Except as described in Section 3.17 of the Company Disclosure Schedule
and except as is not reasonably likely to result in a Material Adverse Effect,  
there are no pending or, to the knowledge of the Company, threatened            
Environmental Claims, encumbrances, or other restrictions of any nature,        
resulting from any liabilities or arising under or pursuant to any              
Environmental Law, with respect to or affecting any property and assets         
(whether real, personal or mixed) in which the Company has or had an interest.  

(c) Environmental Permits. The Company has obtained all material          
environmental, health and safety permits and governmental authorizations        
(collectively, the "Environmental Permits") required for its operations, and    
all such permits are in good standing and the Company is in compliance in all   
material respect with all terms and conditions of the Environmental Permits.    

Section 3.18 Disclosure Documents. None of the information supplied in    
writing or to be supplied in writing by the Company for inclusion in (i) the    
definitive proxy statement (as the same may be amended or supplemented from     
time to time, the "Proxy Statement/Prospectus"), and (ii) the registration      
statement on Form S-4 to be filed with the SEC by the Parent in connection with 
the Merger (as the same may be amended or supplemented from time to time, the   
"Registration Statement") including the Proxy Statement/Prospectus included     
therein, will, in the case of the Proxy Statement/Prospectus, either at the     
time of mailing of the Proxy Statement/Prospectus to shareholders of the        
Company or at the time of the special meeting of the shareholders of the        
Company (the "Shareholders Meeting") to be duly called, noticed, convened and   
held as soon as practicable following the date hereof for the purpose of voting 
to approve this Agreement and the Merger, contain any untrue statement of a     
material fact or omit to state any material fact required to be stated therein  
or necessary in order to make the statements therein, in light of the           
circumstances under which they are made, not misleading or will, in the case of 
the Registration Statement, either at the time the Registration Statement is    
filed with the SEC or at the time the Registration Statement becomes effective  
under the Securities Act, contain any untrue statement of a material fact or    
omit to state any material fact required to be stated therein or necessary to   
make the statements therein not misleading except that no representation or     
warranty is made by the Company with respect to (i) any forward-looking         
information regarding or statements made by the Company (whether or not         
included in the Registration Statement) or (ii) with respect to the information 
supplied by the Parent.                                                         

Section 3.19 Opinion of Financial Advisor. The Board of Directors of the  
Company has received the opinion of Credit Suisse First Boston Corporation      
("Credit Suisse First Boston"), its financial advisor, to the effect that, as   
of the date of this Agreement, the Exchange Ratio, based upon and subject to    
the assumptions and limitations set forth in such opinion, is fair to the       
holders of the Company Common Stock (other than Parent and its Affiliates) from 
a financial point of view, a copy of the written opinion of which will be       
delivered to the Parent after receipt thereof by the Company.                   

 Section 3.20 Certain Agreements. Except as set forth in Section 3.20 of the
Company Disclosure Schedule, the Company is not a party to any oral or written  
Agreement or plan, including any stock option plan, stock appreciation rights   
plan, restricted stock plan or stock purchase plan, any of the benefits of      
which will be increased, or the vesting of the benefits of which will be        
accelerated, by the occurrence of any of the transactions contemplated by this  
Agreement or the value of any of the benefits of which will be calculated on    
the basis of any of the transactions contemplated by this Agreement. Except as  
described in Section 3.20 of the Company Disclosure Schedule, the transactions  
contemplated by this Agreement will not constitute a "change of control" under, 
require the consent from or the giving of notice to any third party pursuant    
to, or accelerate                                                               

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the vesting or repurchase rights under, the terms, conditions or provisions of  
any loan or credit agreement, note, bond, mortgage or indenture or any          
material license, lease, contract, Agreement or other instrument or obligation  
to which the Company is a party or by which any of them or any of their         
properties or assets may be bound. Except as set forth in Section 3.20 of the   
Company Disclosure Schedule or as expressly provided herein, there are no       
material amounts payable by the Company to any officers of the Company (in      
their capacity as officers) as a result of the transactions contemplated by     
this Agreement. Except as set forth in Section 3.20 of the Company Disclosure   
Schedule, there are no contractual agreements between any officers or           
directors of the Company and the Company.                                       

Section 3.21 Rights Agreement. The Company has taken all action which may 
be necessary under the Rights Agreement, so that the execution of this          
Agreement and any amendments thereto by the parties hereto and the              
consummation of the transactions contemplated hereby and thereby shall not      
cause (i) the Parent and/or the Sub or their respective Affiliates or           
Associates to become an Acquiring Person (as such terms are defined in the      
Rights Agreement) unless this Agreement has been terminated in accordance with  
its terms or (ii) a Distribution Date, a Stock Acquisition Date (as such terms  
are defined in the Rights Agreement) or certain other events (as described in   
the Rights Agreement) to occur, irrespective of the number of shares of         
Company Common Stock acquired pursuant to the Merger or other transactions      
contemplated by this Agreement.                                                 

Section 3.22 Vote Required. The affirmative vote of the holders of two-   
thirds of the shares of the Company Common Stock entitled to vote with respect  
to the Merger is the only vote of the holders of any class or series of the     
Company's capital stock or other securities necessary for the Company to        
approve the Merger, this Agreement and the transactions contemplated hereby.    

 Section 3.23 Finders or Brokers. Except for Credit Suisse First Boston with
respect to the Company, a copy of whose engagement agreement has been provided  
to the Parent, neither the Company nor its Subsidiaries has employed any        
investment banker, broker, finder or intermediary in connection with the        
transactions contemplated hereby who might be entitled to any fee or any        
commission in connection with or upon consummation of the transactions          
contemplated hereby.                                                            

ARTICLE IV  

Representations and Warranties of the Parent and the Sub  

The Parent and the Sub hereby represent and warrant to the Company on the 
date of this Agreement that:                                                    

 Section 4.1 Due Incorporation and Authority. Each of the Parent and the Sub
is a corporation duly organized, validly existing and in good standing under    
the laws of its jurisdiction of incorporation. Each of the Parent and the Sub   
has the corporate power and authority to own its properties and assets and to   
carry on its business as it is now being conducted and is duly qualified to do  
business and is in good standing in each of the jurisdictions in which the      
ownership of its properties or the conduct of its business requires such        
qualification, except for jurisdictions in which the failure to be so           
qualified would not, individually or in the aggregate, have a Parent Material   
Adverse Effect. The Parent has delivered to the Company copies of the           
certificates of incorporation and by-laws or other organizational documents of  
the Parent and the Sub.                                                         

Section 4.2 Authorization; Enforceability. Each of the Parent and the Sub 
has the corporate power and authority to enter into this Agreement and carry    
out its obligations hereunder and consummate the transactions contemplated      
hereby. The execution and delivery of this Agreement and the consummation of    
the transactions contemplated hereby have been duly authorized by the Board of  
Directors of the Parent and the Sub, and no other corporate proceeding or       
action on the part of the Parent or the Sub is necessary to authorize this      
Agreement and the consummation of the transactions contemplated hereby. This    
Agreement is, and the other documents and instruments required by this          
Agreement to be executed and delivered by the Parent and the Sub will be, when  
executed and delivered by the Parent and the Sub, the valid and binding         
obligations of the Parent and the Sub, enforceable against each party in        
accordance with their respective terms, except as the                           

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enforcement thereof may be limited by applicable bankruptcy, insolvency,        
reorganization, moratorium or similar Laws generally affecting the rights of    
creditors and subject to general equitable principles (regardless of whether    
such enforceability is considered in a proceeding in equity or at law).         

Section 4.3 No Violation or Conflict. The execution and delivery of this  
Agreement and all documents and instruments required by this Agreement to be    
executed and delivered by the Parent and the Sub do not, and the consummation   
of the transactions contemplated hereby and compliance with the provisions      
hereof will not, (i) result in any violation of, or default (with or without    
notice or lapse of time, or both) under, or give rise to a right of             
termination, cancellation or acceleration of any contract, agreement and        
obligation, written or oral, to which the Parent or the Sub is a party or by    
which either of them or any of their assets are bound, including, without       
limitation, any loan, bond, mortgage, indenture, lease, instrument, franchise   
or license or to the loss of a material benefit under any such contract,        
agreement or obligation or result in the creation of any Lien upon any of the   
properties or assets of the Parent or the Sub, (ii) conflict with or result in  
any violation of any provision of the certificate of incorporation or by-laws   
or other equivalent organizational document, in each case as amended, of the    
Parent and the Sub, (iii) violate any permits, licenses, approvals,             
qualifications, authorizations, and registrations required by Law which the     
Parent or the Sub has or holds or any Law applicable to the Parent or the Sub   
or any of their respective properties or assets, other than, in the case of     
clauses (i) and (iii), any such violations, defaults, rights, losses or Liens   
that, individually or in the aggregate, would not have a Parent Material        
Adverse Effect or would not affect adversely the ability of the Company to      
consummate the Merger and the other transactions contemplated by this           
Agreement.                                                                      

  Section 4.4 SEC Reports; Financial Statements. (a) The Parent has filed with
the SEC true and complete copies of all forms, reports, schedules, statements   
and other documents required to be filed by it since June 29, 1996 under the    
Exchange Act or the Securities Act (as such documents have been amended since   
the time of their filing, collectively, the "Parent SEC Reports"). As of their  
respective dates or, if amended, as of the date of the last such amendment, the 
Parent SEC Reports, including, without limitation, any financial statements or  
schedules included therein (a) did not contain any untrue statement of a        
material fact or omit to state a material fact required to be stated therein or 
necessary in order to make the statements therein, in light of the              
circumstances under which they were made, not misleading and (b) complied in    
all material respects with the applicable requirements of the Exchange Act and  
the Securities Act, as the case may be, and the applicable rules and            
regulations of the SEC thereunder at such time of filing.                       

(b) Parent Financial Statements. The Parent Financial Statements comply in
all material respects with the applicable accounting requirements and the       
published rules and regulations of the SEC with respect thereto and have been   
prepared in accordance with generally accepted accounting principles applied on 
a consistent basis by the Parent during the periods involved, except as         
otherwise described in the notes thereto and, in the case of the unaudited      
interim financial statements, subject to usual and recurring year-end           
adjustments that have not been and are not expected to be material in amount.   
The Parent Financial Statements fairly present in all material respects the     
financial position of the Parent as of the date set forth on each of such       
Parent Financial Statements and the results of operations of the Parent for the 
periods indicated.                                                              

Section 4.5 Disclosure Documents. None of the information supplied in     
writing or to be supplied in writing by the Parent for inclusion in the Proxy   
Statement/Prospectus and the Registration Statement will, in the case of the    
Proxy Statement/Prospectus, either at the time of mailing of the Proxy          
Statement/Prospectus to shareholders of the Company or at the time of the       
Shareholders Meeting contain any untrue statement of a material fact or omit to 
state any material fact required to be stated therein or necessary in order to  
make the statements therein, in light of the circumstances under which they are 
made, not misleading or will, in the case of the Registration Statement, either 
at the time the Registration Statement is filed with the SEC or at the time the 
Registration Statement becomes effective under the Securities Act, contain any  
untrue statement of a material fact or omit to state any material fact required 
to be stated therein or necessary to make the statements therein not            
misleading. The Registration Statement will comply as to form in all material   
respects with the provisions of the Securities Act, except that no              
representation or warranty is made by the Parent with respect to (i) any        
forward-looking information regarding or statements made by the Parent (whether 
or not included in the Registration Statement) or (ii) information supplied by  
the Company.                                                                    

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 Section 4.6 Governmental Approvals. No permission, approval, determination,
consent or waiver by, or any declaration, filing or registration with, any      
Governmental Entity is required by the Parent or the Sub in connection with the 
execution and delivery of this Agreement by the Parent and the Sub or the       
consummation by either of them of the transactions contemplated hereby, except: 
(a) in connection with the applicable requirements of the HSR Act and antitrust 
or other competition laws of other jurisdictions; (b) pursuant to the           
applicable requirements of the Securities Act, the Exchange Act, state blue sky 
laws, the NYSE, and the rules and regulations promulgated thereby; and (c) the  
filing of the Certificate of Merger as described in this Agreement.             

Section 4.7 Authorization of Parent Common Stock. Prior to the Effective  
Time, the Parent will have taken all necessary action to permit it to issue the 
number of shares of Parent Common Stock required to be issued pursuant to       
Article II. Parent Common Stock issued pursuant to Article II will, when issued 
in accordance with the terms hereof, be validly issued, fully paid and          
nonassessable, and no stockholder of the Parent will have any preemptive right  
of subscription or purchase in respect thereof.                                 

 Section 4.8 Finders or Brokers. Except for Goldman Sachs & Co. with respect
to the Parent, neither the Parent nor the Sub has employed any investment       
banker, broker, finder or intermediary in connection with the transactions      
contemplated hereby who might be entitled to any fee or any commission in       
connection with or upon consummation of the transactions contemplated hereby.   

  Section 4.9 Interim Operations of the Sub. The Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no  
other business activities and has conducted its operations only as contemplated 
hereby.                                                                         

ARTICLE V 

Covenants and Agreements

Section 5.1 Conduct of Business by the Company. From and after the date of
this Agreement and until the earlier of the termination of this Agreement or    
the Effective Time (unless the other party shall otherwise agree in writing and 
except as otherwise contemplated by this Agreement), the Company will preserve  
in all material respects its business organization intact and will conduct its  
operations according to its ordinary and usual course of business consistent in 
all material respects with past practice, including, without limitation,        
retaining the services of employees and conducting business with suppliers,     
customers, creditors and others having business relationships with the Company. 
Without limiting the generality of the foregoing, and except as otherwise       
permitted in this Agreement or set forth on Section 5.1 of the Company          
Disclosure Schedule, prior to the Effective Time, neither the Company nor its   
Subsidiaries will:                                                              

 (a) except for shares to be issued or delivered pursuant to outstanding
Options, upon conversion of the outstanding Debentures or issuances by a    
Subsidiary of the Company to such Subsidiaries' parent, issue deliver,      
sell, dispose of, pledge or otherwise encumber, or authorize or propose the 
issuance, sale, disposition or pledge or other encumbrance of (A) any       
additional shares of capital stock of any class, or any securities or       
rights convertible into, exchangeable for, or evidencing the right to       
subscribe for any shares of capital stock, or any rights, warrants,         
options, calls, commitments or any other agreements of any character to     
purchase or acquire any shares of capital stock or any securities or rights 
convertible into, exchangeable for, or evidencing the right to subscribe    
for, any shares of capital stock, or (B) any other securities in respect    
of, in lieu of, or in substitution for, Company Common Stock outstanding on 
the date hereof;                                                            

(b) amend its Restated Certificate of Incorporation or Amended and    
Restated By-laws or, except to the extent required to comply with its       
obligations hereunder, alter through merger, liquidation, reorganization,   
restructuring or in any other fashion the corporate structure or ownership  
of any Subsidiary of the Company (other than the Merger) or split, combine, 
subdivide or reclassify any Company Common Stock or declare, set aside for  
payment or pay any dividend, or make any other actual, constructive or      
deemed distribution in respect of any Company Common Stock or otherwise     
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 (c) make payments or distributions (other than salaries, director fees,
expense reimbursements and other employee compensation in the ordinary      
course of business consistent with past practice) to any Affiliate of the   
Company; provided, however, dividends or distributions may be made between  
wholly-owned Subsidiaries of the Company and between the Company and        
wholly-owned Subsidiaries;                                                  

(d) enter into, accelerate, terminate, modify in any material respect,
or cancel any Contract involving either more than $250,000 or outside the   
ordinary course of business or knowingly do any act or knowingly omit to do 
any act or, to the extent within the Company's reasonable control,          
knowingly permit any act or omission to act, which will cause a breach of   
any of the Contracts that would have a Material Adverse Effect;             

(e) (i) except in a manner consistent with past practice, grant any   
increase in the rate of pay of any of the Employees; (ii) institute or      
amend any Employee Benefit Plan unless required by Law; (iii) enter into or 
modify any written employment agreement with any Person; or (iv) pay or     
accrue any bonus or incentive compensation to any Person;                   

(f) make any acquisition, by means of merger, consolidation or        
otherwise, or disposition (other than short term investments of the         
Company's cash balances in the ordinary course of business or disposition   
of assets or securities in the ordinary course of business, consistent with 
past practice), of assets or securities;                                    

(g) authorize or make any individual capital expenditure in excess of 
$250,000 or authorize or make capital expenditures in excess of $1,000,000  
in the aggregate (in the event the Closing does not occur before October    
31, 1999, such maximum amount will be increased to $1,500,000 and if the    
Closing does not occur before November 30, 1999, such amount will be        
increased to $2,000,000), except for those capital expenditures which have  
been authorized on the date hereof and are specifically set forth in        
Section 5.1(g) of the Company Disclosure Schedule;                          

(h) pay, discharge or satisfy any claims, liabilities or obligations  
(absolute, accrued, asserted or unasserted, contingent or otherwise) other  
than the payment, discharge or satisfaction in the ordinary course of       
business of liabilities reflected or reserved against in, or contemplated   
by, the Company Financial Statements or incurred in the ordinary course of  
business consistent with past practice;                                     

(i) except as may be required as a result of a change in law or in    
generally accepted accounting principles, make any change in accounting     
policies or procedures applied by the Company (including tax accounting     
policies and procedures);                                                   

(j) create, incur or assume any Indebtedness or make any Investment,  
other than in the ordinary course of business;                              

(k) waive, amend or otherwise alter the Rights Agreement or redeem the
Rights or take any action to render Section 912 of the NYBCL inapplicable   
to any transaction other than the transactions contemplated by this         
Agreement;                                                                  

(l) enter into an agreement to purchase green coffee with a term      
exceeding four months or in an amount in excess of $1,500,000 or enter into 
agreements to purchase green coffee (other than fixed price contracts for   
the purchase of green coffee, all of which is committed to be purchased     
pursuant to a matching bona fide fixed price sales contract with a third    
party customer) in an aggregate amount (together with all existing          
agreements to purchase green coffee) in excess of 20 million pounds;        
provided, that the Company will consult with the Parent and consider in     
good faith its views prior to entering into any agreement that results in   
such aggregate amount exceeding 16 million pounds;                          

(m) knowingly do any act or omit to do any act that would result in a 
breach of any representation by the Company set forth in this Agreement; or 

(n) authorize, or enter into any contract, agreement, commitment or   
arrangement to do any of the foregoing.                                     

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Section 5.2 Shareholders Meeting; Registration Statement and Proxy        
Statement/Prospectus. (a) The Company agrees to take all steps necessary to     
cause the Shareholders Meeting to be duly called, noticed, convened and held as 
soon as practicable following the date hereof for the purpose of voting to      
approve this Agreement and the Merger. Except as provided in Section 7.1(c)     
with respect to a Superior Proposal, the Board of Directors of the Company      
shall recommend approval and adoption of this Agreement and the Merger by the   
holders of Shares entitled to vote thereon ("Voting Shares").                   

(b) The Company and the Parent shall prepare as soon as practicable,      
following the date of this Agreement, and shall file with the SEC, the          
Registration Statement, including the related Proxy Statement/Prospectus, under 
the Securities Act. The Company and the Parent each shall use all reasonable    
efforts to have the Registration Statement declared effective under the         
Securities Act as promptly as practicable after such filing. The respective     
parties will cause the Registration Statement to comply as to form in all       
material respects with the applicable provisions of the Securities Act, the     
Exchange Act and the rules and regulations thereunder. The Company and the      
Parent shall also take any action required to be taken under state blue sky     
laws or other securities laws in connection with the issuance of Parent Common  
Stock in the Merger.                                                            

(c) Each of the Company and the Parent shall furnish all information      
concerning it required to be included in the Registration Statement, including  
the related Proxy Statement/Prospectus. The Parent agrees that the written      
information provided by it for inclusion in the Registration Statement and the  
related Proxy Statement/Prospectus and each amendment or supplement thereto at  
the time it is filed or becomes effective, and at the time that the Proxy       
Statement/Prospectus which forms a part thereof is mailed to the shareholders   
of the Company, will not include an untrue statement of a material fact or omit 
to state a material fact required to be stated therein or necessary to make the 
statements therein, in light of the circumstances under which they were made,   
not misleading; provided, however, that the foregoing shall not apply to the    
extent that any such untrue statement of a material fact or omission to state a 
material fact was made by the Parent in reliance upon and in conformity with    
written information concerning the Company furnished to the Parent by the       
Company specifically for use in the Registration Statement and the related      
Proxy Statement/Prospectus. The Company agrees that the written information     
provided by it specifically for inclusion in the Registration Statement and the 
related Proxy Statement/Prospectus and each amendment or supplement thereto, at 
the time it is filed or becomes effective, and at the time that the Proxy       
Statement/Prospectus which forms a part thereof is mailed to the shareholders   
of the Company, will not contain an untrue statement of a material fact or omit 
to state a material fact required to be stated therein or necessary to make the 
statements therein, in light of the circumstances under which they were made,   
not misleading.                                                                 

Section 5.3 Listing of Parent Common Stock. The Parent shall use its best 
efforts to cause the shares of Parent Common Stock to be issued in the Merger   
to be approved for listing on the NYSE, subject to official notice of issuance, 
prior to the Closing Date.                                                      

Section 5.4 Access. The Company shall (and shall cause each of its        
Subsidiaries to) afford to the officers, employees, accountants, counsel and    
other authorized representatives of the Parent full and complete access upon    
reasonable notice and at reasonable times, throughout the period prior to the   
earlier of the Effective Time or the Termination Date, to its properties,       
offices, employees, contracts, commitments, books and records (including but    
not limited to Tax Returns and computer and information systems) and any        
report, schedule or other document filed or received by it pursuant to the      
requirements of federal or state securities laws and shall (and shall cause     
each of its Subsidiaries to) furnish promptly to the Parent such additional     
financial and operating data and other information as to its and its            
Subsidiaries' respective businesses and properties as the Parent may from time  
to time reasonably request; provided, however, that the Parent's access to the  
Company's businesses which directly compete with the Parent (LaTouraine, Cain's 
and Chock Food Service Distribution and Convenience Stores ("CFS"),             
collectively, the "Competing Businesses") shall be limited to the top manager   
of each Competing Business and shall not include customer lists and information 
regarding specific customer locations, contract terms or other information      
relating to the cost structure or margins of the Competing Businesses; provided 
further, that the immediately preceding proviso shall not limit                 

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Parent's access to information regarding the costs of manufacturing, freight    
and storage of the CFS business. From and after the date of this Agreement      
until the earlier of the Closing Date or the first anniversary of any           
termination of this Agreement, the Parent and its Subsidiaries agree not to     
solicit for employment any person employed by the Competing Businesses or       
employ any person known by the Parent to be an employee of the Company at the   
time of employment. In the event that the transactions contemplated hereby are  
not consummated, the Parent and each of its officers, employees, accountants,   
counsel and other authorized representatives shall keep any information         
obtained in accordance with this Section 5.4 confidential and not use such      
information for any other purpose. The Parent and the Sub will use all          
reasonable efforts to minimize any disruption to the businesses of the Company  
and its Subsidiaries which may result from the requests for data and            
information hereunder. No investigation pursuant to this Section 5.4 shall      
affect any representation or warranty in this Agreement of any party hereto or  
any condition to the obligations of the parties hereto.                         

  Section 5.5 Commercially Reasonable Efforts; Further Assurances. (a) Subject
to the terms and conditions of this Agreement and applicable law, each of the   
parties shall act in good faith and use its commercially reasonable efforts to  
take, or cause to be taken, all actions, and to do, or cause to be done, all    
things necessary, proper or advisable to consummate and make effective the      
transactions contemplated by this Agreement as soon as practicable. Without     
limiting the foregoing, the parties shall (and shall cause their respective     
subsidiaries, and use reasonable best efforts to cause their respective         
affiliates, directors, officers, employees, agents, attorneys, accountants and  
representatives, to) consult and fully cooperate with and provide assistance to 
each other in (i) the preparation and filing with the SEC of the Registration   
Statement and the Proxy Statement/Prospectus and all necessary amendments or    
supplements thereto; (ii) obtain all necessary consents, approvals, waivers,    
licenses, permits, authorizations, registrations, qualifications or other       
permissions or actions by, and give all necessary notices to and make all       
necessary filings with and applications and submissions to, any Governmental    
Entity or other Person (except for approvals obtained under the HSR Act) as     
soon as reasonably practicable after the date of this Agreement; and (iii)      
provide all such information concerning such party, its Subsidiaries and its    
officers, directors, employees, partners and affiliates as may be necessary or  
reasonably requested in connection with any of the foregoing. Prior to making   
any application to or filing with a Governmental Entity or other entity in      
connection with this Agreement (other than filing under the HSR Act), each      
party shall provide the other party with drafts thereof and afford the other    
party a reasonable opportunity to comment on such drafts.                       

(b) In case at any time after the Effective Time any further action is    
necessary or desirable to carry out the purposes of this Agreement, the proper  
officers and directors of each of the parties to this Agreement shall use their 
commercially reasonable best efforts to take all such action.                   

(c) The Company, the Parent and the Sub each shall keep the other apprised
of the status of matters relating to completion of the transactions             
contemplated hereby, including promptly furnishing the other with copies of     
notices or other communications received by the Parent, the Sub or the Company, 
as the case may be, or any of their respective Subsidiaries (other than in any  
such case with respect to Acquisition Proposals (as hereinafter defined)), from 
any third party and/or any Governmental Entity with respect to the transactions 
contemplated by this Agreement.                                                 

Section 5.6 Takeover Statute. If any "fair price," "moratorium," "control 
share acquisition" or other form of anti-takeover statute or regulation shall   
become applicable to the transactions contemplated hereby, each of the Company, 
the Parent and the Sub and the members of their respective Boards of Directors  
shall grant such approvals and take such actions as are reasonably necessary so 
that the transactions contemplated hereby may be consummated as promptly as     
practicable on the terms contemplated hereby and otherwise act to eliminate or  
minimize the effects of such statute or regulation on the transactions          
contemplated hereby.                                                            

Section 5.7 No Solicitation. (a) The Company and its Affiliates shall not,
directly or indirectly, through any officer, director, employee, investment     
banker, attorney, representative or agent of the Company or any of its          
Subsidiaries, (i) solicit, initiate, facilitate, or encourage any inquiries or  
proposals that constitute, or could reasonably be expected to lead to, an       
Acquisition Proposal, (ii) engage in negotiations or discussions                

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concerning, or provide any non-public information or data to any Person or      
entity relating to, any Acquisition Proposal, or (iii) agree to, approve or     
recommend any Acquisition Proposal, or otherwise facilitate any effort or       
attempt to make or implement an Acquisition Proposal; provided, however, that   
nothing contained in this Agreement shall prevent the Company or its Board of   
Directors from (A) furnishing nonpublic information or data to, or entering     
into discussions or negotiations with, any Person in connection with an         
unsolicited bona fide Acquisition Proposal for all of the outstanding shares at 
a price more favorable to the Company's shareholders than the Merger, from a    
party with sufficient financial resources available to it to consummate such a  
transaction and that is reasonably likely to result in a Superior Proposal (as  
hereinafter defined), if and only to the extent that the Company's Board of     
Directors determines in good faith (after consultation with its financial and   
legal advisors), that such action is necessary for such Board of Directors to   
comply with its fiduciary duties under applicable law, and prior to furnishing  
such non-public information to, or entering into discussions or negotiations    
with, such Person or entity, such Board of Directors receives from such Person  
or entity an executed confidentiality agreement containing customary terms and  
conditions; (B) complying with Rule 14e-2 promulgated under the Exchange Act    
with regard to an Acquisition Proposal. The Company will immediately cease and  
cause to be terminated any existing activities, discussions or negotiations     
with any parties conducted heretofore with respect to any of the foregoing and  
request the return of all information provided to third parties pursuant to a   
confidentiality agreement. For purposes of this Agreement, "Superior Proposal"  
means any bona fide written Acquisition Proposal, not subject to any financing  
condition or which includes written commitments to finance such transaction     
from one or more financial institutions capable of providing such commitments,  
for all of the outstanding Shares and/or Debentures on terms that the Board of  
Directors of the Company determines in good faith (after receiving the advice   
of a financial advisor of nationally recognized reputation) are more favorable  
and provide greater value to all the Company's shareholders than this Agreement 
and the Merger taken as a whole. For purposes of this Agreement, "Acquisition   
Proposal" means any offer or proposal for, or any indication of interest in, a  
merger or other business combination involving the Company or any Subsidiary of 
the Company or the acquisition of any equity interest in, or a substantial      
portion of the assets of, the Company or any Subsidiary of the Company, other   
than the transactions contemplated by this Agreement.                           

(b) The Company shall (i) promptly (and in no event later than 24 hours   
after receipt of any Acquisition Proposal) notify the Parent after receipt by   
it of any Acquisition Proposal or any inquiries indicating that any Person is   
considering making or wishes to make an Acquisition Proposal, identifying such  
Person, (ii) promptly notify the Parent after receipt of any request for        
nonpublic information relating to it or any of its Subsidiaries or for access   
to its or any of its Subsidiaries' properties, books or records by any Person,  
identifying such Person and the information requested by such Person, that may  
be considering making, or has made, an Acquisition Proposal and promptly        
provide the Parent with any nonpublic information which is given to such Person 
pursuant to this Section 5.7(b), (iii) keep the Parent advised of the status    
and principal financial terms of any such Acquisition Proposal, indication or   
request, and (iv) prior to furnishing any such information, provide reasonable  
advance notice to the Parent that it intends to do so. The Company shall give   
the Parent at least 24 hours' advance notice of any information to be supplied  
to, and at least 24 hours' advance notice of any confidentiality or other       
agreement to be entered into with, any Person making such Acquisition Proposal. 

Section 5.8 Public Announcement. The Parent and the Company agree that    
neither one of them will issue any press release or otherwise make any public   
statement or respond to any press inquiry with respect to this Agreement or the 
transactions contemplated hereby without the prior approval of the other party  
(which approval will not be unreasonably withheld), except as may be required   
by applicable law, order of any court or governmental agency or the rules of    
the NYSE.                                                                       

Section 5.9 Notices of Certain Events. Each party shall, upon obtaining   
knowledge of any of the following, promptly notify the other party in writing   
of: (i) any Material Adverse Effect with respect to such party; (ii) any change 
which makes it likely that any representation, warranty or information set      
forth in this Agreement or its schedules regarding such party or any of its     
Subsidiaries is not or will not be true in any material respect at the Closing; 
(iii) the occurrence or non-occurrence of any event the occurrence or non-      

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occurrence of which would be likely to cause any condition to the obligations   
of any party to effect the transactions contemplated by this Agreement not to   
be satisfied; (iv) the failure of such party to comply with or satisfy any      
covenant, condition or agreement to be complied with or satisfied by it         
pursuant to this Agreement which would be likely to result in any condition to  
the obligations of any party to effect the transactions contemplated by this    
Agreement not be satisfied; (v) any notice or other communication from any      
Governmental Entity in connection with the Merger; or (vi) with respect to the  
Company or any of its Subsidiaries, any actions, suits, claims, investigations  
or other proceedings (or communications indicating that the same may be         
contemplated) commenced or threatened against the Company or any of its         
Subsidiaries which, if pending on the date of this Agreement, would have been   
required to have been disclosed pursuant to Section 3.6 or which relate to the  
consummation of the Merger; provided, however, that the delivery of any notice  
pursuant to this Section 5.9 shall not cure any breach of any representation or 
warranty or otherwise limit or affect the remedies available to the other       
party.                                                                          

  Section 5.10 Indemnification and Insurance. (a) From and after the Effective
Time, the Parent agrees to cause the Surviving Corporation to indemnify and     
hold harmless the current or former directors or officers (the "Indemnified     
Parties") of the Company against 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 acts or omissions, or alleged acts or omissions, by them in their capacities 
as such occurring at or prior to the Effective Time, whether asserted or        
claimed prior to, at or after the Effective Time (including, without            
limitation, in connection with the Merger and the other transactions            
contemplated by this Agreement), to the fullest extent that the Company or such 
Subsidiaries would have been permitted, under the NYBCL and the Restated        
Certificate of Incorporation or Amended and Restated By-laws of the Company or  
the organizational documents of such Subsidiaries each as in effect on the date 
of this Agreement. Such indemnification shall survive the Merger and shall      
continue in full force and effect for a period of six years following the       
Effective Time.                                                                 

 (b) For a period of three years following the Effective Time, the Parent or
the Surviving Corporation shall maintain in effect the Company's current        
directors' and officers' liability insurance policy (the "Company Policy"), or  
enter into a policy providing comparable coverage, covering those persons who   
are currently covered by the Company Policy (a copy of which has been           
heretofore delivered to the Parent); provided, however, that in no event shall  
the Parent or the Surviving Corporation be required to expend in any one year   
an amount in excess of 150% of the annual premiums currently paid by the        
Company for such insurance; and, provided, further, that if the annual premiums 
of such insurance coverage exceed such amount, the Parent or the Surviving      
Corporation shall be obligated to obtain a policy with the greatest coverage    
available for a cost not exceeding such amount.                                 

  Section 5.11 Additional Reports. The Company and the Parent shall furnish to
the other party copies of all reports of the type referred to in Section 3.5    
and Section 4.4, respectively, which it files with the SEC on or after the date 
hereof, and each of the Company and the Parent represents and warrants that as  
of the respective dates thereof, such reports will not contain any untrue       
statement of a material fact or omit to state a material fact required to be    
stated therein or necessary to make the statements therein, in light of the     
circumstances under which they were made, not misleading. The audited           
consolidated financial statements and the unaudited consolidated interim        
financial statements included in such reports (including any related notes and  
schedules) will fairly present in all material respects the financial position  
of the Company and its consolidated Subsidiaries and the Parent and its         
consolidated Subsidiaries, respectively, as of the dates thereof and the        
results of operations and cash flows or other information included therein for  
the periods or as of the date then ended (subject, in the case of the interim   
financial statements, to normal, recurring year-end adjustments), in each case  
in accordance with past practice and generally accepted accounting principles   
consistently applied during the periods involved (except as otherwise disclosed 
in the notes thereto).                                                          

Section 5.12 Affiliates. Prior to the Effective Time, the Company shall   
deliver to the Parent a list of names and addresses of those Persons who are,   
in the opinion of the Company, as of the time of the                            

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Shareholders Meeting, "affiliates" of the Company within the meaning of Rule    
145 under the Securities Act. The Company shall provide to the Parent such      
information and documents as the Parent shall reasonably request for purposes   
of reviewing such list. There shall be added to such list the names and         
addresses of any other Person subsequently identified by either the Parent or   
the Company as a Person who may be deemed to be such an affiliate of the        
Company; provided, however, that no such Person identified by the Parent shall  
be added to the list of affiliates of the Company if the Parent shall receive   
from the Company, on or before the date of the Shareholders Meeting, an opinion 
of counsel reasonably satisfactory to the Parent to the effect that such Person 
is not such an affiliate. The Company shall seek to deliver or cause to be      
delivered to the Parent, prior to the date of the Shareholders Meeting, from    
each affiliate of the Company identified in the foregoing list (as the same may 
be supplemented as aforesaid), a letter dated as of the Closing Date            
substantially in the form attached as Exhibit A (the "Affiliates Letter"). The  
Parent shall not be required to maintain the effectiveness of the Registration  
Statement or any other registration statement under the Securities Act for the  
purposes of resale of Parent Common Stock by such affiliates received in the    
Merger and the certificates representing Parent Common Stock received by such   
affiliates shall bear a customary legend regarding applicable Securities Act    
restrictions and the provisions of this Section 5.12.                           

Section 5.13 Tax-Free Reorganization. Each of the Parent, Sub and Company 
shall use all reasonable efforts to cause the Merger to constitute a            
"reorganization" within the meaning of Section 368(a) of the Code. Unless       
otherwise required (and then only to the extent otherwise required) by a        
"determination" (as defined in Section 1313(a)(1)) of the Code or by a similar  
applicable provision of state or local income tax law, each party shall (i)     
report the Merger on all tax returns and other filings as a reorganization with 
in the meaning of Section 368(a) of the Code and (ii) not take any position     
that is inconsistent with the characterization of the Merger as such a          
reorganization in any audit, administrative proceeding, litigation or           
otherwise.                                                                      

Section 5.14 Actions Regarding Debentures. Prior to the Closing Date, the 
Company will consult with the Parent and consider in good faith any             
arrangements proposed by the Parent to call the outstanding Debentures for      
redemption. The Company will cooperate with the Parent in connection with such  
arrangements and take all actions reasonably requested to facilitate such       
redemption; provided, that the Company will not be required to irrevocably call 
the Debentures for redemption prior to the Closing Date unless it otherwise     
agrees to do so.                                                                

ARTICLE VI

Conditions to the Merger

 Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to   
the fulfillment at or prior to the Effective Time of the following conditions:  

(a) The Company Shareholder Approval shall have been obtained;        

(b) No statute, rule, regulation, executive order, decree, ruling or  
injunction shall have been enacted, entered, promulgated or enforced by any 
Governmental Entity which prohibits, restricts or makes illegal the         
consummation of the Merger substantially on the terms contemplated hereby,  
and there shall be no order or injunction of a court of competent           
jurisdiction in effect precluding or restricting consummation of the        
Merger;                                                                     

(c) Other than the filing provided for in Section 1.3 hereof, all     
filings required pursuant to Sections 3.11 and 4.6 hereof, and all material 
consents, approvals, and authorizations required to be obtained prior to    
the Effective Time by the parties hereto from any Governmental Entity to    
consummate the Merger, shall have been made or obtained, as the case may    
be;                                                                         

  (d) The Registration Statement shall have been declared effective by the
SEC under the Securities Act and no stop order suspending the effectiveness 
of the Registration Statement shall have been issued by the SEC and no      
proceeding for that purpose shall have been initiated by the SEC and not    
concluded or withdrawn; and                                                 

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(e) The Parent Common Stock to be issued in the Merger shall have been
approved for listing on the NYSE, subject to official notice of issuance.   

Section 6.2 Conditions to the Parent's and the Sub's Obligations to Effect
the Merger. The obligations of the Parent and the Sub to effect the Merger      
shall be subject to the fulfillment at or prior to the Effective Time of each   
of the following conditions:                                                    

(a) The representations and warranties made by the Company in this    
Agreement shall be true and correct (i) in all respects at and as of the    
Effective Time (as to representations and warranties specifically qualified 
or limited by the term "Material Adverse Effect," the word "material" and   
phrases of like import), and (ii) in all material respects at and as of the 
Effective Time (as to representations and warranties not qualified or       
limited by the term "Material Adverse Effect," the word "material" and      
phrases of like import), in each case with the same force and effect as     
though made at and as of the Effective Time (except to the extent they      
relate to a specific date), the Company shall have performed in all         
material respects all of its obligations under this Agreement theretofore   
to be performed, and the Parent shall have received at the Effective Time a 
certificate of the President and Chief Financial Officer of the Company to  
that effect;                                                                

 (b) During the period from January 31, 1999, to the Closing Date, there
shall not have occurred any Material Adverse Effect with respect to the     
Company, that has not been fully disclosed in the Company SEC Reports or in 
Section 6.2(c) of the Company Disclosure Schedule, that continues to exist  
on the Closing Date and as of the Effective Time, except for matters        
directly resulting from (x) the filing by Parent with the SEC of its        
Schedule 13D or its tender offer with respect to the Company or (y) the     
execution of this Agreement and the consummation of the transactions        
contemplated hereby; and                                                    

 (c) The Parent shall have received the opinion of Skadden, Arps, Slate,
Meagher & Flom (Illinois), special counsel to the Parent, dated the Closing 
Date and in form and substance reasonably satisfactory to the Parent, to    
the effect that, on the basis of facts, representations and assumptions set 
forth in such opinion which are consistent with the state of facts existing 
on the Closing Date, the Merger will be treated for federal income tax      
purposes as a reorganization with in the meaning of Section 368(a) of the   
Code. In rendering such opinion, Skadden, Arps, Slate, Meagher & Flom       
(Illinois) may require and rely upon (and may incorporate by reference)     
representations and covenants, including those contained in certificates of 
officers of the Parent, Sub, the Company and others.                        

Section 6.3 Conditions to the Company's Obligations to Effect the Merger. 
The obligations of the Company to effect the Merger shall be subject to the     
fulfillment at or prior to the Effective Time of each of the following          
conditions:                                                                     

  (a) The representations and warranties made by the Parent and the Sub in
this Agreement shall be true and correct (i) in all respects at and as of   
the Effective Time (as to representations and warranties specifically       
qualified or limited by the term "Parent Material Adverse Effect," the word 
"material" and phrases of like import), and (ii) in all material respects   
at and as of the Effective Time (as to representations and warranties not   
qualified or limited by the term "Parent Material Adverse Effect," the word 
"material" and phrases of like import), in each case with the same force    
and effect as though made at and as of the Effective Time (except to the    
extent they relate to a specific date), the Parent and the Sub shall have   
performed in all material respects all of their respective obligations      
under this Agreement theretofore to be performed, and the Company shall     
have received at the Effective Time a certificate of the President and      
Chief Financial Officer of Parent to that effect; and                       

(b) The Company shall have received the opinion of Cahill Gordon &    
Reindel, counsel to the Company, dated the Closing Date and in form and     
substance reasonably satisfactory to the Company, to the effect that, on    
the basis of facts, representations and assumptions set forth in such       
opinion which are consistent with the state of facts existing on the        
Closing Date, the Merger will be treated for federal income tax purposes as 
a reorganization with in the meaning of Section 368(a) of the Code. In      
rendering such opinion, Cahill Gordon & Reindel may require and rely upon   
(and may incorporate by reference) representations and covenants, including 
those contained in certificates of officers of the Parent, Sub, the Company 
and others.                                                                 

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ARTICLE VII 

Termination 

Section 7.1 Termination. This Agreement may be terminated and the         
transactions contemplated by this Agreement may be abandoned at any time prior  
to the Closing (whether before or after the Company Shareholder Approval), as   
follows:                                                                        

  (a) by mutual written agreement duly authorized by the respective Boards
of Directors of the Parent and the Company;                                 

(b) by either of the Company or the Parent if:                        

  (i) the Effective Time shall not have occurred on or before December
31, 1999; provided, however, that the right to terminate this Agreement 
pursuant to this clause shall not be available to any party whose       
failure to fulfill any obligation under this Agreement has been the     
primary cause of, or resulted in, the failure of the Effective Time to  
occur on or before such date;                                           

 (ii) a statute, rule, regulation or executive order shall have been
enacted, entered or promulgated prohibiting the consummation of the     
Merger substantially on the terms contemplated hereby;                  

  (iii) an order, decree, ruling or injunction shall have been entered
permanently restraining, enjoining or otherwise prohibiting the         
consummation of the Merger and such order, decree, ruling or injunction 
shall have become final and non-appealable; or                          

(iv) at the Shareholders Meeting (including any adjournment or    
postponement thereof) called pursuant to Section 5.2 hereof, the        
Company Shareholder Approval shall not have been obtained;              

(c) by the Company:                                                   

(1) if (a) the Company, upon the good faith determination of the  
Board of Directors of the Company based on consultation with outside    
legal counsel that such action is necessary in order for the Board of   
Directors of the Company to comply with its fiduciary duties under      
applicable Law, subject to complying with the terms of this Agreement,  
enters into a binding written agreement concerning a transaction that   
constitutes a Superior Proposal and, prior thereto, the Company         
notifies the Parent in writing that it intends to enter into such an    
agreement, attaching the most current version of such agreement to such 
notice or a detailed description of the price and terms thereof, (b)    
the Parent does not make, within two business days of receipt of the    
Company's written notification of its intention to enter into a binding 
agreement for a Superior Proposal, an offer to enter into an amendment  
to this Agreement such that the Board of Directors of the Company       
determines, in good faith after consultation with its financial         
advisors, that this Agreement as so amended is at least as favorable,   
from a financial point of view, to the shareholders of the Company as   
the Superior Proposal and (c) the Company, prior to such termination,   
pays to the Parent in immediately available funds any fees required to  
be paid pursuant to Section 7.3. The Company agrees (A) that it will    
not enter into a binding agreement referred to in clause (a) above      
until after the close of business on the second business day after it   
has provided the notice to the Parent required thereby and (B) to       
notify the Parent promptly if its intention to enter into a written     
agreement referred to in its notification shall change at any time      
after giving such notification; or                                      

(ii) if the Parent or the Sub shall have breached in any material 
respect any of their respective representations or warranties such that 
the closing condition in Section 6.3(a) would not be satisfied or the   
Parent or the Sub shall have breached any covenant or other agreement   
contained in this Agreement, which breach in either case cannot be or   
has not been cured, in all material respects, within 30 days after the  
giving of written notice to the Parent or the Sub, as applicable;       

(d) by the Parent:                                                    

(i) if the Company shall have breached in any material respect any
of its representations or warranties such that the closing condition in 
6.2(b) would not be satisfied or the Company shall have                 

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breached any covenant or other agreement contained in this Agreement    
which breach in either case cannot be or has not been cured, in all     
material respects, within 30 days after the giving of written notice to 
the Company;                                                            

(ii) if, at any time prior to the Effective Time, the Board of    
Directors of the Company shall have withdrawn or adversely modified its 
approval or recommendation of this Agreement or failed to reconfirm its 
recommendation of this Agreement within five business days after a      
written request by the Parent to do so; or                              

(iii) at any time following the date 30 days after notice is      
delivered by the Company as required in Section 5.7 concerning the      
receipt of an Acquisition Proposal unless, prior to termination under   
this subsection (d)(iii), the Company provides written notice to the    
Parent that such Acquisition Proposal has been rejected or withdrawn or 
the Company is no longer engaged in negotiations or discussions with    
such other Person concerning the Acquisition Proposal; provided that    
the 30-day time period shall be reduced with respect to any subsequent  
Acquisition Proposal made by a Person whose Acquisition Proposal was    
previously rejected or withdrawn as provided in this subsection         
(d)(iii) to a number of days equal to 30 minus the number of days       
lapsed from the receipt of any notice of any prior Acquisition Proposal 
from such Person until the rejection or withdrawal of any such prior    
Acquisition Proposal(s);                                                

(e) if the Average Parent Price is less than $21.00, Parent shall     
provide written notice to the Company prior to the close of business on the 
first trading day following the end of the Averaging Period stating that    
the Average Parent Price is below $21.00 and whether or not it elects to    
increase the Merger Consideration as provided below (the "Parent            
Election"). On or before the close of business on the first trading day     
following its receipt of a Parent Election stating that the Parent has      
elected not to increase the Merger Consideration, the Company may terminate 
this Agreement by delivering a written notice to the Parent (the "Company   
Termination Notice") stating that it has elected to terminate this          
Agreement. If the Parent has elected to increase the Merger Consideration   
in the Parent Election, then the Parent shall increase the Merger           
Consideration by increasing the Exchange Ratio or by making a cash payment  
(provided that the Merger shall continue to qualify as a reorganization     
within the meaning of Section 368(a) of the Code) or by any combination     
thereof (at the Parent's election), such that the Merger Consideration      
shall consist of an aggregate number of shares of Parent Common Stock (and  
cash, if any) having a value (based on the Average Parent Price of the      
Parent Common Stock) equal to $11.00 per share of Company Common Stock. In  
such event, no termination shall occur, and this Agreement will remain in   
effect in accordance with its terms.                                        

Section 7.2 Rights on Termination. In the event of termination and        
abandonment of the Merger by any party pursuant to Section 7.1, written notice  
thereof shall forthwith be given to the other parties, and this Agreement shall 
terminate and the Merger and the other transactions contemplated hereby shall   
be abandoned, without further action by any of the parties hereto. If this      
Agreement is terminated and the transactions contemplated hereby are not        
consummated pursuant to Section 7.1 of this Agreement, this Agreement shall     
become void and of no further force and effect, except for (a) the provisions   
of Section 5.4 relating to the obligation of the Parent and the Sub to keep     
confidential and not to use certain information obtained from the Company and   
in the second sentence of Section 5.4 and (b) the provisions of Section 7.3     
relating to the Company's obligations to make certain payments to the Parent.   

  Section 7.3 Termination Fee Payable to Parent. Notwithstanding any provision
to the contrary contained herein, the Company shall immediately pay to the      
Parent (x) the amount of $7 million and (y) all documented out-of-pocket        
expenses reasonably incurred by the Parent and the Sub in connection with this  
Agreement and the Merger if (i) either (1) the Company shall have received an   
Acquisition Proposal or such a proposal shall have been publicly announced or   
(2) the Board of Directors of the Company shall have withdrawn or adversely     
modified its approval or recommendation of this Agreement, and in either such   
case this Agreement is terminated pursuant to Section 7.1(b)(iv), (ii) this     
Agreement is terminated pursuant to Section 7.1(c)(i) or Section 7.1(d)(i) (if  
the breach thereof is due to the Company's intentional or bad faith             

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acts), or (iii) if, within 12 months of a termination of this Agreement         
pursuant to any other provision of Section 7.1 (other than Section 7.1(c)(ii)), 
the Company or any of its Subsidiaries accepts a written offer for, or          
otherwise enters into an agreement to consummate or consummates, a Superior     
Proposal with another person, upon the signing of a definitive agreement        
relating to such Superior Proposal, or, if no such agreement is signed, then    
upon consummation of any such Superior Proposal, in which case such payment     
shall be less any amounts paid as a result of a termination of this Agreement.  
The amount in (x) above shall be paid concurrently with any such termination    
and the amount in (y) above shall be paid in immediately available funds within 
two (2) business days after receipt by the Company of reasonably detailed       
evidence of the same.                                                           

Section 7.4 Other Remedies. Notwithstanding any provision to the contrary 
contained herein, if this Agreement is terminated pursuant to Article 7 or      
otherwise by the Company, on the one hand, or the Parent or the Sub, on the     
other hand, and the non-terminating party is not entitled to receive the        
payments described in Section 7.3 (as the case may be), then the non-           
terminating party shall be entitled to pursue any available legal rights to     
recover actual damages, including, without limitation, its reasonable costs and 
expenses incurred in pursuing such recovery (including, without limitation,     
reasonable attorneys' fees).                                                    

ARTICLE VIII

Miscellaneous 

Section 8.1 No Survival of Representations and Warranties. None of the    
representations or warranties in this Agreement or in any instrument delivered  
pursuant to this Agreement shall survive the Effective Time.                    

Section 8.2 Expenses. (a) Except as expressly contemplated by this        
Agreement, all costs and expenses incurred in connection with this Agreement    
and the transactions contemplated hereby shall be paid by the party incurring   
such costs and expenses.                                                        

(b) The obligation to pay any termination fee or expenses pursuant to     
Section 7.3 shall be in addition to any other rights or remedies that may be    
available to the Parent, including, without limitation, the expenses to be paid 
by the Company pursuant to Section 8.2(a). The Company shall make all such      
payments promptly (and in any event within two business days of receipt by the  
Company of written notice from the Parent) by wire transfer of immediately      
available funds to an account designated by the Parent.                         

Section 8.3 Counterparts; Effectiveness. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original but   
all of which shall constitute one and the same agreement. This Agreement shall  
become effective when each party hereto shall have received counterparts hereof 
signed by each of the other parties hereto.                                     

  Section 8.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the     
principles of conflicts of laws thereof.                                        

  Section 8.5 Notices. All notices and other communications hereunder shall be
in writing (including telecopy or similar writing) and shall be effective (a)   
if given by telecopy, when such telecopy is transmitted to the telecopy number  
specified in this Section 8.5 and the appropriate telecopy confirmation is      
received or (b) if given by any other means, when delivered at the address      
specified in this Section 8.5:                                                  

To the Parent or the Sub:                                             

Sara Lee Corporation                                              
Three First National Plaza                                        
Chicago, Illinois 60602                                           
Attention: Ms. Janet Langford Kelly                               
        Senior Vice President, Secretary and General Counsel
Facsimile: (312) 558-4989                                         

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with a copy to:                                                       

Skadden, Arps, Slate, Meagher & Flom (Illinois)                   
333 West Wacker Drive, Suite 2300                                 
Chicago, Illinois 60606                                           
Attention: Charles W. Mulaney, Jr.                                
Facsimile: (312) 407-0411                                         

To the Company:                                                       

Chock Full O'Nuts Corporation                                     
370 Lexington Avenue                                              
New York, New York 10017                                          
Attention: Mr. Howard M. Leitner                                  
     Senior Vice President and Chief Financial Officer
Facsimile: (212) 679-9737                                         

with a copy to:                                                       

Cahill Gordon & Reindel                                           
Eighty Pine Street                                                
New York, New York 10005                                          
Attention: W. Leslie Duffy                                        
Facsimile: (212) 269-5420                                         

Section 8.6 Assignment; Binding Effect. Neither this Agreement nor any of 
the rights, interests or obligations hereunder shall be assigned by any of the  
parties hereto (whether by operation of law or otherwise) without the prior     
written consent of the other parties, except that the Sub may assign, in its    
sole discretion, all or any of its rights, interests and obligations hereunder  
to the Parent or to any direct or indirect wholly owned Subsidiary of the       
Parent. Subject to the preceding sentence, this Agreement shall be binding upon 
and shall inure to the benefit of the parties hereto and their respective       
successors and permitted assigns.                                               

Section 8.7 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be 
ineffective to the extent of such invalidity or unenforceability without        
rendering invalid or unenforceable the remaining terms and provisions of this   
Agreement in any other jurisdiction. If any provision of this Agreement is so   
broad as to be unenforceable, such provision shall be interpreted to be only so 
broad as is enforceable.                                                        

Section 8.8 Enforcement of Agreement. The parties hereto agree that money 
damages or other remedies at law would not be sufficient or adequate remedy for 
any breach or violation of, or a default under, this Agreement by them and that 
in addition to all other remedies available to them, each of them shall be      
entitled to the fullest extent permitted by law to an injunction restraining    
such breach, violation or default or threatened breach, violation or default    
and to any other equitable relief, including, without limitation, specific      
performance, without bond or other security being required.                     

Section 8.9 Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitute the entire agreement, and supersedes all other prior agreements and  
understandings, both written and oral, among the parties, or any of them, with  
respect to the subject matter hereof and thereof and except for the provisions  
of Section 5.10 hereof, is not intended to and shall not confer upon any Person 
other than the parties hereto any rights or remedies hereunder.                 

Section 8.10 Headings. Headings of the Articles and Sections of this      
Agreement are for convenience of the parties only and shall be given no         
substantive or interpretive effect whatsoever.                                  

 Section 8.11 Finders or Brokers. Except for Credit Suisse First Boston with
respect to the Company and Goldman Sachs & Co. with respect to the Parent,      
neither the Company nor the Parent nor any of their                             

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respective Subsidiaries has employed any investment banker, broker, finder or   
intermediary in connection with the transactions contemplated hereby who might  
be entitled to any fee or any commission in connection with or upon             
consummation of the Merger.                                                     

  Section 8.12 Amendment or Supplement. Subject to applicable law, at any time
prior to the Effective Time, this Agreement may be amended or supplemented in   
any and all respects, whether before or after the Company Shareholder Approval, 
by written agreement of the parties hereto, by action taken by their respective 
Boards of Directors, with respect to any of the terms contained in this         
Agreement; provided, however that following the Company Shareholder Approval    
there shall be no amendment or change to the provisions hereof which would      
reduce the amount or change the type of consideration into which each Share     
shall be converted upon consummation of the Merger without further approval by  
the shareholders of the Company.                                                

Section 8.13 Extension of Time, Waiver, Etc. At any time prior to the     
Effective Time, any party may (a) extend the time for the performance of any of 
the obligations or acts of any other party hereto; (b) waive any inaccuracies   
in the representations and warranties of any other party hereto contained       
herein or in any document delivered pursuant hereto; or (c) subject to the      
proviso of Section 8.12 waive compliance with any of the agreements or          
conditions of any other party hereto contained herein. Notwithstanding the      
foregoing, no failure or delay by the Company, the Parent or the Sub in         
exercising any right hereunder shall operate as a waiver thereof nor shall any  
single or partial exercise thereof preclude any other or further exercise       
thereof or the exercise of any other right hereunder. Any agreement on the part 
of a party hereto to any such extension or waiver shall be valid only if set    
forth in an instrument in writing signed on behalf of such party.               

ARTICLE IX

Definitions 

When used in this Agreement, and in addition to the other terms defined   
herein, the following terms shall have the meanings specified:                  

Section 9.1 Affiliate. "Affiliate" shall mean, in relation to any party   
hereto, any entity directly or indirectly controlling, controlled by or under   
common control with such party.                                                 

Section 9.2 Agreement. "Agreement" shall mean this Agreement and Plan of  
Merger, together with the Exhibits attached hereto, and the Company Disclosure  
Schedule, as the same may be amended from time to time in accordance with the   
terms hereof.                                                                   

Section 9.3 Code. "Code" shall mean the Internal Revenue Code of 1986, as 
amended.                                                                        

  Section 9.4 Company Disclosure Schedule. "Company Disclosure Schedule" means
the disclosure schedule delivered by the Company.                               

Section 9.5 Company Financial Statements. "Company Financial Statements"  
shall mean the audited Consolidated Balance Sheet, Consolidated Statement of    
Operations, Consolidated Statement of Cash Flows and Consolidated Statement of  
Stockholders Equity of the Company and related notes for each of the fiscal     
years ended on July 31, 1996, July 31, 1997 and July 31, 1998, and the          
unaudited Consolidated Balance Sheet, Consolidated Statement of Operations,     
Consolidated Statement of Cash Flows and Consolidated Statement of              
Stockholders' Equity of the Company and related notes for the six months ended  
January 31, 1998 and January 31, 1999, each as included in the Company SEC      
Reports.                                                                        

Section 9.6 Computer Programs. "Computer Programs" shall mean (i) any and 
all computer software programs, including all source and object code, (ii) all  
computer software programs incorporated in any equipment, including any         
beverage dispensing equipment, owned or leased by the Company or its            
Subsidiaries or provided by the Company or its Subsidiaries to customers, (iii) 
databases and compilations, including any and all data and collections of data, 
whether machine readable or otherwise, (iii) billing, reporting and other       
management information systems, (iv) all descriptions, flow-charts and other    
work product used to design, plan, organize and develop any of the foregoing,   
(v) all content contained on any Internet site(s), and (vi) all documentation   
including user manuals and training materials, relating to any of the           
foregoing.                                                                      

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  Section 9.7 Contracts. "Contracts" shall mean all of the material contracts,
agreements and obligations to which the Company is a party or by which the      
Company or any of its material assets are bound, including, without limitation, 
any loan, bond, mortgage or indenture or material lease, instrument, franchise  
or license.                                                                     

Section 9.8 Control. "Control" (including the terms "controlling,"        
"controlled by," and "under common control with"), as used with respect to any  
Person, shall mean the possession, directly or indirectly, of the power to      
direct or cause the direction of the management and policies of such Person,    
through the ownership of voting securities or by contract.                      

Section 9.9 Employees. "Employees" shall mean all of the employees of the 
Company.                                                                        

  Section 9.10 Employee Benefit Plans. "Employee Benefit Plans" shall mean any
pension plan, profit sharing plan, bonus plan, incentive compensation plan,     
stock purchase plan, stock ownership plan, stock option plan, stock             
appreciation plan, employee benefit plan, employee benefit policy, retirement   
plan, fringe benefit program, insurance plan, severance plan, disability plan,  
health care plan, sick leave plan, death benefit plan, or any other plan,       
program or policy to provide retirement income, fringe benefits or other        
benefits to former or current employees of the Company (including, without      
limitation, any employee pension benefit plan or employee welfare plan, but     
excluding any multi-employer plan, as each term is defined in ERISA).           

Section 9.11 Environmental Claim. "Environmental Claim" shall mean any and
all administrative, regulatory or judicial actions, suits, demands, demand      
letters, directives, claims, Liens, investigations, proceedings or notices of   
noncompliance or violation (written or oral) by any Person alleging liability   
(including, without limitation, liability for enforcement, investigatory costs, 
cleanup costs, governmental response costs, removal costs, remedial costs,      
natural resources damages, property damages, personal injuries, or penalties)   
arising out of, based on or resulting from: (A) the presence or environmental   
release of any Hazardous Materials at any parcel of real property; or (B)       
circumstances forming the basis of any violation or alleged violation, of any   
Environmental Law; or (C) any and all claims by any Person seeking damages,     
contribution, indemnification, cost, recovery, compensation or injunctive       
relief resulting from the presence or Environmental Release of any Hazardous    
Materials.                                                                      

Section 9.12 Environmental Laws. "Environmental Laws" shall mean any      
federal, state, local or foreign statute, Law, rule, ordinance, code, policy,   
rule of common law and regulations relating to pollution or protection of human 
health (excluding OSHA) or the environment (including, without limitation,      
ambient air, surface water, ground water, land surface or subsurface strata),   
including, without limitation, Laws and regulations relating to Environmental   
Releases or threatened Environmental Releases of Hazardous Materials, or        
otherwise relating to the manufacture, processing, distribution, use,           
treatment, storage, disposal, transport or handling of Hazardous Materials.     

Section 9.13 ERISA. "ERISA" shall mean the Employee Retirement Income     
Security Act of 1974, as the same may be in effect from time to time.           

Section 9.14 Existing Liens. "Existing Liens" shall mean those Liens      
affecting any of the assets or properties of the Company.                       

 Section 9.15 Existing Permits. "Existing Permits" shall mean those material
permits, licenses, approvals, qualifications, authorizations, and registrations 
required by Law which the Company has or holds.                                 

Section 9.16 Existing Plans. "Existing Plans" shall mean all material     
Employee Benefit Plans of the Company in effect on the date hereof.             

 Section 9.17 Hazardous Materials. "Hazardous Materials" shall mean: (A) any
petroleum or petroleum products, radioactive materials, asbestos in any form    
that is or could become friable, urea formaldehyde foam insulation, and         
transformers or other equipment that contain dielectric fluid containing        
polychlorinated biphenyls ("PCBs") above regulated levels and radon gas; and    
(B) any chemicals, materials or substances which are now defined as or included 
in the definition of "hazardous substances," "hazardous wastes,"                

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"hazardous materials," "extremely hazardous wastes," "restricted hazardous      
wastes," "toxic substances," "toxic pollutants," or words of similar import,    
under any Environmental Law; and (C) any other chemical, material, substance or 
waste, exposure to which is now prohibited, limited or regulated by any         
governmental authority.                                                         

Section 9.18 Indebtedness. "Indebtedness" shall mean all liabilities or   
obligations of the Company, whether primary or secondary or absolute or         
contingent: (a) for borrowed money; or (b) evidenced by notes, bonds,           
debentures or similar instruments.                                              

Section 9.19 Intangible Assets. "Intangible Assets" shall mean (a) any    
invention, United States and foreign patents, pending patent applications,      
trade names, trade dress, logos, corporate names, trademarks, service marks,    
trademark registrations, service mark registrations, pending trademark          
applications, pending service mark applications, registered copyrights, and     
pending copyright applications, together with all translations, adaptations,    
derivations, and combinations thereof and including all goodwill associated     
therewith, and all applications, registrations, and renewals in connection      
therewith; (b) proprietary software; and (c) all trade secrets and confidential 
business information (including ideas, research and development, know-how,      
formulas, compositions, manufacturing and production processes and techniques,  
technical data, designs, drawings, specifications, customer and supplier lists, 
pricing and cost information, and business and marketing plans and proposals).  

Section 9.20 Investment. "Investment" by the Company shall mean (a) any   
transfer or delivery of cash, stock or other property or value by the Company   
in exchange for equity, debt, preferred stock, partnership interests,           
participations or any other security of another Person; (b) any loan or capital 
contribution to or in any other Person; (c) any guaranty of any obligation to   
pay money to, or perform an obligation of, any other Person; and (d) any        
investments in any property or assets other than properties and assets acquired 
and used in the ordinary course of the business of the Company.                 

Section 9.21 Law. "Law" shall mean any foreign, federal, state or local   
governmental law, rule, regulation or requirement, including any rules,         
regulations and orders promulgated thereunder and any orders, decrees, consents 
or judgments of any governmental regulatory agencies and courts having the      
force of law, other than any Environmental Laws.                                

Section 9.22 Lien. "Lien" shall mean, with respect to any asset (real,    
personal or mixed): (a) any mortgage, pledge, lien, easement, lease, title      
defect or imperfection or any other form of security interest, whether imposed  
by Law or by Contract; and (b) the interest of a vendor or lessor under any     
conditional sale agreement, financing lease or other title retention agreement  
relating to such asset.                                                         

Section 9.23 Material Adverse Effect. "Material Adverse Effect" shall mean
with respect to the Company any adverse change or effect that is material to    
the business, financial condition, results of operations or assets of the       
Company and its Subsidiaries taken as a whole; other than any change or effect  
(i) relating to the economy or securities markets in general or (ii) generally  
relating to the industries in which the Company operates (including without     
limitation, fluctuations in coffee prices generally) and not specifically       
relating to the Company.                                                        

  Section 9.24 Merger. "Merger" shall mean the merger of the Sub with and into
the Company pursuant to this Agreement.                                         

Section 9.25 NYBCL. "NYBCL" shall mean the New York Business Corporation  
Law.                                                                            

Section 9.26 Parent Financial Statements. "Parent Financial Statements"   
shall mean the audited Consolidated Balance Sheet, Consolidated Statement of    
Income, each of the fiscal years ended on June 29, 1996, June 28, 1997 and June 
27, 1998, each as included in the Parent SEC Reports and the unaudited          
Consolidated Statement of Cash Flows and Consolidated Statement of              
Stockholders' Equity of Parent and related notes for the nine months ended      
March 31, 1999.                                                                 

Section 9.27 Parent Material Adverse Effect. "Parent Material Adverse     
Effect" shall mean with respect to the Parent any adverse change or effect that 
is material to the business, financial condition, results of                    

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operations or assets of the Parent and its Subsidiaries taken as a whole; other 
than any change or effect (i) relating to the economy or securities markets in  
general or (ii) generally relating to the industries in which the Company       
operates and not specifically relating to the Company.                          

Section 9.28 Person. "Person" shall mean a natural person, corporation,   
limited liability company, association, joint stock company, trust,             
partnership, governmental entity, agency or branch or department thereof, or    
any other legal entity.                                                         

  Section 9.29 Significant Subsidiary. "Significant Subsidiary" shall mean any
Subsidiary of the Company meeting the definition in Rule 1-02 of Regulation S-X 
of the SEC.                                                                     

  Section 9.30 Subsidiary. "Subsidiary" shall mean any corporation, at least a
majority of the outstanding capital stock of which (or any class or classes,    
however designated, having ordinary voting power for the election of at least a 
majority of the board of directors of such corporation) shall at the time be    
owned by the relevant Person directly or through one or more corporations which 
are themselves Subsidiaries.                                                    

Section 9.31 Taxes. "Taxes" shall mean all taxes, charges, fees, levies or
other assessments, including, without limitation, all net income, gross income, 
gross receipts, sales, use, service, service use, ad valorem, transfer,         
franchise, profits, license, lease, withholding, social security, payroll,      
employment, excise, estimated, severance, stamp, recording, occupation, real    
and personal property, gift, value added, windfall profits or other taxes,      
customs duties, fees, assessments or charges of any kind whatsoever, whether    
computed on a separate, consolidated, unitary, combined or other basis,         
together with any interest, fines, penalties, additions to tax or other         
additional amounts imposed thereon or with respect thereto imposed by any       
taxing authority (domestic or foreign).                                         

  Section 9.32 Tax Return. "Tax Return" shall mean any return, report or other
document required to be filed or in fact filed with any taxing authority with   
respect to Taxes.                                                               

  IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.                      

                        Sara Lee Corporation

                                           By:________________________________
                   Name:
                    Title:

                               CFN Acquisition Corporation

                                           By:________________________________
                   Name:
                    Title:

                                 Chock Full O'Nuts Corporation

                                           By:________________________________
                   Name:
                    Title:

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                                                                         Annex 2
CREDIT  |  FIRST                 CREDIT SUISSE FIRST BOSTON CORPORATION         
SUISSE     BOSTON                Eleven Madison Avenue    Telephone 212 325 2000
         New York, NY 10010-3629
June 8, 1999                                                                    

Board of Directors                                                              
Chock full o'Nuts Corporation                                                   
370 Lexington Avenue                                                            
New York, NY 10017                                                              

Members of the Board:                                                           

You have asked us to advise you with respect to the fairness to the holders of  
the common stock of Chock full o'Nuts Corporation ("Chock"), other than Sara Lee
Corporation ("Sara Lee") and its affiliates, from a financial point of view of  
the Exchange Ratio (as defined below) set forth in the Agreement and Plan of    
Merger, dated as of June 8, 1999 (the "Merger Agreement"), by and among Sara Lee
Corporation ("Sara Lee"), CFN Acquisition Corporation, a wholly owned subsidiary
of Sara Lee ("Sub"), and Chock. The Merger Agreement provides for, among other  
things, the merger of Sub with and into Chock (the "Merger") pursuant to which  
each outstanding share of the common stock, par value $0.25 per share, of Chock 
(the "Chock Common Stock") will be converted into the right to receive that     
number of shares of the common stock, par value $0.01 per share, of Sara Lee    
(the "Sara Lee Common Stock") equal to the ratio (the "Exchange Ratio")         
determined by dividing $11.00 by the average of the per share last sales prices 
of Sara Lee Common Stock as reported on the New York Stock Exchange, Inc. for   
the 20 consecutive trading days commencing on the date that the proxy           
statement/prospectus relating to the Merger is mailed to the shareholders of    
Chock; provided that the Exchange Ratio will not exceed 0.5238 or be less than  
0.4231, subject to adjustment and certain walk-away rights more fully described 
in the Merger Agreement.                                                        

In arriving at our opinion, we have reviewed the Merger Agreement and certain   
publicly available business and financial information relating to Chock and     
Sara Lee. We have also reviewed certain other information relating to Chock,    
including financial forecasts prepared by the management of Chock, provided to  
or discussed with us by Chock, and have met with the management of Chock to     
discuss the business and prospects of Chock. In addition, we have reviewed      
publicly available forecasts for Sara Lee discussed with us by Sara Lee. We have
also considered certain financial and stock market data of Chock and Sara Lee,  
and we have compared those data with similar data for other publicly held       
companies in businesses similar to Chock and Sara Lee, and we have considered,  
to the extent publicly available, the financial terms of certain other business 
combinations and other transactions which have recently been effected. We also  
considered such other information, financial studies, analyses and              
investigations and financial, economic and market criteria which we deemed      
relevant. In connection with our engagement, we were requested to approach third
parties to solicit indications of interest in a possible acquisition of Chock   
and we held discussions with certain of these parties prior to the date hereof. 

In connection with our review, we have not assumed any responsibility for       
independent verification of any of the foregoing information and have relied on 
such information being complete and accurate in all material respects. With     
respect to the financial forecasts for Chock, we have been advised, and have    
assumed, that such forecasts have been reasonably prepared on bases reflecting  
the best currently available estimates and judgments of the management of Chock 
as to the future financial performance of Chock. With respect to the publicly   
available financial forecasts for Sara Lee, Sara Lee management has reviewed    
such forecasts and has advised us that it believes that such forecasts represent
reasonable estimates and judgments of the future financial                      

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CREDIT | FIRST                            CREDIT SUISSE FIRST BOSTON CORPORATION
SUISSE | BOSTON                                                                 

Board of Directors                                                              
Chock full o'Nuts                                                               
June 8, 1999                                                                    
Page 2                                                                          

performance of Sara Lee. With respect to the potential synergies and strategic  
benefits (including the amount, timing and achievability thereof) anticipated to
result from the Merger, Chock management has advised us, and we have assumed,   
that such estimates represent the best currently available estimates of the     
management of Chock. We also have assumed, with your consent, that the Merger   
will be treated as a tax-free reorganization for federal income tax purposes. In
addition, we have not been requested to make, and have not made, an independent 
evaluation or appraisal of the assets or liabilities (contingent or otherwise)  
of Chock or Sara Lee, nor have we been furnished with any such evaluations or   
appraisals. Our opinion is necessarily based upon information available to us,  
and financial, economic, market and other conditions as they exist and can be   
evaluated, on the date hereof. We are not expressing any opinion as to the      
actual value of the Sara Lee Common Stock when issued pursuant to the Merger or 
the prices at which the Sara Lee Common Stock will trade subsequent to the      
Merger.                                                                         

We have acted as financial advisor to Chock in connection with the Merger and   
will receive a fee for such services, a significant portion of which is         
contingent upon the consummation of the Merger. We have in the past provided    
investment banking services to Chock unrelated to the proposed Merger. In the   
ordinary course of business, Credit Suisse First Boston and its affiliates may  
actively trade the debt and equity securities of both Chock and Sara Lee for    
their own accounts and for the accounts of customers and, accordingly, may at   
any time hold long or short positions in such securities.                       

It is understood that this letter is for the information of the Board of        
Directors of Chock in connection with its evaluation of the Merger, does not    
constitute a recommendation to any shareholder as to how such shareholder should
vote with respect to any matter relating to the Merger, and is not to be quoted 
or referred to, in whole or in part, in any registration statement, prospectus  
or proxy statement, or in any other document used in connection with the        
offering or sale of securities, nor shall this letter be used for any other     
purposes, without our prior written consent.                                    

Based upon and subject to the foregoing, it is our opinion that, as of the date 
hereof, the Exchange Ratio is fair to the holders of Chock Common Stock (other  
than Sara Lee and its affiliates) from a financial point of view.               

Very truly yours,                                                               

CREDIT SUISSE FIRST BOSTON CORPORATION                                          

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PART II 

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers                              

Section 2-418 of the Maryland General Corporation Law provides for        
indemnification of the Registrant's directors, officers, employees, and agents  
under specified circumstances, which may include indemnity against expenses,    
including attorneys' fees and judgments, fines, and amounts paid in settlement  
under the Securities Act of 1933, as amended (the "Securities Act"). The        
Registrant has purchased and maintains insurance as is permitted by Section 2-  
418 on behalf of directors and officers, which insurance may cover liabilities  
under the Securities Act. Article V of the By-Laws of the Registrant provides   
for such indemnification to the extent and under the circumstances permitted by 
Section 2-418.                                                                  

Article V of the By-Laws of the Registrant provides as follows:           

Section 1. Right To Indemnification. To the maximum extent permitted by   
Maryland law in effect from time to time, the Registrant shall indemnify and,   
without requiring a preliminary determination of the ultimate entitlement to    
indemnification, shall pay or reimburse reasonable expenses in advance of final 
disposition of a proceeding to (a) any individual who is a present or former    
director or officer of the Registrant or a subsidiary thereof and who is made a 
party to the proceeding by reason of his or her service in that capacity or (b) 
any individual who, while a director or officer of the Registrant and at the    
request of the Registrant, serves or has served another corporation,            
partnership, joint venture, trust, employee benefit plan or any other           
enterprise as a director, officer, partner or trustee of such corporation,      
partnership, joint venture, trust, employee benefit plan or other enterprise    
and who is made a party to the proceeding by reason of his or her service in    
that capacity. The Registrant may, with the approval of its Board of Directors, 
provide such indemnification and advance for expenses to a person who served a  
predecessor of the Registrant in any of the capacities described in (a) or (b)  
above and to any employee or agent of the Registrant or a predecessor of the    
Registrant.                                                                     

 Section 2. Time for Payment Enforcement. Any indemnification, or payment of
expenses in advance of the final disposition of any proceeding, shall be made   
promptly, and in any event within 60 days, upon the written request of the      
director or officer entitled to indemnification (the "Indemnified Party"). The  
right to indemnification and advance of expenses hereunder shall be enforceable 
by the Indemnified Party in any court of competent jurisdiction, if (a) the     
Registrant denies such request, in whole or in part, or (b) no disposition      
thereof is made within 60 days. The Indemnified Party's costs and expenses      
incurred in connection with successfully establishing his or her right to       
indemnification, in whole or in part, in any such action shall also be          
indemnified by the Registrant.                                                  

 Section 3. General. The indemnification and advance of expenses provided by
this Article V (a) shall not be deemed exclusive of any other rights to which a 
person seeking indemnification or advance of expenses may be entitled under any 
law (common or statutory), or any agreement, vote of stockholders or            
disinterested directors or other provision that is not contrary to law, both as 
to action in his or her official capacity and as to action in another capacity  
while holding office or while employed by or acting as agent for the            
Registrant, (b) shall continue in respect of all events occurring while a       
person was a director or officer after such person has ceased to be a director  
or officer, and (c) shall inure to the benefit of the estate, heirs, executors  
and administrators of such person. All rights to indemnification and advance of 
expenses hereunder shall be deemed to be a contract between the Registrant and  
each director or officer of the Registrant who serves or served in such         
capacity at any time while this Article V is in effect.                         

 Section 4. Effective Time. This Article V shall be effective from and after
the date of its adoption and shall apply to all proceedings arising prior to or 
after such date, regardless of whether relating to facts or circumstances       
occurring prior to or after such date. Neither the amendment nor repeal of this 
Article, nor the adoption or amendment of any other provision of the Charter or 
By-Laws inconsistent with this Article, shall apply to or affect in any respect 
the applicability of this Article with respect to any act or failure to act     
which occurred prior to such amendment, repeal or adoption.                     

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  Section 5. Further Action. The Board of Directors may take such action as is
necessary to carry out the provisions of this Article V and is expressly        
empowered to adopt, approve and amend from time to time such resolutions or     
contracts implementing such provisions or such further arrangements for         
indemnification or advance of expenses as may be permitted by law.              

These indemnification provisions may be sufficiently broad to permit      
indemnification of the Registrant's officers, directors and other corporate     
agents for liabilities (including reimbursement of expenses incurred) arising   
under the Securities Act of 1933.                                               

Item 21. Exhibits and Financial Statement Schedules                             

(a) Exhibits                                                              

                                                                [Download Table]

Exhibit                                                                   
Number  Description                                                       
------- -----------                                                       
                                                                          
 2.1    Agreement and Plan of Merger, dated as of June 8, 1999 by and     
        among Chock full o'Nuts Corporation, Sara Lee Corporation and CFN 
        Acquisition Corporation (included as Annex 1 to the Prospectus).  

 4.1    Articles of Restatement of Charter of the Registrant, dated April 
        9, 1990, incorporated by reference to Exhibit 4.1 of Registration 
        Statement No. 33-35760 on Form S-8 filed with the Commission on   
        July 6, 1990.                                                     

 4.2    Articles Supplementary to the Charter of the Registrant, dated May
        18, 1990, incorporated by reference to Exhibit 4.2 of the         
        Registration Statement No. 33-37575 on Form S-8 filed with the    
        Commission on November 1, 1990.                                   

 4.3    Articles Supplementary to the Charter of the Registrant, dated    
        October 30, 1992, incorporated by reference to Exhibit 4.3 of the 
        Registration Statement No. 33-59002 on Form S-8 filed with the    
        Commission on March 4, 1993.                                      
 4.4    Articles of Amendment to the Charter of Registrant, dated November
        19, 1998, incorporated by reference to Exhibit 4.4 of the         
        Registration Statement No. 333-71797 on Form S-3 filed with the   
        Commission on February 4, 1999.                                   
 4.5    Articles Supplementary to the Charter of the Registrant, dated    
        January 7, 1999, incorporated by reference to Exhibit 4.5 of the  
        Registration Statement No. 333-71797 on Form S-3 filed with the   
        Commission on February 4, 1999.                                   
 4.6    Amended By-Laws of the Registrant, dated August 29, 1996,         
        incorporated by reference to Exhibit 3(b) of the registrant's     
        Annual Report on Form 10-K for the fiscal year ended June 29,     
        1996.                                                             
 4.7    Stockholder Rights Agreement, dated as of March 26, 1998 between  
        the Registrant and First Chicago Trust Company of New York, as    
        Rights Agent, incorporated by reference to Exhibit 4.1 of the     
        Registration Statement on Form 8-A filed with the Commission on   
        May 19, 1998.                                                     
 5.1    Opinion of Roderick A. Palmore, Esq., Senior Vice President,      
        Secretary and General Counsel of Sara Lee Corporation.            
 8.1    Opinion of Cahill Gordon & Reindel, as to tax matters.            

23.1    Consent of Arthur Andersen LLP, Independent Auditors.             

23.2    Consent of Ernst & Young LLP, Independent Auditors.               

23.3    Consent of Grant Thornton LLP, Independent Certified Public       
        Accountants.                                                      

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                                                                [Download Table]
                                                                         
23.4      Consent of Roderick A. Palmore, Esq. (included in Exhibit 5.1).

23.5      Consent of Cahill Gordon & Reindel (included in Exhibit 8.1).  

24.1      Powers of Attorney.                                            

99.1      Consent of Credit Suisse First Boston Corporation.             

99.2      Form of Proxy of Chock full o'Nuts Corporation.                

99.3      Form of Affiliate Letter.                                      

Item 22. Undertakings                                                           

(a) The undersigned registrant hereby undertakes that, for purposes of    
determining any liability under the Securities Act of 1933, each filing of the  
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the    
Securities Exchange Act of 1934 (and, where applicable, each filing of an       
employee benefit plan's annual report pursuant to Section 15(d) of the          
Securities Exchange Act of 1934) that is incorporated by reference in the       
registration statement shall be deemed to be a new registration statement       
relating to the securities offered therein, and the offering of such securities 
at that time shall be deemed to be the initial bona fide offering thereof.      

 (b) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of  
a prospectus which is a part of this registration statement, by any person or   
party who is deemed to be an underwriter within the meaning of Rule 145(c), the 
issuer undertakes that such reoffering prospectus will contain the information  
called for by the applicable registration form with respect to reofferings by   
persons who may be deemed underwriters, in addition to the information called   
for by the other items of the applicable form.                                  

(2) The registrant undertakes that every prospectus (i) that is filed     
pursuant to paragraph (b)(1) immediately preceding, or (ii) that purports to    
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is  
used in connection with an offering of securities subject to Rule 415, will be  
filed as a part of an amendment to the registration statement and will not be   
used until such amendment is effective, and that, for purposes of determining   
any liability under the Securities Act of 1933, each such post-effective        
amendment shall be deemed to be a new registration statement relating to the    
securities offered therein, and the offering of such securities at that time    
shall be deemed to be the initial bona fide offering thereof.                   

 (c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of  
the registrant pursuant to the foregoing provisions, or otherwise, the          
registrant has been advised that in the opinion of the Securities and Exchange  
Commission such indemnification is against public policy as expressed in the    
Securities Act of 1933 and is, therefore, unenforceable. In the event that a    
claim for indemnification against such liabilities (other than the payment by   
the registrant of expenses incurred or paid by a director, officer or           
controlling person of the registrant in the successful defense of any action,   
suit or proceeding) is asserted by such director, officer or controlling person 
in connection with the securities being registered, the registrant will, unless 
in the opinion of its counsel the matter has been settled by controlling        
precedent, submit to a court of appropriate jurisdiction the question whether   
such indemnification by it is against public policy as expressed in the         
Securities Act of 1933 and will be governed by the final adjudication of such   
issue.                                                                          

 (d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to   
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of   
such request, and to send the incorporated documents by first class mail or     
other equally prompt means. This includes information contained in documents    
filed subsequent to the effective date of the registration statement through    
the date of responding to the request.                                          

(e) The undersigned registrant hereby undertakes to supply by means of a  
post-effective amendment all information concerning a transaction, and the      
company being acquired involved therein, that was not the subject of and        
included in the registration statement when it became effective.                

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the   
undersigned, thereunto duly authorized, in the City of Chicago, State of        
Illinois on September 8, 1999.                                                  

                        Sara Lee Corporation

                                       /s/ Roderick A. Palmore
                                         By: _________________________________
                             Name: Roderick A. Palmore
                                        Title:Senior Vice President, General
                                     Counsel and Secretary

Pursuant to the requirements of the Securities and Exchange Act of 1934,  
this Registration Statement has been signed below by the following persons on   
behalf of Sara Lee Corporation and in the capacities indicated on September 8,  
1999.                                                                           

                                                        [Enlarge/Download Table]

                 Signature                                     Title                 
                 ---------                                     -----                 

                                                                                     
           /s/ John H. Bryan                Chairman of the Board, Chief Executive   
___________________________________________   Officer and Director                   
               John H. Bryan                                                         

         /s/ C. Steven McMillan             President and Chief Operating Officer and
___________________________________________   Director                               
            C. Steven McMillan                                                       

          /s/ Frank L. Meysman              Executive Vice President and Director    
___________________________________________                                          
             Frank L. Meysman                                                        

         /s/ Judith A. Sprieser             Executive Vice President, Chief Financial
___________________________________________   Officer and Director                   
            Judith A. Sprieser                                                       

          /s/ Wayne R. Szypulski            Vice President and Controller            
___________________________________________                                          
             Wayne R. Szypulski                                                      

                     *                      Director                                 
___________________________________________                                          
              Paul A. Allaire                                                        

                                            Director                                 
___________________________________________                                          
          Frans H.J.J. Andriessen                                                    

                     *                      Director                                 
___________________________________________                                          
             Duane L. Burnham                                                        

                     *                      Director                                 
___________________________________________                                          
             Charles W. Coker                                                        

                     *                      Director                                 
___________________________________________                                          
              James S. Crown                                                         

                     *                      Director                                 
___________________________________________                                          
              Willie D. Davis                                                        

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                                                                [Download Table]
                                                    
                                            Director
___________________________________________         
           Vernon E. Jordan, Jr.                    

                     *                      Director
___________________________________________         
             James L. Ketelsen                      

                     *                      Director
___________________________________________         
             Hans B. van Liemt                      

                     *                      Director
___________________________________________         
              Joan D. Manley                        
                                            Director
___________________________________________         
            Rozanne L. Ridgway                      

                     *                      Director
___________________________________________         
             Richard L. Thomas                      

                     *                      Director
___________________________________________         
      John D. Zeglis                                                            

* By Roderick A. Palmore as Attorney-in-Fact pursuant to Powers of    
Attorney executed by the directors listed above, which Powers of Attorney have  
been filed with the Securities and Exchange Commission.                         

                                       /s/ Roderick A. Palmore
                                         By: _________________________________
                                           Roderick A. Palmore
                                           AS ATTORNEY-IN-FACT

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EXHIBIT INDEX 

                                                                [Download Table]

Exhibit                                                                       
Number  Description                                                           
------- -----------                                                           
                                                                              
 2.1    Agreement and Plan of Merger, dated as of June 8, 1999 by and among   
        Chock full o'Nuts Corporation, Sara Lee Corporation and CFN           
        Acquisition Corporation (included as Annex 1 to the Prospectus).      

 4.1    Articles of Restatement of Charter of the Registrant, dated April 9,  
        1990, incorporated by reference to Exhibit 4.1 of Registration        
        Statement No. 33-35760 on Form S-8 filed with the Commission on       
        July 6, 1990.                                                         

 4.2    Articles Supplementary to the Charter of the Registrant, dated May 18,
        1990, incorporated by reference to Exhibit 4.2 of the Registration    
        Statement No. 33-37575 on Form S-8 filed with the Commission on       
        November 1, 1990.                                                     

 4.3    Articles Supplementary to the Charter of the Registrant, dated October
        30, 1992, incorporated by reference to Exhibit 4.3 of the Registration
        Statement No. 33-59002 on Form S-8 filed with the Commission on March 
        4, 1993.                                                              
 4.4    Articles of Amendment to the Charter of Registrant, dated November 19,
        1998, incorporated by reference to Exhibit 4.4 of the Registration    
        Statement No. 333-71797 on Form S-3 filed with the Commission on      
        February 4, 1999.                                                     
 4.5    Articles Supplementary to the Charter of the Registrant, dated January
        7, 1999, incorporated by reference to Exhibit 4.5 of the Registration 
        Statement No. 333-71797 on Form S-3 filed with the Commission on      
        February 4, 1999.                                                     
 4.6    Amended By-Laws of the Registrant, dated August 29, 1996, incorporated
        by reference to Exhibit 3(b) of the registrant's Annual Report on Form
        10-K for the fiscal year ended June 29, 1996.                         
 4.7    Stockholder Rights Agreement, dated as of March 26, 1998 between the  
        Registrant and First Chicago Trust Company of New York, as Rights     
        Agent, incorporated by reference to Exhibit 4.1 of the Registration   
        Statement on Form 8-A filed with the Commission on May 19, 1998.      
 5.1    Opinion of Roderick A. Palmore, Esq., Senior Vice President, Secretary
        and General Counsel of Sara Lee Corporation.                          

 8.1    Opinion of Cahill Gordon & Reindel, as to tax matters.                

23.1    Consent of Arthur Andersen LLP, Independent Auditors.                 

23.2    Consent of Ernst & Young LLP, Independent Auditors.                   

23.3    Consent of Grant Thornton LLP, Independent Certified Public           
        Accountants.                                                          

23.4    Consent of Roderick A. Palmore, Esq. (included in Exhibit 5.1).       

23.5    Consent of Cahill Gordon & Reindel (included in Exhibit 8.1).         

24.1    Powers of Attorney.                                                   

99.1    Consent of Credit Suisse First Boston Corporation.                    

99.2    Form of Proxy of Chock full o'Nuts Corporation.                       

99.3    Form of Affiliate Letter.                                             

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Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘S-4’ Filing		Date		First		Last			Other Filings
		4/1/12		31		112
		5/31/08		51
		12/30/07		53		97
		9/15/06		31		112
		7/31/03		95					8-K
		7/31/02		95
		7/31/01		84		95			SC TO-T/A
		8/1/00		84		93
		7/31/00		54		95
		7/1/00		54					10-K405
		4/1/00		95					10-Q
		12/31/99		11		129
		12/15/99		72
		11/30/99		83		122
		10/31/99		122
		10/15/99		2		19
		9/15/99		95
		9/14/99		15		84
		9/13/99		15
Filed on:		9/8/99		1		142
		9/7/99		1		54
		9/3/99		7
		9/2/99		62		84
		9/1/99		1		71
		8/26/99		15		107
		8/19/99		2		19
		8/11/99		64
		8/7/99		44
		7/31/99		9		93
		7/27/99		72
		7/3/99		54					10-K405
		6/22/99		1
		6/21/99		1
		6/18/99		22
		6/8/99		9		144			SC 13D/A,  SC 14D1/A
		6/7/99		7		113			SC 13D/A,  SC 14D1/A
		6/4/99		22		28
		5/27/99		22
		5/20/99		22
		5/19/99		21		36			SC 13D/A,  SC 14D1/A
		5/14/99		36		37
		5/7/99		21					SC 14D1
		5/6/99		71
		5/4/99		21		36			SC 13D/A
		4/30/99		13		113
		4/28/99		71
		4/26/99		36
		4/22/99		7		71			SC 13D
		4/20/99		21
		4/19/99		21
		4/16/99		21
		4/12/99		21		71
		3/31/99		135
		3/27/99		14		73			10-Q
		3/22/99		21
		3/10/99		21
		2/12/99		71
		2/4/99		140		144			S-3
		1/31/99		11		133
		1/7/99		140		144
		12/31/98		71
		12/26/98		73					10-Q
		12/23/98		73					8-K
		12/4/98		62		84
		12/1/98		14		54
		11/30/98		95
		11/19/98		140		144
		10/29/98		21					DEF 14A,  PRE 14A
		10/23/98		21
		10/16/98		21
		10/15/98		85
		10/2/98		21
		9/26/98		73					10-Q
		9/21/98		73					DEF 14A
		9/15/98		21
		8/12/98		20
		8/5/98		67
		8/1/98		84
		7/31/98		13		133
		7/29/98		20
		7/8/98		20
		6/30/98		94
		6/27/98		14		135			10-K
		5/19/98		140		144			8-A12B,  8-K
		5/15/98		73
		4/30/98		13		83
		3/28/98		14					10-Q,  10-Q/A
		3/26/98		51		144			8-K
		1/31/98		133
		12/30/97		97		107
		9/30/97		86
		8/20/97		20
		8/15/97		20
		7/31/97		13		133
		6/30/97		94
		6/28/97		72		135			10-K405
		8/29/96		140		144
		7/31/96		13		133
		6/29/96		120		144			10-K405,  8-K
		1/1/96		111
		8/1/95		94
		7/31/95		13		91
		1/1/95		115
		7/31/94		13		101
		3/28/94		14
		3/4/93		140		144
		10/30/92		140		144
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