<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
SMITH'S FOOD & DRUG CENTERS, INC.
______________________________
(Name of Issuer)
Class B Common Stock, $.01 Par Value
___________________________
(Title of Class of Securities)
832388-10-2
___________________________
(CUSIP Number)
Mark A. Resnik
The Yucaipa Companies
10000 Santa Monica Boulevard
Los Angeles, California 90067
(310) 789-7200
______________________________________________
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
May 23, 1996
__________________________________________________
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is subject of this Schedule 13D, and is filing this
statement because of Rule 13d-1(b)(3) or (4), check the following box: [_]
Check the following box if a fee is being paid with the statement: [_] (A fee
is not required only if the filing person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7).
(Continued on following pages)
(Page 1 of 18 Pages)
The information required in the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 832388-10-2 SCHEDULE 13D PAGE 2 OF 18
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1
The Yucaipa Companies
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e)
[_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
California
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 200,000
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
2,125,406
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 200,000
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
2,125,406
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
2,325,406
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
22.9%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
14
PN
- ------------------------------------------------------------------------------
<PAGE>
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CUSIP NO. 832388-10-2 SCHEDULE 13D PAGE 3 OF 18
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1
Yucaipa Arizona Partners, L.P.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e)
[_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
California
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 547,130
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 547,130
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
547,130
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
5.4%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
14
PN
- ------------------------------------------------------------------------------
<PAGE>
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CUSIP NO. 832388-10-2 SCHEDULE 13D PAGE 4 OF 18
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1
Yucaipa Smitty's Partner's, L.P.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e)
[_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
California
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 300,667
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 300,667
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
300,667
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
3.0%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
14
PN
- ------------------------------------------------------------------------------
<PAGE>
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CUSIP NO. 832388-10-2 SCHEDULE 13D PAGE 5 OF 18
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1
Yucaipa Smitty's Partners II, L.P.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e)
[_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
California
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 136,793
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 136,793
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
136,793
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
1.3%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
14
PN
- ------------------------------------------------------------------------------
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 832388-10-2 SCHEDULE 13D PAGE 6 OF 18
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1
Yucaipa SSV Partners, L.P.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e)
[_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
California
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 1,140,816
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 1,140,816
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,140,816
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
11.2%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
14
PN
- ------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND ISSUER.
--------------------
This statement relates to the Class B Common Stock, par value $.01 per
share ("Class B Common Stock"), of Smith's Food & Drug Centers, Inc., a Delaware
corporation (the "Company"). The principal executive offices of the Company are
located at 1550 South Redwood Road, Salt Lake City, Utah 84104.
ITEM 2. IDENTITY AND BACKGROUND.
------------------------
(a) This statement is being filed jointly by (i) The Yucaipa Companies, a
California general partnership ("Yucaipa"), (ii) Yucaipa Arizona Partners, L.P.,
a California limited partnership ("Arizona Partners"), (iii) Yucaipa Smitty's
Partners, L.P., a California limited partnership ("Smitty's Partners"), (iv)
Yucaipa Smitty's Partners II, L.P., a California limited partnership ("Smitty's
Partners II"), and (v) Yucaipa SSV Partners, L.P., a California limited
partnership ("SSV Partners"). Yucaipa is the sole general partner of each of
Arizona Partners, Smitty's Partners, Smitty's Partners II and SSV Partners
(collectively, the "Yucaipa Partnerships"). Ronald W. Burkle, Mark A. Resnik,
Patrick L. Graham, Ira L. Tochner, Robert I. Bernstein, Lawrence Kalantari,
Darren W. Karst and Linda McLoughlin Figel are the general partners of Yucaipa.
Yucaipa and the Yucaipa Partnerships are collectively referred to herein as the
"Reporting Persons."
(b) The address of the principal business and principal office of Yucaipa
and each of the Yucaipa Partnerships is 10000 Santa Monica Boulevard, Fifth
Floor, Los Angeles, California 90067. The business address of Ronald W. Burkle,
Mark A. Resnik, Patrick L. Graham, Ira L. Tochner, Robert I. Bernstein, Lawrence
Kalantari and Linda McLoughlin Figel is 10000 Santa Monica Boulevard, Fifth
Floor, Los Angeles, California 90067. The business address of Darren W. Karst
is 505 Railroad Avenue, Northlake, Illinois 60164.
(c) The principal business of Yucaipa is acquiring, investing in and/or
managing supermarket and other companies. The principal business of Arizona
Partners, Smitty's Partners, Smitty's Partners II and SSV Partners is investing
in the Class B Common Stock of the Company. The present principal occupation or
employment of each of Ronald W. Burkle, Mark A. Resnik, Patrick L. Graham, Ira
L. Tochner, Robert I. Bernstein, Lawrence Kalantari and Linda McLoughlin Figel
is as a general partner of Yucaipa, a private investment group specializing in
supermarket companies, the address of which is 10000 Santa Monica Boulevard,
Fifth Floor, Los Angeles, California 90067. The present principal occupation or
employment of Darren W. Karst is as Executive Vice President and Chief Financial
Officer of Dominick's Finer Foods, Inc., a supermarket operator, the address of
which is 505 Railroad Avenue, Northlake, Illinois 60164.
(d) None of the Reporting Persons, nor, to the best of their knowledge, any
of the individuals referred to in paragraph (a) above, has during the last five
years been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors).
(e) None of the Reporting Persons, nor, to the best of their knowledge, any
of the individuals referred to in paragraph (a) above, has during the last five
years been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
(f) Each of the individuals referred to in paragraph (a) above is a United
States citizen.
(Page 7 of 18)
<PAGE>
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
--------------------------------------------------
The consideration for the shares of Class B Common Stock acquired by the
Yucaipa Partnerships was common stock, par value $.01 per share, of Smitty's
Supermarkets, Inc., a Delaware corporation ("Smitty's"), held by the Yucaipa
Partnerships prior to May 23, 1996. Pursuant the Recapitalization Agreement and
Plan of Merger dated as of January 29, 1996 among the Company, Cactus
Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of the
Company ("Acquisition"), Smitty's and Yucaipa, as amended (the "Recapitalization
Agreement"), Acquisition merged with and into Smitty's on May 23, 1996 (the
"Merger") and each outstanding share of common stock of Smitty's (including
shares held by each of the Yucaipa Partnerships) was exchanged for 3.011803
shares of Class B Common Stock of the Company. The shares of Class B Common
Stock acquired by Yucaipa were issued directly by the Company as a prepayment of
certain management fees to be paid to Yucaipa pursuant to the Management
Services Agreement described in Item 6.
ITEM 4. PURPOSE OF TRANSACTION.
-----------------------
The Reporting Persons acquired the Class B Common Stock for investment in
connection with the Merger and a concurrent recapitalization of the Company (the
"Recapitalization"). On January 29, 1996, the Company entered into the
Recapitalization Agreement with Acquisition, Smitty's and Yucaipa. A copy of
the Recapitalization Agreement is attached hereto as Exhibit 2 and incorporated
herein by reference.
Concurrently with the consummation of the Merger or immediately thereafter,
the Recapitalization was consummated. The Recapitalization included (i) a
tender offer by the Company for the purchase of 50% of the outstanding shares of
Company Common Stock (excluding shares issuable in the Merger) at $36.00 in cash
per share, (ii) the repayment of approximately $716.3 million of outstanding
indebtedness of the Company and approximately $106.1 million of outstanding
indebtedness of Smitty's, (iii) redemption of approximately $1.0 million of
outstanding shares of the Company's Series I Preferred Stock from certain
holders thereof, (iv) the redemption of approximately $13.7 million of
outstanding employee stock options of the Company, (v) borrowings of $805
million by the Company under a new senior credit facility and the issuance by
the Company of $575 million of its 11 1/4% Senior Subordinated Notes due 2007.
In connection with the Merger and the Recapitalization, (i) the Company filed an
Amended and Restated Certificate of Incorporation of the Company which, among
other things, created a classified seven-member board of directors, (ii) Ronald
W. Burkle and Linda McLoughlin Figel, general partners of Yucaipa, were elected
as directors of the Company and (iii) Ronald W. Burkle was appointed as the
Chief Executive Officer of the Company. In addition, the Company and Yucaipa
executed the Management Services Agreement and Warrant Agreement described in
Item 6 below. All of such transactions were consummated on May 23, 1996 (the
"Closing Date"). The components of the Recapitalization are described more
fully under the caption "The Recapitalization" in the Company's definitive Proxy
Statement, filed with the Securities and Exchange Commission on April 25, 1996.
Concurrently with the execution of the Recapitalization Agreement, the
Company, Yucaipa, the Yucaipa Partnerships, Jeffrey P. Smith and certain related
stockholders of the Company entered into a Standstill Agreement, a copy of which
is attached hereto as Exhibit 3 and incorporated herein by reference.
Concurrently with the consummation of the Merger, the Company and Yucaipa
entered into a Management Services Agreement and a Warrant Agreement, copies of
which are attached hereto as Exhibit 4 and Exhibit 5, respectively, and
incorporated herein by reference. In addition, concurrently with the
consummation of the Merger, the Company, Yucaipa, the Yucaipa Partnerships,
Jeffrey P. Smith and certain related stockholders of the Company entered into a
Registration Rights Agreement, a copy of which is attached hereto as Exhibit 6
and incorporated herein by reference. Information concerning the
Recapitalization Agreement, the Standstill Agreement, the Management Services
Agreement, the
(Page 8 of 18)
<PAGE>
Warrant Agreement and the Registration Rights Agreement is contained in Item 6
below and incorporated herein by reference.
The Reporting Persons intend to review their investment in the Company from
time to time and, depending upon the price and availability of the Class B
Common Stock, subsequent developments affecting the Company, the Company's
business and prospects, other investment and business opportunities available to
the Reporting Persons, general stock market and economic conditions, tax
considerations and other factors deemed relevant, may decide to increase or
decrease the size of their investment in the Company, subject to certain
restrictions set forth in the Standstill Agreement which are described in
response to Item 6.
Except as described herein and in Item 6 below, neither the Reporting
Persons, nor, to the best of their knowledge, any of the individuals referred to
in paragraph (a) of Item 2, has any present plan or proposal which relates to,
or could result in, any of the events referred to in paragraphs (a) through (j),
inclusive, of Item 4 of Schedule 13D. However, subject to the Reporting
Persons' obligations under the Standstill Agreement, the Reporting Persons will
continue to review the business of the Company and, depending upon one or more
of the factors referred to above, may in the future propose that the Company
take one or more of such actions.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
-------------------------------------
(a) Arizona Partners owns 547,130 shares of the Class B Common Stock
(approximately 5.4% of the total number of outstanding shares of Class B Common
Stock immediately following the consummation of the Merger and the
Recapitalization); Smitty's Partners owns 300,667 shares of the Class B Common
Stock (approximately 3.0% of the total number of outstanding shares of Class B
Common Stock immediately following the consummation of the Merger and the
Recapitalization); Smitty's Partners II owns 136,793 shares of the Class B
Common Stock (approximately 1.3% of the total number of outstanding shares of
Class B Common Stock immediately following the consummation of the Merger and
the Recapitalization); SSV Partners owns 1,140,816 shares of the Class B Common
Stock (approximately 11.2% of the total number of outstanding shares of Class B
Common Stock immediately following the consummation of the Merger and the
Recapitalization); and Yucaipa owns 200,000 shares of the Class B Common Stock
(approximately 2.0% of the total number of outstanding shares of Class B Common
Stock immediately following the consummation of the Merger and the
Recapitalization).
(b) Arizona Partners, Smitty's Partners, Smitty's Partners II and SSV
Partners, acting through their sole general partner, Yucaipa, have the sole
power to vote or direct the vote, and to dispose or to direct the disposition of
the shares of Class B Common Stock beneficially owned by them. As a result,
Yucaipa may be deemed to beneficially own the shares of Class B Common Stock
directly owned by the Yucaipa Partnerships. Each of Ronald W. Burkle, Mark A.
Resnik, Patrick L. Graham, Robert I. Bernstein, Lawrence Kalantari, Ira L.
Tochner, Linda McLoughlin Figel and Darren W. Karst, as a general partner of
Yucaipa, may be deemed to beneficially own the shares of Class B Common Stock of
the Company beneficially owned by the Reporting Persons, but disclaims any such
ownership (except to the extent of such inividual's pecuniary interest therein).
(c) Except as described in Item 4 above, there have not been any
transactions in the Class B Common Stock effected by or for the account of the
Reporting Persons during the past 60 days.
(d) Except as stated in this Item 5, to the best knowledge of the Reporting
Persons, no other person has the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the shares of Class
B Common Stock owned by the Reporting Persons.
(Page 9 of 18)
<PAGE>
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.
-------------------------------------------------------
The following descriptions are qualified in their entirety by reference to
the agreements attached as exhibits hereto and incorporated herein by reference.
THE RECAPITALIZATION AGREEMENT
In addition to the Merger, the Recapitalization Agreement (Exhibit 2
hereto) provided for, among other things, (i) the tender offer by the Company
for the purchase of 50% of the outstanding shares of Company Common Stock
(excluding shares issuable in the Merger) at $36.00 in cash per share, (ii) the
repayment of certain outstanding indebtedness of the Company and Smitty's, (iii)
redemption of certain outstanding shares of the Company's Series I Preferred
Stock, (iv) the redemption of certain outstanding employee stock options, (v)
borrowings by the Company under a new senior credit facility and the issuance by
the Company of new senior subordinated notes, (vi) the filing of an Amended and
Restated Certificate of Incorporation of the Company which, among other things,
created a classified seven-member board of directors, (vii) the election of
Ronald Burkle as the Chief Executive Officer of the Company, and (viii) the
execution of the Management Services Agreement and Warrant Agreement described
below.
Pursuant to the Recapitalization Agreement, the Company paid Yucaipa a fee
of $15,000,000 on the Closing Date.
The Recapitalization Agreement provides that the fees and expenses of the
Company, Yucaipa and Smitty's in connection with the transactions contemplated
thereby will be paid by the Company.
Pursuant to the Recapitalization Agreement, the Company has agreed that
after the Closing Date, with respect to each person who is or has been a
director or officer of the Company, any of its subsidiaries (including
Smitty's), or its successors and assigns, the Company will indemnify each such
person to the fullest extent permitted by law against any claim, liability,
loss, damage, judgment, fine, penalty, amount paid in settlement or compromise,
cost or expense, including reasonable fees and expenses of legal counsel,
arising out of any matter existing or occurring on or prior to the Closing
Date, whether commenced, asserted or claimed before or after the Closing Date.
The Company has agreed to maintain in effect for not less than four years after
the Closing Date the current policies of directors' and officers' liability
insurance maintained by the Company or its subsidiaries on January 29, 1996
(provided that the Company may substitute therefor policies having at least the
same coverage and containing terms and conditions which are no less advantageous
to the persons currently covered by such policies as insured) with respect to
matters existing or occurring prior to the Closing Date and the Company will use
its best efforts to prepay premiums with respect to the foregoing insurance for
the four-year period following the Closing Date; provided, however, that if the
aggregate annual premiums for such insurance during such period exceed 200% of
the per annum rate of the aggregate premium currently paid by the Company or its
subsidiaries for such insurance on January 29, 1996, then the Company will cause
the surviving corporation in the Merger to provide the maximum coverage then
available at an annual premium equal to 200% of such rate.
(Page 10 of 18)
<PAGE>
THE MANAGEMENT SERVICES AGREEMENT
Pursuant to the Management Services Agreement (Exhibit 4 hereto), Yucaipa,
through its partners, employees or other designated agents, will provide the
Company with management consultation and advice regarding strategic planning and
development, budgeting and future financing plans, selection and retention of
management personnel, integration strategy, legal and governmental affairs,
board presentations and similar management services as may be requested from
time to time. The Management Services Agreement has a five-year term and
provides for annual management fees of $1,000,000, plus reimbursement of all of
Yucaipa's reasonable out-of-pocket costs and expenses. In addition, the Company
may retain Yucaipa in an advisory capacity in connection with certain
acquisitions or sale transactions, debt and equity financings, or any other
services not otherwise covered by the Management Services Agreement, for which
the Company will pay Yucaipa additional compensation in an amount to be agreed
upon by the Company and Yucaipa (and approved by a majority of the Company's
disinterested directors). On May 23, 1996, the Company prepaid a portion of the
management fees payable to Yucaipa under the Management Services Agreement
through the issuance of 200,000 shares of Class B Common Stock of the Company.
During the term of the Management Services Agreement, Ronald W. Burkle
will, if he so elects, have the right to serve as the Chief Executive Officer of
the Company and will have all rights and responsibilities customarily vested in
a Chief Executive Officer. Mr. Burkle will not receive any compensation for
serving in such capacity beyond the management fees paid to Yucaipa under the
Management Services Agreement.
The Management Services Agreement may be terminated by the Company: (a) at
any time by giving Yucaipa at least 90 days' written notice; (b) if Yucaipa
shall fail to reasonably perform any material covenant, agreement, term or
provision under the Management Services Agreement following 60 days' written
notice of such failure; (c) at any time if Yucaipa commits any act of fraud,
dishonesty or gross negligence in connection with its performance under the
Management Services Agreement which is materially detrimental to the Company's
business or reputation; (d) upon the occurrence of certain defaults or events of
default under the indentures governing the Company's 11 1/4% Senior Subordinated
Notes due 2007 (the "Indentures"), the Company's senior credit facility entered
into on May 23, 1996, or any other material debt agreements entered into to
refinance such indebtedness, if such default is not cured or waived within a
specified period; (e) if Yucaipa is in material default under the Standstill
Agreement following 90 days' written notice of such default; or (f) at any time
if Yucaipa and its affiliates own less than 50% of the shares of Class B Common
Stock acquired by them in the Merger. Yucaipa may terminate the Management
Services Agreement: (a) if the Company fails to reasonably perform any material
covenant, agreement, term or provision under the Management Services Agreement
following 60 days' written notice; (b) if the Company fails to make any payment
to Yucaipa under the Management Services Agreement following 30 days' written
notice of such failure; (c) if the Yucaipa nominees cease to hold Board seats as
required by the Standstill Agreement; (d) if the Board of Directors fails to
approve two or more material recommendations by Yucaipa to the Board (provided
that Yucaipa may not designate more than four such matters during any calendar
year as material) or the Board otherwise takes action which materially
interferes with the ability of Yucaipa to perform its responsibilities under the
Management Services Agreement following 60 days' written notice; or (e) if Mr.
Burkle ceases to be Chief Executive Officer of the Company, other than by reason
of his death, disability, termination for cause or voluntary resignation.
Either Yucaipa or the Company may terminate the Management Services Agreement
upon a change of control of the Company (defined generally, subject to certain
exceptions and conditions, as either (i) the acquisition of beneficial ownership
of 40% or more of the Company outstanding shares of voting stock, or (ii) the
sale of substantially all of the Company assets or capital stock, excluding any
transaction with Yucaipa or any of its partners or affiliates or any member of
the Smith Group). If the Management Services Agreement is terminated
(Page 11 of 18)
<PAGE>
(i) by the Company for the reason set forth in clause (a) of the first sentence
of this paragraph, (ii) by Yucaipa in accordance with the Management Services
Agreement, or (iii) pursuant to a change of control of the Company, Yucaipa will
be entitled to the greater of (x) $5 million, or (y) twice the total fees that
would have been earned by Yucaipa under the then remaining term of the
Management Services Agreement.
Yucaipa has agreed that during the term of the Management Services
Agreement it will not, without the Company's prior written consent, provide
management or consulting services to, or make equity investments in excess of 5%
in any "Significant Competitor," defined as any business which operates in
excess of five retail supermarkets in any market in which the Company operates
in excess of five retail supermarkets, subject to certain exceptions and
conditions.
During the term of the Management Services Agreement, the Company will
indemnify and hold harmless Yucaipa and each of its affiliates, partners,
officers, agents and employees from and against all losses, claims, damages,
liabilities or expenses (collectively, "losses") resulting from any claim,
lawsuit or other proceeding by any person to which any of them may become
subject which is related to or arising out of the performance of the services to
be provided under the Management Services Agreement or the Recapitalization
Agreement, including all reasonable out-of-pocket expenses, unless such losses
result from (i) Yucaipa's or such party's gross negligence or willful misconduct
or any intentional, material breach of the Management Services Agreement, or
(ii) any settlement effected without the written consent of the Company, which
consent will not be unreasonably withheld.
THE WARRANT AGREEMENT
Pursuant to the Warrant Agreement (Exhibit 5 hereto), on the Closing Date
the Company issued to Yucaipa warrants to purchase 1,842,555 shares of Class C
Common Stock of the Company (the "Warrants") at an initial exercise price of
$50.00 per share. One-half of the Warrants are designated "Series A Warrants"
and will be exercisable at the election of Yucaipa on or prior to May 23, 2000,
and one-half of the Warrants are designated "Series B Warrants" and will be
exercisable at the election of Yucaipa on or prior to May 23, 2001. The
foregoing expiration dates will each be extended by five years in the event
that, prior to such respective dates, the market price of Class B Common Stock
equals or exceeds the exercise price (as adjusted from time to time) for a
period of not less than 60 consecutive trading days. The Warrants allow the
holder to elect to exercise the Warrants without the payment of cash
consideration, provided that the Company will withhold from the shares otherwise
issuable upon such exercise a number of shares having a fair market value as of
the exercise date equal to the aggregate exercise price. The Class C Common
Stock to be issued to Yucaipa upon exercise of its Warrants will be identical in
all respects to the Class B Common Stock, except that the Class C Common Stock
will be non-voting. Shares of Class C Common Stock will be convertible into an
equal number of shares of Class B Common Stock following the transfer of such
shares by Yucaipa to any person or entity not affiliated with Yucaipa. The
number of shares to be issued upon exercise of the Warrants and the exercise
price are each subject to adjustment under standard anti-dilution provisions.
THE STANDSTILL AGREEMENT
On January 29, 1996, Yucaipa, Arizona Partners, Smitty's Partners, Smitty's
Partners II, and SSV Partners (collectively, the "Yucaipa Group"), Jeffrey P.
Smith and certain family members and related trusts (collectively, the "Smith
Group") and the Company entered into the Standstill Agreement (attached hereto
as Exhibit 3). Pursuant to the Standstill Agreement, the Yucaipa Group has
agreed that for a 10-year period ending on January 29, 2006, it will not
acquire, offer to acquire, agree to acquire, become the beneficial owner of, or
obtain any rights in respect of any securities that are entitled to vote
generally for the election of directors ("Company Voting Securities"), by
purchase or otherwise, or take
(Page 12 of 18)
<PAGE>
any action in furtherance thereof, if the effect of such action would be to
increase its aggregate beneficial ownership of Company Voting Securities above
(x) 20% of the total number of votes that could be cast at a stockholders'
meeting of the Company (the "Combined Voting Power") or (y) 25% of the total
number of Company Voting Securities outstanding, subject to certain exceptions.
In addition, without the approval of a majority of the Disinterested Directors
(defined as directors of the Company who are not employees or officers of the
Company, are not serving as designees of the Yucaipa Group, and are not
associates of Yucaipa or its affiliates) and subject to certain limited
exceptions, no member of the Yucaipa Group will during such 10-year period (i)
submit any proposals to acquire a majority of the Combined Voting Power of
Company Voting Securities (a "Change of Control Proposal"), (ii) directly or
indirectly sell, transfer any beneficial interest in, pledge, hypothecate or
otherwise dispose of any Company Voting Securities or any shares of Company
Common Stock to be acquired from the Company pursuant to the Warrant Agreement,
other than to another member of the Yucaipa Group or their respective affiliates
in any transaction or series of transactions that would result in a transfer of
greater than 3% of the Combined Voting Power or would result in any person
having, or having the right to acquire, beneficial ownership greater than 5% of
the Combined Voting Power, (iii) solicit any proxies, or assist any other person
in any way in solicitation of proxies, or submit any proposal for the vote of
stockholders of the Company, or induce another person to take any such actions
with respect to the voting of any of the Company Voting Securities, (iv)
directly or indirectly solicit or induce any person to bid for or acquire
Company Voting Securities in excess of 5% of the Combined Voting Power of
Company Voting Securities, or (v) engage in certain affiliate transactions.
Pursuant to the Standstill Agreement, the Company will use its best efforts
to cause to be elected to the Company's Board of Directors two designees of the
Smith Group, two designees of the Yucaipa Group, one member of the senior
management of the Company and two "independent directors" (as required by the
rules of the New York Stock Exchange) who are also Disinterested Directors.
Subject to the provisions of the Certificate of Incorporation and Bylaws of the
Company and the approval of the Company's stockholders, the Smith Group and the
Yucaipa Group will each have the right to designate two directors of the
Company, as long as the members of such Group and its affiliates beneficially
own at least 8% of the outstanding shares of Common Stock, and the Smith Group
and the Yucaipa Group will each have the right to designate one director of the
Company, as long as the members of such Group and its affiliates beneficially
own at least 5% of the outstanding shares of Common Stock. However, no
individual who is an officer, director, partner, or principal stockholder of any
Significant Competitor (as defined in the Management Services Agreement) of the
Company or any of its subsidiaries will serve as director. At any time when the
Yucaipa Group and its affiliates or the Smith Group and its affiliates no longer
beneficially own at least 5% of the outstanding shares of Common Stock, such
Group will not have the right to designate any director of the Company, such
Group's rights with regard to the voting of the Company securities will
terminate and such Group will cause its designees to the Board of Directors to
resign.
Pursuant to the Standstill Agreement, each of the Smith Group and the
Yucaipa Group has agreed that they each will, at any annual or special meeting
of the stockholders at which the directors of the Company are to be elected or
in connection with a solicitation of consents through which directors of the
Company are to be selected, to vote (or give a written consent with respect to)
all of their respective Company Voting Securities in favor of the election to
the Company Board of Directors of the nominees designated by such other Group.
The Standstill Agreement will terminate at any time that the Yucaipa Group
and its affiliates own less than 2% of the outstanding shares of Common Stock.
(Page 13 of 18)
<PAGE>
THE REGISTRATION RIGHTS AGREEMENT
Pursuant to the Recapitalization Agreement (Exhibit 6 hereto), on May 23,
1996 the Company entered into a registration rights agreement (the "Registration
Rights Agreement") with Jeffrey P. Smith, Yucaipa, and certain holders of
Smitty's Common Stock who received Class B Common Stock as consideration in the
Merger (collectively, the "Holders"). Under the terms of the Registration
Rights Agreement, each of (i) Yucaipa and the holders of Smitty's common stock
receiving Class B Common Stock in the Merger and their transferees, as a group
(the "Yucaipa Holder Group"), and (ii) Jeffrey P. Smith and his affiliates and
transferees, as a group (the "Smith Holder Group"), will be entitled to require
the Company to effect a registration under the Securities Act of 1933 (a "Demand
Registration") of all or a portion (but not less than 20%) of the Registrable
Securities (as defined) held by such Holders, subject to certain limitations.
Upon such demand, the Company will give prompt notice thereof to each registered
holder of Registrable Securities and will prepare, file and use its best efforts
to cause to become effective a registration statement in respect of all
Registrable Securities requested to be included therein. Each of the Smith
Holder Group and the Yucaipa Holder Group will be entitled to two Demand
Registrations. Notwithstanding the foregoing, the Company will not be required
to effect more than one Demand Registration during any six-month period. Such
Demand Registration may, at the election of the demanding Holders, be in the
form of an underwritten offering and such demanding Holders shall be entitled to
select the underwriters.
Members of the Yucaipa Holder Group may at any time prior to May 23, 1998
demand that the Company promptly file a shelf registration statement pursuant to
Rule 415 under the Securities Act which will provide for resales of Registrable
Securities held by the Yucaipa Group. The Company will keep such Shelf
Registration statement continuously effective for at least 120 days following
the effective date (or such longer period as such Holders' Registrable
Securities constitute "restricted securities" under Rule 144 and are subject to
the two-year holding period for affiliates under Rule 144(c)); provided that in
no event will the Company be required to keep such shelf registration statement
effective after May 23, 1998.
Holders of Registrable Securities will also have the right to include such
Registrable Securities in any registration statement under the Securities Act
filed by the Company for its own account or for the account of any of its
securityholders (other than (i) a registration statement on Form S-4 or S-8,
(ii) a registration statement filed in connection with a Demand Registration or
a Shelf Registration or (iii) a registration statement filed in connection with
an offer of securities solely to existing securityholders) for sale on the same
terms and conditions as the securities of Smitty's or any other selling
securityholder included therein (a "Piggy-Back Registration"). In the event
that, pursuant to any Demand Registration or any Piggy-Back Registration, the
Company is advised by the managing underwriter therefor that the total number of
shares proposed to be included therein is such as to materially and adversely
affect the success of the offering, the Company has granted certain priority
rights to the Smith Group which enables the Smith Group to have its Registrable
Securities (up to certain designated amounts) included in such registrations
before the Yucaipa Group is entitled to include its Registrable Securities in
such registrations.
The Company will be obligated to pay its expenses associated with
registration of the Registrable Securities, regardless of whether any
registration statement required by the Registration Rights Agreement becomes
effective, and the reasonable fees and expenses of any party to the Registration
Rights Agreement who participates in any registration effected thereunder. In
addition, the Company will provide a customary securities law indemnification to
any party who participates in any registration effected under the Registration
Rights Agreement.
(Page 14 of 18)
<PAGE>
The Registration Rights Agreement will terminate upon the earlier to occur
of (i) the mutual agreement by the parties thereto, (ii) with respect to any
Holder, such Holder ceasing to own any Registrable Securities, (iii) May 23,
2011, or (iv) with respect to the Smith Holder Group or the Yucaipa Holder
Group, the date on which the aggregate number of shares of outstanding
Registrable Securities held by the Smith Holder Group or the Yucaipa Holder
Group, as applicable, is less than 20% of the Registrable Shares originally held
by the Smith Holder Group or the Yucaipa Holder Group, as applicable,
immediately following the consummation of the Transactions (except with respect
to any Holder that is an "affiliate" of the Company within the meaning of the
Securities Act).
Except as set forth herein, none of the Reporting Persons have any
contracts, arrangements, understandings or relationships (legal or otherwise)
with any person with respect to any securities of the Issuer, including but not
limited to any contracts, arrangements, understandings or relationships
concerning the transfer or voting of such securities, finder's fees, joint
ventures, loan or option arrangements, puts or calls, guarantees of profits,
division of profits or losses, or the giving or withholding of proxies.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
---------------------------------
Exhibit 1. Joint Filing Agreement dated as of May 31, 1996.
Exhibit 2. Recapitalization Agreement and Plan of Merger dated as of
January 29, 1996 by and among Smith's Food & Drug Centers,
Inc., Cactus Acquisition, Inc., Smitty's Supermarkets, Inc. and
The Yucaipa Companies (incorporated by reference to Exhibit 2.1
of the Company's Registration Statement on Form S-3, File No.
333-01601).
Exhibit 3. Standstill Agreement dated as of January 29, 1996 (incorporated
by reference to Exhibit 10.2 of the Company's Registration
Statement on Form S-3, File No. 333-01601).
Exhibit 4. Management Services Agreement dated as of May 23, 1996 between
Smith's Food & Drug Centers, Inc. and The Yucaipa Companies
(incorporated by reference to Exhibit 10.6 of the Company's
Registration Statement on Form S-3, File No. 333-01601).
Exhibit 5. Warrant Agreement dated as of May 23, 1996 between Smith's Food
& Drug Centers, Inc. and The Yucaipa Companies (incorporated by
reference to Exhibit 10.7 of the Company's Registration
Statement on Form S-3, File No. 333-01601).
Exhibit 6. Registration Rights Agreement dated as of May 23, 1996
(incorporated by reference to Exhibit 10.5 of the Company's
Registration Statement on Form S-3, File No. 333-01601).
(Page 15 of 18)
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 31, 1996 Yucaipa Arizona Partners, L.P.
Yucaipa Smitty's Partners, L.P.
Yucaipa Smitty's Partners II, L.P.
Yucaipa SSV Partners, L.P.
By: The Yucaipa Companies
Its General Partner
By: /s/ MARK A. RESNIK
----------------------------
Name: Mark A. Resnik
Title: General Partner
Dated: May 31, 1996 The Yucaipa Companies
By: /s/ MARK A. RESNIK
----------------------------
Name: Mark A. Resnik
Title: General Partner
(Page 16 of 18)
<PAGE>
EXHIBIT INDEX
-------------
Exhibit 1. Joint Filing Agreement dated as of May 31, 1996.
Exhibit 2. Recapitalization Agreement and Plan of Merger dated as of January
29, 1996 by and among Smith's Food & Drug Centers, Inc., Cactus
Acquisition, Inc., Smitty's Supermarkets, Inc. and The Yucaipa
Companies (incorporated by reference to Exhibit 2.1 of the Company's
Registration Statement on Form S-3, File No. 333-01601).
Exhibit 3. Standstill Agreement dated as of January 29, 1996 (incorporated by
reference to Exhibit 10.2 of the Company's Registration Statement on
Form S-3, File No. 333-01601).
Exhibit 4. Management Services Agreement dated as of May 23, 1996 between
Smith's Food & Drug Centers, Inc. and The Yucaipa Companies
(incorporated by reference to Exhibit 10.6 of the Company's
Registration Statement on Form S-3, File No. 333-01601).
Exhibit 5. Warrant Agreement dated as of May 23, 1996 between Smith's Food &
Drug Centers, Inc. and The Yucaipa Companies (incorporated by
reference to Exhibit 10.7 of the Company's Registration Statement on
Form S-3, File No. 333-01601).
Exhibit 6. Registration Rights Agreement dated as of May 23, 1996 (incorporated
by reference to Exhibit 10.5 of the Company's Registration Statement
on Form S-3, File No. 333-01601).
(Page 17 of 18)
<PAGE>
EXHIBIT 1
JOINT FILING AGREEMENT
----------------------
In accordance with Rule 13d-1(f) promulgated under the Securities
Exchange Act of 1934, as amended, the undersigned hereby agree to the joint
filing with all other Reporting Persons (as such term is defined in the Schedule
13D referred to below) on behalf of each of them of a statement on Schedule 13D
(including amendments thereto) with respect to the Class B common stock, par
value $.01 per share (the "Class B Common Stock"), of Smith's Food & Drug
Centers, Inc., a Delaware corporation, and that this Agreement may be included
as an Exhibit to such joint filing.
IN WITNESS WHEREOF, the undersigned hereby execute this Agreement as
of May 31, 1996.
Yucaipa Arizona Partners, L.P.
Yucaipa Smitty's Partners, L.P.
Yucaipa Smitty's Partners II, L.P.
Yucaipa SSV Partners, L.P.
By: The Yucaipa Companies
Its General Partner
By: /s/ MARK A. RESNIK
---------------------------
Mark A. Resnik
General Partner
The Yucaipa Companies
By: /s/ MARK A. RESNIK
---------------------------
Mark A. Resnik
General Partner
(Page 18 of 18)
