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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Smart & Final Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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PRELIMINARY COPIES
[LOGO OF SMART & FINAL(R)]
November , 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Smart & Final Inc. (the "Company"), which will be held at the Robert J. Emmons
Training Center, 4719 South Boyle Avenue, Los Angeles, California 90058, on
Monday, December 23, 1996, at 10:00 a.m., local time.
The Company has entered into an Agreement for Conveyance of Real Property
(the "Acquisition Agreement") with Casino USA, Inc. ("Casino USA"), the
principal stockholder of the Company, and Casino Realty, Inc. ("Casino
Realty"), a wholly-owned subsidiary of Casino USA, pursuant to which the
Company would acquire from them, subject to certain conditions, 91 improved
real properties and leasehold interests, which are currently being primarily
leased or subleased by the Company for a majority of its Smart & Final stores
located in California, Arizona and Nevada and for its Los Angeles, California
offices and warehouses. In consideration, the Company would issue 1,625,000
shares of its Common Stock and its five-year unsecured promissory notes
aggregating $38 million. The Company would also assist Casino USA and Casino
Realty with regard to, and, in that connection, assure, the sale of twelve
real properties located in California and Texas, on or before December 31,
1998, for an aggregate gross sales price of at least $5.7 million and, in the
event that such properties are sold for less than $5.7 million, pay the
difference to Casino USA and Casino Realty. In the event that the aggregate
gross sales price of such properties exceeds $5.7 million, Casino USA and
Casino Realty would be required to pay the Company all of the excess up to
$0.5 million and one-third of any remaining excess. Casino USA and Casino
Realty would also pay the Company over the next three years certain
arrangement and management fees aggregating $1.5 million (which would be
partially offset by an increase in certain expenses of the Company). At the
Special Meeting, you will be asked to approve the Acquisition Agreement, and
the transactions contemplated thereby, including the issuance of the shares of
Company Common Stock, as described more completely in the accompanying Proxy
Statement.
A Special Committee of the Board of Directors and the Board of Directors of
the Company believe that the Acquisition Agreement, and the transactions
contemplated thereby, are in the best interest of the Company and its
stockholders, and the Special Committee has received an opinion dated as of
October 22, 1996 from Merrill Lynch, Pierce, Fenner & Smith Incorporated, the
independent financial advisor to the Special Committee, that, as of such date,
the consideration proposed to be paid by the Company pursuant to the
Acquisition Agreement is fair to the Company from a financial point of view.
Accordingly, the Special Committee and the Board have unanimously approved,
and recommend that you vote to approve, the Acquisition Agreement, and the
transactions contemplated thereby, including the issuance of the shares of
Company Common Stock. A Notice of Special Meeting of Stockholders and a Proxy
Statement containing detailed information concerning the proposed transaction
and related matters accompany this letter. I urge you to read this material
carefully.
YOUR VOTE IS VERY IMPORTANT. WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING
OR NOT, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN ORDER
THAT AS MANY SHARES AS POSSIBLE MAY BE REPRESENTED AT THE SPECIAL MEETING.
Very truly yours,
Robert J. Emmons
Chairman of the Board
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PRELIMINARY COPIES
[LOGO OF SMART & FINAL(R)]
4700 SOUTH BOYLE AVENUE
LOS ANGELES, CALIFORNIA 90058
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 23, 1996
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TO THE STOCKHOLDERS:
A Special Meeting of Stockholders of Smart & Final Inc. (the "Company") will
be held at the Robert J. Emmons Training Center, 4719 South Boyle Avenue, Los
Angeles, California 90058, on Monday, December 23, 1996, at 10:00 a.m., local
time, for the following purposes:
1. To consider and vote upon an Agreement for Conveyance of Real Property
pursuant to which (i) the Company would acquire, subject to certain
conditions, 91 improved real properties and leasehold interests owned by
Casino USA, Inc. ("Casino USA"), the principal stockholder of the Company,
and Casino Realty, Inc. ("Casino Realty"), a wholly-owned subsidiary of
Casino USA, which are currently being primarily leased or subleased by the
Company for 86 Smart & Final stores located in California, Arizona and
Nevada and for its Los Angeles, California offices and warehouses, in
exchange for the issuance of 1,625,000 shares of the Company's Common
Stock, $.01 par value per share, and the Company's five-year unsecured
promissory notes aggregating $38 million, (ii) the Company would assist
Casino USA and Casino Realty with regard to, and, in that connection,
assure, the sale of twelve real properties located in California and Texas,
on or before December 31, 1998, for an aggregate gross sales price of at
least $5.7 million and, in the event that such properties are sold for an
aggregate gross sales price of less than $5.7 million, pay the difference
to Casino USA and Casino Realty (provided, however, in the event that the
aggregate gross sales price of such properties exceeds $5.7 million, Casino
USA and Casino Realty would pay the Company all of the excess up to $0.5
million and one-third of any remaining excess), and (iii) Casino USA and
Casino Realty would pay to the Company over the next three years certain
arrangement and management fees aggregating $1.5 million (which would be
partially offset by an increase in certain expenses of the Company related
to the operation of the Properties and the sale of the Non-Operating
Properties), all as described more completely in the accompanying Proxy
Statement; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
The Board of Directors has determined that only holders of the Company's
Common Stock of record at the close of business on November 15, 1996, will be
entitled to receive notice of, and to vote at, the Special Meeting or any
adjournment thereof.
WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING OR NOT, YOU ARE REQUESTED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE IN ORDER THAT AS MANY SHARES AS POSSIBLE MAY BE REPRESENTED AT THE
SPECIAL MEETING.
Donald G. Alvarado
Secretary
Los Angeles, California
November , 1996
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TABLE OF CONTENTS
<TABLE>
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PAGE
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SUMMARY INFORMATION....................................................... 1
The Acquisition Transaction............................................. 1
Effective Time of the Acquisition Transaction........................... 2
Interests of Certain Persons in the Acquisition Transaction............. 2
Certain Effects of the Acquisition Transaction on the Company's
Stockholders........................................................... 2
Opinion of Financial Advisor............................................ 4
Recommendations of the Special Committee and the Board of Directors..... 4
INFORMATION REGARDING THE MEETING......................................... 4
General................................................................. 4
Record Date and Voting.................................................. 4
Proxy Information....................................................... 5
Solicitation of Proxies................................................. 5
APPROVAL OF THE ACQUISITION TRANSACTION AND RELATED MATTERS............... 5
Introduction............................................................ 5
Background of the Acquisition Transaction............................... 6
Reasons for the Acquisition Transaction--Recommendation of the Special
Committee.............................................................. 8
Recommendation of the Board of Directors................................ 9
Opinion of Financial Advisor............................................ 9
Interests of Certain Persons in the Acquisition Transaction............. 12
Certain Effects of the Acquisition Transaction on the Company's
Stockholders........................................................... 15
Certain Forward-Looking Statements...................................... 17
Approval of the Proposal................................................ 17
PRO FORMA UNAUDITED FINANCIAL STATEMENTS.................................. 19
Pro Forma Unaudited Balance Sheet as of October 6, 1996................. 20
Pro Forma Unaudited Income Statement for The Year Ended December 31,
1995................................................................... 22
Pro Forma Unaudited Income Statement for The Period Ended October 6,
1996................................................................... 23
Notes to Pro Forma Unaudited Financial Statements....................... 24
DESCRIPTION OF THE ACQUISITION AGREEMENT.................................. 26
Conveyance of Properties; Consideration................................. 26
Closing; Termination.................................................... 26
Conditions.............................................................. 26
Representations, Warranties and Covenants............................... 27
Costs and Expenses...................................................... 28
Other Covenants; Indemnification........................................ 28
Non-Operating Properties; Arrangement and Management Fees............... 29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 30
OTHER MATTERS............................................................. 31
ATTENDANCE OF AUDITORS.................................................... 31
SUBMISSION OF STOCKHOLDER PROPOSALS....................................... 31
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 32
ANNEXES
Agreement for Conveyance of Real Property............................... A-1
Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated........... B-1
</TABLE>
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PRELIMINARY COPIES
SMART & FINAL INC.
4700 SOUTH BOYLE AVENUE
LOS ANGELES, CALIFORNIA 90058
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PROXY STATEMENT
----------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Smart & Final Inc. (the "Company") for
use at a Special Meeting of Stockholders to be held at the Robert J. Emmons
Training Center, 4719 South Boyle Avenue, Los Angeles, California 90058, on
Monday, December 23, 1996, at 10:00 a.m., local time, and at any adjournment
thereof, for the purposes set forth herein and in the accompanying Notice. The
approximate date of mailing of this Proxy Statement and the accompanying proxy
is November , 1996.
SUMMARY INFORMATION
The following is a summary of certain information contained in this Proxy
Statement. This summary is not intended to be a complete statement of all
material features of the Acquisition Agreement (as defined below), and the
transactions contemplated thereby, and is qualified in its entirety by
reference to the more detailed information appearing elsewhere in this Proxy
Statement, the Annexes to this Proxy Statement and the documents incorporated
by reference in this Proxy Statement. STOCKHOLDERS ARE URGED TO READ THIS
PROXY STATEMENT AND ITS ATTACHED ANNEXES IN THEIR ENTIRETY.
THE ACQUISITION TRANSACTION
On October 31, 1996, the Company entered into an Agreement for Conveyance of
Real Property (the "Acquisition Agreement") with Casino USA, Inc. ("Casino
USA"), its principal stockholder, and Casino Realty, Inc. ("Casino Realty"), a
wholly-owned subsidiary of Casino USA, pursuant to which the Company would
acquire, subject to certain conditions, 91 improved real properties and
leasehold interests (collectively, the "Properties") owned by Casino USA and
Casino Realty, which are currently being primarily leased or subleased by the
Company for 86 Smart & Final stores located in California, Arizona and Nevada
and for its Los Angeles, California offices and warehouses, in exchange for
the issuance of 1,625,000 shares of the Company's Common Stock, $.01 par value
per share (the "Shares"), and the Company's five-year unsecured promissory
notes aggregating $38 million (the "Notes") and for certain other
consideration discussed below (collectively, the "Acquisition Transaction").
The aggregate value of the Shares and the Notes to be issued, assuming a per
share price of $23.375 (which is the per share price agreed upon by the
parties in structuring the Acquisition Transaction), is approximately $76
million. As the Acquisition Agreement provides for the issuance of a set
number of Shares, upon the closing of the Acquisition Agreement, the actual
value of the Shares being issued would be the then market price of the Shares.
The closing per share price of the Company's Common Stock on the New York
Stock Exchange on November , 1996 was . Depending upon the actual market
price of the Company's Common Stock at the closing, the aggregate value of the
Shares and the Notes could be greater or less than $76 million.
As a part of the Acquisition Transaction, the Company would also assist
Casino USA and Casino Realty with regard to, and, in that connection, assure,
the sale of six former Smart & Final stores, one office building and one
parcel of land located in California and three parcels of land and one
improved property located in Texas (collectively, the "Non-Operating
Properties"), on or before December 31, 1998, for an aggregate gross sales
price of at least $5.7 million and, in the event that the Non-Operating
Properties are sold for an aggregate gross sales price of less than $5.7
million, pay the difference to Casino USA and Casino Realty (the "Shortfall
Obligation") (the Shortfall Obligation, the Shares and the Notes being
collectively, the "Acquisition
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Consideration"). In the event that the aggregate gross sales price of such
properties exceeds $5.7 million, Casino USA and Casino Realty would be
required to pay the Company all of the excess up to $0.5 million and one-third
of any remaining excess. Casino USA and Casino Realty have also agreed to pay
the Company over the next three years certain arrangement and management fees
aggregating $1.5 million (which would be partially offset by an increase in
certain expenses of the Company related to the operation of the Properties and
the sale of the Non-Operating Properties).
A copy of the Acquisition Agreement is attached as Annex A to this Proxy
Statement. For a summary of the Acquisition Agreement, see also "Description
of the Acquisition Agreement."
EFFECTIVE TIME OF THE ACQUISITION TRANSACTION
The Acquisition Transaction will become effective upon the closing of the
transactions contemplated by the Acquisition Agreement. The date of closing
(the "Closing Date") is expected to occur before December 31, 1996, and as
soon as practicable following the approval of the Acquisition Agreement, and
the Acquisition Transaction contemplated thereby, by the Company's
stockholders.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION TRANSACTION
Casino USA currently owns all of the outstanding shares of capital stock of
Casino Realty and 10,790,925 shares, or approximately 53.1% of the outstanding
shares, of Common Stock of the Company. Casino Guichard-Perrachon, S.A.
("Casino France") owns approximately 99% of the outstanding shares of the
capital stock of Casino USA. As a part of the consideration to be paid by the
Company under the Acquisition Agreement, Casino USA and Casino Realty would
collectively receive 1,625,000 shares of the Company's Common Stock (i.e., the
Shares). After the issuance of the Shares, and taking into account its
beneficial ownership of any Shares held by Casino Realty, Casino USA would
hold approximately 56.6% of the then outstanding shares of the Common Stock of
the Company.
Except as provided in the Acquisition Agreement, there is no agreement
between Casino USA and Casino Realty and any other party, including the
Company, that would prevent them from acquiring additional shares of Company
Common Stock or disposing of shares of Company Common Stock owned by them. See
"Description of the Acquisition Agreement--Representations, Warranties and
Covenants." Neither Casino USA nor Casino Realty has any preemptive rights to
acquire any shares of Company Common Stock. The Company's twelve-member Board
of Directors includes Robert Emmons, Antoine Guichard, Georges Plassat and
Pierre Bouchut who also serve as directors of Casino USA and/or who are
affiliated with Casino France. In addition, Mr. Emmons, who is also the
Chairman of the Board of the Company, serves as Chief Executive Officer and
Chief Financial Officer of Casino USA and Casino Realty.
Of the 166 Smart & Final Stores facilities operating in the United States as
of the date of this Proxy Statement, 119 facilities are leased or subleased
from either Casino USA or Casino Realty. Either the Company or its subsidiary,
Smart & Final Stores Corporation ("Smart & Final Stores"), has a right of
first refusal to purchase each of the Properties. The aggregate lease payments
to Casino USA and Casino Realty for fiscal 1995 and the first three quarters
of fiscal 1996 were $16,450,000 and $12,901,000, respectively. If the
Acquisition Transaction were to fail to close for any reason, the aggregate
amount of future minimum rentals through fiscal 2000 due in connection with
the Properties would be approximately $73,499,000 at January 1, 1996. See also
"Approval of the Acquisition Transaction and Related Matters--Interests of
Certain Persons in the Acquisition Transaction."
CERTAIN EFFECTS OF THE ACQUISITION TRANSACTION ON THE COMPANY'S STOCKHOLDERS
The Acquisition Transaction will result in a substantial increase in the
Company's assets. Among the factors considered by a Special Committee of the
Company's Board of Directors (the "Special Committee") and the Company's Board
of Directors in connection with their approval of the Acquisition Agreement,
and the
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Acquisition Transaction contemplated thereby, were the opportunity to gain
control of the Properties and the anticipated benefits to the Company's
financial position and results of operations expected to result from the
Acquisition Transaction, including an increase in total assets, an elimination
of the lease payments to affiliates with respect to the Properties and a
potential accretion in earnings per share. See also "Approval of the
Acquisition Transaction and Related Matters--Reasons for the Acquisition
Transaction--Recommendation of the Special Committee."
In order to finance the Acquisition Transaction, the Company will incur a
substantial amount of debt. If future cash flows are less than anticipated,
the Company could have difficulty meeting interest and principal payments due
on the debt and its other obligations. In addition, owning the Properties will
subject the Company to risks generally incident to the ownership of real
property, including increased potential liability under the environmental
protection laws (to the extent the Company does not already have the risk of
such liability allocated to it under the leases and subleases on the
Properties or under existing law) and changes in tax, real estate, zoning and
other laws that may make ownership or sale of the Properties unattractive to
the Company or potential buyers. Further, the Acquisition Transaction has not
been negotiated at arms' length, no independent appraisals of the Properties
and the Non-Operating Properties were obtained, and an executive officer and
certain directors of the Company have conflicts of interest arising out of
their relationship with Casino USA and/or Casino France. See also "Approval of
the Acquisition Transaction and Related Matters--Certain Effects of the
Acquisition Transaction on the Company's Stockholders--Certain Risks of the
Acquisition Transaction."
The Company, Casino USA and Casino Realty intend that the Company's
acquisition of the Properties owned by Casino Realty will be a reorganization
for federal income tax purposes within the meaning of Sections 368(a)(1)(D)
and 368(a)(2)(H) of the Internal Revenue Code of 1986, as amended (the
"Code"). In that event, the Company's tax bases in such Properties generally
will be equal to Casino Realty's adjusted tax bases in such Properties on the
Closing Date. The Company, Casino USA and Casino Realty intend that the
Company's acquisition of the five leasehold Properties owned by Casino USA
will be a taxable purchase and sale for federal income tax purposes. In that
event, the Company's tax bases in such Properties generally will be equal to
the cost of such Properties to the Company for federal income tax purposes.
The Acquisition Transaction will not result in the recognition of any gain or
loss for federal income tax purposes by the Company or its stockholders (other
than Casino USA, which will have unique tax consequences). See also "Approval
of the Acquisition Transaction and Related Matters--Certain Effects of the
Acquisition Transaction on the Company's Stockholders--Certain Federal Income
Tax Consequences." In addition, in connection with the reorganization, Casino
USA and Casino Realty make certain tax-related representations, warranties and
covenants to the Company in the Acquisition Agreement, and the Company makes
certain tax-related representations, warranties and covenants to Casino USA
and Casino Realty in the Acquisition Agreement. See "Description of the
Acquisition Agreement--Representations, Warranties and Covenants."
Nearly all of the real properties (the "California Properties") as to which
fee or leasehold interests are to be acquired by the Company in the
Acquisition Transaction are located in California. A subsidiary of the Company
leases and subleases nearly all of the California Properties from Casino USA
and Casino Realty, and is responsible for the payment of all California
property taxes imposed on such California Properties pursuant to the terms of
such leases and subleases. The Acquisition Transaction will constitute a
change in ownership with respect to nearly all of the California Properties
for California property tax purposes, that will subject such California
Properties to reassessment equal to their fair market value on the Closing
Date. Although the exact amount of the reassessment cannot be determined at
this time, the aggregate reassessed value of such California Properties could
exceed their current aggregate assessed value, which would result in
additional California property taxes to the Company and its subsidiary. See
also "Approval of the Acquisition Transaction and Related Matters--Certain
Effects of the Acquisition Transaction on the Company's Stockholders--Certain
California Property Tax Consequences."
The Company's stockholders are not entitled to dissenters' rights of
appraisal or other dissenters' rights under Delaware law with respect to the
Acquisition Transaction. See also "Approval of the Acquisition Transaction and
Related Matters--Certain Effects of the Acquisition Transaction on the
Company's Stockholders--No Dissenters' Rights."
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OPINION OF FINANCIAL ADVISOR
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), the
independent financial advisor to the Special Committee in connection with the
Acquisition Transaction, has delivered its opinion, dated October 22, 1996, to
the Special Committee that, as of such date and based on various
considerations set forth in its opinion, the Proposed Consideration (as
defined in "Approval of the Acquisition Transaction and Related Matters--
Background of the Acquisition Transaction" below) to be paid pursuant to the
Acquisition Agreement is fair to the Company from a financial point of view.
The full text of Merrill Lynch's written opinion dated October 22, 1996, is
set forth in Annex B to this Proxy Statement. For a description of this
opinion, as well as the qualifications and limitations thereto, see "Approval
of the Acquisition Transaction and Related Matters--Opinion of Financial
Advisor." On November 8, 1996, Merrill Lynch confirmed to the Special
Committee that, if the final terms of the Acquisition Consideration had been
determined by October 22, 1996, Merrill Lynch would still have been able to
deliver its opinion dated October 22, 1996 (but with regard to the Acquisition
Consideration rather than the Proposed Consideration). See "Approval of the
Acquisition Transaction and Related Matters--Background of the Acquisition
Transaction."
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS
The Special Committee has unanimously approved the Acquisition Agreement,
and the Acquisition Transaction contemplated thereby, including issuance of
the Shares, and believes that they are fair to, and in the best interests of,
the Company's stockholders. The Special Committee unanimously recommends that
the stockholders approve the Acquisition Agreement, and the Acquisition
Transaction contemplated thereby, including the issuance of the Shares. The
determinations and recommendations of the Special Committee were unanimously
adopted by the Board of Directors. See "Approval of the Acquisition
Transaction and Related Matters--Reasons for the Acquisition Transaction--
Recommendation of the Special Committee" and "Approval of the Acquisition
Transaction and Related Matters--Recommendation of the Board of Directors."
INFORMATION REGARDING THE MEETING
GENERAL
This Proxy Statement is being furnished to holders of the Company's Common
Stock in connection with the solicitation of proxies by the Board of Directors
of the Company for use at the Special Meeting of Stockholders. Each copy of
this Proxy Statement being mailed or delivered to the Company's stockholders
is accompanied by a Letter to Stockholders, a Notice of Special Meeting of
Stockholders and a proxy card.
RECORD DATE AND VOTING
As of November 15, 1996, the record date fixed by the Board of Directors,
the outstanding voting securities of the Company consisted of [20,334,304]
shares of Common Stock, par value $.01 per share. Each stockholder of record
at the close of business on November 15, 1996 is entitled to one vote for each
share then held on each matter submitted to a vote of stockholders. A majority
of the shares entitled to vote will constitute a quorum at the Special
Meeting. Abstentions and broker non-votes (i.e., votes withheld by brokers on
non-routine proposals in the absence of instructions from beneficial owners)
are counted for purposes of determining the presence or absence of a quorum
for the transaction of business. For purposes of the vote on the proposal to
approve the Acquisition Agreement, and the Acquisition Transaction
contemplated thereby, including the issuance of the Shares, abstention votes
(but not broker non-votes) are counted in determining the total number of
votes cast and thus have the effect of a vote against the proposal.
Although the Delaware General Corporation Law does not require that the
Company's stockholders approve the Acquisition Transaction, the Company's
Common Stock is listed on the New York Stock Exchange and, under the policies
of the New York Stock Exchange, the Company must obtain prior stockholder
approval of the issuance of shares of its Common Stock, if the Company is
issuing shares equal to at least one percent of its outstanding shares (prior
to the issuance) in connection with the acquisition of a business, a company,
tangible or intangible assets, or securities, directly or indirectly, from a
director, officer or at least 5% stockholder of the Company. Therefore, under
the policies of the New York Stock Exchange, the Company's stockholders are
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required to approve the issuance of the Shares to Casino USA and Casino Realty
by a majority of the votes cast. The Board of Directors is seeking stockholder
approval of the Acquisition Agreement, and the Acquisition Transaction
contemplated thereby, including the issuance of the Shares. Casino USA, which
currently holds 53.1% of the outstanding shares of the Company's Common Stock,
has informed the Company that it intends to vote to approve the Acquisition
Agreement, and the Acquisition Transaction contemplated thereby, including the
issuance of the Shares, and, therefore, stockholder approval is assured.
PROXY INFORMATION
A stockholder giving a proxy has the power to revoke it at any time before
it is exercised by filing with the Secretary of the Company an instrument
revoking it or a duly executed proxy bearing a later date or by voting in
person at the Special Meeting. Subject to such revocation, all shares
represented by each properly executed proxy received by the Company will be
voted in accordance with the instructions indicated thereon and, if
instructions are not indicated thereon, will be voted to approve the
Acquisition Agreement, and the Acquisition Transaction contemplated thereby,
including the issuance of the Shares, and, in the named proxy holders'
discretion, upon such other business as may properly come before the Special
Meeting or any adjournment thereof.
SOLICITATION OF PROXIES
The cost of this solicitation of proxies will be borne by the Company.
Solicitation will be made by mail, telephone or telegram and personally by
directors, officers and other employees of the Company, but such persons will
not receive any compensation for such services over and above their regular
salaries. The Company will reimburse brokers, banks, custodians, nominees and
fiduciaries holding stock in their names or in the names of their nominees for
their reasonable charges and expenses in forwarding proxies and proxy material
to the beneficial owners of such stock.
APPROVAL OF THE ACQUISITION TRANSACTION AND RELATED MATTERS
INTRODUCTION
On October 31, 1996, the Company entered into an Agreement for Conveyance of
Real Property (the "Acquisition Agreement") with Casino USA, Inc. ("Casino
USA"), its principal stockholder, and Casino Realty, Inc. ("Casino Realty"), a
wholly-owned subsidiary of Casino USA, pursuant to which the Company would
acquire, subject to certain conditions, 91 improved real properties and
leasehold interests (collectively, the "Properties") owned by Casino USA and
Casino Realty, which are currently being primarily leased or subleased by the
Company for 86 Smart & Final stores located in California, Arizona and Nevada
and for its Los Angeles, California offices and warehouses, in exchange for
the issuance of 1,625,000 shares of the Company's Common Stock, $.01 par value
per share (the "Shares"), and the Company's five-year unsecured promissory
notes aggregating $38 million (the "Notes") and for certain other
consideration discussed below (collectively, the "Acquisition Transaction").
The aggregate value of the Shares and the Notes to be issued in the
Acquisition Transaction, assuming a per share price of $23.375 (which is the
per share price agreed upon by the parties in structuring the Acquisition
Transaction), is approximately $76 million. As the Acquisition Agreement
provides for the issuance of a set number of Shares, upon the closing of the
Acquisition Agreement, the actual value of the Shares being issued would be
the then market price of the Shares. The closing per share price of the
Company's Common Stock on the New York Stock Exchange on November , 1996, was
. Depending upon the actual market price of the Company's Common Stock at
the closing, the aggregate value of the Shares and the Notes could be greater
or less than $76 million.
As a part of the Acquisition Transaction, the Company would also assist
Casino USA and Casino Realty with regard to, and, in that connection, assure,
the sale of six former Smart & Final stores, one office building and one
parcel of land located in California and three parcels of land and one
improved property located in Texas
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(collectively, the "Non-Operating Properties"), on or before December 31, 1998
for an aggregate sale price of at least $5.7 million and, in the event that
the Non-Operating Properties are sold for an aggregate gross sales price of
less than $5.7 million, pay the difference to Casino USA and Casino Realty
(the "Shortfall Obligation") (the Shortfall Obligation, the Shares and the
Notes being collectively, the "Acquisition Consideration"). In the event that
all of the Non-Operating Properties are sold at an aggregate gross sales price
of less than $5.7 million, then the Company would be required to pay to Casino
USA and Casino Realty the difference between $5.7 million and the actual
aggregate gross sales price. In the event that all of the Non-Operating
Properties are sold at an aggregate gross sales price of more than $5.7
million, then Casino USA and Casino Realty would be required to pay to the
Company all of the excess up to $0.5 million and one-third of any remaining
excess. Casino USA and Casino Realty have also agreed to pay the Company over
the next three years certain arrangement and management fees aggregating $1.5
million (which would be partially offset by an increase in certain expenses of
the Company related to the operation of the Properties and the sale of the
Non-Operating Properties).
At the Special Meeting, the Company's stockholders will be asked to consider
and vote upon a proposal to approve the Acquisition Agreement, and the
Acquisition Transaction contemplated thereby, including the issuance of the
Shares. All descriptions and summaries of, or references to, the terms and
conditions of the Acquisition Agreement in this Proxy Statement are qualified
in their entirety by reference to the Acquisition Agreement, which is attached
as Annex A to this Proxy Statement.
BACKGROUND OF THE ACQUISITION TRANSACTION
In addition to being the Company's principal stockholder, Casino USA,
primarily through its wholly-owned subsidiary, Casino Realty, has been in the
business of owning, developing, leasing and managing real property in
California, Arizona and Nevada for the Company and others since 1988. Prior to
1994, Casino USA was also in the business of operating a chain of Cafe Casino
restaurants and a related bakery. Approximately 99% of the outstanding capital
stock of Casino USA is owned by Casino Guichard-Perrachon, S.A. ("Casino
France"). See "Approval of the Acquisition Transaction and Related Matters--
Interests of Certain Persons in the Acquisition Transaction."
In January 1992, Casino France decided that it should begin to reduce its
investment in its real estate operations in the United States. Since then,
Casino USA and Casino Realty have stopped acquiring additional properties and
leasehold interests, have sold certain individual properties and have been
exploring various exit strategies, including the sale of their entire
portfolio of remaining real properties and leasehold interests. At the same
time, Casino France also wished to retain its control of the Company and
insure that Casino USA would continue to hold a more than 50% interest in the
Company on a fully diluted basis.
Beginning in October 1995, Pierre Bouchut, as the Director of Finance of
Casino France, on behalf of Casino France, Casino USA and Casino Realty, and
Martin Lynch, the Chief Financial Officer and a director of the Company, on
behalf of the Company, discussed the possible options that Casino USA and
Casino Realty were considering with regard to a transfer of the real
properties and leasehold interests. The alternatives discussed included a
transfer to the Company for cash or stock, a sale to a third party or a
related offshore entity, and the creation of a real estate investment trust.
The Company or its subsidiary, Smart & Final Stores Corporation ("Smart &
Final Stores"), had and continues to have a right of first refusal on each of
the properties and leasehold interests under discussion. The parties could not
come to agreement at that time based, in part, on a lack of market information
as to the possible values of the properties and leasehold interests. Although
the Company's Board of Directors did not take any formal action on this matter
at that time, it was interested in the discussions and directed management to
continue to evaluate the alternatives.
In late 1995, Company management began developing preliminary estimates of
the values of such properties and leasehold interests based on a number of
alternative valuation methods, including analyses of (i) the capitalization of
the rental income streams on the properties and leasehold interests, (ii) the
estimated market values of the properties and leasehold interests based on
informal discussions with real estate agents familiar
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with the properties and leasehold interests, and (iii) the estimated
development costs associated with the properties based on the Company's current
experience in developing similar properties. Management's preliminary estimates
supported a range of values of $5 million more or less than the $72 million
aggregate book value of the properties and leasehold interests which are the
Properties, i.e., an overall range of $67 million to $77 million, and a range
of values of $1 million more or less than the $5 million aggregate book value
of the properties and leasehold interests which are the Non-Operating
Properties, i.e., an overall range of $4 million to $6 million.
In April 1996, Casino USA engaged Arthur Andersen LLP ("Arthur Andersen") to
conduct certain analyses of most of the properties and leasehold interests of
Casino USA and Casino Realty. Arthur Andersen presented its analyses to
management of Casino USA and the Company in June. Their work consisted of
agreed-upon procedures, analyses and calculations with respect to the
Properties and the Non-Operating Properties under alternative scenarios.
Company staff reviewed and analyzed the data presented and also considered an
additional alternative raised by Arthur Andersen, that of increasing the lease
terms on the properties considered to at least 20 years (at the time, the
average remaining lease term of such properties was eight years) so that the
leases would be considered "bondable" by the investment community and thereby
more attractive to third-party buyers. In the view of Company management, the
analyses prepared by Arthur Andersen, although not a formal valuation of the
properties and leasehold interests, were consistent with the valuation ranges
developed by Company management.
From June to August, Messrs. Bouchut and Lynch continued their discussions of
the various alternative transactions and their anticipated impact on the
Company. In September 1996, Messrs. Bouchut and Lynch narrowed their
consideration to an acquisition by the Company of a majority of the properties
and leasehold interests (i.e., the Properties) for a purchase price of $76
million, payable one-half in shares of Company Common Stock (or 1,625,000
shares, valued for this purpose at $23.375 per share) and one-half in five-year
unsecured Company notes. Of the properties and leasehold interests that the
Company did not wish to acquire and Casino USA and Casino Realty still wished
to sell, they proposed that the Company would assist with regard to, and, in
that connection, assure, the sale of such properties and leasehold interests
(i.e., the Non-Operating Properties) for an aggregate gross sales price of at
least $6.2 million (with the Company paying any shortfall and, in the event of
an aggregate sales price of more than $6.2 million, the Company receiving one-
third of any excess) (such shortfall obligation, shares of Common Stock and
notes being collectively, the "Proposed Consideration"). Casino USA and Casino
Realty would also pay the Company over three years certain arrangement and
management fees aggregating $1.5 million. The terms of the Proposed
Consideration were determined after negotiation between Messrs. Bouchut and
Lynch and were based in part on the analyses prepared by the Company and
Arthur Andersen and on the anticipated impact of the proposed transaction on
the Company.
On September 12, 1996, in connection with a regular meeting of the Audit
Committee of the Company's Board of Directors, Mr. Bouchut and Mr. Lynch made a
presentation of the various alternative transactions considered to Ross Roeder,
Louis Scott and David McLaughlin, all of the members of the Audit Committee,
each of whom is an outside director. A representative of Arthur Andersen was
present to explain its analyses. Messrs. Lynch and Bouchut also presented the
proposed transaction discussed above (which was similar to the Acquisition
Transaction, except that the acquisition of the Properties owned by Casino
Realty was not structured as a plan of reorganization for federal income tax
purposes and the amount to be assured by the Company for sales of the Non-
Operating Properties was at least $6.2 million (with the Company paying any
shortfall and, in the event of aggregate sales of the Non-Operating Properties
for more than $6.2 million, the Company receiving one-third of any excess)). In
considering the proposed transaction, the Audit Committee considered, among
other things, (i) the operational flexibility that ownership of the Properties
would afford the Company; (ii) the possible impact of the proposed transaction
on the Company's capital structure, stock price and earnings per share;
(iii) the historical stock prices of the Company Common Stock; and (iv)
presentations made by Arthur Andersen and Company management. The Audit
Committee then directed Company management to further refine its analysis of
the anticipated impact of the proposed transaction on the Company's earnings
per share and continued its meeting to the next day.
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The following day, the Audit Committee reviewed further analyses by Company
management, tentatively approved the principal terms of the proposed
transaction, subject to, among other things, the receipt of an acceptable
fairness opinion from an independent financial advisor, and then recommended
that the full Board consider the same. Later that same day, at a regular
meeting of the Board, the Audit Committee presented its findings to the full
Board. After discussion, and in consideration of certain interests of Messrs.
Emmons, Guichard, Bouchut and Plassat in Casino USA, Casino Realty and Casino
France, the Board appointed the members of the Audit Committee as a Special
Committee of the Board (the "Special Committee") to consider the fairness of
the proposed transaction to the Company and its stockholders and tentatively
approved the principal terms of the proposed transaction, subject to the
further findings of the Special Committee and receipt of an acceptable
fairness opinion. Mr. Bouchut also indicated his belief that Casino USA would
be interested in pursuing the proposed transaction.
In late September, Mr. Bouchut informed Mr. Lynch that the Board of
Directors of Casino USA had agreed in principle to the proposed transaction.
On October 10, 1996, the Special Committee met telephonically to further
discuss the proposed transaction and to select an independent financial
advisor to the Special Committee for the purpose of seeking a fairness
opinion. The Special Committee considered three nationally recognized
investment banking firms. After discussions with representatives of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), the Special
Committee decided to retain Merrill Lynch.
On October 22, 1996, the Special Committee again held a telephonic meeting
at which the findings of Merrill Lynch were discussed. At the meeting,
representatives of Merrill Lynch presented its analyses of the proposed
transaction and gave its oral opinion, as of such date, that the Proposed
Consideration to be paid pursuant to the Acquisition Agreement was fair to the
Company from a financial point of view. The Special Committee discussed
Merrill Lynch's opinion, considered the benefits and risks of the proposed
transaction and decided that the proposed transaction was fair to the Company
and its stockholders and should be approved, and recommended the same to the
full Board.
On October 23, 1996, after further consideration of certain tax effects of
the proposed transaction to the Company and Casino USA, Mr. Lynch proposed to
Mr. Bouchut that the proposed transaction be changed to a plan of
reorganization with respect to the Properties owned by Casino Realty, which
was expected to provide a federal income tax benefit to Casino USA and a
federal income tax detriment to the Company, in exchange for a $0.5 million
reduction in the amount to be assured by the Company in connection with the
sales of the Non-Operating Properties and with the Company being entitled to
receive up to the first $0.5 million and one-third of any remaining excess in
the event the Non-Operating Properties are sold for more than $5.7 million.
Mr. Bouchut agreed to consider the proposed changes. Mr. Lynch then reported
the same to the Chairman of the Special Committee.
On October 25, 1996, at a telephonic meeting of the full Board, the Special
Committee reported on its findings and recommended that the Board approve the
proposed transaction, as modified by Mr. Lynch's proposal (i.e., the
Acquisition Transaction), subject to Merrill Lynch's confirmation that the
revised terms of the Acquisition Consideration did not alter its fairness
opinion. After discussion, the full Board accepted the recommendation of the
Special Committee and approved the Acquisition Transaction, subject to Merrill
Lynch's confirmation to the Special Committee. On November 8, 1996, Merrill
Lynch confirmed to the Special Committee that, if the final terms of the
Acquisition Consideration had been determined by October 22, 1996, Merrill
Lynch would still have been able to deliver its opinion dated October 22, 1996
(but with regard to the Acquisition Consideration rather than the Proposed
Consideration).
REASONS FOR THE ACQUISITION TRANSACTION--RECOMMENDATION OF THE SPECIAL
COMMITTEE
The Special Committee has unanimously approved the Acquisition Agreement,
and the Acquisition Transaction contemplated thereby, including the issuance
of the Shares, and determined that they are fair to and in the best interests
of the Company and its stockholders. The Special Committee unanimously
recommends that the stockholders approve the Acquisition Agreement, and the
Acquisition Transaction contemplated thereby, including the issuance of the
Shares.
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Prior to reaching these conclusions, the Special Committee received
presentations from, and reviewed the Acquisition Transaction with, management
of the Company and representatives from Arthur Andersen and Merrill Lynch. In
evaluating the Acquisition Transaction, the Special Committee considered a
variety of factors, including the following:
(i) The Special Committee considered the benefits to the Company of
owning the Properties, the most important of which was the operational
flexibility afforded the Company, given among other things the Company's
practice of continually evaluating existing store locations and re-locating
stores when market conditions suggest such action may be advisable.
(ii) The Special Committee considered the potential benefits the
Acquisition Transaction is anticipated to have on the Company's financial
position and results of operations, including an increase in the Company's
total assets, the elimination of all lease payments to affiliates related
to the Properties and a potential accretion to the Company's earnings per
share.
(iii) The Special Committee considered the analyses of the Properties and
the Non-Operating Properties prepared by Arthur Andersen and Company
management.
(iv) The Special Committee considered the opinion of Merrill Lynch dated
October 22, 1996, as to the fairness, as of such date, to the Company from
a financial point of view of the Proposed Consideration and the subsequent
confirmation of Merrill Lynch that, if the final terms of the Acquisition
Consideration had been determined by October 22, 1996, Merrill Lynch would
still have been able to deliver its opinion dated October 22, 1996 (but
with regard to the Acquisition Consideration rather than the Proposed
Consideration).
(v) The Special Committee reviewed the terms of the Acquisition Agreement
and certain other related documents.
(vi) The Special Committee was advised of the interests of Casino France,
Casino USA, Casino Realty and Messrs. Guichard, Plassat, Bouchut and Emmons
in the Acquisition Transaction and such interests were considered in
evaluating the fairness of the Acquisition Transaction.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors, in its approval of the Acquisition Agreement, and
Acquisition Transaction contemplated thereby, including the issuance of the
Shares, and its determination that they are fair to and in the best interests
of the Company and its stockholders, reviewed and considered (i) the analyses
and conclusions of the Special Committee (which were adopted by the Board as
its own); and (ii) the analyses prepared by Arthur Andersen and Company
management. The Board of Directors unanimously recommends that the
stockholders approve the Acquisition Agreement, and the Acquisition
Transaction contemplated thereby, including the issuance of the Shares.
OPINION OF FINANCIAL ADVISOR
At a telephonic meeting of the Special Committee on October 22, 1996,
Merrill Lynch rendered its oral opinion, subsequently confirmed in writing, to
the Special Committee that, as of such date, the Proposed Consideration to be
paid pursuant to the Acquisition Agreement was fair to the Company from a
financial point of view. On November 8, 1996, Merrill Lynch confirmed to the
Special Committee that, if the final terms of the Acquisition Consideration
had been determined by October 22, 1996, Merrill Lynch would still have been
able to deliver its opinion dated October 22, 1996 (but with regard to the
Acquisition Consideration rather than the Proposed Consideration).
A copy of Merrill Lynch's written opinion, dated October 22, 1996, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Annex B to this Proxy Statement and
incorporated herein by reference. The summary of Merrill Lynch's written
opinion set forth in this Proxy Statement is qualified in its entirety by
reference to the full text of such opinion. The Company's stockholders are
urged to read such opinion in its entirety.
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Merrill Lynch's opinion is directed only to the fairness from a financial
point of view of the Proposed Consideration to be paid pursuant to the
Acquisition Agreement and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote at the
Special Meeting. The Acquisition Consideration was determined through
negotiations between management of the Company and Casino USA, and was
approved by the Special Committee and the Board of Directors of the Company.
Merrill Lynch did not provide advice to the Special Committee, the Board of
Directors or the Company during the course of such negotiations and did not
make a recommendation with respect to the amount of the Acquisition
Consideration.
In arriving at its opinion, Merrill Lynch, among other things, (i) reviewed
the Company's Annual Reports, Forms 10-K and related financial information for
the three fiscal years ended December 31, 1995 and the Company's Forms 10-Q
and the related unaudited financial information for the quarterly periods
ended March 24, 1996 and June 16, 1996; (ii) reviewed Casino Realty's audited
financial information for the three fiscal years ended December 31, 1995 and
Casino Realty's unaudited financial information for the quarterly periods
ended March 24, 1996 and June 16, 1996; (iii) reviewed certain information,
including internal financial forecasts, relating to the business, earnings,
cash flow, assets and prospects of the Company and Casino Realty, furnished to
Merrill Lynch by the Company and Casino Realty, respectively; (iv) conducted
discussions with members of senior management of the Company and Casino Realty
concerning the business and prospects of the Company, the Properties and the
Non-Operating Properties, respectively; (v) reviewed the historical market
prices and trading activity for the Company's Common Stock and compared them
with those of certain publicly traded companies which Merrill Lynch deemed to
be reasonably similar to the Company; (vi) compared the results of operations
of the Company with those of certain companies which Merrill Lynch deemed to
be reasonably similar to the Company; (vii) reviewed industry sources, the
market prices of certain publicly traded companies and the financial terms of
certain other transactions which Merrill Lynch deemed to be relevant, each in
connection with Merrill Lynch's determination of appropriate capitalization
rates; (viii) reviewed summaries of the analyses of the Properties and the
Non-Operating Properties prepared by Arthur Andersen for Casino USA, which
analyses were performed pursuant to procedures agreed upon with management of
Casino USA; (ix) considered the pro forma effect of the Acquisition
Transaction on the Company's capitalization ratios and its cash flow and
earnings per share; (x) reviewed a draft of the Acquisition Agreement dated
October 17, 1996; and (xi) reviewed such other financial studies and analyses
and performed such other investigations and took into account such other
matters as Merrill Lynch deemed necessary.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
the Company and Casino Realty, and Merrill Lynch did not independently verify
such information or undertake an independent appraisal of the Properties or
the Non-Operating Properties. No special instructions were given to Merrill
Lynch related to its review, and no limitations were imposed by the Company
with respect to the investigations made or procedures followed by Merrill
Lynch in rendering its opinion. With respect to the financial forecasts
furnished by the Company and Casino Realty, Merrill Lynch assumed that they
were reasonably prepared and reflected the best currently available estimates
and judgment of the Company's and Casino Realty's management as to the
expected future financial performance of the Company and Casino Realty,
respectively.
Merrill Lynch's opinion is necessarily based upon general economic, market,
monetary and other conditions as they existed and could be evaluated, and the
information made available to Merrill Lynch, as of the date of its opinion.
The following is a summary of certain analyses performed by Merrill Lynch in
connection with its opinion dated October 22, 1996, which it presented to the
Special Committee on such date.
Income Analysis. Merrill Lynch calculated ranges of property values based on
the income analysis approach. This approach consisted of (i) with regard to
leased fee properties, capitalizing the income in place less an appropriate
operating expense factor and vacancy allowance at a range of overall
capitalization rates ("OARs"), (ii) with regard to the Non-Operating
Properties, utilizing the same approach as described in (i) above substituting
current market rents for rents in place and using higher vacancy allowances
and OARs (or, in the case of vacant land parcels, using recent per square foot
prices for comparable land parcels) and
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(iii) with regard to leasehold properties, in the case of properties with
remaining ground lease terms of 50 years or more, utilizing the same approach
as described in (i) above with higher OARs, and, in the case of properties
with remaining ground lease terms of less than 50 years, discounting to the
present the sandwich income stream (i.e. the difference between the Company's
current lease rent and the ground rent paid by Casino USA or Casino Realty).
This analysis resulted in the following ranges of property values for the
above categories of properties: (i) $68.1 million to $74.7 million, (ii) $5.6
million to $6.3 million and (iii) $5.5 million to $6.7 million.
Analysis of Selected Comparable Publicly Traded Companies. Merrill Lynch
compared certain financial information for the Company to the corresponding
publicly available financial information of nine selected companies
(Albertson's, Inc., American Stores Company, JP Foodservice, Inc., Performance
Food Group Company, Price/Costco, Inc., Safeway, Inc., Smith's Food & Drug
Centers, Inc., Sysco Corporation and Vons Companies, Inc.) (the "Selected
Companies"). Merrill Lynch calculated multiples for such companies of market
capitalization to latest twelve months' ("LTM") revenue, earnings before
interest, taxes, depreciation and amortization and earnings before interest
and taxes and multiples of market value to LTM earnings per share ("EPS") and
cash flow, 1996 and 1997 EPS estimates (based on publicly available analysts'
estimates) and last fiscal quarter stockholder equity. As a result of the
above procedures, Merrill Lynch noted that the multiples for the Company were
generally within the range of multiples for the Selected Companies.
Pro Forma Analysis. Merrill Lynch analyzed certain pro forma effects
resulting from the Acquisition Transaction, including the effect on 1997,
1998, 1999, 2000 and 2001 EPS of the Company (based on projections of the
Company's management). The analysis indicated that the Acquisition Transaction
would lead to projected EPS accretion in 1997, 1998, 1999, 2000 and 2001.
Relative Stock Ownership. Merrill Lynch noted that Casino USA would, upon
consummation of the Acquisition Transaction, own approximately 56.6% of the
outstanding shares of the Company and approximately 54.2% of the shares of the
Company on a fully diluted basis, compared to approximately 53.1% and 50.7%,
respectively, prior to consummation of the Acquisition Transaction.
Stock Trading History. Merrill Lynch reviewed and analyzed the history of
the trading prices for Company Common Stock during the latest twelve months.
Other. Merrill Lynch reviewed the terms of other prior conveyances of real
properties by Casino Realty. Merrill Lynch also reviewed the book values and
tax bases of the Properties and Non-Operating Properties.
The summary set forth above does not purport to be a complete description of
the analyses conducted by Merrill Lynch or Merrill Lynch's presentation to the
Special Committee. Merrill Lynch believes that its analyses must be considered
as a whole and that selecting portions of its analyses and the factors
considered by it, without considering all factors and analyses, could create
an incomplete view of the process underlying its opinion. Merrill Lynch did
not assign relative weights to its analyses in preparing its opinion. None of
the Selected Companies is identical to the Company. Accordingly, an analysis
of the results of the comparable companies analysis is not purely
mathematical. Rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In
performing its analyses, Merrill Lynch made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company or Casino Realty.
Any estimates contained in the analyses performed by Merrill Lynch are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. In
addition, analyses relating to the value of the Properties and Non-Operating
Properties do not purport to be appraisals or to reflect the prices at which
the Properties and Non-Operating Properties may actually be sold. Because such
estimates are inherently subject to uncertainty, neither the Company, Casino
USA, Casino Realty, Merrill Lynch nor any other person assumes responsibility
for their accuracy.
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The Special Committee engaged Merrill Lynch to deliver its opinion regarding
the fairness of the Acquisition Consideration because it is an internationally
recognized investment banking firm engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions and for other
purposes and has substantial experience in transactions similar to the
Acquisition Transaction. For Merrill Lynch's services, the Company has agreed
to pay Merrill Lynch a fee of $250,000, upon the delivery of Merrill Lynch's
written fairness opinion. The Company also agreed to reimburse Merrill Lynch
for certain reasonable out-of-pocket expenses (including reasonable fees and
expenses of its legal counsel) incurred in connection with its engagement and
to indemnify Merrill Lynch and certain related persons against certain
liabilities, including liabilities under securities laws, arising out of its
engagement.
In the ordinary course of its securities business, Merrill Lynch may actively
trade debt or equity securities of the Company for its own account and the
accounts of its customers, and Merrill Lynch therefore may hold a long or short
position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION TRANSACTION
Relationship Between the Company and Casino USA. Casino USA currently owns
all of the outstanding shares of capital stock of Casino Realty and 10,790,925
shares, or approximately 53.1% of the outstanding shares, of Common Stock of
the Company. Casino France owns approximately 99% of the outstanding shares of
the capital stock of Casino USA. As a part of the consideration to be paid by
the Company under the Acquisition Agreement, Casino USA and Casino Realty would
collectively receive 1,625,000 shares of the Company's Common Stock (i.e., the
Shares). After the issuance of the Shares and taking into account its
beneficial ownership of portion of the Shares held by Casino Realty, Casino USA
would then hold approximately 56.6% of the then outstanding shares of the
Common Stock of the Company.
Except as provided in the Acquisition Agreement, there is no agreement
between Casino USA and Casino Realty and any other party, including the
Company, that would prevent them from acquiring additional shares of Company
Common Stock or disposing of shares of Company Common Stock owned by them. See
"Description of the Acquisition Agreement--Representations, Warranties and
Covenants." Neither Casino USA nor Casino Realty has any preemptive rights to
acquire any shares of Company Common Stock. The Company's twelve-member Board
of Directors includes Messrs. Emmons, Guichard, Plassat and Bouchut who also
serve as directors of Casino USA and/or who are affiliated with Casino France.
In addition, Mr. Emmons, who is also Chairman of the Board of the Company,
serves as Chief Executive Officer and Chief Financial Officer of Casino USA and
Casino Realty.
Real Estate Transactions. Of the 166 Smart & Final Stores facilities
operating in the United States as of the date of this Proxy Statement, 119
facilities are leased or subleased from either Casino USA or Casino Realty.
Either the Company or its subsidiary, Smart & Final Stores has a right of first
refusal to purchase each of the Properties. See "Approval of the Acquisition
Transaction and Related Matters--Interests of Certain Persons in the
Acquisition Transaction--Intercompany Agreement." The aggregate lease payments
to Casino USA and Casino Realty for fiscal 1995 and the first three quarters of
fiscal 1996 were $16,450,000 and $12,901,000, respectively. If the Acquisition
Transaction were to fail to close for any reason, the aggregate amount of
future minimum rentals through fiscal 2000 due in connection with the
Properties would be approximately $73,499,000 at January 1, 1996.
Intercompany Agreement. The Company, Casino USA and Casino Realty are parties
to an intercompany agreement (the "Intercompany Agreement") in order to
regulate and provide for the relationships between the Company, Casino USA and
Casino Realty and to provide for certain other transactions between them. In
particular, the Intercompany Agreement provides for the performance of various
administrative services by the Company for Casino USA and Casino Realty and by
Casino USA for the Company. None of the Company, Casino USA or Casino Realty is
obligated to use such services. Intercompany services are provided at the cost
of providing such services, including the estimated allocable costs of (i)
management and other employees performing the services, (ii) computer time,
(iii) allocable overhead and (iv) out-of-pocket expenses. Cost, for
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purposes of management and employees, is based on an estimated allocation of
their time, based on a study of the actual time spent in past periods. Any fees
for such services cannot exceed $100,000 in any three-month period without the
written consent of the user of such services.
Since 1986, the Company has performed a variety of services for Casino USA
and Casino Realty, including accounting, human resources and systems
development work, the cost of which has been charged to the benefited
affiliated company. These charges amounted to $435,000 for fiscal 1995. It is
anticipated that the Company will continue to provide these administrative
services to its affiliates at its cost and that the levels of future services
will not vary significantly from prior levels. Upon consummation of the
Acquisition Agreement, the Company will also provide certain other arrangement
and management services to Casino USA and Casino Realty pursuant to the
Acquisition Agreement which are in addition to the administrative services
discussed above. See "Description of the Acquisition Agreement--Non-Operating
Properties; Arrangement and Management Fees."
In addition, under the Intercompany Agreement Casino USA grants the Company a
right of first refusal on any potential transaction or matter that may be a
corporate opportunity for either Casino USA (or its affiliates that it
controls) and the Company (or its affiliates that it controls). A "corporate
opportunity" includes a business opportunity that the Company or its
subsidiaries is financially able to undertake and which by its nature is within
the line of business of the Company or its subsidiaries, or an opportunity in
which the Company or its subsidiaries has an actual or expectant interest, or
such other opportunities as may be considered corporate opportunities under
Delaware law at such time as the corporate opportunity arises. Under the
Intercompany Agreement, the Company is also granted a right of first refusal to
lease, sublease or purchase any store real property between 10,000 and 60,000
square feet in size and all warehouse properties in which either Casino USA or
Casino Realty acquires a fee or leasehold interest after the date of the
Intercompany Agreement. The Intercompany Agreement also provides that Casino
USA and Casino Realty will not, and will cause its affiliates that it controls
or any corporation of which either holds more than 5% of the capital stock not
to, engage in the Company's business. The initial term of the Intercompany
Agreement was two years, and has been renewed from time to time as provided
therein.
Other Arrangements. In addition to charges for services, there have been cash
advances to and from the Company and its affiliates in prior years for which
interest, at then-current short-term investment rates, was charged or credited.
As of December 31, 1995, the Company owed $711,000 to Casino USA and the
Company owed $1,281,000 to Casino Realty, all related to payment for services.
During fiscal 1996, certain intercompany advances of cash have been made
between the Company and Casino USA and Casino Realty. As of the end of the
first three quarters of fiscal 1996, Casino USA had borrowed approximately
$2.96 million from the Company (which was used to acquire shares of Company
Common Stock from Mr. Emmons) and the Company borrowed approximately $8.095
million from Casino Realty. In fiscal 1995, no intercompany advances of cash
were made.
Tax Agreement. In connection with the Company's initial public offering, the
Company and Casino USA became parties to a tax termination agreement, which
provides, among other things, that the Company and Casino USA will settle the
tax effects of timing differences for the pre-termination period. In accordance
with this agreement, the Company made tax termination payments to Casino USA
aggregating $258,000 in fiscal 1995 and will make tax termination payments to
Casino USA aggregating $257,000 through 1996.
The Company and Casino USA are parties to a state tax sharing arrangement
covering franchise tax obligations in the State of California. Under this
arrangement, the Company has made tax sharing payments to Casino USA, based
upon pre-tax income for financial reporting purposes adjusted for certain
agreed upon items. The Company made tax sharing payments to Casino USA
aggregating $1,687,000 in fiscal 1995.
Certain Consulting Agreements. Yves Guichard and Gilles Pinoncely, past
directors of the Company and affiliates of Casino France, are each party to a
Consulting Agreement with the Company, pursuant to which each has agreed to
provide consulting services to the Company from October 1, 1995 until September
30, 1997, in exchange for the sum of $80,000, payable quarterly, in advance.
13
<PAGE>
Registration Rights Agreement. The Company, Casino USA and Mr. Emmons are
parties to a Registration Rights Agreement, as amended, pursuant to which the
Company agreed that upon the request of Casino USA or Mr. Emmons, on up to
three occasions for each of them, the Company will register under the
Securities Act of 1933 and applicable state securities laws the sale of the
Common Stock owned by Casino USA (including the Shares) or Mr. Emmons. The
Company's obligation is subject to certain limitations relating to a minimum
amount of Common Stock required for registration, the timing and number of
registrations and other similar matters. In addition, the Company is not
obligated to register the Common Stock when, in the good faith judgment of its
Board of Directors, such registration would materially adversely affect a
pending or proposed public offering of the Company's securities or certain
other transactions. The Company is also obligated to offer Casino USA and Mr.
Emmons the right to include shares of Common Stock owned by them in certain
registration statements filed by the Company. The Company also agreed to
indemnify Mr. Emmons and Casino USA against certain liabilities under the
Securities Act of 1933 in connection with any such offerings. The Company is
obligated to pay all expenses incidental to such registrations, excluding
underwriters' discounts and commissions allocable to the sale of Common Stock
offered by Casino USA or Mr. Emmons.
Stock Purchase Agreement. Mr. Emmons, Casino USA, Casino France and the
Company are parties to a Stock Purchase Agreement (the "Stock Purchase
Agreement"), under which Mr. Emmons is obligated to purchase from the Company a
total of 1,890,000 shares of Common Stock. The purchase price of the shares
subject to the Stock Purchase Agreement in each year is the book value of such
shares as of the end of the fiscal year immediately preceding the fiscal year
of purchase as determined by the annual audited financial statements for the
Company. Upon execution of the Stock Purchase Agreement, Mr. Emmons purchased
1,260,000 shares of Common Stock for approximately $5.44 million. Subsequently,
Mr. Emmons, as an individual and as trustee for the Institute for Management
and Marketing Studies Trust (the "IMMS Trust"), purchased an additional 262,500
shares for approximately $1.26 million. In December, 1992, Mr. Emmons, as
trustee under the Robert and Christine Emmons Family Trust, purchased an
additional 154,500 shares for approximately $768,000. In December, 1993, Mr.
Emmons, as trustee under the Robert and Christine Emmons Family Trust,
purchased an additional 70,000 shares for approximately $394,100. The remaining
143,000 shares must be purchased by March 7, 1999. The Stock Purchase Agreement
also provides Casino USA with a right of first refusal to purchase any shares
of Common Stock that Mr. Emmons may determine to sell. The Stock Purchase
Agreement provides that in the event the Company proposes to register any of
the shares of Common Stock or other securities under the Securities Act of
1933, it must include in such registration all of the shares that Mr. Emmons
requests to be registered, pay the fees and expenses of any such offering
(excluding underwriting discounts) and indemnify Mr. Emmons against certain
liabilities that may arise in connection with any such offering. The Stock
Purchase Agreement further provides that Casino France, until March 7, 1999,
will cause shares held by Casino USA to be voted for the election of Mr. Emmons
to the Board of Directors.
Emmons Agreements. The Company and Mr. Emmons are parties to an employment
agreement (the "Emmons Employment Agreement") pursuant to which Mr. Emmons
agreed to serve as the Chairman of the Board and Chief Executive Officer of the
Company through December 31, 1993. The Emmons Employment Agreement also
provides, among other things, that Mr. Emmons will serve as a consultant to the
Company for a period of ten years commencing on January 1, 1994 for an annual
consulting fee of $400,000, as adjusted by the consumer price index as provided
in such agreement (currently approximately $440,000). The consulting
arrangement includes a covenant not to compete pursuant to which Mr. Emmons has
agreed that during such ten-year period he will not engage actively in any
business with or be employed by any person or business that competes in any
material respect with the business of the Company. The Company has also
informally agreed to pay Mr. Emmons an annual fee of $200,000 (payable in
quarterly installments) in consideration of his services as Chairman of the
Company's Executive Operating Committee. Mr. Emmons also served as Chairman of
the Board, President and Chief Executive Officer of Casino USA pursuant to an
employment agreement between Mr. Emmons and Casino USA which extended through
1993 with a consulting arrangement in effect thereafter. All compensation
pursuant to such agreement is paid by Casino USA, and the Company does not
reimburse Casino USA for such amounts. Mr. Emmons also owns Hunter Aviation
Ltd. ("Hunter Aviation"), which from time to time leases to the Company a twin
engine airplane on a per trip basis. Hunter Aviation also leases this airplane
to unrelated third parties. In fiscal 1995, the Company paid Hunter Aviation
approximately $44,893.
14
<PAGE>
The Company believes the terms of its lease arrangement with Hunter Aviation
are at least comparable to those available from unrelated third parties.
CERTAIN EFFECTS OF THE ACQUISITION TRANSACTION ON THE COMPANY'S STOCKHOLDERS
Certain Risks of the Acquisition Transaction. The Acquisition Transaction
involves certain risks, including the following, that may adversely affect the
Company and its stockholders and should be carefully considered before voting
on the Acquisition Agreement, and the Acquisition Transaction contemplated
thereby, including issuance of the Shares.
Non-Arms' Length Transactions; No Independent Appraisals; Conflicts of
Interest. The Acquisition Transaction has not been negotiated at arms'
length and no unaffiliated representatives were appointed to negotiate the
terms of the Acquisition Transaction or the Acquisition Agreement. If such
persons had been engaged, the terms of the Acquisition Transaction and the
Acquisition Agreement may have been more favorable to the Company. There
have been no independent appraisals of the values of the Properties or the
Non-Operating Properties. There can be no assurance what the value of these
assets would be if they were sold to an unaffiliated party. An executive
officer and certain directors of the Company have conflicts of interest
arising out of their relationship with Casino USA and/or Casino France. See
also "Approval of the Acquisition Transaction and Related Matters--
Interests of Certain Persons in the Acquisition Transaction."
Risks of Real Property Ownership. Owning the Properties will subject the
Company to risks generally incident to the ownership of real estate and
real estate-related assets. Such risks include increased potential
liability under the environmental protection laws (to the extent the
Company does not already have the risk of such liability allocated to it
under the leases and subleases on the Properties or under existing law);
changes in supply of or demand for similar or competing facilities in an
area and changes in interest rates and availability of permanent mortgage
funds, which may render the sale or financing of the Properties difficult
or unattractive; and changes in tax, real estate and zoning laws that may
make ownership of the Properties unattractive to the Company.
Financing Risks. In order to finance the Acquisition Transaction, the
Company will incur a substantial amount of debt. If future cash flows are
less than anticipated, the Company could have difficulty meeting interest
and principal payments due on the debt and its other obligations.
Certain Federal Income Tax Consequences. The Acquisition Transaction will not
result in the recognition of any gain or loss for federal income tax purposes
by the Company or its stockholders (other than Casino USA, which will have
unique tax consequences not discussed below).
Of the 91 Properties to be conveyed to the Company, Casino USA owns five
leasehold Properties and Casino Realty owns the remainder. The Company, Casino
USA and Casino Realty intend that the Company's acquisition of the Properties
owned by Casino USA will be a taxable purchase and sale for federal income tax
purposes. In that event, the Company's tax bases in such Properties generally
will be equal to the cost of such Properties to the Company for federal income
tax purposes. Because the consideration paid for such Properties will include
the Company's Common Stock, that cost will depend in part on the fair market
value per share of the Company's Common Stock on the Closing Date (as defined
in the Acquisition Agreement), which for this purpose is equal to the mean
between the high and low sale prices per share of the Company's Common Stock as
shown on the New York Stock Exchange composite report (the "Mean Price Per
Share") for the Closing Date. That cost cannot be determined until the Closing
Date. It is anticipated that, if the Mean Price Per Share on the Closing Date
equals or exceeds $23.375, the Company's aggregate tax basis in the Properties
conveyed by Casino USA will exceed by a modest amount Casino USA's aggregate
adjusted tax basis in such Properties on the Closing Date.
The Company, Casino USA and Casino Realty intend that the Company's
acquisition of the Properties owned by Casino Realty will be a reorganization
for federal income tax purposes within the meaning of Sections 368(a)(1)(D) and
368(a)(2)(H) of the Internal Revenue Code of 1986, as amended (the "Code"). In
15
<PAGE>
that event, the Company's tax bases in such Properties generally will be equal
to Casino Realty's adjusted tax bases in such Properties on the Closing Date,
which is estimated to total approximately $74 million.
Consequently, it is anticipated that if the Closing occurs in December 1996
and the Mean Price Per Share on the Closing Date equals or exceeds $23.375, the
Company's aggregate tax basis in the Properties will exceed by a modest amount
the aggregate adjusted tax basis of Casino USA and Casino Realty in the
Properties on the Closing Date.
It is also anticipated that if the Mean Price Per Share on the Closing Date
equals or exceeds $23.375, reorganization treatment for the Properties conveyed
by Casino Realty will result in a significantly lower aggregate tax basis for
the Company in such Properties than would have resulted under a taxable
purchase and sale, and in a substantial federal income tax savings for Casino
Realty and Casino USA until Casino USA sells or otherwise disposes of the
Shares received by Casino Realty. A lower tax basis in the Properties acquired
from Casino Realty would result in (i) reduced depreciation deductions, and
presumably greater federal income taxes, for the Company over the 39-year
recovery period, and (ii) a larger gain or a smaller loss to the Company upon
any sale or other taxable disposition of any such Properties during the
recovery period. All of these amounts will depend in part on the Mean Price Per
Share on the Closing Date, and thus cannot be determined until the Closing
Date.
If the Non-Operating Properties are sold for an aggregate gross sales price
of less than $5.7 million, the Company's payment of the difference to Casino
USA and Casino Realty likely will be treated for federal income tax purposes as
additional consideration paid for the Properties. It is anticipated that the
smaller portion of that difference that is allocable to the Properties acquired
from Casino USA will increase the Company's tax bases in such Properties, but
the larger portion of that difference that is allocable to the Properties
acquired from Casino Realty will have no effect on the Company's tax bases in
those Properties. In that event, any such payment by the Company will increase
the tax disadvantage to the Company, and the tax benefit to Casino Realty and
Casino USA, of reorganization treatment for the Properties owned by Casino
Realty, as discussed in the immediately preceding paragraph.
It is anticipated that if the Non-Operating Properties are sold for an
aggregate gross sales price of more than $5.7 million, the receipt by the
Company of most or all of its share of the excess will be treated for federal
income tax purposes as a nontaxable reduction in the consideration paid by the
Company for the Properties, rather than as income. In the event of such a
reduction, it is anticipated that the smaller portion of the reduction that is
allocable to the Properties acquired from Casino USA will decrease the
Company's tax bases in such Properties, but the larger portion of the reduction
that is allocable to the Properties acquired from Casino Realty will have no
effect on the Company's tax bases in those Properties. Any such reduction in
the consideration paid by the Company for the Properties will decrease the tax
disadvantage to the Company, and the tax benefit to Casino Realty and Casino
USA, of reorganization treatment for the Properties owned by Casino Realty, as
discussed above.
It is anticipated that the arrangement and management fees aggregating $1.5
million to be paid to the Company over the next three years will constitute
income.
The above discussion summarizes certain federal income tax consequences of
the Acquisition Transaction and is based on provisions of the Code, judicial
decisions, Treasury Regulations and Internal Revenue Service ("IRS") rulings
interpreting the Code, all of which are subject to different interpretations or
to change, possibly with retroactive effect. No ruling from the IRS or opinion
from counsel has been or will be sought with respect to any of the tax matters
arising from or related to the Acquisition Transaction. In addition, various
foreign, state and local laws may provide tax consequences that vary
significantly from the federal income tax consequences described above. See
also "--Certain California Property Tax Consequences" below.
Certain California Property Tax Consequences. Nearly all of the real
properties as to which fee or leasehold interests are to be acquired by the
Company in the Acquisition Transaction are located in California. All such
properties (the "California Properties") are subject to annual California real
property taxes that include
16
<PAGE>
ad valorem taxes generally ranging from 1.0 to 1.1 percent of the assessed
value of each such property. A subsidiary of the Company leases and subleases
nearly all of the California Properties from Casino USA and Casino Realty, and
is responsible for the payment of all California property taxes imposed on such
properties pursuant to the terms of such leases and subleases.
Under Article XIIIA of the California Constitution (initially passed by
California voters in 1978 as Proposition 13), the assessed value of real
property is generally equal to its fair market value on the date of its most
recent "change in ownership" (the "base year value"), plus an inflation factor
not exceeding two percent per year. Because, among other reasons, Casino USA,
its direct and indirect owners and its wholly-owned subsidiaries do not own all
of the outstanding stock of the Company, the Acquisition Transaction will
constitute a "change in ownership" with respect to nearly all of the California
Properties (the "Reassessable Properties").
Subject to the Company's appeal rights, the assessors of the various counties
in which the Reassessable Properties are located will determine a new base year
value for each of the Reassessable Properties, effective on the first day of
the first month following the Closing Date. Each Reassessable Property's new
base year value will be equal to its fair market value on the Closing Date,
determined without regard to the terms of any lease and/or sublease of such
Reassessable Property. Although the new base year values probably will not be
known until several years after the Closing Date, the aggregate new base year
value of the Reassessable Properties could exceed their aggregate current
assessed value, and in that event the Acquisition Transaction would result in
additional California property taxes to the Company and its subsidiaries.
The above discussion summarizes certain California property tax consequences
of the Acquisition Transaction and is based on provisions of the California
Constitution, the California Revenue and Taxation Code and the California Code
of Regulations and on judicial decisions, all of which are subject to different
interpretations or to change, possibly with retroactive effect. No advisory
opinion from the California State Board of Equalization, ruling from any county
assessor or opinion from counsel has been or will be sought with respect to any
of the California property tax matters arising from or related to the
Acquisition Transaction.
No Dissenters' Rights. The Company's stockholders are not entitled to
dissenters' rights of appraisal or other dissenters' rights under Delaware law
with respect to the Acquisition Transaction.
CERTAIN FORWARD-LOOKING STATEMENTS
The statements contained in this Proxy Statement regarding matters that are
not statements of historical fact, including statements as to future operating
results and benefits and risks of the Acquisition Transaction, are forward-
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended. Actual results may differ materially from the
statements made as a result of various factors, including those stated in
"Approval of the Acquisition Transaction and Related Matters--Certain Effects
of the Acquisition Transaction on the Company's Stockholders" and elsewhere in
this Proxy Statement and other factors which are listed from time to time in
the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and in
other documents filed by the Company with the Securities and Exchange
Commission.
APPROVAL OF THE PROPOSAL
The proposal to approve the proposed Acquisition Agreement, and the
Acquisition Transaction contemplated thereby, including the issuance of the
Shares, must be approved by the affirmative vote of a majority of the
outstanding shares of Common Stock entitled to vote and present at the Special
Meeting. Abstention votes, unlike broker non-votes, are counted in determining
the total number of votes cast on this proposal and thus have the effect of a
vote against the proposal. Casino USA, which currently holds 53.1% of the
outstanding shares of the Company Common Stock, has informed the Company that
it in tends to vote to approve the Acquisition Agreement, and the Acquisition
Transaction contemplated thereby, including the issuance of the Shares, and,
therefore, stockholder approval is assured.
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS RECOMMEND THAT THE
STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE PROPOSED ACQUISITION AGREEMENT, AND
ACQUISITION TRANSACTION CONTEMPLATED THEREBY, INCLUDING THE ISSUANCE OF THE
SHARES.
17
<PAGE>
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18
<PAGE>
PRO FORMA UNAUDITED FINANCIAL STATEMENTS
The following pro forma unaudited balance sheet as of October 6, 1996, and
pro forma unaudited statements of income for the fiscal year ended December
31, 1995 and for the three quarters ended October 6, 1996, illustrate the
effect of the Acquisition Transaction, including the Company's proposed
acquisition of the Properties from Casino Realty and Casino USA, which is
currently anticipated to occur in late December 1996. Such pro forma unaudited
financial statements are based on the Company's historical financial
statements and certain estimates and assumptions set forth below and in the
notes to such pro forma unaudited financial statements. The pro forma
unaudited balance sheet assumes that the acquisition of the Properties
occurred on October 6, 1996, and the pro forma unaudited statements of income
assume that the acquisition of the Properties occurred at the beginning of
fiscal 1995.
The pro forma adjustments are based upon currently available information and
upon certain assumptions that the Company believes are reasonable. The
adjustments included in the unaudited pro forma financial statements represent
the Company's preliminary determination of such adjustments. There can be no
assurance that the actual adjustments will not differ significantly from the
pro forma adjustments reflected in the pro forma financial statements.
The unaudited pro forma financial statements are not necessarily indicative
of either future results of operations or results that might have been
achieved if the Acquisition Transaction had been consummated as of the
indicated dates. The unaudited pro forma financial statements should be read
in conjunction with the historical financial statements of the Company,
together with the related notes thereto, incorporated by reference in this
Proxy Statement.
19
<PAGE>
SMART & FINAL INC.
PRO FORMA UNAUDITED BALANCE SHEET
OCTOBER 6, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE PURCHASE ADJUSTED
COMPANY OF ASSETS(1) PRO FORMA
-------- ------------ ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 17,636 17,636
Trade notes and accounts receivable, less
allowance for doubtful accounts of $2,056 in
1996........................................ 58,426 58,426
Inventories.................................. 122,583 122,583
Prepaid expenses............................. 7,007 7,007
Deferred tax asset........................... 7,385 7,385
-------- -------
Total current assets......................... 213,037 213,037
Property, plant and equipment:
Land......................................... 1,262 42,457 43,719
Buildings and improvements................... 3,170 33,543 36,713
Leasehold improvements....................... 52,234 52,234
Fixtures and equipment....................... 129,425 129,425
-------- ------ -------
186,091 76,000 262,091
Less--Accumulated depreciation and
amortization................................ 72,904 72,904
-------- ------ -------
Net property, plant and equipment.......... 113,187 76,000 189,187
Assets under capital leases, net............... 568 568
Goodwill....................................... 9,131 9,131
Deferred tax asset............................. 3,118 3,118
Other assets................................... 17,146 17,146
-------- ------ -------
Total assets............................. $356,187 76,000 432,187
======== ====== =======
</TABLE>
See accompanying notes to the pro forma unaudited financial statements
20
<PAGE>
SMART & FINAL INC.
PRO FORMA UNAUDITED BALANCE SHEET
OCTOBER 6, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE PURCHASE ADJUSTED
COMPANY OF ASSETS(1) PRO FORMA
-------- ------------ ---------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt........ $ 136 136
Bank line of credit......................... 21,000 21,000
Accounts payable............................ 67,547 67,547
Payable to Parent and affiliates............ 7,058 7,058
Accrued salaries and wages.................. 9,582 9,582
Other accrued liabilities................... 23,923 23,923
Workers' compensation reserve............... 2,800 2,800
-------- -------
Total current liabilities................. 132,046 132,046
Long term liabilities:
Notes payable, net of current maturities.... 9,152 38,000 47,152
Bank debt................................... 35,000 35,000
Obligations under capital leases............ 743 743
Postretirement and postemployment benefits.. 21,187 21,187
-------- ------ -------
Total long term liabilities............... 66,082 38,000 104,082
Minority interest............................. 1,601 1,601
Stockholders' equity:
Preferred stock, $1 par value (authorized--
10,000,000 shares; no shares issued) Common
stock, $.01 par value (authorized--
100,000,000 shares; 20,329,417 shares
issued and outstanding and 21,954,417
shares Pro forma).......................... 203 16 219
Additional paid-in capital.................. 106,042 37,984 144,026
Cumulative translation loss................. (928) (928)
Retained earnings........................... 51,141 51,141
-------- ------ -------
Total stockholders' equity................ 156,458 38,000 194,458
-------- ------ -------
Total liabilities and stockholders'
equity................................. $356,187 76,000 432,187
======== ====== =======
</TABLE>
See accompanying notes to the pro forma unaudited financial statements
21
<PAGE>
SMART & FINAL INC.
PRO FORMA UNAUDITED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
THE PURCHASE ADJUSTED
COMPANY OF ASSETS(1) PRO FORMA
---------- ------------ ----------
<S> <C> <C> <C>
Sales............................... $1,173,325 $1,173,325
Cost of sales, buying and
occupancy.......................... 984,486 9,684 (2) 994,170
Lease expense to affiliates......... 17,107 (16,322)(3) 785
---------- ------- ----------
Gross margin........................ 171,732 6,638 178,370
Operating and administrative
expenses........................... 135,017 800 (4) 135,817
Warehouse start up costs............ 4,250 4,250
---------- ------- ----------
Income from operations............ 32,465 5,838 38,303
---------- ------- ----------
Interest income................... 472 472
Interest expense.................. (2,500) (2,850)(5) (5,350)
Other income...................... 750 (6) 750
Other expense..................... (840)(7) (840)
---------- ------- ----------
(2,028) (2,940) (4,968)
Income before provision for income
taxes and minority share of net
income............................. 30,437 2,898 33,335
Provision for income taxes.......... 12,043 1,147 (8) 13,190
Minority share of net income........ 248 248
---------- ------- ----------
Income from consolidated
subsidiaries....................... 18,146 1,751 19,897
Equity earnings in unconsolidated
subsidiary......................... 150 150
---------- ------- ----------
Net income.......................... $ 18,296 1,751 $ 20,047
========== ======= ==========
Earnings per common share........... $ 0.88 $ 0.90 (9)
========== ==========
Weighted average common shares and
common share equivalents........... 20,750,818 22,375,818 (9)
========== ==========
</TABLE>
See accompanying notes to the pro forma unaudited financial statements
22
<PAGE>
SMART & FINAL INC.
PRO FORMA UNAUDITED INCOME STATEMENT
FOR THE PERIOD ENDED OCTOBER 6, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE PURCHASE ADJUSTED
COMPANY OF ASSETS(1) PRO FORMA
---------- ------------ ----------
<S> <C> <C> <C>
Sales............................... $ 996,190 $ 996,190
Cost of sales, buying and
occupancy.......................... 836,968 7,608 (2) 844,576
Lease expense to affiliates......... 13,557 (12,901)(3) 656
---------- ------- ----------
Gross margin........................ 145,665 5,293 150,958
Operating and administrative
expenses........................... 112,945 539 (4) 113,484
---------- ------- ----------
Income from operations............ 32,720 4,754 37,474
---------- ------- ----------
Interest income................... 363 363
Interest expense.................. (2,796) (2,192)(5) (4,988)
Other income...................... 375 (6) 375
---------- ------- ----------
(2,433) (1,817) (4,250)
Income before provision for income
taxes and minority share of net
income............................. 30,287 2,937 33,224
Provision for income taxes.......... 11,720 1,137 (8) 12,857
Minority share of net income........ 166 166
---------- ------- ----------
Income from consolidated
subsidiaries....................... 18,401 1,800 20,201
Equity earnings in unconsolidated
subsidiary......................... 159 159
---------- ------- ----------
Net income.......................... $ 18,560 1,800 $ 20,360
========== ======= ==========
Earnings per common share........... $ 0.88 $ 0.89 (9)
========== ==========
Weighted average common shares and
common share equivalents........... 21,205,782 22,830,782 (9)
========== ==========
</TABLE>
See accompanying notes to the pro forma unaudited financial statements
23
<PAGE>
SMART & FINAL INC.
NOTES TO PRO FORMA UNAUDITED FINANCIAL STATEMENTS
OCTOBER 6, 1996
(1) Reflects the acquisition of the Properties by the Company from Casino
Realty and Casino USA in consideration for the issuance of 1,625,000 shares of
the Company's Common Stock (the "Shares") and the Company's five-year
promissory notes (the "Notes") in the aggregate initial principal amount of
$38,000,000, allocated as follows:
<TABLE>
<S> <C>
Common Stock Issued......................................... $38,000,000
Notes Payable............................................... 38,000,000
-----------
Total Consideration....................................... $76,000,000
===========
Fair Value of the Properties Acquired....................... $76,000,000
===========
</TABLE>
The estimated fair value of the Shares is $38,000,000 (or $23.375 per
share), which is based upon the market value of the Shares at the date the
parties structured the transaction. The Notes are assumed to bear an effective
interest rate of 7 1/2 percent per annum, which assumes a fixed rate hedge of
the Notes' variable interest rate. Principal is payable under the Notes in
five equal annual installments (plus accrued interest) commencing one year
from the consummation of the acquisition of the Properties.
The allocation of the consideration between land and facilities is based
upon the relationship of the carrying values of the Properties and analysis of
current market conditions.
(2) This adjustment records lease rents due to third parties previously
subleased from Casino Realty ($7,179,000 in fiscal year 1995 and $5,676,000 in
the first three quarters ended fiscal year 1996) and the depreciation of the
acquired Properties over their remaining useful lives ($2,505,000 in fiscal
year 1995 and $1,932,000 in the first three quarters ended fiscal year 1996).
The average useful lives for the acquired Properties is 13 years.
(3) The elimination of lease rent paid to Casino Realty and Casino USA for
the acquired Properties.
(4) Management's estimates of the ongoing cost of administration, additional
property taxes and insurance costs of the acquired Properties.
(5) Interest expense on the Notes payable issued estimated to be at an
effective rate of 7 1/2 percent per annum.
(6) Transaction fees of $750,000 in fiscal year 1995 earned upon
consummation of the acquisition of the Properties, assumed to have occurred on
January 1, 1995, and $375,000 assumed earned in the first three quarters ended
in fiscal 1996, related to the sale of the Non-Operating Properties, pursuant
to the Agreement for Conveyance of Real Property dated as of October 31, 1996,
between Casino Realty and Casino USA and the Company.
(7) Administrative, legal, tax and accounting fees incurred in the
acquisition of the Properties from Casino Realty and Casino USA.
(8) Income taxes based upon the Company's effective tax rate (39.6 percent
in fiscal year 1995 and 38.7 percent in the first three quarters ended in
fiscal year 1996).
24
<PAGE>
SMART & FINAL INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
(9) Earnings per share have been computed as if the Acquisition Transaction
occurred at the beginning of the periods presented as follows:
<TABLE>
<S> <C>
Weighted Average of Common Stock Outstanding During Fiscal
Year 1995.................................................. 20,750,818
Shares Issued............................................... 1,625,000
----------
22,375,818
==========
Weighted Average of Common Stock Outstanding During The
First Three Quarters Ended Fiscal Year 1996................ 21,205,782
Shares Issued............................................... 1,625,000
----------
22,830,782
==========
</TABLE>
25
<PAGE>
DESCRIPTION OF THE ACQUISITION AGREEMENT
The following is a summary of the Acquisition Agreement, is not intended to
be a complete and is qualified in its entirety by reference to the full text
of the Acquisition Agreement, attached to this Proxy Statement as Annex A.
Stockholders are urged to read the Acquisition Agreement in its entirety.
CONVEYANCE OF PROPERTIES; CONSIDERATION
On the Closing Date (as defined below), subject to the terms and conditions
of the Acquisition Agreement, Casino USA and Casino Realty will convey to the
Company, and the Company will acquire from Casino USA and Casino Realty, the
Properties. The consideration to be delivered by the Company for the
Properties will be 1,625,000 newly-issued shares of its Common Stock (i.e.,
the Shares) and the Company's unsecured non-negotiable promissory notes (i.e.,
the Notes) in the aggregate initial principal amount of $38 million. The Notes
will bear interest at an annual rate of 25 basis points over LIBOR maturities
selected by the Company from time to time, with principal payable in five
equal annual installments (plus accrued interest) commencing one year from the
Closing Date.
Such consideration was valued by the parties for accounting purposes at
approximately $76 million, on the basis of a value for the Company's common
stock of $23.375 per share. The value of such consideration for accounting
purposes is to be allocated among the Properties being conveyed by Casino
Realty and the Properties being conveyed by Casino USA in the amounts shown on
a Schedule to the Acquisition Agreement. The value of such consideration for
tax purposes will depend in part on the mean between the high and low sale
prices per share of the Company's common stock as shown on the New York Stock
Exchange composite report for the Closing Date. The value of such
consideration for tax purposes is to be allocated among the Properties being
conveyed by Casino Realty and the Properties being conveyed by Casino USA in
proportion to certain amounts shown on a Schedule to the Acquisition
Agreement.
For federal income tax purposes, (i) the conveyance of all of the Properties
owned by Casino Realty is intended by the parties to qualify as a
reorganization under Sections 368(a)(1)(D) and 368(a)(2)(H) of the Internal
Revenue Code of 1986, as amended (the "Code"), with the Acquisition Agreement
intended to be the plan of reorganization with respect thereto, and (ii) the
conveyance of all of the Properties owned by USA is intended by the parties to
constitute a taxable sale and purchase of such Properties.
CLOSING; TERMINATION
The closing (the "Closing") of the transactions contemplated by the
Acquisition Agreement will take place at the Company's offices on December 20,
1996, or at such other time as may be agreed upon by the Company, Casino USA
and Casino Realty; provided, however, that the Acquisition Agreement will
terminate and be of no force and effect if the Closing does not occur by
December 13, 1997. The date of the Closing is referred to as the Closing Date.
The Closing and the consummation of the transactions contemplated by the
Acquisition Agreement will be deemed effective as of 12:01 a.m. on the Closing
Date.
CONDITIONS
The obligations of the Company to consummate the Acquisition Agreement are
subject to certain conditions, each of which may be waived in writing by the
Company, including the following: (a) Chicago Title Insurance Company will
have agreed to issue its Standard Coverage (or, if the Company elects,
Extended Coverage) Owner's (Lessee's) Policies of Title Insurance (with such
endorsements as the Company requires) with aggregate liability in the amount
of the consideration, showing title to the Properties in the Company, subject
only to the exceptions shown on the printed portion of the policies, non-
delinquent real property taxes, the leases being assumed by the Company under
the Acquisition Agreement and any other exceptions approved by the Company;
(b) Casino USA and Casino Realty will have delivered to the Company acceptable
forms of all estoppel
26
<PAGE>
certificates, consents, assignments, deeds and documents and all funds
required by the Acquisition Agreement; (c) Casino USA and Casino Realty will
have assigned to the Company all third party warranties and permits relative
to the Properties and all contracts and agreements affecting the Properties
approved by the Company; (d) the Company will have the approval and consent of
the Company's Board of Directors and the Special Committee of the Board of
Directors, the Company's stockholders and all other governmental entities or
third parties required in connection with the consummation of the Acquisition
Agreement; (e) the Company will have received a satisfactory fairness opinion
relative to the transactions which are the subject the Acquisition Agreement;
(f) Casino USA and Casino Realty will have transferred to the Company, without
additional consideration, and free and clear of all liens, claims and
encumbrances, any miscellaneous personal and intangible property owned by
Casino USA and Casino Realty and used in connection with the Properties; (g)
Casino USA and Casino Realty will have satisfied all monetary encumbrances
against the Properties other than liens for non-delinquent taxes and
assessments and those liens created by the Company or its subsidiaries or
otherwise the responsibility of the Company or its subsidiaries under any
leases under which the Company or its subsidiaries currently lease any
Properties from Casino USA or Casino Realty; and (h) the representations and
warranties of Casino USA and Casino Realty contained in the Acquisition
Agreement will be complete, true and correct as of the Closing Date.
The obligations of Casino USA and Casino Realty to consummate the
Acquisition Agreement are subject to certain conditions, each of which may be
waived in writing by Casino USA and Casino Realty, including the following:
(a) the Company will have delivered to Casino USA and Casino Realty all funds
and documents required to be delivered under the Acquisition Agreement; and
(b) the representations and warranties of the Company contained in the
Acquisition Agreement will be complete, true and correct as of the Closing
Date.
REPRESENTATIONS, WARRANTIES AND COVENANTS
In the Acquisition Agreement, Casino USA and Casino Realty make limited
representations, warranties and covenants to the Company, including the
following: (a) due organization and good standing, and authority and lack of
conflicts relative to the Acquisition Agreement and the transactions
contemplated thereby; (b) the Company's access during normal business hours to
all documents (including maps, surveys, test, reports and other documents)
relating to the Properties possessed by Casino USA and Casino Realty; (c)
except for matters known to the Company or its subsidiaries, caused or
suffered by the Company or any of its subsidiaries or which are their
responsibility under the leases under which the Company or its subsidiaries
currently lease any Properties from Casino USA or Casino Realty, (i)
compliance with, and absence of violation of, all laws, orders or regulations
affecting the Properties, (ii) no notice or knowledge of violation of any law,
order or regulation or of any covenant, condition, restriction or easement on
any Property, (iii) no knowledge of any intended public improvement upon any
Property or any intended or proposed law or regulation which may adversely
affect the use or development of any Property or any pending or threatened
action, claim, proceeding or investigation against or affecting any Property,
(iv) no defaults under the leases being transferred under the Acquisition
Agreement, and (v) no generation, storage, release or disposal of hazardous
substances or wastes from or on any Property in violation of any law or
regulation during Casino USA's and Casino Realty's ownership or, to their best
knowledge, any time prior thereto, and no notice of any generation, storage,
release or disposal of hazardous substance or wastes from or on any Property
in violation of any law or regulation; and (d) Casino USA's and Casino
Realty's experience, investment intent and understanding that the Shares will
be issued without registration under the Securities Act of 1933, as amended,
and such Shares will be considered "restricted securities" within the meaning
of Rule 144 promulgated under such Act. The Company acknowledges and agrees
that it will acquire the Properties and all other rights its is acquiring
under the Acquisition Agreement "as-is" as of the Closing Date, based on the
Company's own inspections, investigations and evaluations.
Casino USA and Casino Realty also make certain tax representations,
warranties and covenants to the Company, including the following: (a) no
acquisition of any Properties by Casino USA or Casino Realty from the other or
from any other person or entity in anticipation of the conveyance to the
Company under the Acquisition Agreement; (b) the Properties owned by Casino
Realty constitute substantially all of its assets for federal tax income
purposes; (c) Casino USA's ownership of all of the outstanding shares of
capital stock of
27
<PAGE>
Casino Realty and of 10,790,925 shares of Common Stock of the Company; (d) no
intention to transfer or dispose of any Shares (except in accordance with the
plan of reorganization) or any other shares of Common Stock of the Company;
(e) in pursuance of the plan of reorganization, to cause Casino Realty to
distribute its Note and Shares, as well as its other remaining assets, to
Casino USA, in a transaction that qualifies under Section 356 of the Code; and
(f) not to take or cause or permit any of their subsidiaries to take any
action, or suffer to exist any condition, that would disqualify the conveyance
of the Casino Realty Properties as a reorganization within the meaning of
Sections 368(a)(1)(D) and 368(a)(2)(H) of the Code. The Company makes certain
tax representations, warranties and covenants to Casino USA and Casino Realty,
including the following: (a) the maximum number of shares of the Company's
common stock which would be outstanding immediately after the Closing on a
fully diluted basis; (b) no intention to reacquire any Shares; and (c)
following the Closing, the Company will use the Properties acquired from
Casino Realty in a business, and the Company will not take or cause or permit
any of its subsidiaries to take any action (including, without limitation, (i)
the cessation of any business, and (ii) sales or other dispositions of any of
the Casino Realty Properties), that would disqualify the conveyance of the
Casino Realty Properties as a reorganization within the meaning of Sections
368(a)(1)(D) and 368(a)(2)(H) of the Code (provided, however, that
dispositions of any of such Properties made in the ordinary course of
business, and any action or omission by the Company in connection with any
transfer or disposition of shares of the Company's common stock by Casino USA
or Casino Realty to any person, are deemed not to breach this covenant).
COSTS AND EXPENSES
Under the Acquisition Agreement, Casino USA and Casino Realty are
responsible for all documentary transfer taxes, any sales taxes and the
premiums for standard coverage Owner's (Lessee's) policies of title insurance.
The Company is responsible for the balance of any title insurance premiums (if
the Company elects to obtain extended coverage), any required surveys, the
cost of any endorsements required by the Company and the costs of recording
the deed to the Properties. Any other closing costs will be allocated between
the Company and Casino USA and Casino Realty in accordance with customary real
estate practice in Los Angeles County, California.
Each party is responsible for its own legal fees and expenses in connection
with the negotiation and consummation of the Acquisition Agreement. Casino USA
and Casino Realty are responsible for all costs and expenses of placing the
title to the Properties in the condition called for by the Acquisition
Agreement.
OTHER COVENANTS; INDEMNIFICATION
The Acquisition Agreement provides that, prior to the Closing Date, (a)
Casino USA and Casino Realty will not enter into any new leases or contracts
or amend any existing leases and contracts, without the Company's written
approval, which may be withheld for any reason or for no reason; (b) except as
may currently be the responsibility of the Company under its leases with
Casino USA or Casino Realty, Casino USA and Casino Realty will, at their sole
expense, cause each Property to be maintained and operated in a manner
consistent with prior practices and in its present physical condition,
discharge their obligations under the leases and contracts to be transferred
under the Acquisition Agreement and cause compliance with all applicable
governmental requirements relative to each Property.
The Acquisition Agreement provides that, after the Closing Date, (a) Casino
USA and Casino Realty will notify all third parties to the leases being
transferred under the Acquisition Agreement that the Company has acquired the
Properties and succeeded to the obligations of Casino USA or Casino Realty
under such leases, and (b) the parties will administer the prorations called
for by the Acquisition Agreement.
The Acquisition Agreement also provides that each party will indemnify and
hold the other parties harmless from all costs, liabilities and expenses,
including attorneys' fees, that may result from the incorrectness of any
representations and warranties made by, or breach of any of the covenants of,
the indemnifying party.
28
<PAGE>
NON-OPERATING PROPERTIES; ARRANGEMENT AND MANAGEMENT FEES
The Company has also agreed under the Acquisition Agreement to assist in the
sale of six former Smart & Final stores, one parcel of land and one office
building located in California and three parcels of land and one improved
property located in Texas (collectively, the "Non-Operating Properties"),
which are currently owned (or, in a few instances, until recently were owned)
by Casino USA and Casino Realty, on or before December 31, 1998, for an
aggregate sale price of at least $5.7 million. In the event that all of the
Non-Operating Properties are sold at an aggregate gross sales price of less
than $5.7 million, then the Company is required to pay to Casino USA and
Casino Realty the difference between $5.7 million and the actual aggregate
gross sales price. In the event that all of the Non-Operating Properties are
sold at an aggregate gross sales price of more than $5.7 million, then Casino
USA and Casino Realty are required to pay to the Company all of the excess up
to $0.5 million and one-third of any remaining excess. The Company is also
required to acquire any Non-Operating Properties which are not sold by
December 31, 1998, at a price equal to (i) $5.7 million, less (ii) the
aggregate gross sales price of any Non-Operating Properties previously sold,
less (iii) any commissions that would have otherwise been payable had the
properties being transferred been sold to a third party. For purposes of these
obligations, the parties agreed that the gross sales prices and proceeds of
the Non-Operating Properties sold would include the gross sales prices and
proceeds of all Non-Operating Properties sold by Casino USA and Casino Realty
prior to the date of the Acquisition Agreement and/or the Closing Date.
Casino USA and Casino Realty have also agreed under the Acquisition
Agreement to pay the Company certain arrangement and management fees totalling
$1.5 million. Such fees are payable $750,000 on or before January 15, 1997,
$500,000 on or before January 15, 1998, and $250,000 on or before January 15,
1999.
29
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the ownership of the
Company's Common Stock as of November 6, 1996 by (i) each person known to the
Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock; (ii) each director of the Company; (iii)
the executive officers of the Company and its subsidiaries named below; and
(iv) all directors and executive officers of the Company and its subsidiaries
as a group. Unless otherwise indicated, each of the stockholders has sole
voting and investment power with respect to the shares beneficially owned,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIALLY PERCENT
NAME OWNED OF CLASS
---- ------------ --------
<S> <C> <C>
Casino USA, Inc.(1)................................... 10,790,925 53.1%
Antoine Guichard(2)................................... 10,836,364 53.3
Pierre B. Bouchut(2).................................. 10,791,364 53.1
Georges Plassat(2).................................... 10,791,364 53.1
Ronald Baron(3)....................................... 2,881,295 14.2
U.S. Trust Company of New York(4)..................... 1,263,000 6.2
Robert J. Emmons(5)................................... 879,400 4.3
Roger M. Laverty, III(6)(7)........................... 224,587 *
Martin A. Lynch(6).................................... 146,906 *
Dennis L. Chiavelli(6)................................ 79,703 *
Ross E. Roeder(6)(8).................................. 30,939 *
Louis E. Scott(6)(8).................................. 30,439 *
David J. McLaughlin(6)(8)............................. 30,389 *
Edward I. Sternlieb................................... 7,667 *
James S. Gold......................................... 3,439 *
Timm F. Crull(9)...................................... 2,439 *
Thomas G. Plaskett.................................... 1,439
All directors and executive officers as a group
(21 persons)(2)(5)(6)(7)(8)(9)....................... 12,466,124 59.3%
</TABLE>
- --------
* Less than 1%.
(1) Casino France, as the owner of approximately 99% of the capital stock of
Casino USA, may be deemed to beneficially own such shares. The address of
Casino USA is 524 Chapala Street, Santa Barbara, California 93101, and the
address of Casino France is 24, rue de la Montat, 42008 St.-Etienne Cedex
2, France.
(2) Includes 10,790,925 shares beneficially owned by Casino France, which
Messrs. Guichard, Plassat and Bouchut may be deemed to beneficially own by
virtue of their relationships and/or positions as shareholders and/or
officers of Casino France and its ownership of approximately 99% of the
capital stock of Casino USA. The address of Messrs. Guichard, Plassat and
Bouchut is 24, rue de la Montat, 42008 St. Etienne Cedex 2, France.
(3) All information with respect to Mr. Baron is based solely on Amendment No.
2 to Schedule 13D dated November 6, 1996, filed by him. Mr. Baron has sole
voting and dispositive power over 318,000 shares (or 1.6% of the
outstanding shares) and shared voting and dispositive power over 2,563,295
shares (or 12.6% of the outstanding shares). Of the 318,000 shares,
300,000 shares are held in his capacity as General Partner of Baron
Capital Partners, L.P. and 18,000 shares are held by him personally. Of
the 2,563,295 shares, 2,165,700 shares are held for the account of two
registered investment companies, Baron Asset Fund and Baron Growth &
Income Fund (the "Baron Funds"), which are advised by BAMCO, Inc., a
registered investment advisor controlled by Mr. Baron, and 397,595 shares
are held for the accounts of investment advisory clients of Baron Capital
Management, Inc. ("BCM"), a registered investment company controlled by
Mr. Baron. Mr. Baron disclaims beneficial ownership of shares held by the
Baron Funds and for the accounts of investment advisory clients of BCM.
The address of Mr. Baron is 767 Fifth Avenue, 24th Floor, New York, New
York 10153.
30
<PAGE>
(4) All information with respect to U.S. Trust Company of New York ("U.S.
Trust") is based solely on a Schedule 13G dated February 14, 1996, filed by
it. U.S. Trust acquired its beneficial ownership on behalf of others either
through a trust/fiduciary capacity and/or a portfolio management/agency
relationship. The address of U.S. Trust is 114 West 47 Street, New York,
New York 10036.
(5) Includes 764,400 shares held by the Robert & Christine Emmons Family Trust,
of which Mr. Emmons is the trustee and a beneficiary, and 143,000 shares
which Mr. Emmons has the obligation to acquire under the Stock Purchase
Agreement. Mr. Emmons is the Chairman of the Board, President and Chief
Financial Officer of Casino USA but disclaims beneficial ownership of the
shares of Common Stock owned by Casino USA. The address of Mr. Emmons is
524 Chapala Street, Santa Barbara, California 93101.
(6) Includes shares which such persons have the right to acquire within 60 days
pursuant to the exercise of outstanding stock options of which 154,167
shares are attributable Mr. Laverty, 117,500 shares are attributable to Mr.
Lynch, 46,334 shares are attributable to Mr. Chiavelli, 22,500 shares are
attributable to Mr. Roeder, 22,500 shares are attributable to Mr. Scott,
22,500 shares are attributable to Mr. McLaughlin, 6,667 shares are
attributable to Mr. Sternlieb and 541,502 shares are attributable to all
directors and executive officers as a group.
(7) Includes 450 shares held directly by Mr. Laverty's wife, which Mr. Laverty
may be deemed to beneficially own, and 42,470 shares held of record in a
revocable living trust of which Mr. Laverty and his wife are trustees.
(8) Includes shares held in profit sharing or IRA accounts for the benefit of
the named individual or members of his immediate family.
(9) Shares held in family trust.
OTHER MATTERS
The Company knows of no other matters to be brought before the Special
Meeting. However, if any other matters are properly presented for action, the
persons named in the accompanying proxy intend to vote on such matter in their
discretion.
ATTENDANCE OF AUDITORS
Arthur Andersen has audited the financial statements of the Company, Casino
USA and Casino Realty for the past eleven years. A representative of Arthur
Andersen is expected to be present at the Special Meeting, will have an
opportunity to make a statement if he or she desires to do so and will be
available to respond to appropriate stockholder questions.
SUBMISSION OF STOCKHOLDER PROPOSALS
The Company's Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate directors at an annual
or special meeting of stockholders, must provide timely notice thereof in
writing. To be timely, a stockholder's notice must be delivered to, or mailed
and received at, the principal executive offices of the Company (i) in the case
of an annual meeting that is called for a date that is within 30 days before or
after the anniversary date of the immediately preceding annual meeting of
stockholders, not less than 60 days nor more than 90 days prior to such
anniversary date and (ii) in the case of an annual meeting that is called for a
date that is not within 30 days before or after the anniversary date of the
immediately preceding annual meeting, or in the case of a special meeting of
stockholders, not later than the close of business on the tenth day following
the day on which notice of the date of the meeting was mailed or public
disclosure of the date of the meeting was made, whichever occurs first. The
Bylaws also specify certain requirements for a stockholder's notice to be in
proper written form.
A proposal by a stockholder intended to be presented at the 1997 Annual
Meeting must be received by the Company at its principal executive offices by
March 11, 1997, to be included in the Proxy Statement for that meeting, and all
other conditions for such inclusion must be satisfied.
31
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated herein by this reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
2. The Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 24, 1996;
3. The Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 16, 1996; and
4. The Company's Quarterly Report on Form 10-Q for the quarterly period
ended October 6, 1996.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Proxy Statement and prior to the date of the Special Meeting shall be deemed
incorporated by reference in this Proxy Statement and to be made a part hereof
as of the date of the filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for the purpose of this Proxy Statement
to the extent that a statement contained herein or in any other subsequent
filed document that is or is deemed to be incorporated by reference herein
modifies or supersedes such previous statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
This Proxy Statement incorporated documents by reference which are not
presented herein or delivered herewith. All information appearing in this
Proxy Statement is qualified in its entirety by the information and financial
statements (including the notes thereto) appearing in the documents
incorporated herein by reference. The Company will provide, without charge
upon written or oral requests from any stockholder, a copy of any of the
documents incorporated by reference in this Proxy Statement, not including
exhibits to such documents. Such requests should be directed to Smart & Final
Inc., 4700 South Boyle Avenue, Los Angeles, California 90058; Attention:
Secretary; Telephone: (213) 589-1054.
BY ORDER OF THE BOARD OF DIRECTORS
Donald G. Alvarado
Secretary
November , 1996
32
<PAGE>
ANNEX A
AGREEMENT FOR CONVEYANCE OF REAL PROPERTY
THIS AGREEMENT FOR CONVEYANCE OF REAL PROPERTY (the "Agreement") is made and
entered into as of the 31st day of October, 1996 by and between (i) Casino
Realty, Inc., a California corporation ("Realty") and a wholly-owned
subsidiary of Casino USA, Inc., and Casino USA, Inc., a California corporation
("USA") (Realty and USA, collectively, the "Seller"), and (ii) Smart & Final
Inc., a Delaware corporation (the "Buyer"), based upon the following facts:
A. Seller is the owner of certain improved properties more particularly
described on Schedule A-1 attached hereto (the "Owned Properties") and
certain leasehold interests (the "Leasehold Interests") pursuant to those
master leases more particularly described on Schedule A-2 attached hereto
(the "Master Leases") (the Owned Properties and the Leasehold Interests,
collectively, the "Properties").
B. Seller leases certain of the Properties to Buyer and its subsidiaries
(the "Buyer Lessees") pursuant to those leases more particularly described
on Schedule B-1 attached hereto (the "Buyer Leases") and certain of the
Properties to third parties (the "Third Party Lessees") pursuant to those
leases more particularly described on Schedule B-2 attached hereto (the
"Third Party Leases") (the Buyer Leases and the Third Party Leases,
collectively, the "Leases").
C. Seller desires to convey the Properties to Buyer, and Buyer desires to
acquire the Properties from Seller, all on the terms and conditions
contained herein.
D. For federal income tax purposes, it is intended that (i) the
conveyance to Buyer of all of the Properties owned by Realty (the "Realty
Properties") shall qualify as a reorganization pursuant to Section
368(a)(1)(D) and 368(a)(2)(H) of the Internal Revenue Code of 1986, as
amended (the "Code"), and this Agreement is intended to be and is adopted
as a plan of reorganization with respect to the conveyance of the Realty
Properties, and (ii) the conveyance to Buyer of all of the Properties owned
by USA (the "USA Properties") shall constitute a taxable sale and purchase
of the USA Properties.
Based on the foregoing, and in consideration of the mutual promises
contained below and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
1. Conveyance of the Properties. Subject to the terms and conditions
contained herein, Seller agrees to convey the Properties to Buyer, and
Buyer agrees to acquire the Properties from Seller, on the Closing Date (as
defined below), such conveyance to be made by deeds (the "Deeds") and
assignments of the Master Leases (the "Assignments of Leases") in forms
reasonably acceptable to Buyer and Seller.
2. Consideration for the Properties.
a. The consideration (the "Consideration") to be delivered by Buyer
to Seller for the Properties shall consist of the following:
(i) 1,625,000 shares of common stock, $.01 par value per share, of
Buyer (the "Shares"); and
(ii) Two unsecured non-negotiable promissory notes of Buyer, one
payable to Realty and the other payable to USA (individually, a
"Note" and collectively, the "Notes"), in the aggregate initial
principal amount of $38,000,000, bearing interest at an annual rate
of 25 basis points over LIBOR maturities selected by Buyer from time
to time, principal payable in five equal annual installments (with
accrued interest) commencing one year from the Closing Date.
b. The Consideration has been valued by the parties for accounting
purposes at approximately $76,000,000, on the basis of a value for
Buyer's common stock of $23.375 per share. The value of the
A-1
<PAGE>
Consideration for accounting purposes shall be allocated among the
Realty Properties and the USA Properties in the amounts set forth for
each of the Properties on Schedule C attached hereto. The value of the
Consideration for tax purposes ultimately may be more or less than
$76,000,000, and will depend in part on the mean between the high and
low sale prices per share of Buyer's common stock as shown on the New
York Stock Exchange composite report for the Closing Date. The value of
the Consideration for tax purposes shall be allocated among the Realty
Properties and the USA Properties in proportion to the amounts set
forth for each of the Properties on such Schedule C.
c. The Shares shall be divided between Realty and USA, and the
initial principal amounts of the Notes made payable and delivered to
Realty and USA shall be determined, in proportion to the aggregate
amounts set forth for the Realty Properties and the USA Properties,
respectively, on Schedule C attached hereto.
3. Closing. The closing of the transactions which are the subject of this
Agreement (the "Closing") shall take place at the offices of Buyer on
December 20, 1996 at 9:00 a.m., or at such other time and place as may be
agreed upon by Seller and Buyer, provided, however, that this Agreement
shall terminate and be of no force and effect if the Closing Date shall not
have occurred prior to December 13, 1997. The date of the Closing is
referred to as the "Closing Date." Upon consummation, the Closing shall be
deemed to take place as of 12:01 a.m. on the Closing Date. At the Closing,
Seller shall deliver to Buyer, against receipt of the Consideration, the
Deeds, the Assignments of Leases, and such other instruments of transfer
and conveyance as Buyer may reasonably require. Seller and Buyer shall also
deliver the other items contemplated by this Agreement. All deliveries
shall be considered to have taken place simultaneously as a single
conveyance by Realty to Buyer and as a single conveyance by USA to Buyer,
and no delivery shall be considered to have been made until all deliveries
are completed.
4. Condition to Buyer's Obligations to Close. In addition to any other
conditions to Buyer's obligations contained elsewhere in this Agreement,
Buyer shall not be obligated to close unless and until each of the
following conditions is satisfied, all of which, being solely for Buyer's
benefit, may be waived by Buyer in a writing delivered to Seller:
a. Chicago Title Insurance Company shall have agreed to issue its
CLTA (or, if Buyer shall so elect, ALTA Extended Coverage) Owner's
(Lessee's) Policies of Title Insurance (with such endorsements as Buyer
may require) with liability in the amount of the Consideration showing
title to the Properties in Buyer subject only to (i) those exceptions
appearing on the printed portions of such policy, (ii) non-delinquent
real property taxes, (iii) the Leases, and (iii) other exceptions as
have been approved by Buyer. Buyer may require, in Buyer's sole
discretion, that Title Company obtain coinsurance or reinsurance for
any portion of the liability of the Title Company under such policy of
title insurance in such amounts, with such companies, and upon such
terms as shall have been approved by Buyer.
b. Seller shall deliver to Buyer and Buyer shall have approved (i)
current estoppel certificates executed by the Master Lessors and the
Third Party Lessees and (ii) consents executed by the Master Lessors
and the Third Party Lessees to the extent required pursuant to the
Master Leases and the Third Party Leases.
c. Seller shall assign or cause to be assigned to Buyer all third
party warranties and permits relative to the Properties, as well as all
contracts and agreements affecting the Properties as have been approved
by Buyer, all by assignments in the forms reasonably acceptable to
Buyer and Seller.
d. Seller shall have furnished Buyer with an executed certification
in form acceptable to Buyer, and such other evidence as Buyer may
reasonably request, to establish that Seller is not a foreign person
for the purpose of Section 1445 of the Code and comparable provisions
of state law.
e. Buyer shall have obtained the approval and consent of (i) Buyer's
board of directors and any special committee thereof, (ii) a majority
of Buyer's shareholders, (iii) the New York Stock Exchange,
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<PAGE>
(iv) the Securities and Exchange Commission, and (v) any other
governmental entity or third party whose approval or consent (in the
opinion of counsel for Buyer) may be required in connection with the
consummation of the transactions which are the subject of this
Agreement, as well as a satisfactory fairness opinion relative to the
consideration to be paid with respect to the transactions which are the
subject of this Agreement, and all such approvals, consents, and
opinions shall remain unrevoked and in full force and effect.
f. Seller shall sell, transfer, and convey to Buyer without the
necessity of independent or additional consideration, and free and
clear of any and all liens, claims, and encumbrances, any miscellaneous
personal and intangible property owned by Seller and utilized in
connection with the Properties, all by bill of sale in form reasonably
acceptable to Buyer and Seller.
g. Seller shall have satisfied all monetary encumbrances against the
Properties other than (i) liens for non-delinquent taxes and
assessments, (ii) those created by Buyer or a Buyer Lessee or otherwise
the responsibility of Buyer or a Buyer Lessee under any Buyer Lease.
h. Seller shall have delivered to Buyer all funds and documents
required to be delivered by it pursuant to the terms of this Agreement.
i. Seller's representations and warranties contained in this
Agreement shall be complete, true and correct as of the Closing Date as
if made as at and as of such date.
5. Conditions to Seller's Obligations to Close. In addition to any other
conditions to Seller's obligations contained elsewhere in this Agreement,
Seller shall not be obligated to close unless and until each of the
following conditions is satisfied, all of which, being solely for Seller's
benefit, may be waived by Seller in a writing delivered to Buyer:
a. Buyer shall have delivered all funds and documents required to be
delivered pursuant to the terms of this Agreement.
b. Buyer's representations and warranties contained in this Agreement
shall be complete, true and correct as of the Closing Date as if made
as of and as at such date.
6. Costs and Expenses.
a. Upon the Closing Date, documentary transfer taxes, any sales tax
payable, and the premium for standard coverage Owner's (Lessee's)
Policies of Title Insurance shall be paid by Seller. The balance of any
title insurance premiums if Buyer elects to obtain ALTA Extended
Coverage Owner's (Lessee's) Policies of Title Insurance, any required
ALTA surveys, the cost of any endorsements required by Buyer, and the
costs of recording the Deeds shall be paid by Buyer. Any other closing
costs shall be allocated between Buyer and Seller in accordance with
customary real estate practice in Los Angeles County, California.
b. Each party shall pay its own legal fees and expenses incidental to
the execution of this Agreement and the consummation of the
transactions contemplated hereby. Buyer shall pay all costs and
expenses in connection with the fairness opinion.
c. Seller shall pay all costs and expenses of placing title to the
Properties in the condition called for herein at the Closing Date.
7. Prorations. The parties shall prorate as of the Closing Date (a) rent
under the Leases and the Master Leases (based, as respects the Third Party
Leases, upon rent actually collected as of the Closing Date), (b) parking
and other miscellaneous income, (c) real and personal property taxes, (d)
utilities, (e) common area and similar charges, (f) insurance, and (g) all
other items of expense relative to the Properties, all to the extent not
actually paid by the Lessees under the Leases or the Master Lessors under
the Master Leases.
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<PAGE>
8. Notices. Any notice, request, demand, instruction or other document to
be given hereunder or pursuant hereto shall be in writing and personally
delivered or sent by facsimile transmission or by registered or certified
mail, postage prepaid, return receipt requested, as follows:
If to Seller, to:Casino USA, Inc.
524 Chapala Street
Santa Barbara, CA 93101
Attn: Mr. Robert Emmons
Fax no.: (805) 564-6729
If to Buyer, to: Smart & Final Inc.
4700 S. Boyle Avenue
Los Angeles, California 90058
Attn: Donald G. Alvarado, Esq.
Fax no: (213) 589-0415
Notice shall be deemed to have been delivered only upon receipt by personal
delivery, 24 hours after delivery by facsimile transmission (as evidenced by
computer-generated evidence of such transmission), or 72 hours after deposit
in the United States mail as provided above addressed to, each addressee
provided for above to whom a copy of such notice is to be given. The addresses
and addressees for purposes of this paragraph may be changed to any other
address or addressee in the continental United States by giving written notice
of such change in the manner provided herein for giving notices. Unless and
until such written notice is delivered, the last address and addressee stated
by written notice, or provided herein if no written notice of change has been
delivered, shall be deemed to continue in effect for all purposes hereunder.
9. Representations, Warranties, and Covenants of Seller. Seller hereby
represents and warrants to and covenants with Buyer that, as of the date
hereof:
a. Neither the execution nor the delivery of this Agreement, the
incurrence of the obligations herein set forth, the consummation of the
transactions herein contemplated, nor the compliance with the terms of
this Agreement will conflict with, or result in a breach of any of the
terms, conditions or provisions of, or constitute a default under,
Seller's Articles of Incorporation or Bylaws or any order, judgment,
writ, injunction, decree, license, permit, law, statute, ordinance,
rule or regulation of any court or any governmental or regulatory
authority or any bond, note or other evidence of indebtedness or any
contract, indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which Seller is a party or by which
Seller or any Property may be bound.
b. Each corporation executing this Agreement as Seller has been duly
organized and is validly existing and in good standing as a corporation
in the State of California. The execution and the performance of this
Agreement have been duly authorized by all requisite corporate action,
and the individual or individuals executing this Agreement have the
right, power, legal capacity and authority to execute and enter into
this Agreement on behalf of Seller and to execute all other documents
and perform all other acts as may be necessary in connection with the
performance of this Agreement.
c. No approval or consent not heretofore obtained by any person or
entity is necessary in connection with the execution of this Agreement
by Seller or the performance of Seller's obligations under this
Agreement.
d. Seller shall give Buyer and Buyer's agents access to all documents
or copies of documents, including, but not limited to, maps, surveys,
tests, reports, letters, contracts and memoranda of conversations,
relating to the Properties, which are in the possession or control of
Seller. Seller agrees that such access and inspections may be made at
Seller's offices during normal business hours. Without limiting the
scope of the foregoing, such documents shall include the following:
(i) All surveys of the Properties in Seller's possession.
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<PAGE>
(ii) Copies of all Master Leases and Third Party Leases.
(iii) Copies of the most recent property tax bills for the
Properties.
(iv) All drawings, contracts, plans and other documents relating
to the improvements and all tenant improvements on the Properties.
(v) All building and occupancy permits relative to the Properties,
including without limitation any and all building plans and all
documents which relate to or concern comments by any building or
safety engineer, inspector or other person who regularly makes such
inspections.
(vi) All third party warranties and guarantees relative to the
Properties, including without limitation any and all warranties
relating to appliances, elevators, smoke detectors, fire alarms,
landscaping, plumbing, drainage, electrical, structural, roof,
heating, air conditioning, and ventilation.
(vii) Any and all written contracts or agreements affecting the
Properties.
e. Except for matters (i) known to Buyer or any Buyer Lessee, (ii)
caused or suffered by Buyer or any Buyer Lessee, or (iii) which are the
responsibility of Buyer or any Buyer Lessee under any Buyer Leases or
Master Leases:
(i) Seller has complied with all, and neither Seller nor any
Property is in violation of any, applicable Federal, state or local
statutes, ordinances, orders, requirements, laws or regulations
(including, without limitation, building, subdivision, zoning and
environmental laws) affecting such Property.
(ii) No notices of violation of any applicable statute, law,
ordinance, rule, regulation, order or requirement, or of any
covenant, condition, restriction or easement on any Property have
been received by Seller, and Seller knows of no such violation.
(iii) Seller does not have any knowledge of (i) any intended
public improvement which may involve any charge being levied or
assessed or which may result in the creation of any lien upon any
Property, (ii) any intended or proposed Federal, state or local
statute, ordinance, order, requirement, law or regulation
(including, but not limited to, zoning changes or moratoria)
specifically regulating or otherwise applicable to any Property (as
opposed to those of general application) which may adversely affect
the use or development of any Property or (iii) any suit, action,
claim or legal, administrative, arbitration or other proceeding or
governmental investigation pending or, to the best knowledge of
Seller, threatened or contemplated against or affecting any
Property.
(iv) Each Property is separately assessed for real property tax
purposes.
(v) There are no defaults under the Leases or the Master Leases by
Seller, or to the best of Seller's knowledge any Third Party Lessee
or Master Lessor, and no such defaults have been alleged by any
Third Party Lessee or Master Lessor.
(vi) Neither Seller nor any third party has generated, stored,
released, discharged, or disposed of Hazardous Substances or
Hazardous Wastes from or on any Property during the period of
Seller's ownership in violation of law or applicable regulations,
and, to the best of Seller's knowledge, no Hazardous Substances or
Wastes have been generated, stored, released, discharged or disposed
of from or on the Property prior to the period of Seller's ownership
in violation of law or applicable regulations. Seller has received
no notice claiming that Seller or any other party has generated,
stored, released, discharged or disposed of Hazardous Substances or
Hazardous Waste from or on any Property in violation or possible
violation of law or applicable regulations. As used in this
Agreement, the terms "Hazardous Substances" and "Hazardous Wastes"
shall have the meanings set forth in the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, and the
regulations thereunder, the Resource Conservation and Recovery Act,
as amended, and the regulations thereunder, and the Federal
A-5
<PAGE>
Clean Water Act, as amended, and the regulations thereunder, and
similar state laws, and such terms shall also include asbestos,
petroleum products, radioactive materials and any regulated
substances under any Federal, State or local environmental law,
regulation or ordinance.
f. Seller is aware of Buyer's business and financial condition and
has acquired and been afforded access to sufficient information about
Buyer and its prospects to reach an informed and knowledgeable decision
to acquire the Shares and to evaluate the merits and risks of an
investment in the Shares.
g. Seller has sufficient knowledge and experience in business,
financial and investment matters to be able to evaluate the merits and
risks involved in the acquisition of the Shares and to make an informed
investment decision with respect to that acquisition. Seller can afford
a complete loss of the value of the Shares and is able to bear the
economic risk of holding the Shares for an indefinite period. Seller is
an "accredited investor" as such term is defined in Regulation D
promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
h. Seller is acquiring the Shares for investment for its own account
and not with a view to or for sale in connection with any distribution
thereof, other than Realty's intention in pursuance of the plan of
reorganization to transfer to USA its portion of the Shares to be
issued to it under this Agreement, which USA then intends to hold for
investment for its own account and not with a view to or for sale in
connection with any distribution thereof. Seller understands that the
Shares have not been registered under the Securities Act or qualified
under any state blue sky law, based upon, among other things, the bona
fide nature of Seller's investment intent as expressed in the
immediately preceding sentence and the accuracy and completeness of
Seller's other representations and warranties contained in this
Agreement. Seller understands that no federal or state agency has made
a finding or determination as to the advisability or fairness of an
investment in the Shares or made any recommendation or endorsement of
the Shares to be acquired by Seller under this Agreement.
i. Seller understands that the Shares constitute "restricted
securities" within the meaning of Rule 144 promulgated under the
Securities Act, and as such must be held by Seller until such time as
they are subsequently registered under the Securities Act or an
exemption from such registration is available. Moreover, Seller
understands that certificate(s) evidencing the Shares will be imprinted
with a legend, which will prohibit the transfer of the Shares unless
they are registered or such transfer is exempt from registration and,
if such transfer is exempt from registration, will require Seller to
provide Buyer with written assurances, in form and substance
satisfactory to Buyer and its counsel, that the proposed transfer is so
exempt.
10. As-Is Acquisition. Buyer's execution of this Agreement shall
constitute Buyer's acknowledgment and agreement that Buyer has examined and
approved all things concerning the Properties and all other rights and
obligations to be acquired by Buyer hereunder. Buyer acknowledges and
agrees that (a) it is acquiring the Properties and all other rights to be
acquired by Buyer hereunder "as-is" as of the Closing Date and based on its
own inspection, investigation and evaluation; (b) except as otherwise
expressly set forth herein, neither Seller nor any agent or other
representative of Seller has made any representation or warranty, express
or implied, concerning the Properties or any rights to be acquired by Buyer
hereunder, or which has induced Buyer to execute this Agreement or any
other agreement related to the transactions contemplated hereunder; and (c)
all such representations and warranties are expressly disclaimed by Seller.
11. Possession. Subject to the rights of the Third Party Lessees under
the Third Party Leases, Seller shall deliver possession of the Properties
to Buyer at the Closing Date.
12. Brokers and Finders. Each party agrees to hold the other harmless
from any loss, damage, or expense resulting from any claim by any person,
firm or corporation based upon their having acted as a broker or finder for
or in connection with the transactions contemplated by this Agreement for
or at the request of such indemnifying party.
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<PAGE>
13. Attorneys' Fees. Should any litigation be commenced between the
parties hereto concerning this Agreement or the subject matter hereof or
the rights and duties of the parties in relation hereto or thereto, the
party prevailing in such litigation (whether at trial or on appeal) shall
be entitled, in addition to such other relief as may be granted, to its
costs and expenses of suit, including, without limitation, a reasonable sum
as and for its attorneys' fees in such litigation, which shall be
determined by the court in such litigation or in a separate action brought
for that purpose.
14. Further Action. The parties each agree to execute such further
documents and to take such further action as may be necessary or desirable
to effectuate the intents and purposes of this Agreement and the
transactions contemplated herein.
15. Entire Agreement. This Agreement and the schedules hereto contain the
entire agreement between the parties respecting the Properties and the
conveyance thereof and all other matters contemplated by this Agreement,
and any other agreements respecting the Properties or the conveyance
thereof or the rights or the duties of the parties in relation thereto not
expressly set forth in this Agreement and the schedules hereto are null and
void and superseded in their entirety by this Agreement.
16. Counterparts. This Agreement (as well as any amendments hereto) may
be executed in any number of counterparts, each of which when executed
shall be an original and all of which together shall constitute one and the
same Agreement.
17. Survival. Each of the representations and warranties made by Seller
or Buyer contained herein or delivered or otherwise made by Seller or Buyer
shall be true and correct on and as of the Closing Date as though made at
that time without the necessity of a separate written certificate regarding
same. All of the covenants, representations and warranties of each party
contained herein shall survive the Closing Date, the delivery and
recordation of the Deeds and the Assignments of Leases, and any inspection
by the parties. Each party agrees to indemnify and hold the other party
harmless from any and all costs, liabilities and expenses, including
without limitation attorneys' fees, as may result from the incorrectness of
any representations and warranties made by, or breach of any of the
covenants of, the indemnifying party.
18. Construction. Whenever the context of this Agreement so requires, the
singular number shall include the plural, and the masculine, feminine and
neuter genders shall include the other or others. The paragraph headings of
this Agreement are for purposes of reference and convenience only and shall
not limit or otherwise affect the meaning hereof. The validity,
construction and performance of this Agreement and all disputes among the
parties arising out of this Agreement or as to any matters related to but
not covered by this Agreement shall be governed by the internal laws of the
State of California applicable to contracts made and to be performed wholly
within that State.
19. Successors and Assigns. This Agreement shall be binding upon,
enforceable by and shall inure to the benefit of the successors and
permitted assigns of the parties hereto. Neither this Agreement nor any
rights or obligations under this Agreement may be assigned by any party
without the prior written consent of the other party.
20. Severability. In the event any portion of this Agreement shall be
declared by any court of competent jurisdiction to be invalid, illegal or
unenforceable, such portion shall be deemed severed from this Agreement,
and the remaining parts hereof shall remain in full force and effect, as
fully as though such invalid, illegal or unenforceable portion had never
been part of this Agreement.
21. Time. Time is of the essence of this Agreement and each provision of
this Agreement.
22. Covenants and Conditions. Each provision of this Agreement
performable by Buyer or Seller shall be both a covenant and a condition.
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<PAGE>
23. Amendments. Any amendment to this Agreement shall be in writing and
executed by both Buyer and Seller.
24. Joint and Several Liability. The obligations of the entities
executing this Agreement as Seller shall be joint and several.
25. Other Pre-Closing Matters.
a. Prior to the Closing Date, Seller shall not enter into any new (or
amend any existing) Leases, Master Leases, or Surviving Contracts which
will be binding upon any Property or Buyer subsequent to the Closing
Date unless the same shall have been approved in writing by Buyer,
which approval may be withheld for any reason or for no reason.
b. Prior to the Closing Date, and except as may currently be the
responsibility of Buyer under any Buyer Lease, Seller shall, at
Seller's sole cost and expense, (i) cause each Property to be kept,
maintained and operated in a manner consistent with prior practices,
(ii) cause each Property to be kept and maintained in its present
physical condition (reasonable wear and tear and acts beyond the
control of Seller excepted) and discharge Seller's obligations under
the Leases and the Surviving Contracts, and (iii) cause compliance with
all applicable governmental requirements relative to each Property.
c. Buyer and Seller shall cooperate to prepare and file a notice of
special meeting of Buyer's stockholders, proxy statement and form of
proxy (collectively, the "Proxy Materials"), to seek the approval of
Buyer's stockholders as soon as practicable after the execution of this
Agreement. Buyer and Seller shall use their respective best efforts to
respond promptly to any comments of the Securities and Exchange
Commission with respect to the Proxy Materials.
26. Other Post-Closing Matters.
a. Promptly following the Closing Date, Buyer shall notify the
existing Third Party Lessees under the Third Party Leases and the
Master Lessors under the Master Leases that Buyer has acquired the
Properties and has succeeded to the obligations of Seller pursuant to
the terms of the Third Party Leases and the Master Leases.
b. Following the Closing Date, Buyer and Seller shall reprorate real
and personal property taxes based upon any property tax bills received
following the Closing Date and any other revenue and expense items
(including without limitation expense reimbursements relating to the
period prior to the Closing Date) as may be required to effectuate the
intent of the parties that all items be accurately and fairly prorated
as of the Closing Date. In the event that following the Closing Date
Buyer shall receive any rents appropriately attributable to the period
prior to the Closing Date from Third Party Lessees under the Third
Party Leases, Buyer shall promptly deliver the same to Seller, Buyer
and Seller agreeing that any monies received from such Third Party
Lessees shall be applied first to obligations accruing following the
Closing Date and then to obligations accruing prior to the Closing
Date.
27. Non-Operating Properties. Seller currently owns (or, in a few
instances, until recently did own) certain real properties more
particularly described on Schedule D attached hereto (the "Non-Operating
Properties"). Buyer has assisted and shall continue to assist Seller in
connection with the marketing and sale of the Non-Operating Properties. It
is currently expected that the Non-Operating Properties will be sold before
December 31, 1998 for gross sales prices (i.e., prior to payment of
brokerage commissions and closing costs payable by Seller) aggregating
$5,700,000. In the event that all of the Non-Operating Properties are sold
before December 31, 1998 at an aggregate gross selling price of less than
$5,700,000, then, within 30 days of the last sale, Buyer shall pay to
Seller an amount equal to (a) $5,700,000 minus (b) the gross sales proceeds
from such sales. In the event that all of the Non-Operating Properties are
sold before December 31, 1998 at an aggregate gross selling price in excess
of $5,700,000, then Seller shall pay to Buyer, within 30 days of the last
such sale, an amount equal to the sum of (i) 100% of the lesser of such
excess or $500,000 plus (ii) 1/3 of the amount, if any, by which such
excess exceeds $500,000. In the event
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that all of the Non-Operating Properties have not been sold by December 31,
1998, then Buyer shall purchase from Seller such Non-Operating Properties
as have not been so sold for a purchase price equal to (A) $5,700,000 minus
(B) the gross sales proceeds relative to the Non-Operating Properties
theretofore sold minus (C) any commissions as would otherwise be payable
relative to such unsold Non-Operating Properties had they been sold to a
third party; in connection with any such sale, Buyer and Seller shall
allocate closing costs and expenses between them as provided above. For
purposes of this paragraph, the parties agree that the gross sales prices
and proceeds of the Non-Operating Properties sold shall include the gross
sales prices and proceeds of all Non-Operating Properties sold by Seller
prior to the date of this Agreement and/or the Closing Date.
28. Arrangement and Management Fees. In consideration of the transactions
contemplated by this Agreement, Seller agrees to pay Buyer arrangement and
management fees in the following amounts and on or before the following
dates:
<TABLE>
<CAPTION>
AMOUNT PAYMENT ON OR BEFORE:
------ ---------------------
<S> <C>
$750,000........................................... January 15, 1997
$500,000........................................... January 15, 1998
$250,000........................................... January 15, 1999
</TABLE>
29. Tax-Related Representations, Warranties, and Covenants of
Seller. Seller hereby represents and warrants to and covenants with Buyer
that, as of the date hereof:
a. None of the Properties has been, or at any time before the Closing
will be, acquired by Realty or USA from the other, or from any other
person or entity, in anticipation of the conveyance to Buyer pursuant
to this Agreement.
b. The Realty Properties constitute, and at the time of the Closing
will constitute, substantially all of the assets of Realty within the
meaning of Code Section 354(b)(1)(A).
c. USA is, and at the time of the Closing will be, the owner of all
of the issued and outstanding shares of capital stock of Realty.
d. USA is presently the owner of 10,790,925 shares of common stock of
Buyer. USA has not sold, exchanged or otherwise disposed of, and before
the Closing will not sell, exchange or otherwise dispose of, any of its
common stock of Buyer in anticipation of the conveyance to Buyer
pursuant to this Agreement.
e. Except as otherwise provided in f. below, Seller does not have,
and at the time of the Closing will not have, any plan or intention to
sell, exchange, transfer by gift or otherwise dispose (including
through transactions which would have the ultimate economic effect of a
disposition, including without limitation short-sales and equity swap
types of arrangements) of any of the Shares or any other shares of
Buyer's common stock.
f. Following the Closing and in pursuance of this plan of
reorganization, USA will cause Realty to distribute to USA the Note and
the portion of the Shares delivered by Buyer to Realty pursuant to this
Agreement, as well as the other assets of Realty, in a transaction
which qualifies under Code Section 356.
g. On or after the date of this Agreement and before, on or after the
Closing Date, Seller will not take or cause or permit any of its
subsidiaries to take any action, or suffer to exist any condition, that
would disqualify the conveyance to Buyer of the Realty Properties as a
reorganization within the meaning of Sections 368(a)(1)(D) and
368(a)(2)(H) of the Code.
30. Tax-Related Representations, Warranties, and Covenants of
Buyer. Buyer hereby represents and warrants to and covenants with Seller
that, as of the date hereof:
a. Immediately after the Closing, Buyer will not have outstanding any
preferred stock, nor will Buyer have outstanding more than 24,831,850
shares of common stock (for this purpose, treating as
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<PAGE>
exercised or converted all warrants, options, convertible securities
and any other type of rights pursuant to which any persons could
acquire common stock of Buyer that are issued and outstanding as of the
Closing Date).
b. Buyer does not have, and at the time of the Closing will not have,
any plan or intention to reacquire any of the Shares to be issued under
this Agreement.
c. Following the Closing, Buyer will use the Realty Properties in a
business, and will not take or cause or permit any of its subsidiaries
to take any action (including, without limitation, (i) the cessation of
any business, and (ii) sales or other dispositions of any of the Realty
Properties), that would disqualify the conveyance to Buyer of the
Realty Properties as a reorganization within the meaning of Sections
368(a)(1)(D) and 368(a)(2)(H) of the Code. For purposes of this
paragraph, the parties agree that the following shall not constitute a
breach by Buyer of this covenant: (i) dispositions of any of the Realty
Properties made in the ordinary course of business, and (ii) any
action, omission or failure to take action by Buyer in connection with
the sale, exchange, transfer by gift or other disposition (including
through transactions which would have the ultimate economic effect of a
disposition, including but not limited to short sales and equity swap
types of arrangements) of shares of Buyer's common stock by USA or
Realty to any person.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement for
Conveyance of Real Property as of the day and year first above written.
SELLER:
Casino Realty, Inc., a California
corporation
/s/ Robert J. Emmons
By: _________________________________
Its President
Casino USA, Inc., a California
corporation
/s/ Robert J. Emmons
By: _________________________________
Its President
BUYER:
Smart & Final Inc., a Delaware
corporation
/s/ Roger M. Laverty, III
By: _________________________________
Its President and Chief Executive
Officer
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<PAGE>
ANNEX B
[LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED]
October 22, 1996
Special Committee
Board of Directors
Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, California 90058
Gentlemen:
Smart & Final Inc. (the "Company"), Casino USA, Inc. ("Casino USA"), the
majority stockholder of the Company, and Casino Realty, Inc. (the "Seller"
and, together with Casino USA, the "Sellers"), a wholly owned subsidiary of
Casino USA, propose to enter into an agreement for conveyance of real property
(the "Agreement") pursuant to which the Company will acquire (the "Acquisition
Transaction") certain properties of the Sellers (the "Assets") for (i)
1,625,000 shares of common stock, par value $.01 per share, of the Company
(the "Common Stock") and (ii) five year notes of the Company with an aggregate
face value of $38.0 million (the "Notes"). As part of the Agreement, the
Company will assist the Sellers in the sale of certain non-operating
properties (the "Non-Operating Properties") and in the event that the Non-
Operating Properties are sold for an aggregate gross selling price of less
than $6.2 million, the difference shall be payable to the Sellers by the
Company (the "Shortfall Obligation" and, together with the Common Stock and
the Notes, the "Transaction Consideration"); in the event that the aggregate
gross selling price is more than $6.2 million, the Sellers shall pay one-third
of any such excess to the Company. In addition, the Agreement provides that
the Sellers shall pay to the Company arrangement and management fees
aggregating $1.5 million over three years.
You have asked us whether, in our opinion, the Transaction Consideration to
be paid pursuant to the Agreement is fair to the Company from a financial
point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December 31, 1995
and the Company's Forms 10-Q and the related unaudited financial
information for the quarterly periods ended March 24, 1996 and June 16,
1996;
(2) Reviewed the Seller's audited financial information for the three
fiscal years ended December 31, 1995 and the Seller's unaudited financial
information for the quarterly periods ended March 24, 1996 and June 16,
1996;
(3) Reviewed certain information, including internal financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Company and the Seller, furnished to us by the Company and the Seller,
respectively;
(4) Conducted discussions with members of senior management of the
Company and the Seller concerning the business and prospects of the Company
and the Assets, respectively;
B-1
<PAGE>
(5) Reviewed the historical market prices and trading activity for the
Common Stock and compared them with those of certain publicly traded
companies which we deemed to be reasonably similar to the Company;
(6) Compared the results of operations of the Company with those of
certain companies which we deemed to be reasonably similar to the Company;
(7) Reviewed industry sources, the market prices of certain publicly
traded companies and the financial terms of certain other transactions
which we deemed to be relevant, each in connection with our determination
of appropriate capitalization rates;
(8) Reviewed summaries of the analyses of the Assets and the Non-
Operating Properties prepared by Arthur Andersen LLP for Casino USA, which
analyses were performed pursuant to procedures agreed upon with Casino
USA's management;
(9) Considered the pro forma effect of the Acquisition Transaction on the
Company's capitalization ratios and its cash flow and earnings per share;
(10) Reviewed a draft dated October 17, 1996 of the Agreement; and
(11) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company and
the Sellers, and we have not independently verified such information or
undertaken an independent appraisal of the Assets or the Non-Operating
Properties. With respect to the financial forecasts furnished by the Company
and the Seller, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of the Company's
and the Seller's management as to the expected future financial performance of
the Company and the Seller, respectively. Our opinion is based upon general
economic, market, monetary and other conditions as they exist and can be
evaluated, and the information made available to us, as of the date hereof.
We have in the past provided financial advisory and financing services to
the Company and have received fees for those services. In addition, in the
ordinary course of our securities business, we may actively trade debt or
equity securities of the Company for our own account and the accounts of our
customers, and we therefore may from time to time hold a long or short
position in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the Transaction Consideration to be paid pursuant to the Agreement is fair to
the Company from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
B-2
<PAGE>
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PRELIMINARY COPIES
PROXY SMART & FINAL INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ROGER M. LAVERTY, III and DONALD G.
ALVARADO, and each of them, proxies of the undersigned, each with full power
to act without the other and with power of substitution, to represent the
undersigned and vote as directed on the reverse hereof all shares of Common
Stock, $.01 par value per share of Smart & Final Inc. (the "Company"), which
the undersigned may be entitled to vote at the Special Meeting of Stockholders
of the Company to be held on December 23, 1996, or any adjournment thereof,
and in their discretion upon such other business as may properly come before
the Special Meeting, or any adjournments thereof.
(Continued and to be signed on reverse side)
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-- FOLD AND DETACH HERE --
<PAGE>
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[X] Please mark your votes as indicated in this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL.
---
Proposal to approve an Agreement for Conveyance of Real Property dated October
31, 1996, among the Company, Casino USA, Inc., the principal stockholder of the
Company, and Casino Realty, Inc., a wholly-owned subsidiary of Casino USA, Inc.,
and the transactions contemplated thereby, including among other things the
issuance of 1,625,000 shares of the Company's Common Stock, all as described
more completely in the Proxy Statement for the Special Meeting.
FOR [_] AGAINST [_] ABSTAIN[_]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER AND, IF NO DIRECTIONS ARE GIVEN, WILL BE VOTED
FOR THE PROPOSAL.
- ---
Signature(s) __________________________ Date _______________________________
NOTE: Please sign exactly as name appears hereon. When signing as attorney,
executor, administrator, trustee, or guardian, set forth your full title. When
shares are held in more than one name, both parties should sign. If a
corporation, sign in full corporate name by President or other authorized
officer. If a partnership, sign in partnership name by authorized person.
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-- FOLD AND DETACH HERE --
