<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[_] Preliminary Proxy Statement RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Smart & Final Inc.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(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 Act Rule 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:
<PAGE>
[LOGO OF SMART & FINAL(R)]
February 19, 1997
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
Wednesday, March 19, 1997, at 10:00 a.m., local time.
The Company has entered into an Agreement for Conveyance of Real Property,
as amended (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
the date hereof 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,
/s/ Robert J. Emmons
Robert J. Emmons
Chairman of the Board
<PAGE>
[LOGO OF SMART & FINAL(R)]
4700 SOUTH BOYLE AVENUE
LOS ANGELES, CALIFORNIA 90058
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
MARCH 19, 1997
----------------
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 Wednesday, March 19, 1997, at 10:00 a.m., local
time, for the following purposes:
1. To consider and vote upon an Agreement for Conveyance of Real
Property, as amended, pursuant to which (i) the Company would acquire,
subject to certain conditions, 91 improved real properties and leasehold
interests (collectively, the "Properties") 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 (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
(provided, however, in the event that the aggregate gross sales price of
the Non-Operating 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 February 14, 1997, 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
February 19, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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........................................................... 3
Opinion of Financial Advisor............................................ 4
Recommendations of the Special Committee and the Board of Directors..... 4
INFORMATION REGARDING THE MEETING......................................... 5
General................................................................. 5
Record Date and Voting.................................................. 5
Proxy Information....................................................... 5
Solicitation of Proxies................................................. 5
APPROVAL OF THE ACQUISITION TRANSACTION AND RELATED MATTERS............... 6
Introduction............................................................ 6
Background of the Acquisition Transaction............................... 7
Reasons for the Acquisition Transaction--Recommendation of the Special
Committee.............................................................. 9
Recommendation of the Board of Directors................................ 10
Opinion of Financial Advisor............................................ 10
Interests of Certain Persons in the Acquisition Transaction............. 13
Certain Effects of the Acquisition Transaction on the Company's
Stockholders........................................................... 15
Certain Forward-Looking Statements...................................... 18
Approval of the Proposal................................................ 18
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.............................................................. 27
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, as Amended................... A-1
Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated........... B-1
</TABLE>
-i-
<PAGE>
SMART & FINAL INC.
4700 SOUTH BOYLE AVENUE
LOS ANGELES, CALIFORNIA 90058
----------------
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
Wednesday, March 19, 1997, 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 February 19, 1997.
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, which was subsequently amended (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 and was what the parties
believed to be the fair market value of a share at that time), 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 February 4, 1997 was $23.125.
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. The Non-Operating Properties have an aggregate book
value of $5 million. Four of the Non-Operating Properties, with an aggregate
book value of $0.8 million, have already been sold as of the date of this
Proxy Statement for aggregate gross sales proceeds of $1.3 million, $0.5
million more than their aggregate book value. As a result, the eight remaining
Non-Operating Properties, with an aggregate book value of $4.2 million, would
have to be sold for aggregate gross sales proceeds of at least $4.4 million.
The Company believes that it will be able to sell such Non-Operating
Properties on behalf of Casino USA and Casino Realty, on or before December
31, 1998, for aggregate gross sales proceeds of at least $4.4 million.
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. Such fees 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 on or about March 26, 1997, 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 53.0% 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 56.5% 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." Although the Company has no current intention to register, and
Casino USA has informed the Company that it has no current intention to demand
registration of, the Shares to be acquired pursuant to the Acquisition
Agreement under the Securities Act of 1933, as amended, Casino USA does have
certain registration rights with respect to all shares of Company Common Stock
it or its subsidiaries own, including the Shares. See also "Approval of the
Acquisition Transactions and Related Matters--Interests of Certain Persons in
the Acquisition Transaction" and "Description of the Acquisition Agreement--
Conveyance of Properties; Consideration." 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 173 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
2
<PAGE>
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
Non-Arms' Length Transaction; No Independent Appraisals; Conflicts of
Interest. The Acquisition Transaction has not been negotiated at arms' length,
no independent appraisals or valuations 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
Transaction" and "Approval of the Acquisition Transaction and Related
Matters--Interests of Certain Persons in the Acquisition Transaction."
Substantial Increase in Assets and Liabilities of the Company. 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 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 issue a
substantial amount of Common Stock and incur a substantial amount of debt to
Casino USA and Casino Realty. 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.
Pro Forma Effects of the Acquisition Transaction. On a pro forma basis,
based on the assumptions made in the Company's Pro Forma Unaudited Financial
Statements, the consummation of the Acquisition Transaction would generally
have an effect both on the Company's balance sheet, by increasing the
Company's assets by $74 million, increasing its long-term liabilities by $38
million and increasing its stockholders' equity by $36 million, and on the
Company's income statement, by reducing the Company's lease expense to
affiliates and increasing its depreciation, interest and other expenses, with
a resulting increase in the Company's net earnings and earnings per share. For
additional information on the pro form effects of the Acquisition Transaction,
see "Pro Forma Unaudited Financial Statements."
Certain Tax Consequences. 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.
3
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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."
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. See also "Approval of the
Acquisition Transaction and Related Matters--Certain Effects of the
Acquisition Transaction on the Company's Stockholders--No Dissenters' Rights."
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 is fair to the
Company from a financial point of view. Merrill Lynch subsequently delivered
its written opinion to the Special Committee dated the date of this Proxy
Statement, that, as of such date and based on various considerations set forth
in its opinion, the Acquisition Consideration 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 February 19, 1997, 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."
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."
4
<PAGE>
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 February 14, 1997, the record date fixed by the Board of Directors,
the outstanding voting securities of the Company consisted of 20,353,090
shares of Common Stock, par value $.01 per share. Each stockholder of record
at the close of business on February 14, 1997 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
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 53.0% 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.
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APPROVAL OF THE ACQUISITION TRANSACTION AND RELATED MATTERS
INTRODUCTION
On October 31, 1996, the Company entered into an Agreement for Conveyance of
Real Property, which was subsequently amended (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 and was what the parties believed to be the fair market value of a
share at that time), 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 February
4, 1997, was $23.125. 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 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. The Non-Operating
Properties have an aggregate book value of $5 million. Four of the Non-
Operating Properties, with an aggregate book value of $0.8 million, have
already been sold as of the date of this Proxy Statement for aggregate gross
sales proceeds of $1.3 million, $0.5 million more than their aggregate book
value. As a result, the eight remaining Non-Operating Properties, with an
aggregate book value of $4.2 million, would have to be sold for aggregate
gross sales proceeds of at least $4.4 million. The Company believes that it
will be able to sell such Non-Operating Properties on behalf of Casino USA and
Casino Realty, on or before December 31, 1998, for aggregate gross sales
proceeds of at least $4.4 million.
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. Such fees 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
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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 certain 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
such 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 such 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 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
$3 million more or $7 million less than the $74 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.
From June to August, Messrs. Bouchut and Lynch continued their discussions
of the various alternative transactions, including an additional alternative
transaction in which the lease terms on the properties would be increased 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,
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 such 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 non-negotiable Company notes.
Of the properties and leasehold interests that the Company did not
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wish to acquire and Casino USA and Casino Realty still wished to sell as a
group, 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. 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 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. 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) and for certain arrangement and management fees). In considering the
proposed transaction, the Audit Committee considered (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 Company
management. The Audit Committee then directed Company management to provide
answers to certain questions raised by the presentation materials and
continued its meeting to the next day.
The following day, the Audit Committee resumed its meeting. Company
management was again present and further discussed with the Audit Committee
the anticipated impact of the proposed transaction on the Company's balance
sheet and income statement, including the anticipated impact on earnings per
share. The Audit Committee then 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 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.
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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 Board, the Special
Committee reported on its findings and recommended that the Board approve the
proposed transaction, as modified by Mr. Lynch's proposal, subject to Merrill
Lynch's confirmation that the revised terms of the proposed transaction did
not alter its fairness opinion. After discussion, the Board accepted the
recommendation of the Special Committee and approved the proposed transaction,
as modified, subject to Merrill Lynch's confirmation to the Special Committee.
On November 8, 1996, Merrill Lynch confirmed to the Special Committee that, if
the revised terms of the proposed transaction 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).
In mid-December, Mr. Bouchut and Mr. Lynch agreed to a change in the form of
the Company's promissory notes, from non-negotiable notes to negotiable notes,
and other minor changes related to the date of the proposed closing and the
date of the first payment of the arrangement and management fees, subject to
the approval of the Company's Board and the Special Committee. The Special
Committee, acting by unanimous written consent to action taken without
meeting, subsequently approved such changes, determined that the Acquisition
Agreement (as amended) and the Acquisition Transaction contemplated thereby
were fair to the Company and its stockholders and should be approved, and
affirmed its recommendation of the same to the Board of Directors. The Board,
acting by unanimous written consent to action taken without meeting, then
accepted the recommendation of the Special Committee and unanimously approved
the Acquisition Agreement (as amended), including the Acquisition Transaction
contemplated thereby. Merrill Lynch also delivered its written opinion to the
Special Committee, dated the date of this Proxy Statement, that, as of such
date, the Acquisition Consideration to be paid pursuant to the Acquisition
Agreement is fair to the Company from a financial point of view.
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.
Prior to reaching these conclusions, the Special Committee received
presentations from, and reviewed the Acquisition Transaction with, management
of the Company and representatives from Merrill Lynch. In evaluating the
Acquisition Transaction, the Special Committee considered the following
factors:
(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 Company management.
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(iv) The Special Committee considered (a) 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; (b) the
subsequent confirmation of Merrill Lynch that, if the revised terms of the
proposed transaction 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); and (c) the opinion of Merrill Lynch, dated the date of
this Proxy Statement, that, as of such date, the Acquisition Consideration
to be paid pursuant to the Acquisition Agreement is fair to the Company
from a financial point of view.
(v) The Special Committee reviewed the terms of the Acquisition
Agreement.
(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 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. On February 19, 1997, Merrill Lynch delivered its
opinion to the Special Committee that, as of such date, the Acquisition
Consideration to be paid pursuant to the Acquisition Agreement was fair to the
Company from a financial point of view.
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 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 revised
terms of the proposed transaction 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). On February 19, 1997, Merrill Lynch delivered its
opinion to the Special Committee that, as of such date, the Acquisition
Consideration to be paid pursuant to the Acquisition Agreement was fair to the
Company from a financial point of view.
A copy of Merrill Lynch's written opinion, dated the date of this Proxy
Statement, 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. Merrill Lynch has consented to
the use of such opinion in this Proxy Statement. 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.
Merrill Lynch's opinion is directed only to the fairness from a financial
point of view of the Acquisition 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, dated February 19, 1997, 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
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December 31, 1995 and the Company's Forms 10-Q and the related unaudited
financial information for the quarterly periods ended March 24, 1996, June 16,
1996 and October 6, 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, June 16, 1996 and October 6, 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, and
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) considered the pro forma effect of
the Acquisition Transaction on the Company's capitalization ratios and its
cash flow and earnings per share; (ix) reviewed the Acquisition Agreement; and
(x) 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. Merrill Lynch reviewed and updated such
analyses in connection with its preparation of its opinion dated the date of
this Proxy Statement.
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 (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
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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.
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.
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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 53.0% 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 56.5% 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." Although the Company has no current intention to register, and
Casino USA has informed the Company that it has no current intention to demand
registration of, the Shares to be acquired pursuant to the Acquisition
Agreement under the Securities Act of 1933, as amended (the "Securities Act"),
Casino USA does have certain registration rights with respect to all shares of
Company Common Stock it or its subsidiaries own, including the Shares. See
also "Approval of the Acquisition Transactions and Related Matters--Interests
of Certain Persons in the Acquisition Transaction--Registration Rights
Agreement" and "Description of the Acquisition Agreement--Conveyance of
Properties; Consideration." 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 173 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 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
13
<PAGE>
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.
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 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
14
<PAGE>
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 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, 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. 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.
15
<PAGE>
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 or valuations 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 issue a substantial amount of Common Stock and incur a
substantial amount of debt to Casino USA and Casino Realty. 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 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 March 1997 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 anticipated that if, instead, the Mean
Price Per Share on the Closing Date is greater than
16
<PAGE>
$20.00 and less than $23.375, the Company's aggregate tax basis in the
Properties will exceed by a smaller amount, or will be moderately less than,
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. If, instead, the Mean Price Per Share on the
Closing Date is greater than $20.00 and less than $23.375, the federal income
tax consequences of reorganization treatment for the Properties conveyed by
Casino Realty will be less disadvantageous, or advantageous, to the Company,
and will be less advantageous, or disadvantageous, to Casino Realty and Casino
USA. 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, or will reduce the tax advantage to the Company
and the tax disadvantage 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, or will increase the tax advantage to the Company and
the tax disadvantage 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
17
<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 53.0% 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.
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 on or about March 26, 1997 and which the
Company intends to account for in fiscal 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 40,457 41,719
Buildings and improvements................... 3,170 33,543 36,713
Leasehold improvements....................... 52,234 52,234
Fixtures and equipment....................... 129,425 129,425
-------- ------ -------
186,091 74,000 260,091
Less--Accumulated depreciation and
amortization................................ 72,904 72,904
-------- ------ -------
Net property, plant and equipment.......... 113,187 74,000 187,187
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 74,000 430,187
======== ====== =======
</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 35,984 142,026
Cumulative translation loss................. (928) (928)
Retained earnings........................... 51,141 51,141
-------- ------ -------
Total stockholders' equity................ 156,458 36,000 192,458
-------- ------ -------
Total liabilities and stockholders'
equity................................. $356,187 74,000 430,187
======== ====== =======
</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. Because the transaction is between affiliates, the Properties
acquired are recorded at the carry-over historical cost of Casino Realty
($74,000,000). The difference between this historical carryover cost and the
fair value of the consideration ($2,000,000) has been reflected as a reduction
of additional paid-in capital.
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 bear interest at an annual rate
of 0.25% over LIBOR maturities selected by the Company from time to time. As
of the date of this Proxy Statement, LIBOR plus 0.25% is approximately 6%. A
change of 1/8 percent in the interest rate would initially effect annual pre-
tax income by $47,500. For purposes of the Pro Forma Unaudited Financial
Statements, an effective annual interest rate of 7.5% has been used, based on
management's intention to later fix the interest rate of the Notes. 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.
(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 7.5% per annum. See also Note (1).
(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,
as amended, 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 negotiable promissory notes (i.e., the
Notes) in the aggregate initial principal amount of $38 million. Such Shares
will be issued to Casino USA and Casino Realty without registration under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on
Section 4(2) of the Securities Act exempting transactions not involving a
public offering.
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. The Notes will also obligate the Company to not, nor
permit any subsidiary to, absent the consent of the holder, (i) create, incur,
assume or permit to exist any new debt (other than refinancing of existing
debt) in excess of $10 million not included in the Company's financial
statements dated as of December 29, 1996, other than trade debt or purchase
money debt incurred in connection with the acquisition of capital assets
including capitalized leases; (ii) sell, lease or pledge assets equal to an
aggregate amount of $10 million, other than merchandise inventory, closed
stores and other excess or unused properties in the ordinary course of
business; or (iii) permit involuntary liens in excess of an aggregate amount
of $5 million to arise with respect to any property or assets or the levy of
any state or federal tax lien which is not removed within 90 days or is
otherwise being protested by the Company.
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 and the Company intends to account for
the transaction in fiscal 1996. 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 within five
business days after the Special Meeting, 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.
26
<PAGE>
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 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
27
<PAGE>
registration under the Securities Act, 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 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.
28
<PAGE>
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.
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. As of
the date of this Proxy Statement, four of the Non-Operating Properties have
already been sold for aggregate gross sales proceeds of $1.3 million. As a
result, the eight remaining Non-Operating Properties would have to be sold for
aggregate gross sales proceeds of at least $4.4 million. The Company believes
that it will be able to sell such Non-Operating Properties on behalf of Casino
USA and Casino Realty, on or before December 31, 1998, for aggregate gross
sales proceeds of at least $4.4 million.
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 the Closing Date, $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 February 3, 1997 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 53.0%
Antoine Guichard(2)................................... 10,836,364 53.2
Pierre B. Bouchut(2).................................. 10,791,364 53.0
Georges Plassat(2).................................... 10,791,364 53.0
Ronald Baron(3)....................................... 3,345,895 16.4
U.S. Trust Company of New York(4)..................... 1,263,000 6.2
Robert J. Emmons(5)................................... 855,400 4.2
Roger M. Laverty, III(6)(7)........................... 272,920 1.3
Martin A. Lynch(6).................................... 166,906 *
Dennis L. Chiavelli(6)................................ 93,036 *
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
(20 persons)(2)(5)(6)(7)(8)(9)....................... 12,493,768 59.1%
</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.
3 to Schedule 13D dated February 3, 1997, 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 3,027,895
shares (or 14.9% 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 3,027,895 shares, 2,405,100 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 622,795 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 712,400 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
202,500 shares are attributable Mr. Laverty, 137,500 shares are
attributable to Mr. Lynch, 59,667 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 626,167
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
February 19, 1997
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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
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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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(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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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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(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
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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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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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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
A-8
<PAGE>
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
A-9
<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
A-10
<PAGE>
FIRST AMENDMENT TO AGREEMENT FOR
CONVEYANCE OF REAL PROPERTY
THIS FIRST AMENDMENT TO AGREEMENT FOR CONVEYANCE OF REAL PROPERTY is made
and entered into as of the 19th day of December, 1996 and amends that certain
Agreement for Conveyance of Real Property dated October 31, 1996 (the
"Agreement") 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")
as follows (capitalized terms having the meanings ascribed to them in the
Agreement):
1. The Closing shall occur within five business days of the meeting of
Buyer's stockholders approving the transactions which are the subject of
the Agreement, or at such other time and place as may be agreed upon by
Seller and Buyer.
2. The Notes shall be unsecured negotiable promissory notes in the forms
attached hereto as Exhibits A-1 and A-2.
3. The initial $750,000 installment of the arrangement and management fee
payable pursuant to paragraph 28 of the Agreement shall be payable on the
Closing Date.
4. In all other respects, the Agreement shall remain unmodified and in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to
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: _________________________________
President
Casino USA, Inc., a California
corporation
/s/ Robert J. Emmons
By: _________________________________
President
BUYER:
Smart & Final Inc., a Delaware
corporation
/s/ Roger M. Laverty, III
By: _________________________________
President and Chief Executive
Officer
A-11
<PAGE>
EXHIBIT A-1
TO FIRST AMENDMENT
PROMISSORY NOTE
US$37,750,000.00 Los Angeles, California
, 199
FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to Casino
Realty, Inc. ("Holder"), or order, the principal sum of Thirty-Seven Million
Seven Hundred Fifty Thousand and No/100ths Dollars ($37,750,000.00), with
interest on the unpaid principal balance from the date of this Note, until the
date the entire outstanding principal balance has been paid in full at an
interest rate equal to the offered rate per annum as quoted in the London
interbank market for United States dollar deposits of a term to be selected by
Maker from time to time of at least thirty (30) days and no longer than one
(1) year, plus one-quarter of one percent (LIBOR + .25%), computed on the
basis of a three hundred sixty (360) day year. For purposes of all other terms
under this Note, the interest rate and term shall be determined by written
notice from Maker delivered to Holder no later than the date which is three
(3) Business Days prior to the expiration date of the previous term. In the
event Maker fails to deliver any such notice, the term immediately following
the term which is expiring shall be the same length as the expiring term. For
purposes of this Note, "Business Day" means a day that Maker's corporate
offices are open for business with the general public. Principal and interest
shall be payable in arrears in five (5) consecutive equal annual installments
of principal together with all accrued but unpaid interest on each Payment
Date as set forth in the attached Payment Schedule; provided however, that the
last payment hereunder shall be in the amount necessary to repay in full the
unpaid principal amount of this Note and any accrued but unpaid interest. In
computing interest on this Note, the first date of the period ending on a
Payment Date shall be included and the Payment Date shall be excluded. All
payments under this Note shall be in lawful money of the United States of
America. All payments shall be made on the Payment Date by wire transfer of
federal funds not later than 11:00 a.m. in Los Angeles, California on such
date or other immediately available funds to such account as Holder shall
specify in writing to Maker, indicating the principal and interest component
of each payment or payments. Any amounts under this Note not paid when due
shall bear additional interest at the applicable rate of interest then in
effect, plus one percent (1%) per annum (the "Late Payment Rate") for the
period for which the same shall be overdue. Payments of principal and interest
at the Late Payment Rate are due and payable on demand.
Maker shall have the right to prepay this Note in full or in part provided
that (i) for each such prepayment Maker will pay the accrued interest on the
prepaid principal to the date of such prepayment, and (ii) all prepayments
will be applied to principal in the order of their Payment Dates.
In the event that any law limiting the amount of interest is interpreted so
that any charge provided for in this Note violates such law, and Maker is
entitled to the benefit of such law, such charge is reduced to the extent
necessary to eliminate the violation. The amounts, if any, previously paid to
Holder in excess of the amounts payable to Holder pursuant to such charges as
reduced shall be applied by Holder to reduce the principal of the indebtedness
evidenced by this Note. For the purpose of determining whether any law
limiting the amount of interest has been violated, all indebtedness evidenced
by this Note which constitutes interest, as well as all other charges levied
in connection with such indebtedness which constitute interest, shall be
deemed to be allocated and spread over the stated term of this Note. Unless
otherwise required by applicable law, such allocation and spreading shall be
effected in such a manner that the rate of interest computed thereby is
uniform throughout the stated term of this Note.
Until payment in full, Maker will not, nor will it permit any subsidiary,
unless it has obtained Holder's prior written consent, to: (i) create, incur,
assume or permit to exist any new debt (other than refinancing of existing
debt) in excess of $10,000,000 not included in Maker's financial statements
dated as of December 29, 1996 other than trade debt or purchase money debt
incurred in connection with the acquisition of capital assets
A-12
<PAGE>
including capitalized lease obligations, (ii) sell, lease, or pledge as
collateral for any other obligation, assets equal to an aggregate amount of
$10,000,000 other than merchandise inventory, closed stores and other excess
or unused properties in the ordinary course of business, or (iii) permit
involuntary liens in excess of an aggregate amount of $5,000,000 to arise with
respect to any property or assets including but not limited to those arising
from the levy of a writ of attachment or execution, or the levy of any state
or federal tax lien which lien will not be removed within ninety (90) days, or
is not otherwise being protested by Maker.
This Note is solely a corporate obligation and no recourse shall be had in
respect of any obligation referred to herein, against any stockholder,
incorporator, director or officer, as such, past, present, and future, of the
parties hereto by the enforcement of any assessment or by any legal or
equitable proceeding, by virtue of statute or otherwise. The obligations of
Maker hereunder rank, and at all times will rank, pari passu with all other
unsecured indebtedness of the Maker.
Any notice required or permitted under this Note or by law in respect of
this Note, shall be in writing and shall be deemed effective, when personally
delivered or if sent by registered or certified mail, three Business Days
after the date of delivery to the post office, or if sent by overnight
delivery when received, or if sent by telecopier, upon receipt, in each case
addressed to the person required to receive same at the following addresses:
If to Holder: Casino Realty, Inc.
524 Chapala Street
Santa Barbara, CA 93101
Attn: Robert J. Emmons
Phone: (805) 564-6700
Fax: (805) 564-6729
If to Maker: Smart & Final Inc.
4700 S. Boyle Avenue
Los Angeles, CA 90058
Attn: Donald G. Alvarado, Esq.
Phone: (213) 589-9726
Fax: (213) 589-0415
The provisions of this Note shall be binding upon and shall inure to the
benefit of Holder and Maker and their respective successors and assigns,
except that Maker may not assign its obligations hereunder without the express
written consent of Holder. Holder at any time may sell, assign, transfer,
pledge as collateral or otherwise dispose of this Note, or of any of its
right, title and interest therein.
The rights and obligations of Maker and Holder under this Note shall be
interpreted according to the laws of the State of California. No supplement,
modification, amendment or discharge of any term, provision, or condition of
this Note shall be binding or enforceable unless executed in writing by
Holder. Time is of the essence for each and every obligation under this Note.
MAKER
SMART & FINAL INC.
a Delaware corporation
By: _____________________
Title: __________________
A-13
<PAGE>
PAYMENT SCHEDULE
<TABLE>
<CAPTION>
PRINCIPAL
PAYMENT DATE AMOUNT INTEREST
------------ ------------- ----------
<S> <C> <C>
, 1998..................................... $7,550,000.00 As accrued
, 1999..................................... $7,550,000.00 As accrued
, 2000..................................... $7,550,000.00 As accrued
, 2001..................................... $7,550,000.00 As accrued
, 2002..................................... $7,550,000.00 As accrued
</TABLE>
A-14
<PAGE>
EXHIBIT A-2
TO FIRST AMENDMENT
PROMISSORY NOTE
US$250,000.00 Los Angeles, California
, 199
FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to Casino USA,
Inc. ("Holder"), or order, the principal sum of Two Hundred Fifty Thousand and
No/100ths Dollars ($250,000.00), with interest on the unpaid principal balance
from the date of this Note, until the date the entire outstanding principal
balance has been paid in full at an interest rate equal to the offered rate
per annum as quoted in the London interbank market for United States dollar
deposits of a term to be selected by Maker from time to time of at least
thirty (30) days and no longer than one (1) year, plus one-quarter of one
percent (LIBOR + .25%), computed on the basis of a three hundred sixty (360)
day year. For purposes of all other terms under this Note, the interest rate
and term shall be determined by written notice from Maker delivered to Holder
no later than the date which is three (3) Business Days prior to the
expiration date of the previous term. In the event Maker fails to deliver any
such notice, the term immediately following the term which is expiring shall
be the same length as the expiring term. For purposes of this Note, "Business
Day" means a day that Maker's corporate offices are open for business with the
general public. Principal and interest shall be payable in arrears in five (5)
consecutive equal annual installments of principal together with all accrued
but unpaid interest on each Payment Date as set forth in the attached Payment
Schedule; provided however, that the last payment hereunder shall be in the
amount necessary to repay in full the unpaid principal amount of this Note and
any accrued but unpaid interest. In computing interest on this Note, the first
date of the period ending on a Payment Date shall be included and the Payment
Date shall be excluded. All payments under this Note shall be in lawful money
of the United States of America. All payments shall be made on the Payment
Date by wire transfer of federal funds not later than 11:00 a.m. in Los
Angeles, California on such date or other immediately available funds to such
account as Holder shall specify in writing to Maker, indicating the principal
and interest component of each payment or payments. Any amounts under this
Note not paid when due shall bear additional interest at the applicable rate
of interest then in effect, plus one percent (1%) per annum (the "Late Payment
Rate") for the period for which the same shall be overdue. Payments of
principal and interest at the Late Payment Rate are due and payable on demand.
Maker shall have the right to prepay this Note in full or in part provided
that (i) for each such prepayment Maker will pay the accrued interest on the
prepaid principal to the date of such prepayment, and (ii) all prepayments
will be applied to principal in the order of their Payment Dates.
In the event that any law limiting the amount of interest is interpreted so
that any charge provided for in this Note violates such law, and Maker is
entitled to the benefit of such law, such charge is reduced to the extent
necessary to eliminate the violation. The amounts, if any, previously paid to
Holder in excess of the amounts payable to Holder pursuant to such charges as
reduced shall be applied by Holder to reduce the principal of the indebtedness
evidenced by this Note. For the purpose of determining whether any law
limiting the amount of interest has been violated, all indebtedness evidenced
by this Note which constitutes interest, as well as all other charges levied
in connection with such indebtedness which constitute interest, shall be
deemed to be allocated and spread over the stated term of this Note. Unless
otherwise required by applicable law, such allocation and spreading shall be
effected in such a manner that the rate of interest computed thereby is
uniform throughout the stated term of this Note.
Until payment in full, Maker will not, nor will it permit any subsidiary,
unless it has obtained Holder's prior written consent, to: (i) create, incur,
assume or permit to exist any new debt (other than refinancing of existing
debt) in excess of $10,000,000 not included in Maker's financial statements
dated as of December 29, 1996 other than trade debt or purchase money debt
incurred in connection with the acquisition of capital assets including
capitalized lease obligations, (ii) sell, lease, or pledge as collateral for
any other obligation, assets equal to an aggregate amount of $10,000,000 other
than merchandise inventory, closed stores and other excess or
A-15
<PAGE>
unused properties in the ordinary course of business, or (iii) permit
involuntary liens in excess of an aggregate amount of $5,000,000 to arise with
respect to any property or assets including but not limited to those arising
from the levy of a writ of attachment or execution, or the levy of any state
or federal tax lien which lien will not be removed within ninety (90) days, or
is not otherwise being protested by Maker.
This Note is solely a corporate obligation and no recourse shall be had in
respect of any obligation referred to herein, against any stockholder,
incorporator, director or officer, as such, past, present, and future, of the
parties hereto by the enforcement of any assessment or by any legal or
equitable proceeding, by virtue of statute or otherwise. The obligations of
Maker hereunder rank, and at all times will rank, pari passu with all other
unsecured indebtedness of the Maker.
Any notice required or permitted under this Note or by law in respect of
this Note, shall be in writing and shall be deemed effective, when personally
delivered or if sent by registered or certified mail, three Business Days
after the date of delivery to the post office, or if sent by overnight
delivery when received, or if sent by telecopier, upon receipt, in each case
addressed to the person required to receive same at the following addresses:
If to Holder: Casino USA, Inc.
524 Chapala Street
Santa Barbara, CA 93101
Attn: Robert J. Emmons
Phone: (805) 564-6700
Fax: (805) 564-6729
If to Maker: Smart & Final Inc.
4700 S. Boyle Avenue
Los Angeles, CA 90058
Attn: Donald G. Alvarado, Esq.
Phone: (213) 589-9726
Fax: (213) 589-0415
The provisions of this Note shall be binding upon and shall inure to the
benefit of Holder and Maker and their respective successors and assigns,
except that Maker may not assign its obligations hereunder without the express
written consent of Holder. Holder at any time may sell, assign, transfer,
pledge as collateral or otherwise dispose of this Note, or of any of its
right, title and interest therein.
The rights and obligations of Maker and Holder under this Note shall be
interpreted according to the laws of the State of California. No supplement,
modification, amendment or discharge of any term, provision, or condition of
this Note shall be binding or enforceable unless executed in writing by
Holder. Time is of the essence for each and every obligation under this Note.
MAKER
SMART & FINAL INC.
a Delaware corporation
By: _____________________
Title: __________________
A-16
<PAGE>
PAYMENT SCHEDULE
<TABLE>
<CAPTION>
PRINCIPAL
PAYMENT DATE AMOUNT INTEREST
------------ ---------- ----------
<S> <C> <C>
, 1998........................................ $50,000.00 As accrued
, 1999........................................ $50,000.00 As accrued
, 2000........................................ $50,000.00 As accrued
, 2001........................................ $50,000.00 As accrued
, 2002........................................ $50,000.00 As accrued
</TABLE>
A-17
<PAGE>
ANNEX B
Corporate and
Institutional
Client Group
101 California
Street Suite 1200
San Francisco,
California 94111
415 676-3200
FAX 415 676-3299
MERRILL LYNCH
February 19, 1997
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, have entered into an agreement for conveyance of real property
dated October 31, 1996, as amended (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 $5.7 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 $5.7 million, the Sellers
shall pay the sum of (x) 100% of the lesser of such excess and $500,000 and
(y) one-third of the amount, if any, by which any such excess exceeds $500,000
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.
B-1
<PAGE>
MERRILL LYNCH
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, June 16, 1996
and October 6, 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, June 16, 1996
and October 6, 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;
(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) Considered the pro forma effect of the Acquisition Transaction on the
Company's capitalization ratios and its cash flow and earnings per share;
(9) Reviewed the Agreement; and
B-2
<PAGE>
MERRILL LYNCH
(10) 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
By /s/ Mark Shafir
--------------------------
B-3
<PAGE>
- -------------------------------------------------------------------------------
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 March 19, 1997, 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)
- -------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
<PAGE>
- -------------------------------------------------------------------------------
[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, as amended, 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 __________________, 1997
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.
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
