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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
COMMISSION FILE NUMBER 001-10811
SMART & FINAL INC.
(Exact name of registrant specified in its charter)
Delaware 95-4079584
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4700 South Boyle Avenue
Los Angeles, California 90058
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (213) 589-1054
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of MARCH 17, 1997, THE AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY
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NONAFFILIATES OF THE REGISTRANT BASED ON THE CLOSING PRICE OF THE COMMON STOCK
ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE WAS $190,717,669.
As of MARCH 17, 1997, THE REGISTRANT HAD OUTSTANDING 22,027,573 SHARES OF COMMON
--------------
STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of this Company's Definitive Proxy Statement dated February 19, 1997
for its Special Meeting of Shareholders to be held March 19, 1997, as well as
portions of the Company's Definitive Proxy Statement for its Annual Meeting of
Shareholders to be held May 9, 1997 are incorporated by reference into Part III
of this Form 10-K.
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SMART & FINAL INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 29, 1996
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CAPTION PAGE
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PART I
Item 1 Business........................................................ 3
Item 2 Properties...................................................... 11
Item 3 Legal Proceedings............................................... 13
Item 4 Submission of Matters to a Vote of Security Holders............. 13
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters..................................... 13
Item 6 Selected Financial Data......................................... 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 15
Item 8 Financial Statements and Supplementary Data..................... 18
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................ 40
PART III
Item 10 Directors and Executive Officers of the Registrant.............. 40
Item 11 Executive Compensation.......................................... 40
Item 12 Security Ownership of Certain Beneficial Owners and Management.. 40
Item 13 Certain Relationships and Related Transactions.................. 40
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................ 40
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PART I
ITEM 1. BUSINESS
GENERAL
Smart & Final Inc. (the "Company") operated 168 nonmembership warehouse
stores in California, Nevada, Arizona and Florida at fiscal year end 1996
through its principal subsidiary, Smart & Final Stores Corporation, a California
Corporation ("Smart & Final"). Smart & Final operates five stores in Mexico
through a joint venture with the operators of the Calimax store chain. The joint
venture operates as a Mexican domestic corporation under the name Smart & Final
del Noroeste, S.A. de C.V. (" Noroeste ") and is reported on the equity basis of
accounting.
Smart & Final stores offer a consistent selection of approximately
11,000 food items, supplies and equipment, primarily in institutional sizes and
quantities, targeted at small foodservice businesses and other customer groups.
The Company believes that Smart & Final is strategically positioned in a
substantial niche market between membership warehouse clubs and traditional
foodservice operators.
The Company also owns American Foodservice Distributors, a California
Corporation, which is a holding company for traditional, broadline foodservice
distributors. American Foodservice Distributors owns 100% of Port Stockton Food
Distributors, Inc. (" Port Stockton"), a California Corporation, an
institutional full-line food distributor in Northern California, and 90% of the
Henry Lee Company, a Florida Corporation (" Henry Lee "), the largest
independent full-line food distributor in Florida.
The Company is a Delaware corporation and was previously incorporated
in California under the name SFI Corporation. The Company is headquartered in
Los Angeles, and at fiscal year end 1996, had 4,577 employees. In fiscal 1996,
the Company had sales of $1,303 million.
SMART & FINAL STORES
Smart & Final specializes in providing merchandise and customer
services to meet the foodservice and related needs of restaurants, caterers,
clubs, organizations and small and mid-sized businesses. The stores also attract
value-oriented retail customers who, while not directly a target group, prefer
to purchase items in large sizes or quantities. Smart & Final stores carry a
broad selection of items in a hybrid, retail/wholesale format. With an average
size of 14,859 square feet, the stores' smaller footprint enables the Company to
locate a greater number of stores in urban and suburban neighborhoods than
warehouse club operators, which provides a faster, more convenient round trip
shopping experience for the customer.
Smart & Final has experienced significant sales growth despite the
expansion of the warehouse club industry in the Company's geographic markets.
The Company attributes its growth to its commitment to be the primary supplier
for the needs of small and mid-sized independent foodservice customers. Smart &
Final positions itself competitively by offering convenience, aggressive
pricing, a wide assortment including high quality corporate brand items, and a
high level of customer service. The Company's specific focus on foodservice
customers enables Smart & Final to react quickly to changing market requirements
and customer needs. Management believes these strategies, together with its
unique retail/wholesale concept, provides greater overall value than the
competition.
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Over the past several years, the Company has focused on opening stores
in existing markets and expanding in Northern California. The Company plans to
continue expansion in its mature market areas through new store openings,
relocations and remodels. Since the West Coast markets are becoming well served,
Smart & Final stores has explored new geographic areas. The Company has
identified other non-contiguous markets in which it believes the Smart & Final
concept will succeed.
One of the markets which Smart & Final has identified is Florida. In
1996, the Company opened ten new stores. The Company believes Florida, with its
potential to become a vibrant economy, its significant Hispanic presence, and
its concentration of small independent restaurants and businesses, will
ultimately support dozens of Smart & Final stores.
The Company has also acquired two traditional foodservice distribution
companies in recent years (See American Foodservice Distributors). Product for
stores and foodservice customers are being handled from the same distribution
facility. Ownership of foodservice distributors facilitates store expansion in
new markets because it reduces product costs and distribution expenses inherent
in new markets.
Smart & Final plans to open 50-60 stores during the next three years;
15 are planned to open in 1997. In addition, the Company believes it can
continue to achieve balanced growth in sales and profits by scheduling
relocations and remodels in new and mature markets, maximizing distribution
economies, and keeping new store carrying costs in new markets at a manageable
level.
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The following table shows certain information regarding Smart & Final
stores for the years indicated:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
USA
Beginning store count 155 144 135 124 116
Stores opened:
New stores 13 11 10 10 9
Relocations 6 4 3 5 5
Stores relocated or closed (6) (4) (4) (4) (6)
------ ------ ------ ------ ------
Ending store count 168 155 144 135 124
====== ====== ====== ====== ======
MEXICO
Beginning store count 3 3 1 -- --
New stores opened 2 - 2 1 --
------ ------ ------ ------ ------
Ending store count 5 3 3 1 --
====== ====== ====== ====== ======
Total Ending Store Count 173 158 147 136 124
====== ====== ====== ====== ======
STATISTICAL DATA:
Average selling square feet per
store at end of period:
USA 14,859 14,431 14,239 13,973 13,704
MEXICO 16,946 16,473 16,473 16,600 -
New store data:
New markets stores (USA) 10 5 6 6 4
Average selling square feet
USA 16,788 14,698 15,820 15,380 15,750
MEXICO 17,656 16,473 16,473 16,600 -
</TABLE>
Mexico operations are not consolidated and are reported on the equity
basis. There are two additional stores expected to open in 1997.
Developing new stores, from initiation of construction to store opening,
requires approximately nine months for new locations and four months for
retrofitting of existing buildings. The Company has leased all of its stores
from affiliates through the end of 1996. Equipment and inventory for each new
store averages $450,000, and $400,000 respectively. On average, each retrofitted
store costs approximately $350,000 in leasehold improvements and requires up to
$400,000 of equipment.
To date, new stores opened in existing markets generally have achieved
break-even (on a pre-tax profit basis after allocation of all corporate
expenses) within six to 18 months. Stores opened in new markets, which mature
more slowly, generally have achieved break-even within three years. However,
there can be no assurance that the Company will be able to open new stores in a
timely manner; to hire, train and integrate employees; to continue locating and
obtaining favorable store sites; and to adapt distribution, management
information and other operating systems sufficiently to grow in a successful and
profitable manner.
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See The "Properties" section of this Form 10-K for a description of the
Casino Transaction.
MERCHANDISING
Customers. Smart & Final focuses on identifying, addressing and satisfying
the needs of small and mid-sized foodservice customers. Target customers include
independent restaurants, sandwich shops, bakeries, caterers and catering trucks,
mini-marts, and bars. Typical store customers are smaller in size, do not
require delivery and have consistent needs for institutional size food and
related supplies. Stores also attract value-oriented retail customers who, while
not directly a target group, prefer to purchase items in large sizes or
quantities. Customers with occasional foodservice needs such as clubs and
organizations find the Smart & Final Stores concept satisfactorily meet these
needs. In addition, large chain restaurants and other major foodservice
operators use Smart & Final as a fill-in or a backup supplier.
Product Assortment and Quality. Each Smart & Final store carries
approximately 11,000 assorted food and related items in bulk sizes and
quantities. The Company offers customers a wide product selection, including
frozen and refrigerated foods (a category that includes delicatessen products
and fresh produce), paper products, janitorial supplies, restaurant equipment,
tobacco, candy, snacks, beverages, and party supplies. Products regularly
undergo a formalized profitability review that identifies items that should be
added or removed. For example, Smart & Final recently expanded its produce and
party goods sections to add limited assortment of office supplies that meet
target customers' needs. The Company is also testing new product categories,
such as fresh meats, in certain stores. The Company believes the size,
consistency, and depth of its product assortment satisfies customers' needs.
Product quality is paramount in the Smart & Final product assortment. The
Company's quality assurance department insures that its high standards are
maintained for all corporate brands and products.
Corporate Brand Positioning. Smart & Final utilizes corporate brands within
most merchandise categories; providing an alternative to national brands and
other corporate and private label brands. Corporate brands are positioned to
create brand loyalty and establish an ongoing customer franchise. Furthermore,
management believes foodservice customers make purchases based on a
quality/value/price perception. Company corporate brands target leading
competitive brands with attention to quality and value. In addition, the profit
contribution from corporate brands is generally higher than the national brand
items.
During 1996, the Company substantially completed a change in corporate brand
names and packaging. New Corporate brands consist of a core program and an
ethnic specialty program. The new core program consists of three quality
choices. The SmartBuy(R) Brand is a standard grade, quality controlled label
positioned as "the price leader". The SmartBuy(R) Brand will replace the Table
Queen Brand. Smart & Final(R), the Company's national brand equivalent, is a
consistent, quality-driven, competitively priced brand and replaces the Iris
Brand. Smart & Final Premium Brand(R) represents the highest quality within the
product line. There are approximately 1,150 Stock Keeping Units (SKU's)
represented by these brands.
The Montecito(R) and La Romanella(TM) corporate brands are designed to reach
niche ethnic markets while enhancing our core products. Our authentic Hispanic
brand, Montecito, represents over 90 SKUs. The La Romanella brand, a high
quality line of Italian products, consists of approximately 165 SKUs.
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Management believes that variety, quality, and price points of the Company's
new corporate brands are an important element in Smart & Final's market
positioning. The new Smart & Final Brands more closely link the stores private
label products.
Pricing. Smart & Final attempts to identify and establish competitive pricing
on key items in local markets including competitive pricing against warehouse
clubs. The Company's pricing strategy is carefully coordinated with its overall
assortment strategy and with other marketing programs. Incentives encourage
customers to purchase the largest sizes and case quantities, thereby maximizing
operating efficiencies within the distribution system. In addition, Smart &
Final corporate brands items offer distinct price and value advantages over
comparable national brands.
Customer Service. Smart & Final focuses on customer service and convenience
to encourage more frequent store visits and greater average purchase size. For
example, stores offer convenient locations, operating hours and front door
parking lots, along with logical layouts and highly readable signage. Smart &
Final also maintains a high in-stock service rate, averaging 98%; high product
quality; clean stores; friendly, responsible and knowledgeable personnel; and
specialized point-of-sale support.
Smart & Final utilizes customer service centers and representatives, provides
informative customer materials, and emphasizes associate training that builds
customer loyalty. The Company also has an associate training program designed to
increase store associates' retailing expertise and product knowledge. Smart
University(R), the Company's in-house training center, provides all associates
with the opportunity to build their knowledge and acquire additional skills. The
training center also trains third parties on a fee for service basis.
In addition, stores take customers' special orders for a wide variety of
products not carried regularly in it's assortment. The Company also provides
customers with telephone and fax order service, enhancing its in-store
capability.
Marketing. Smart & Final utilizes a niche marketing strategy that targets
small and mid-sized foodservice customers, reflects differences in rural and
urban markets, and addresses the differing needs of individual stores. Marketing
efforts generally consist of monthly circular distribution via newspaper
insertion or direct mail, selective use of mass media, promotional direct mail,
and cooperative newspaper advertisements. Cooperative advertisements are placed
in conjunction with suppliers, reducing Smart & Final's cost for those vehicles.
Smart & Final bases its marketing on comprehensive research, combining
periodic attitude awareness and usage studies with focused research to address
specific objectives. All studies are custom designed and conducted by leading
independent research firms specializing in the food industry.
Store Design and Size. Smart & Final stores are designed as convenient
warehouse stores dedicated to easing the shopping experience, improving
operational productivity, and stimulating impulse sales through sophisticated
mass merchandising. Management enhances selling space by storing inventory
overhead.
Smart & Final stores are organized into dry grocery, beverages, frozen foods,
janitorial, candy, snacks, party supplies and other departments. In addition,
prototype designs are improved continually to enhance traffic flow, space
utilization, departmentalization, adjacencies of merchandise and overall visual
appeal without diluting the convenient warehouse image. Each Smart & Final store
normally has four to six checkout counters and is
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staffed by approximately 15 employees. For the last five years, new stores have
ranged between 11,000 and 25,000 square feet.
Website. In May 1996, the Company launched a site on the World Wide Web at
http://www.smartnfinal.com. The Company's site features a variety of information
for various audiences, presented in an engaging format. The site provides
valuable ideas and information to our core customers, primarily independent
restaurants, caterers, clubs, and small businesses. Customers can locate their
nearest stores or take a virtual tour of a typical store. The store tour
includes interior photos, and highlights the wide and consistent foodservice
product assortment, special customer services and payment options. Other
features of Smart & Final's site include a complete history of the 125 year-old
chain, financial information and job opportunities. Smart & Final's site is
updated on a regular basis. The site also links to other web sites that may be
of interest to the company's core customers.
OPERATIONS
Procurement. The Company believes Smart & Final's purchasing policies and
procedures result in costs that are comparable to other companies purchasing
similar quantities and types of merchandise. Service level goals and investment
buying strategies are integral to the purchasing program. In addition, Smart &
Final continually utilizes the efficiencies provided by cooperative buying
organizations to facilitate low cost purchasing. Smart & Final and Henry Lee are
members of All Kitchens, while Port Stockton is a member of Nugget (see
"American Food Service Distributors"). These buying alliances supplement the
normal buying activities of each distribution center. Smart & Final also strives
to maintain close working relationships with its major suppliers to reduce its
product or distribution costs.
Smart & Final buys its products from approximately 1,800 different suppliers.
The Company has not had any difficulty in the past, and does not expect any
difficulties in the future, in obtaining products from suppliers.
Distribution. Smart & Final supports the largest percentage of its Western
store network from the Los Angeles area. In Los Angeles Smart & Final operates
three distribution centers: a 446,000 square foot dry goods warehouse adjacent
to the corporate office complex, a 149,000 square foot satellite warehouse, and
a 95,000 square foot perishable warehouse. When necessary, Smart & Final
contracts for outside storage space for investment buy inventory.
In Northern California, under the Port Stockton name, the Company operates a
300,000 square foot distribution center which serves 4,400 foodservice customers
and 40 Northern California stores.
In Florida, the Henry Lee Company serves its foodservice customers and the
Smart & Final stores from a 230,000 square foot distribution center. Henry Lee
also operates an additional 30,000 square foot off-site facility.
Smart & Final utilizes computerized inventory management systems, radio
frequency technology, and integrated labor management systems in its warehouses.
Smart & Final operates a fleet of 190 tractors and 298 trailers that are
either owned or leased. Smart & Final increases efficiencies of its fleet by
filling outbound trucks to capacity and utilizing a backhaul program for
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inbound deliveries. Approximately 40% of Smart & Final's warehouse merchandise
is delivered to the warehouse by its own trucks.
Management Information Systems. Smart & Final Inc. is committed to state-of-
the-art information technology. The Company has invested over $10 million in new
systems during the past two years, and expects to continue to make substantial
investments over the near term.
The Company's purchasing system enables buyers to manage turnover and
investment buy inventory effectively, achieve targeted gross margin objectives,
track rebates and allowances by vendor, and maintain target service levels. The
merchandising system enables each store assortment to be customized to the needs
and characteristics of its individual market area, maximize gross margin return
on investment by item and product category, and increase store inventory
turnover. The distribution system tracks all warehouse inventory, manages store
order selection, and measures labor productivity in the Los Angeles warehouse
and satellite warehouse facility.
Systems are being implemented throughout the Company's stores, warehouses and
corporate offices, which are expected to enable the Company to operate more
efficiently and to utilize sales data for valuable customer information.
AMERICAN FOODSERVICE DISTRIBUTORS
American Foodservice Distributors is a holding company for institutional
full-line foodservice distributors and owns 100% of Port Stockton in Northern
California, and 90% of Henry Lee, in Miami, Florida. Port Stockton was acquired
in 1990, and Henry Lee was aquired in November 1994. Port Stockton's 1996 sales
were $112 million. Henry Lee's sales were $198 million in 1996. In addition to a
broadline assortment, Port Stockton and Henry Lee provide their customers
primary services including product delivery and extension of credit, and
ancillary services such as restaurant equipment and supplies. The full-line
assortment for these distributors features dry grocery, frozen foods, deli
products, produce, tobacco, health and beauty aids, paper and packaging,
janitorial supplies, and restaurant equipment and supplies.
Port Stockton is headquartered in Stockton, California and serves Northern
California markets from the Bay Area on the west to the Sierra on the east,
Eureka on the North and San Jose on the south. Port Stockton is a member of the
Nugget Distributor buying group which has annual member sales of over $4
billion. Port Stockton is the fifth largest member of the Nugget group. About
30% of Port Stockton sales are corporate brands.
Since April 1995, Port Stockton has supported its customers from a 300,000
square foot distribution facility located in Stockton. This distribution
facility services 4,400 foodservice customers such as restaurants, coffee shops
and institutions along with 40 Smart & Final stores. Port Stockton was founded
in 1962 and employs 582 associates.
Henry Lee is headquartered in Miami, Florida, and serves primarily the state
of Florida and certain markets in the Caribbean, South and Central America.
Henry Lee serves a significant hotel clientele, institutions, restaurants and
coffee shops. Henry Lee is a member of the All Kitchens buying group, which has
annual member sales of $5.2 billion. Henry Lee serves its 3,700 foodservice
operator customers from a 230,000 square
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foot distribution facility located in Miami. Henry Lee also operates an
additional 30,000 square foot off-site facility in Miami. Henry Lee's
distribution center provides the infrastructure to service initial Smart & Final
stores in Florida. Founded in 1946, Henry Lee has 503 associates. The 10% of
Henry Lee not owned by American Foodservice Distributors is owned by one of the
founders of Henry Lee and his family.
COMPETITION
The Company participates in the highly competitive $129 billion annual sales
domestic food distribution industry. Its competitors include membership and
nonmembership warehouse stores, wholesale distributors, supermarkets, and other
retailers. Many of the Company's competitors have greater financial,
distribution and marketing resources, as well as greater name recognition than
the company.
The membership warehouse club segment of the industry has been characterized
by intense competition and rapid store growth over the past decade. The
warehouse club concept has been one of the fastest growing retailing concepts in
the United States, particularly in the West. The Company's two major warehouse
club competitors are Price/Costco and Sam's Club.
Historically, the opening of a warehouse club in a general market area has
caused a temporary sales decrease at nearby Smart & Final stores. Sales tend to
return to prior levels within two years. However, the Company believe it
competes effectively with membership clubs by offering a broader and more
consistent foodservice assortment, more convenient shopping facilities and
locations, a high level of customer service and competitive pricing.
Competition from supermarket chains continues to increase as such chains
emphasize price and service, while widening their assortment of goods to more
effectively compete with warehouse clubs.
The traditional foodservice distribution market, in which American
Foodservice Distributors operates and in which Smart & Final competes to a
lesser extent, is very competitive and highly fragmented. Major competition
consists of national operators such as Sysco Corp., Alliant, U.S. Foodservice
and many smaller, regional distributors. National distributors, which tend to
focus on large chain operators, have instituted minimum order size increases in
recent years, creating opportunities for regional distributors that require
lower or no minimum order. Port Stockton and Henry Lee can handle smaller
orders.
HUMAN RESOURCES
The Company strongly emphasizes the career development and retention of its
employees. Despite its strong growth in recent years, the Company strives to
maintain the culture of a highly focused, innovative organization that maximizes
employee productivity and contributions. The Company actively recruits and
offers training opportunities to employees to develop qualified candidates for
managerial positions as vacancies occur.
Employee training and development programs encompass all levels of store
operations, from entry through management, and emphasize merchandising
techniques and customer service goals to ensure top employee quality and
productivity. Company mechanisms, such as incentive pay programs, reward
superior performance and motivate associates. In addition, approximately 9% of
each Smart & Final store's pre-tax profit, after allocation of corporate costs,
is paid out as monthly bonuses to the store's full-time employees.
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At fiscal year end, the Company and its subsidiaries employed 4,577 persons,
including 3,492 at Smart & Final, 582 at Port Stockton and 503 at Henry Lee.
No employee groups are currently represented by third party unions. The
Company considers relations with its employees to be good.
ITEM 2. PROPERTIES
Effective December 29, 1996 (as approved by the shareholders of the Company
at a Special Meeting of Shareholders held on March 19, 1997), the Company
acquired 91 properties and leasehold interests with a net book value of
$71,440,000 from Casino USA and Casino Realty which were being operated as Smart
& Final stores, offices and warehouse facilities for a purchase price of
$75,984,000, consisting of 1,625,000 shares of the Company's common stock
(valued at $38 million) and a total of $38,000,000 in two five-year unsecured
promissory notes (the "Casino Transaction").
As part of the Casino Transaction, the Company is required to assist Casino
USA and Casino Realty with the sale of certain properties, on or before December
31, 1998, for an aggregate gross sale price ("sales price") of at least
$5,700,000. In the event that the properties are sold for a sales price of less
than $5,700,000, the Company must pay the difference to Casino USA and Casino
Realty. In the event that the sales price of such properties exceeds $5,700,000,
Casino USA and Casino Realty would be required to pay the Company all of the
excess sales price up to $500,000 and one-third of any remaining excess sales
price.
Of the 91 properties acquired, 86 were stores, and the remaining five were
the Vernon, California distribution facility and several non-store locations.
As of fiscal year end 1996, the Company leases 59 properties directly from
third party lessors, with an average remaining lease term of 14 years. In
addition, the Company has 10 stores on real property that are ground leased from
third party lessors and 33 stores in which Casino USA or Casino Realty has a
leasehold interest and which Casino USA or Casino Realty sublease to the
Company. The remaining lease term on the 33 stores subleased from Casino USA or
Casino Realty averages approximately 10.1 years with various renewal options at
then prevailing market rates.
During fiscal year 1996, and prior to the Casino Transaction, most of the
Company's Smart & Final store facilities were leased under operating leases from
either Casino USA or Casino Realty. Fifty-one properties were leased directly
from third party lessors. Of the 117 stores leased from Casino USA or Casino
Realty, 51 were stores in which Casino USA or Casino Realty held a leasehold
interest and which Casino USA or Casino Realty subleased to the Company on
substantially the terms and conditions as contained in Casino USA's or Casino
Realty's leases from third party lessors. Nine of the 51 stores were on real
property that was ground leased by Casino USA or Casino Realty and subleased to
the Company; lease terms were set at rates and terms considered to be equivalent
to those available from unrelated third party lessors. Generally, annual lease
rates on stores owned by Casino USA or Casino Realty were set at 9-10% of the
completed cost of the store at the time it was built or acquired. In addition,
the Company also leased 595,000 square feet of warehouse space and 60,795 square
feet of office space in Los Angeles, California from Casino Realty.
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Since April 1995, Port Stockton has supported its customers from a 300,000
square foot distribution facility located in Stockton.
Henry Lee occupies 230,000 square feet of warehouse space in Miami,
Florida, including 22,000 square feet of office space. Henry Lee's warehouse is
leased from affiliates of the minority shareholder of Henry Lee. The remaining
term of this lease is 9 years. Henry Lee also occupies 7,600 square feet of
space used as a maintenance facility for its fleet. In addition, Henry Lee
operates a 30,000 square feet off-site facility. This space is leased from the
President of Henry Lee. The remaining term of this lease is 9 years. The leases
contain terms and rates considered to be equivalent to those available from
unrelated third party lessors.
The Company plans to continue to lease properties, but also may elect to
own some of its new stores on an interim or permanent basis. The Company has a
$30 million master lease facility which provided for the lease of the
distribution center in Stockton and for store expansion in California and
Florida. As of December 29, 1996, $25.7 million had been utilized under this
facility. The Company is negotiating an additional $30.0 million lease facility
which is expected to provide for certain 1997-8 property additions.
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ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. While the outcome of lawsuits and other proceedings
against the Company cannot be predicted with certainty in the opinion of
management, none of the litigation which the Company is currently involved in,
individually or in the aggregate, is expected to result in a material effect on
the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 19, 1997, the Company filed its Definitive Proxy Statement in
connection with a Special Meeting of shareholders which was held on March 19,
1997 ("Special Meeting"). The purpose of the Special Meeting was to consider and
vote upon the Casino Transaction. The shareholders of the Company approved the
Casino Transaction as follows:
Number of votes cast for: 18,315,315
Number of votes cast against: 41,046
Number of abstentions: 29,117
Number of broker non-votes: 1,967,612
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange ("NYSE")
under the symbol SMF. As of March 17, 1997 there were 245 registered holders of
the common stock and the closing price per share of the common stock as listed
on the NYSE composite tape was $21.875. The following table sets forth the high
and low sales prices of the common stock as reported on the NYSE composite tape,
together with the amount of cash dividends declared per share for each quarter
of the Company's two most recent fiscal years.
<TABLE>
<CAPTION>
Cash
Dividend
High Low Declared
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<S> <C> <C> <C>
First Quarter of 1995 15-5/8 13-7/8 $0.05
Second Quarter of 1995 17-1/8 14-7/8 $0.05
Third Quarter of 1995 19-3/8 16-1/4 $0.05
Fourth Quarter of 1995 21-1/4 18-3/8 $0.05
First Quarter of 1996 22-5/8 19-3/4 $0.05
Second Quarter of 1996 24-3/4 22-1/4 $0.05
Third Quarter of 1996 26 20-7/8 $0.05
Fourth Quarter of 1996 24-1/8 21-3/8 $0.05
</TABLE>
The declaration and payment of dividends is subject to the discretion of the
Company's Board of Directors, and there can be no assurance that dividends will
continue to be paid in the future. In determining whether to pay dividends (as
well as the amount and timing thereof), the Board of Directors considers a
number of factors, including the Company's results of operations, financial
condition and capital and surplus requirements.
13
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
FISCAL YEAR (A) (B)
---------------------------------------------------------------------------
1996 1995 1994 (D) 1993 1992
---------- ------------ ----------- ----------- -----------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Sales.................................. $1,302,561 $1,173,325 $952,477 $837,178 $765,071
Gross margin........................... 190,395 171,732 144,396 125,185 114,712
Income from operations................. 42,588 32,465 28,511 24,188 23,274
Interest income (expense), net......... (3,373) (2,028) 521 843 1,100
Income before provision for
income taxes, minority
share of net income and
cumulative effect of
accounting changes.................. 39,215 30,437 29,032 25,031 24,374
Net income............................. 24,334 18,296 17,470 1,962 (C) 14,434
Earnings per common share.............. 1.15 0.88 0.85 0.10 (C) 0.71
Dividend per share..................... $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.12
Weighted average common
shares outstanding.................. 21,206 20,751 20,520 20,494 20,373
FINANCIAL DATA (AT FISCAL YEAR-END):
Cash and cash equivalents.............. $ 16,795 $ 15,415 $ 10,494 $ 31,314 $ 42,035
Working capital........................ 79,245 79,493 62,501 56,006 61,239
Total assets........................... 441,424 314,656 267,813 208,587 184,120
Long-term debt, excluding
current maturities.................. 82,644 43,586 21,124 1,882 2,401
Stockholders' equity................... 195,655 (E) 140,052 125,330 112,108 112,929
OTHER STATISTICAL DATA:
Comparable store sales growth.......... 2.7% 5.0% 5.5% 4.7% 10.4%
Stores at year end (including Mexico).. 173 158 147 136 124
Total retail square footage at year end
(thousands)......................... 2,496 2,237 2,050 1,886 1,699
Sales per selling square foot.......... $ 406 $ 441 $ 428 $ 425 $ 442
Store customer transactions (thousands) 31,132 29,097 26,688 24,075 21,673
Employees at year end.................. 4,577 4,341 3,718 2,903 2,646
</TABLE>
(A) For all years, 52 weeks except fiscal year 1992, which had 53 weeks.
(B) All common share data have been adjusted to reflect the three-for-two stock
split effective February 5, 1993.
(C) Includes the impact of the adoption of SFAS Nos. 106 and 112, which
resulted in a net of tax, non-cash charge of $12.9 million ($0.63 per
share).
(D) Amounts include results of Henry Lee from the date of its acquisition in
November 1994.
(E) 1,625,000 of common shares were issued on December 29, 1996 to affiliated
companies for $38 million, see "Casino Transaction".
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and the financial statements and related notes thereto included
elsewhere in this Form 10-K. The following table sets forth the consolidated
statements of operations data. (Percentages do not aggregate due to rounding.)
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
(Dollars in millions, except per 1996 1995 1994
share amounts)
==============================================================================================
<S> <C> <C> <C> <C> <C> <C>
Sales $ 1,302.6 100% $ 1,173.3 100.0% $ 952.5 100.0%
- ----------------------------------------------------------------------------------------------
Cost of sales, buying and
occupancy 1,095.0 84.1 984.5 83.9 791.9 83.1
- ----------------------------------------------------------------------------------------------
Lease expense to affiliates 17.2 1.3 17.1 1.5 16.2 1.7
==============================================================================================
Gross margin 190.4 14.6 171.7 14.6 144.4 15.2
- ----------------------------------------------------------------------------------------------
Operating and administrative
expenses 147.8 11.3 135.0 11.5 115.9 12.2
- ----------------------------------------------------------------------------------------------
Warehouse start up costs -- -- 4.3 0.4 -- --
==============================================================================================
Income from operations 42.6 3.3 32.4 2.8 28.5 3.0
- ----------------------------------------------------------------------------------------------
Interest income (expense), net (3.4) (0.3) (2.0) (0.2) 0.5 0.1
==============================================================================================
Income before provision for
income taxes and minority
share of net income 39.2 3.0 30.4 2.6 29.0 3.0
- ----------------------------------------------------------------------------------------------
Provision for income taxes 14.9 1.1 12.0 1.0 11.5 1.2
- ----------------------------------------------------------------------------------------------
Minority share of net income 0.2 -- 0.2 -- 0.1 --
==============================================================================================
Income from consolidated
subsidiaries 24.1 1.9 18.2 1.5 17.4 1.8
- ----------------------------------------------------------------------------------------------
Equity earnings in
unconsolidated subsidiary 0.2 -- 0.1 -- 0.1 --
==============================================================================================
Net income $ 24.3 1.9% $ 18.3 1.6% $ 17.5 1.8%
==============================================================================================
Earnings per common share $ 1.15 $ 0.88 $ 0.85
==============================================================================================
</TABLE>
15
<PAGE>
RESULTS OF OPERATIONS
The Company's net income was $24.3 million ($1.15 per share) in 1996,
$18.3 million ($0.88 per share) in 1995, and $17.5 million ($0.85 per share) in
1994.
SEVERAL FACTORS AFFECTED INCOME OVER THE THREE YEAR PERIOD:
. Henry Lee, acquired in November, 1994, contributed $2.4 million
($.12 per share) and $2.5 million ($.12 per share) to 1996 and 1995
net income respectively, and $0.4 million ($0.02 per share) to 1994
net income.
. Start-up costs of the new Northern California distribution center
reduced 1995 net income by $2.6 million ($0.13 per share).
. The January, 1994 Los Angeles earthquake reduced 1994 net income by
$0.4 million ($0.02 per share)
SALES. Sales were $1,302.6 million in 1996, $1,173.3 million in 1995, and $952.5
million in 1994. The economy remained weak in the Company's major market,
California, in 1994-5 and stabilized in 1996. Despite the weak economy, same
store sales growth was achieved in each of the years, with comparable sales
increasing 2.7% in 1996, 5.0% in 1995, and 5.5% in 1994. Total sales increased
11.0% in 1996, 23.2% in 1995, and 13.8% in 1994 as a result of an aggressive new
store opening program and the acquisition of Henry Lee in late 1994. Fifty-one
new stores, including relocations and five in Mexico, were opened during the
three years, twenty-one in 1996, fifteen in 1995, and fifteen in 1994.
GROSS PROFIT. As a percentage of sales, gross profit was 14.6% in 1996 and 1995,
15.2% in 1994. The reduction in gross profit in 1995 was caused by the inclusion
of Henry Lee, acquired in November, 1994, which operates at much lower gross
margins and lower operating expenses than Smart & Final Stores. Distribution
cost improvements achieved by the Company during the three year period have not
had a significant effect on gross margin because savings have been passed on to
customers in order to remain highly competitive.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
were 11.3% of sales in 1996, compared to 11.5% in 1995, and 12.2% in 1994. The
reduction in 1995 expenses was due to the inclusion of Henry Lee which operates
at lower operating expenses than Smart & Final Stores.
INTEREST INCOME AND EXPENSE, NET. Interest income and expense, net declined from
income of $0.5 million in 1994, to an expense of $2.0 million in 1995 and $3.4
million in 1996 because of interest costs related to available cash used and
debt incurred to fund capital spending required for the operating facilities
expansion program, and in 1994, the acquisition of Henry Lee.
EQUITY EARNINGS IN UNCONSOLIDATED SUBSIDIARY. The Company's 50% interest in the
Mexico joint venture operates five stores in Mexico and produced $0.2 million in
equity in earnings in 1996 and $0.1 million in 1995 and 1994. The devaluation of
the peso in the latter part of 1994 and mid 1995 resulted in a $0.8 million and
$0.1 million charge to stockholders' equity in 1994 and 1995 and a credit of
$0.1 million in 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of liquidity has been cash
flow from operations and retained earnings. In addition, the Company has
availability under committed bank facilities. In 1996 net cash provided by
operating activities was $20.5 million despite a $22.1 million increase in
accounts receivable. The accounts receivable increase reflects the strong 24%
growth in sales at the Company's foodservice distribution units. The Company has
a $50.0 million five year revolving credit line with a group of banks, under
which $45.0 million was outstanding at fiscal year end 1996. The Company also
has a $35.0 million short term bank line of credit under which $17.0 million was
outstanding at fiscal year end 1996.
16
<PAGE>
The Company had cash and cash equivalents of $16.8 million,
stockholder's equity of $195.7 million and long term debt of $82.1 million at
the end of fiscal year 1996. The long term debt consists of the $38 million
notes issued for the Casino Transaction (less the current portion of $7.6
million or $30.4 million), the $45 million outstanding on the revolving credit
line, $8.0 million from the acquisition of Henry Lee Company in 1994 (less
current of $2.5 million or $5.5 million), and other smaller notes from Port
Stockton.
Management believes that these sources of funds are adequate to
provide for its working capital, capital expenditure, acquisition, and debt
service requirements for the foreseeable future. The aggregate amount required
for the expansion program and other capital expenditures in 1997 is expected to
be approximately $30.0 million.
Since 1994, the Company has leased its real property additions from
third parties. The Company utilized a committed $30.0 million operating lease
facility to finance many of its facility additions through 1996. Another $30.0
million facility is under negotiation and is expected to provide for certain
1997-8 property additions.
SEASONALITY
Historically, the Company's sales have followed a seasonal pattern.
Generally, third and fourth quarter sales are greater than those of the first
and second quarter, due to strong demand from foodservice customers in the
summer and winter holiday periods. Third quarter sales are also high because the
third quarter includes four four-week periods, whereas the other quarters
include three four-week periods. Sales distribution by quarter in 1996 was 22%
in the first quarter, 24% in the second, 31% in the third, and 23% in the
fourth.
INFLATION
The Company's primary costs, merchandise and labor are affected by a
number of factors that are beyond the Company's control. These factors include
the price of merchandise, the competitive climate, and the general and regional
economic conditions. As is typical in the food industry, the Company has
generally been able to maintain margins by adjusting its selling prices. But
competitive conditions may, from time to time, render it unable to do so while
maintaining or increasing its market share.
FORWARD-LOOKING STATEMENTS
From time to time Smart & Final may publish forward- looking
statements about anticipated results. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the Company notes that such
forward-looking statements are based upon internal estimates which are subject
to change because they reflect preliminary information and management
assumptions, and that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. The
factors which could cause actual results or outcomes to differ from such
expectation include the extent of the company's success in (i) changing market
conditions (ii) unforeseen costs and expenses (iii) ability to attract new
customers and retain existing customers (iv) gain or losses from sales along
with the uncertainties and other factors, including unusually adverse weather
conditions, described from time to time in the company's SEC filing and reports.
This report includes " forward-looking statements" including, without
limitation, statements as to the Company's liquidity and availability of capital
resources.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
THE FOLLOWING INFORMATION IS INCLUDED IN THIS SECTION:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants 19
Consolidated Balance Sheets 20
Consolidated Statements of Income 21
Consolidated Statements of Stockholders' Equity 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 24
Supplementary Data -- Summary of Quarterly
Results of Operations 38
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Smart & Final Inc.:
We have audited the accompanying consolidated balance sheets of Smart
& Final Inc. (a Delaware corporation and a 56.5 percent owned subsidiary of
Casino USA, Inc.) and subsidiaries as of December 29, 1996 and December 31,
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended December
29, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Smart & Final Inc.
and subsidiaries as of December 29, 1996 and December 31, 1995, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended December 29, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 10, 1997
19
<PAGE>
SMART & FINAL INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL FISCAL
YEAR END YEAR END
1996 1995
-------- --------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 16,795 $ 15,415
Trade notes and accounts receivable, less
allowance for doubtful accounts of
$2,568 in 1996 and $1,867 in 1995..................... 67,695 43,712
Inventories............................................. 125,721 117,129
Prepaid expenses........................................ 4,346 3,637
Deferred tax asset...................................... 6,134 7,385
-------- --------
Total current assets................................ 220,691 187,278
Property, plant and equipment:
Land.................................................... 39,079 1,262
Buildings and improvements.............................. 34,364 3,170
Leasehold improvements and interest..................... 60,943 45,765
Fixtures and equipment.................................. 129,953 111,564
-------- --------
264,339 161,761
Less - Accumulated depreciation and
amortization.......................................... 77,156 60,114
-------- --------
Net property, plant and equipment................... 187,183 101,647
Assets under capital leases, net......................... 671 246
Goodwill................................................. 10,162 8,136
Deferred tax asset....................................... 4,157 3,118
Other assets............................................. 18,560 14,231
-------- --------
Total assets............................ $441,424 $314,656
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long term debt.................... $ 10,356 $ 39
Bank line of credit..................................... 17,000 2,675
Accounts payable........................................ 70,936 68,471
Payable to Parent and affiliates........................ 8,759 1,992
Accrued salaries and wages.............................. 9,940 7,853
Workers' compensation reserve........................... 2,600 2,800
Other accrued liabilities............................... 21,855 23,955
-------- --------
Total current liabilities........................... 141,446 107,785
Long term liabilities:
Notes payable, net of current maturities................ 37,063 8,176
Bank debt............................................... 45,000 35,000
Obligations under capital leases........................ 581 410
Workers' compensation reserve, postretirement
and postemployment benefits.......................... 20,000 21,798
-------- --------
Total long term liabilities......................... 102,644 65,384
Minority interest........................................ 1,679 1,435
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; 21,976,406 shares issued
and outstanding in 1996 and 20,262,727 in 1995)........ 220 203
Additional paid-in capital.............................. 140,371 105,149
Cumulative translation loss............................. (835) (928)
Retained earnings....................................... 55,899 35,628
-------- --------
Total stockholders' equity.......................... 195,655 140,052
-------- --------
Total liabilities and stockholders' equity..... $441,424 $314,656
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
20
<PAGE>
<TABLE>
<CAPTION>
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS )
FISCAL YEAR
---------------------------------------------------------------
1996 1995 1994
----------- ------------ ----------
<S> <C> <C> <C>
Sales.................................. $ 1,302,561 $ 1,173,325 $ 952,477
Cost of sales, buying and occupancy.... 1,094,933 984,486 791,920
Lease expense to affiliates............ 17,233 17,107 16,161
----------- ----------- -----------
Gross margin........................... 190,395 171,732 144,396
Operating and administrative expenses.. 147,807 135,017 115,885
Warehouse start up costs............... - 4,250 -
----------- ----------- -----------
Income from operations............. 42,588 32,465 28,511
----------- ----------- -----------
Interest income and expense:
Interest income.................... 501 472 891
Interest expense................... (3,874) (2,500) (370)
----------- ----------- -----------
(3,373) (2,028) 521
Income before provision for income
taxes and minority share of net income 39,215 30,437 29,032
Provision for income taxes............. 14,858 12,043 11,516
Minority share of net income........... 244 248 146
----------- ----------- -----------
Income from consolidated subsidiaries 24,113 18,146 17,370
Equity earnings in unconsolidated subsidiary 221 150 100
----------- ----------- -----------
Net income.......................... $ 24,334 $ 18,296 $ 17,470
=========== =========== ===========
Earnings per common share.............. $ 1.15 $ 0.88 $ 0.85
=========== =========== ===========
Weighted average common shares and
common share equivalents.............. 21,206,126 20,750,818 20,520,022
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
<TABLE>
<CAPTION>
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
FOR THE FISCAL YEARS ENDED 1996, 1995 AND 1994
COMMON STOCK
------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS)/GAIN EQUITY
------------------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, fiscal year-end 1993........ 20,168,727 202 103,957 7,949 - 112,108
Issuance of common stock............. 47,000 - 595 - - 595
Dividend ($0.20 per share)........... - - - (4,039) - (4,039)
Translation loss..................... - - - - (804) (804)
Net income........................... - - - 17,470 - 17,470
---------- ------ ---------- ----------- ---------- ---------
Balance, fiscal year-end 1994........ 20,215,727 202 104,552 21,380 (804) 125,330
Issuance of common stock............. 47,000 1 597 - - 598
Dividend ($0.20 per share)........... - - - (4,048) - (4,048)
Translation loss..................... - - - - (124) (124)
Net income........................... - - - 18,296 - 18,296
---------- ------ ---------- ----------- ---------- ---------
Balance, fiscal year-end 1995........ 20,262,727 203 105,149 35,628 (928) 140,052
Issuance of common stock............. 1,713,679 17 34,564 - - 34,581
Tax benefit associated with
stock options exercised............. - - 658 - - 658
Dividend ($0.20 per share)........... - - - (4,063) - (4,063)
Translation gain..................... - - - - 93 93
Net income........................... - - - 24,334 - 24,334
---------- ------ ---------- ----------- ---------- ---------
Balance, fiscal year-end 1996........ 21,976,406 $ 220 $ 140,371 $ 55,899 $ (835) $ 195,655
========== ====== ========== =========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
<TABLE>
<CAPTION>
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FISCAL YEAR
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income.................................................... $ 24,334 $ 18,296 $ 17,470
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on disposal of fixed assets.......................... (187) (122) (98)
Depreciation and amortization............................. 19,882 16,388 12,760
Deferred tax provision (benefit).......................... 1,320 (1,090) (956)
Minority share of net income.............................. 244 248 146
Equity earnings in unconsolidated subsidiary.............. (221) (150) (100)
Decrease (increase) in:
Trade notes and accounts receivable....................... (22,132) (5,465) (4,890)
Inventories............................................... (7,426) (14,586) (17,013)
Prepaid expenses and other................................ (709) (11) (296)
Increase (decrease) in:
Accounts payable.......................................... 2,028 (382) 12,444
Payable to Parent and affiliates.......................... 6,409 576 972
Accrued liabilities....................................... 2,087 (394) (354)
Other liabilities......................................... (5,158) 6,862 2,645
-------- -------- --------
Net cash provided by operating activities............ 20,471 20,170 22,730
-------- -------- --------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment.................. (33,172) (31,525) (27,091)
Proceeds from disposal of property, plant and equipment....... 252 296 387
Acquisition of Henry Lee Company (net of acquired cash)....... - - (9,042)
Investment in and advance to unconsolidated subsidiary........ - - (2,488)
Acquisition of Port Stockton minority interest................ - - (1,457)
Acquisition of business (net of acquired cash)................ (1,391) - -
Acquisition of municipal bonds................................ (540) (1,300) (1,785)
Proceeds from redemption of municipal bonds................... 440 825 1,015
Other......................................................... (4,590) (3,630) (1,368)
-------- -------- --------
Net cash used in investing activities................ (39,001) (35,334) (41,829)
-------- -------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock........................ 1,059 509 506
Bank line of credit........................................... 16,000 1,000 -
Payments on notes payable and bank line of credit............. (3,089) (12,378) (576)
Quarterly dividend paid....................................... (4,060) (4,046) (4,037)
Borrowings of long term debt.................................. 10,000 35,000 2,386
-------- -------- --------
Net cash provided by (used in) financing activities.. 19,910 20,085 (1,721)
-------- -------- --------
Increase(Decrease) in cash and cash equivalents.................... 1,380 4,921 (20,820)
Cash and cash equivalents at beginning of year..................... 15,415 10,494 31,314
-------- -------- --------
Cash and cash equivalents at end of year........................... $ 16,795 $ 15,415 $ 10,494
======== ======== ========
Noncash transactions:
Notes payable and common stock issued for
properties acquired from affiliates........................... $ 71,440 $ - $ -
Note issued in connection with purchase of Henry Lee........... - - 8,000
Note issued in connection with acquisition of business......... 300 - -
Capital contribution to unconsolidated subsidiary.............. - 350 -
Construction in progress costs incurred but not paid........... 552 2,129 453
-------- -------- --------
Total noncash transactions........................... $ 72,292 $ 2,479 $ 8,453
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lines of business
Smart & Final Inc. (the "Company") is a Delaware corporation and at
fiscal year end 1996 was a 56.5 percent owned subsidiary of Casino USA, Inc.
(the "Parent" or "Casino USA"), a California corporation, and Casino Realty,
Inc. ("Casino Realty"), a wholly-owned subsidiary of Casino USA. The Company is
engaged in the business of distributing food and related non-food items through
wholesale outlets under the trade name "Smart & Final" and by delivery, under
the trade names "Port Stockton" and "Henry Lee."
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and all its majority owned subsidiaries. The Company's 50 percent owned
subsidiary in Mexico, Smart & Final Del Noroeste S.A. de C.V., which commenced
store operations in December 1993, is accounted for by the equity method of
accounting. The foreign currency translation loss resulted from the translation
of the foreign affiliate's functional currency balance sheet into U.S. dollars
and is reflected in stockholders' equity. The functional currency is the local
currency of Mexico.
All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain prior years' amounts have been reclassified
to conform to the fiscal year 1996 presentation.
Fiscal years
The Company's fiscal year ends on the Sunday closest to December 31.
Fiscal years 1996, 1995 and 1994 include 52 weeks. Fiscal years 1996, 1995 and
1994 ended on December 29, 1996, December 31, 1995 and January 1, 1995,
respectively. Each of the Company's fiscal years consists of twelve week periods
in the first, second, and fourth quarters of the fiscal year and a sixteen week
period in the third quarter.
Statements of cash flows
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents. The carrying
amount of cash equivalents is approximately the same as their fair value because
of the short maturity of these instruments.
Inventories
The Company's inventories consist of merchandise purchased for resale
which are stated at the lower of FIFO (first-in, first-out) cost or market.
24
<PAGE>
Property, plant and equipment
Property, plant and equipment are stated at cost and are depreciated
or amortized using the straight-line method. The estimated useful lives are as
follows:
Buildings and improvements 5-25 years
Fixtures and equipment 3-10 years
Leasehold improvements Lesser of lease term or useful life of improvement
Costs of normal maintenance and repairs and minor replacements are
charged to expense when incurred. Major replacements or betterments of
properties are capitalized. When assets are sold or otherwise disposed of, the
costs and related accumulated depreciation and amortization are removed from the
accounts, and any resulting gain or loss is included in the income statement.
In 1995, the Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The implementation of SFAS No. 121 did not have an effect on the
Company's financial position or its results of operations.
Also included in property, plant and equipment are costs associated
with selection and procurement of real estate sites of $1,163,000 and $1,071,000
as of fiscal year end 1996 and 1995, respectively. These costs are amortized
over the remaining lease term of the site they are associated with.
Other assets
Other assets include municipal bonds aggregating $5,430,000 and
$5,330,000 at fiscal year end 1996 and 1995, respectively. The fair value of the
municipal bonds, estimated based on quoted market prices for similar
investments, approximate their carrying amounts.
Capitalized software costs, net of amortization, of $6,548,000 and
$5,304,000, are included in other assets at fiscal year end 1996 and 1995,
respectively. These costs include third party purchased software costs, direct
labor associated with internally developed software, and installation costs. The
Company has capitalized these costs in accordance with Financial Accounting
Standards Board Interpretation No. 6, "Applicability of Statement of Financial
Accounting Standards No. 2--Accounting for Research and Development Costs to
Computer Software". Amortization is being recognized over a three to five year
period using the straight-line method, and reflects the period over which the
benefits of the software are fully realizable and enhance the operations of the
business.
Also included in other assets are preopening costs of $1,329,000 and
$250,000 at fiscal year end 1996 and 1995, respectively. These costs represent
costs incurred between the date the site is leased or construction is completed
and the date the site is open for business. Amortization is being recognized
using the straight-line method over a period of three years.
25
<PAGE>
Stock options
In 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which encourages, but does not require, the recognition of compensation expense
for employee stock-based compensation arrangements using the fair value method
of accounting. The Company has elected the disclosure only alternative, and has
disclosed the pro forma net income per share amounts in the notes to the
consolidated financial statements using the fair-value method. The adoption of
SFAS No. 123 will have no cash flow impact to the Company.
Significant accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of liabilities at the date of the
financial statements and expenses during the reporting period. Management has
made significant estimates in the determination of the reserve for workers'
compensation expense. These reserves totaled $6,298,000 and $8,368,000 at fiscal
year end 1996 and 1995, respectively. The estimate is sensitive to change based
upon certain factors including healthcare costs, the Company's experience rate
and severity of claims filed. The Company maintains a stop-loss limit of
$300,000 per claim.
Income taxes
The Company recognizes deferred tax assets and liabilities based on
the liability method, which requires an adjustment to the deferred tax asset or
liability to reflect income tax rates currently in effect. When income tax rates
increase or decrease, a corresponding adjustment to income tax expense is
recorded by applying the rate change to the cumulative temporary differences.
2. INCOME TAXES
A reconciliation between the federal statutory income tax rate and the
Company's effective tax rate consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income tax at federal statutory rate $13,725,000 $10,653,000 $10,161,000
State income taxes, net of federal tax benefit 2,373,000 1,918,000 1,829,000
Revitalization zone credit (960,000) (420,000) (450,000)
Other (280,000) (108,000) (24,000)
----------- ----------- -----------
Income tax provision $14,858,000 $12,043,000 $11,516,000
=========== =========== ===========
</TABLE>
The Company's provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $11,632,000 $10,912,000 $10,328,000
State 1,906,000 2,221,000 2,144,000
----------- ----------- -----------
13,538,000 13,133,000 12,472,000
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C> <C>
Deferred
Federal 1,320,000 (1,090,000) (956,000)
----------- ----------- -----------
Income tax provision $14,858,000 $12,043,000 $11,516,000
=========== =========== ===========
</TABLE>
A deferred tax liability or asset is recognized for the tax consequences of
temporary differences in the timing of the recognition of revenues and expenses
for financial and tax reporting purposes. The components of the net deferred
income tax asset consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Property, plant and equipment depreciation
differences $(3,920,000) $(5,041,000)
Employee benefits including postretirement
and postemployment reserves 10,663,000 11,217,000
Operating reserves and accruals 3,419,000 4,243,000
Other 129,000 84,000
----------- -----------
Net deferred tax asset $10,291,000 $10,503,000
=========== ===========
</TABLE>
The Company and Casino USA are parties to a tax sharing arrangement
covering income 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.
A tax benefit of $658,000 associated with the Company's stock option
plan has been credited to additional paid-in capital in 1996.
Tax sharing and termination payments made by the Company to Casino USA
were $2,560,000, $1,945,000 and $2,638,000 in 1996, 1995 and 1994, respectively.
Federal income taxes paid during 1996, 1995 and 1994 were $11,155,000,
$9,125,000 and $8,900,000, respectively.
3. ACQUISITION OF REAL PROPERTY
Effective December 29, 1996, the Company acquired 91 properties and
leasehold interests with a net book value of $71,440,000 from Casino USA and
Casino Realty, which were being operated as Smart & Final stores, offices or
warehouse facilities, for consideration of $76,000,000, consisting of 1,625,000
shares of the Company's common stock, valued at $23.375 per share, and a total
of $38,000,000 in two five-year unsecured promissory notes.
As part of the transaction, the Company is required to assist Casino
USA and Casino Realty with the sale of certain properties, on or before December
31, 1998, for an aggregate gross sales price ("sales price") of at least
$5,700,000. In the event that the properties are sold for a sales price of less
than $5,700,000, the Company must pay the difference to Casino USA and Casino
Realty. In the event that the sales price of such properties exceeds $5,700,000,
Casino USA and Casino Realty are required to pay the Company all of the excess
up to $500,000 and one-third of any remaining excess sales price.
27
<PAGE>
Of the 91 properties acquired, 86 were stores and the remaining five
were the Vernon distribution facility and several non-store locations.
Since this transaction was between entities under common control, the
properties have been recorded at the historical carrying cost of Casino USA and
Casino Realty. The difference between the historical carrying cost of the assets
acquired and the consideration issued has been recorded as an adjustment to
additional paid-in capital.
The historical carrying cost of the assets acquired and the value of
the consideration issued is as follows (Dollars in thousands):
<TABLE>
Assets acquired:
<S> <C>
Land $37,817
Building 31,194
Leasehold interests 2,429
----------
$71,440
Purchase consideration:
Notes payable issued $38,000
Common stock issued 37,984
----------
$75,984
</TABLE>
4. LONG-TERM DEBT
On December 29, 1996, the Company issued a total of $38 million in two
five-year unsecured promissory notes to Casino USA and Casino Realty, affiliated
entities, in conjunction with the acquisition of real property from Casino USA
and Casino Realty. The notes bear interest at LIBOR plus 1/4%. As of December
29, 1996 the LIBOR rate was 5.813%. The notes will be payable in five annual
installments of $7,600,000, plus accrued interest, commencing in fiscal year
1997.
The Company has a long term revolving unsecured line of credit
available with banks in the amount of $50.0 million. Borrowings of $45.0 million
and $35.0 million were outstanding under this line as of fiscal year end 1996
and 1995, respectively. This line of credit bears interest at LIBOR plus 1/2%,
and matures in November, 2000. The terms of the loan agreement require the
Company to maintain certain financial ratios. The Company was in compliance with
these covenants during fiscal year 1996 and 1995.
The Company also has a short term unsecured line of credit available
with a bank in the amount of $35.0 million. The line of credit bears interest at
the bank's reference rate which was 5.813% as of December 29, 1996. Borrowings
of $17.0 million and $1.0 million were outstanding under this line as of the
fiscal year end 1996 and 1995, respectively.
The Company has guaranteed $650,000 of Smart & Final Del Noroeste S.A.
de C.V. debt under a Standby Letter of Credit.
Henry Lee Company ("Henry Lee") had a revolving line of credit
facility with a bank aggregating $15.8 million of which $1.7 million was
outstanding at fiscal year end 1995. This facility bore interest at 7.7% and was
repaid on January 3, 1996.
28
<PAGE>
Other notes payable of $9,158,000 and $8,198,000 at fiscal year end
1996 and 1995, respectively bear interest at various rates ranging from 7.0% to
8.0%. Of these notes payable, $8.0 million is at an interest rate of 7.5% and is
unsecured. Interest paid on these notes and bank lines of credit aggregated
$3,627,000, $2,500,000, and $370,000 for the fiscal years ended 1996, 1995 and
1994, respectively.
Aggregate future principal payments are as follows:
<TABLE>
<S> <C>
Fiscal Year:
1997................. $ 27,094,000
1998................. 10,649,000
1999................. 10,681,000
2000................. 53,015,000
2001................. 7,673,000
Subsequent to 2001... 46,000
------------
$109,158,000
============
</TABLE>
The fair value of the Company's long term debt, estimated based upon
current interest rates offered for debt instruments of the same remaining
maturities, approximates the carrying amount.
5. LEASE OBLIGATIONS
As of fiscal year end 1996, the Company leases 59 properties directly from
third party lessors, with an average remaining lease term of 14 years. In
addition, the Company has 10 stores on real property that is ground leased from
third party lessors and 33 stores in which Casino USA or Casino Realty has a
leasehold interest and which Casino USA or Casino Realty subleases to the
Company. The remaining lease term on the 33 stores subleased from Casino USA or
Casino Realty averages approximately 10.1 years with various renewal options at
then prevailing market rates.
During fiscal year 1996, most of the Company's Smart & Final store
facilities were leased under operating leases from either Casino USA or Casino
Realty. Fifty-one properties were leased directly from third party lessors. Of
the 117 stores leased from Casino USA or Casino Realty, 51 were stores in which
Casino USA or Casino Realty held a leasehold interest and which Casino USA or
Casino Realty subleased to the Company on substantially the same terms and
conditions as contained in Casino USA's or Casino Realty's leases from third
party lessors. Nine of the 51 stores were on real property that was ground
leased by Casino USA or Casino Realty and subleased to the Company; lease terms
were set at rates and terms considered to be equivalent to those available from
unrelated third party lessors. Generally, annual lease rates on stores owned by
Casino Realty were set at 9-10% of the completed cost of the store at the time
it was built or acquired.
The Company also leased five additional properties during fiscal year 1996,
which included its Vernon, California distribution facility and several
non-store locations, from Casino Realty.
Henry Lee's warehouse is leased from affiliates of the minority
shareholder. The leases contain terms and rates considered to be equivalent to
those available from unrelated third party lessors.
29
<PAGE>
In December 1994, the Company entered into a $30.0 million master lease
facility which has provided for the lease of a new distribution center for Port
Stockton and for new store sites. During fiscal years 1996 and 1995, the Company
leased assets valued at approximately $25.7 and $20.0 million, respectively,
under this facility. The related minimum lease obligation is included in the
table below.
The Company leases equipment and buildings from third parties under
operating leases that expire at various periods through 2056. Henry Lee
guarantees $2,800,000 of obligations of affiliates of its minority shareholder.
These obligations are related to properties leased by Henry Lee.
Lease expense for real property included in the accompanying financial
statements is as follows:
<TABLE>
<CAPTION>
Property Leased From
--------------------
Casino USA or Casino Realty
---------------------------
Fiscal Year: Subleased Owned
------------ ------------
<S> <C> <C>
1994............................ $6,843,000 $8,503,000
1995............................ $7,179,000 $9,271,000
1996............................ $7,334,000 $9,212,000
</TABLE>
Aggregate minimum future lease payments for real property, as well as
equipment and other property at fiscal year end 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal Year: Related Parties Third Parties
--------------- -------------
<S> <C> <C>
1997................. $ 6,397,000 $ 13,874,000
1998................. 5,896,000 13,593,000
1999................. 5,553,000 12,053,000
2000................. 5,268,000 11,556,000
2001................. 5,061,000 33,129,000
Subsequent to 2001 36,713,000 105,445,000
----------- ------------
$64,888,000 $189,650,000
=========== ============
</TABLE>
6. RELATED PARTY TRANSACTIONS
Intercompany services
The Company performs various services for Casino USA and Casino
Realty. These services include various administrative functions including
accounting, human resources, and systems development work, the cost of which has
been charged to the benefited affiliated company. These charges amounted to
$402,000, $435,000, and $418,000 for the fiscal years 1996, 1995, and 1994,
respectively. It is anticipated that the Company will continue to provide these
administrative services to its affiliates at its estimated cost.
Charges among affiliates result from an undertaking to provide the
respective service in the most cost effective manner, taking advantage of each
entity's internal administrative structure. Management believes that the
allocation method is reasonable and intercompany charges approximate the cost
that would be incurred from independent third parties, on a stand alone basis.
Intercompany charges for each period are settled in the following period.
30
<PAGE>
Intercompany Interest Charges/Credits
Intercompany interest charges from affiliates was $161,000 for
advances of $5,960,000 made during 1996. There were no material advances in 1995
and 1994.
7. RETIREMENT PLANS
Defined benefit plans
Smart & Final has a noncontributory pension plan covering all full
time employees. The Company funds this plan with annual contributions as
required by the Employee Retirement Income Security Act of 1974 (ERISA). Plan
assets are held by the Trustee, and consist of a diversified portfolio of
fixed-income investments and equity securities, including U.S. Government
instruments, corporate bonds, money market funds and common stock. The net
pension expense includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost component $ 1,196,000 $ 920,000 $ 1,085,000
Interest cost component 2,169,000 1,995,000 1,845,000
Actual return on plan assets (2,323,000) (3,700,000) 521,000
Net amortization and deferral 722,000 2,494,000 (1,746,000)
----------- ----------- -----------
Net pension expense $ 1,764,000 $ 1,709,000 $ 1,705,000
=========== =========== ===========
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 87
"Employers' Accounting for Pensions" ("SFAS No. 87"), it is appropriate to base
the measurement of the net periodic pension cost on the discount rate in effect
at the end of the prior fiscal year. The assumptions used to develop the
components of the net pension expense were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Discount rate 7.50% 8.50% 7.25%
Rate of increase in compensation levels 4.00% 5.00% 4.00%
Expected long-term rate of return on plan assets 9.00% 9.00% 9.00%
</TABLE>
The funded status and accrued pension costs of the plans were as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 24,238,000 $ 21,871,000
Non-vested 1,019,000 1,041,000
------------ ------------
$ 25,257,000 $ 22,912,000
============ ============
Present value of projected benefit obligation $ 30,794,000 $ 27,987,000
Fair value of plan assets 23,903,000 21,078,000
------------ ------------
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C>
Present value of projected benefit obligation
in excess of plan assets 6,891,000 6,909,000
Remaining unrecognized net obligation (686,000) (784,000)
Unrecognized prior service cost (1,996,000) (2,210,000)
Unrecognized net loss (2,194,000) (2,073,000)
------------ ------------
Accrued pension costs in excess of cash
payments made by the Company $ 2,015,000 $ 1,842,000
============ ============
</TABLE>
In accordance with SFAS No. 87, it is appropriate to base the
measurement of the present value of the projected benefit obligation on the
discount rates at which the benefits could be effectively settled as of the
balance sheet date. The assumptions used to develop the funded status and the
accrued pension costs were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Discount rate 7.50% 7.50%
Rate of increase in compensation levels 4.00% 4.00%
Expected long-term rate of return on plan assets 9.00% 9.00%
</TABLE>
During fiscal year 1996, the plan's accumulated benefit obligation and
projected benefit obligation increased $2,345,000 and $2,807,000, respectively,
primarily due to changes in certain actuarial assumptions indicated in the table
above.
Defined contribution plans
Smart & Final offers all full time employees participation in a
defined contribution plan ("the 401(k) Savings Plan") which qualified under the
requirements of Section 401(k) of the Internal Revenue Code of 1986, as amended.
The 401(k) Savings Plan allows participants to contribute for fiscal year 1996
up to 15% of their compensation or $9,500, whichever is lower. Smart & Final
will automatically match 25% of each dollar contributed up to 6% of the
participant's compensation. Additionally, Smart & Final may at its discretion
match up to an additional 75% of each dollar contributed up to 6% of the
participants' compensation if Smart & Final exceeds certain financial and
profitability goals. Smart & Final provided an additional 25% discretionary
match in fiscal years 1996, 1995 and 1994. Smart & Final has provided
$1,231,000, $1,250,000, and $1,094,000, for contributions to the 401(k) Savings
Plan for fiscal years 1996, 1995 and 1994, respectively.
Deferred Compensation Plan
Effective January 1, 1995, the Company adopted a nonqualified deferred
compensation program which permits key employees and directors to annually elect
individually to defer up to 100% of their current year compensation until
retirement. The retirement benefit to be provided is a function of the amount of
compensation deferred. The Company has invested in corporate owned life
insurance policies with death benefits aggregating to $9,446,000 and $8,344,000
as of fiscal year end 1996 and 1995, respectively. The cash surrender value of
these policies amount to $753,000 and $534,000 as of fiscal year end 1996 and
1995 respectively.
32
<PAGE>
8. POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT OBLIGATIONS
Smart & Final provides certain health care benefits for retired
employees. Substantially all of Smart & Final's full time employees may become
eligible for those benefits if they reach retirement age while still working for
the Company. Benefits are limited to the lesser of actual cost for the medical
coverage selected or a defined dollar benefit based on years of service. In
addition, on a postemployment basis, the Company provides certain disability
related benefits to its employees.
Effective at the beginning of fiscal year 1993, the Company adopted
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106") and Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112") which require the expected cost of the
benefits to be charged to expense during the years that the employees render
service. In connection with the adoption of these standards, the Company
incurred a one-time, non-cash, net of tax charge of $12.9 million for these
benefit obligations through fiscal year 1992. The expense for postretirement
benefits included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $ 222,000 $ 206,000 $ 277,000
Interest cost 689,000 820,000 1,020,000
Net amortization and deferral (270,000) (222,000) --
---------- ---------- ----------
Postretirement benefits expense $ 641,000 $ 804,000 $1,297,000
========== ========== ==========
</TABLE>
The discount rates used for fiscal years 1996, 1995 and 1994, to
determine the postretirement expense were 7.50%, 8.50% and 7.25%, respectively.
The components of the accrued liability for the accumulated
postretirement benefit obligation as reflected on the balance sheet at fiscal
year end 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Retirees $ 9,984,000 $10,179,000
Fully eligible active plan participants 564,000 544,000
Other active plan participants 6,749,000 6,507,000
----------- ------------
Accumulated postretirement benefit obligation $17,297,000 $17,230,000
=========== ===========
</TABLE>
The accumulated postretirement benefit obligation is reflected on the
fiscal year end 1996 balance sheet as a current liability of $1.0 million and a
long term portion of $16.3 million. For measurement purposes, a 11.5% and 12.0%
annual rate of increase in the per capita cost of covered claims was assumed for
1996 and 1995, respectively; the rate is assumed to decrease by 0.5% per year
for the first 11 years until an ultimate rate of 6% is reached and remains at
that level thereafter. The Company offers a defined dollar benefit plan
providing a fixed dollar amount of coverage which does not increase with medical
inflation. The discount rate used in determining the accumulated postretirement
benefit obligation at fiscal year ends 1996 and 1995 was 7.5%.
33
<PAGE>
9. WAREHOUSE START UP COSTS
In anticipation of the commencement of operations of the Company's new
distribution center in Northern California, the Company increased its staffing
levels and incurred certain other costs totaling approximately $4.3 million.
Significant delays in commencement of operations resulted in labor
inefficiencies, travel and move costs and significantly increased promotion
allowances and product discounts in order to maintain customer relationships
during the period of delay. These costs have been classified as warehouse
start-up costs in the accompanying income statement for the fiscal year ended
1995.
10. LEGAL ACTIONS
The Company has been named as defendant in various legal actions in the
normal conduct of its business. In the opinion of management, after consultation
with counsel, none of these actions are expected to result in a material effect
on the Company's financial position or results of operations.
11. COMMON STOCK
Pursuant to an agreement dated March 7, 1989, ("Agreement"), the
Company's Chairman is obligated to purchased 143,000 common shares by 1999. The
purchase price was equal to the Company's book value per share, as of the end of
the fiscal year immediately preceding the fiscal year of purchase. This
agreement has been accounted for as a variable plan. Compensation expense is
computed based on the changes in the market value of the Company's common stock
during the fiscal year over the changes in the stock purchase price.
Compensation expense associated with this agreement aggregated $36,000,
$1,037,000 and $71,000 for the fiscal years 1996, 1995 and 1994, respectively.
At December 29, 1996 the agreement was amended to establish a fixed purchase
price of $8.90 per share.
12. EARNINGS PER COMMON SHARE
Earnings per common share is computed on the basis of the weighted
average number of shares of common stock outstanding each year, after giving
effect to the three-for-two stock split issued on February 5, 1993. Common stock
equivalents relate to the employee stock options and a stock purchase agreement.
13. STOCK OPTIONS
The Company has a Stock Incentive Plan. During 1994, the Plan was
amended to increase the maximum amount of shares for which options may be
granted to 2,250,000 shares from 1,125,000 shares of the Company's common stock.
Option prices may be established by the compensation committee of the Board of
Directors at no less than 85% of the fair market value of the common stock at
the time the option is granted. Options for officers and directors granted at
the time of the Company's initial public offering were granted at 85% of fair
market value. Options for officers and directors elected in 1996, 1995 and 1994
were granted at fair market value at the time of grant. Options currently
granted under the plan will vest over a 4-year period and may be exercised for
up to 10 years from the date of grant. A summary of changes in the shares under
option follows:
34
<PAGE>
<TABLE>
Weighted
Shares Average Price
------ -------------
<S> <C> <C>
Shares under option at fiscal year end 1993 911,750 $11.66
----------- ------
Fiscal year 1994:
Options granted 1,071,900 $14.09
Options exercised (47,000) 10.77
Options canceled (115,700) 13.47
----------
Shares under option at fiscal year end 1994 1,820,950 13.00
----------- ------
Shares exercisable at fiscal year end 1994 491,250 10.96
Fiscal year 1995:
Options granted 284,850 $16.79
Options exercised (47,000) 10.87
Options canceled (43,550) 14.25
-----------
Shares under option at fiscal year end 1995 2,015,250 13.56
----------- ------
Shares exercisable at fiscal year end 1995 721,284 11.23
Fiscal year 1996:
Options granted 126,400 $22.07
Options exercised (84,728) 12.50
Options canceled (59,695) 11.92
-----------
Shares under option at fiscal year end 1996 1,997,227 14.19
----------- ------
Shares exercisable at fiscal year end 1996 945,629 12.34
</TABLE>
Stock options outstanding at December 29, 1996, are as follows:
<TABLE>
<CAPTION>
Number Weighted Average Weighted
Range of Outstanding Remaining Average
Exercise Prices as of 12/29/96 Contractual Life Exercise Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$10.7700 578,300 4.47 $10.7700
$13.0000 - $13.8750 34,297 7.06 $13.2296
$14.0000 732,030 7.15 $14.0000
$14.5000 - $16.1700 208,950 7.50 $15.0678
$16.5000 - $17.5000 223,800 8.45 $16.7722
$18.1250 - $19.2500 95,150 6.91 $18.4381
$20.3750 36,500 9.15 $20.3750
$21.8750 37,300 9.93 $21.8750
$22.8750 10,050 9.36 $22.8750
$23.6250 40,850 9.70 $23.6250
- ---------------------------------------------------------------------------------------------------------------------
$10.7700 - $23.6250 1,997,227 6.69 $14.1904
</TABLE>
35
<PAGE>
Stock options exercisable as of December 29, 1996, are as follows:
<TABLE>
<CAPTION>
Range of Number Weighted Average
Exercise Prices Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$10.7700 578,300 $10.7700
$13.0000 - $13.8750 13,577 $13.3544
$14.0000 222,390 $14.0000
$14.5000 - $16.1700 85,695 $15.4156
$16.5000 - $17.5000 - -
$18.1250 - $19.2500 45,667 $18.1304
$20.3750 - -
$21.8750 - -
$22.8750 - -
$23.6250 - -
- ---------------------------------------------------------------------------------------------------------------------
$10.7700 - $23.6250 945,629 $12.3431
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for grants in 1996 and 1995, respectively; dividend yield of 1.0%
and 1.2%, expected volatility of 22% for both years, risk-free interest rates of
6.6% and 6.4% and expected lives of 3.16 years for non-executive and 2.75 years
for executives for both years. The weighted-average fair value of options
granted during 1996 and 1995 was $5.89 and $4.46, respectively.
Common stock shares available for future grant at fiscal year end 1996
and fiscal year end 1995 were 27,295 and 94,000, respectively.
The Company accounts for the Stock Incentive Plan under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees", and
accordingly, compensation expense associated with options aggregated $152,000
and $372,000 for fiscal years 1995 and 1994, respectively. Compensation expenses
related to options issued has been fully amortized at fiscal year end 1995. Had
compensation costs for the Stock Incentive Plan been determined under SFAS No.
123, "Accounting For Stock-Based Compensation," proforma net income and earnings
per share would have been $24,017,000 and $1.13, respectively, for fiscal year
1996 and $18,154,000 and $0.87, respectively for fiscal year 1995. The impact
applying SFAS No. 123 in this proforma disclosure is not necessarily indicative
of the effect on income in the future. SFAS No. 123 does not apply to awards
granted prior to 1995. The Company anticipates making additional stock-based
compensation awards in the future.
14. EMPLOYMENT/CONSULTING AGREEMENTS
The Company has a consulting arrangement with its Chairman which
provides for his services for a 10 year period expiring in 2004. Employment
agreements have also been entered into with several principal executive
officers. These agreements contain provisions for base salary and bonuses,
expiring during fiscal years 1997 and 1998. The Company has a consulting
agreement with an affiliate of the minority shareholder of Henry
36
<PAGE>
Lee which expires during fiscal year 1998. Annual payments under these
agreements are approximately $1,963,000.
15. ACQUISITION OF HENRY LEE
On November 8, 1994, the Company acquired 90% of the outstanding common
stock of Henry Lee for a purchase price of $18,410,000, including transaction
costs. The acquisition was accounted for by the purchase method of accounting.
The goodwill of $8,345,000 related to the purchase is being amortized over 40
years. The results of Henry Lee's operations for fiscal years 1996 and 1995, and
two months during fiscal year 1994, are included in the consolidated statements
of income of the Company. Henry Lee is engaged in the traditional full-service
food distribution business. Henry Lee serves 3,700 institutional and foodservice
customers, including restaurants, hotels and cruise lines, primarily in the
state of Florida and certain markets in the Caribbean and South America.
37
<PAGE>
SMART & FINAL INC.
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
FISCAL YEAR-ENDED 1996 (A)
----------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
12 12 16 12 52
WEEKS WEEKS WEEKS WEEKS WEEKS
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales....................................... $ 282,334 $ 307,408 $ 406,448 $ 306,371 $ 1,302,561
Cost of sales, buying and occupancy......... 237,936 256,685 342,347 257,965 1,094,933
Lease expense to affiliates................. 3,968 4,041 5,548 3,676 17,233
------------ ------------ ------------ ------------ ------------
Gross margin................................ 40,430 46,682 58,553 44,730 190,395
Operating and administrative expenses....... 32,597 36,020 44,328 34,862 147,807
Warehouse start up costs.................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Income from operations................. 7,833 10,662 14,225 9,868 42,588
------------ ------------ ------------ ------------ ------------
Interest income and expense:
Interest income......................... 121 109 133 138 501
Interest expense........................ (723) (827) (1,246) (1,078) (3,874)
------------ ------------ ------------ ------------ ------------
(602) (718) (1,113) (940) (3,373)
Income before provision for income
taxes and minority share of net income..... 7,231 9,944 13,112 8,928 39,215
Provision for income taxes.................. 2,929 3,737 5,054 3,138 14,858
Minority share of net income................ 107 48 11 78 244
------------ ------------ ------------ ------------ ------------
Income from consolidated subsidiaries....... 4,195 6,159 8,047 5,712 24,113
Equity earnings in unconsolidated
subsidiary................................ -- 109 50 62 221
------------ ------------ ------------ ------------ ------------
Net income.................................. $ 4,195 $ 6,268 $ 8,097 $ 5,774 $ 24,334
============ ============ ============ ============ ============
Earnings per common share................... $ 0.20 $ 0.30 $ 0.38 $ 0.27 $ 1.15
============ ============ ============ ============ ============
Weighted average common shares and
common share equivalents (B).......... 21,068,317 21,244,861 21,279,572 21,207,270 21,206,126
============ ============ ============ ============ ============
</TABLE>
(A) Each of the Company's fiscal years consists of twelve week periods in the
first, second and fourth quarters of the fiscal year and one sixteen week
period in the third quarter.
(B) The weighted average shares includes the common stock equivalents related
to employee stock options and a stock purchase agreement.
38
<PAGE>
<TABLE>
<CAPTION>
SMART & FINAL INC.
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
FISCAL YEAR-ENDED 1995 (A)
-------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
12 12 16 12 52
WEEKS WEEKS WEEKS WEEKS WEEKS
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.................................. $ 252,139 $ 273,438 $ 365,276 $ 282,472 $ 1,173,325
Cost of sales, buying and occupancy.... 212,026 228,381 307,390 236,689 984,486
Lease expense to affiliates............ 3,919 3,939 5,426 3,823 17,107
----------- ----------- ----------- ----------- -----------
Gross margin........................... 36,194 41,118 52,460 41,960 171,732
Operating and administrative expenses.. 29,652 32,141 40,450 32,774 135,017
Warehouse start up costs............... - 3,500 750 - 4,250
----------- ----------- ----------- ----------- -----------
Income from operations................. 6,542 5,477 11,260 9,186 32,465
----------- ----------- ----------- ----------- -----------
Interest income and expense:
Interest income....................... 91 112 139 130 472
Interest expense...................... (527) (453) (743) (777) (2,500)
----------- ----------- ----------- ----------- -----------
(436) (341) (604) (647) (2,028)
Income before provision for income
taxes and minority share of net
income................................ 6,106 5,136 10,656 8,539 30,437
Provision for income taxes............. 2,437 1,940 4,046 3,620 12,043
Minority share of net income........... 90 48 21 89 248
----------- ----------- ----------- ----------- -----------
Income from consolidated subsidiaries.. 3,579 3,148 6,589 4,830 18,146
Equity earnings in unconsolidated
subsidiary............................ (100) - - 250 150
----------- ----------- ----------- ----------- -----------
Net income............................. $ 3,479 $ 3,148 $ 6,589 $ 5,080 $ 18,296
=========== =========== =========== =========== ===========
Earnings per common share.............. $ 0.17 $ 0.15 $ 0.32 $ 0.24 $ 0.88
=========== =========== =========== =========== ===========
Weighted average common shares and
common share equivalents (B).......... 20,542,382 20,689,942 20,789,047 20,969,156 20,750,818
=========== =========== =========== =========== ===========
</TABLE>
(A) Each of the Company's fiscal years consists of twelve week periods in the
first, second and fourth quarters of the fiscal year and one sixteen week
period in the third quarter.
(B) The weighted average shares includes the common stock equivalents related
to employee stock options and a stock purchase agreement.
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
The information required by Part III of Form 10-K (Items 10-13) is set forth in
the Company's definitive Proxy Statement (the "Proxy Statement") for its Annual
Meeting of Stockholders to be held on May 9, 1997, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days of
the Company's last fiscal year end. For Item 10, Directors and Executive
Officers of the Registrant, the sections of the Proxy Statement entitled
"Nominees", "Continuing Directors", "Executive Officers" and "Compliance With
Section 16(a) of the Securities Exchange Act of 1934" are incorporated herein by
this reference. For Item 11, Executive Compensation, the sections of the Proxy
Statement entitled "Executive Compensation", "Compensation Committee Interlocks
and Insider Participation", and "Compensation of Directors" are incorporated
herein by this reference. For Item 12, Security Ownership of Certain Beneficial
Owners and Management, the section of the Proxy Statement entitled "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein by
this reference. For Item 13, Certain Relationships and Related Transactions, the
section of the Proxy Statement entitled "Certain Transactions and Relationships"
is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(A-1) FINANCIAL STATEMENTS :
Report of Independent Public Accountants............................ 19
Consolidated Balance Sheets......................................... 20
Consolidated Statements of Income................................... 21
Consolidated Statements of Stockholders' Equity..................... 22
Consolidated Statements of Cash Flows............................... 23
Notes to Consolidated Financial Statements.......................... 24
Supplementary Data - Summary of Quarterly Results of Operations..... 38
(A-2) FINANCIAL STATEMENT SCHEDULES:
Report of Independent Public Accountants............................ 48
VIII - Valuation and Qualifying Accounts............................ 50
</TABLE>
All other schedules are omitted since the required information is
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
40
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, including all
amendments thereto (6)
3.2 Bylaws of the Company, including all amendments thereto (6)
10.1 [Intentionally Blank]
10.2 Loan Agreement, dated January 24, 1995, between First
Interstate Bank of California and the Company, as renewed (12)
10.3 Employment Agreement, dated June 1, 1991, between Mr. Emmons
and the Company (1)*
10.4 [Intentionally Blank]
10.5 Agreement Terminating Partnership Equivalency Program for
Robert Emmons, dated June 1, 1991, by and among Mr. Emmons,
Casino USA and Casino France (1)
10.6 Stock Purchase Agreement, dated March 7, 1989, by and among
Mr. Emmons, Casino USA, Casino France and the Company (1), as
amended*
10.7 Stock Purchase Agreement, dated as of November 5, 1990, by and
among American Foodservice Distributors, Casino USA and Mr.
Del Prete, et al. (1)
10.8 [Intentionally Blank]
10.9 Lease, dated June 3, 1991, by and between Casino Realty and
S&F Stores (1)
10.10 Form of Master Lease with Casino Realty as lessor (1)
10.11 Form of Master Sublease with either Casino USA or Casino
Realty as sublessor (1)
10.12 Form of Lease between lessor and Port Stockton (1)
10.13 Lease by and between ADP Properties and Port Stockton, dated
May 14, 1990 (1)
</TABLE>
41
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
10.14 Amendment to Leases, dated November 5, 1990, by and between
Mr. Del Prete, Miner Avenue and Nancy L. Del Prete, and Port
Stockton (1)
10.15 Description of Certain Management Compensatory Plans and
Arrangements*
10.16 1991 Stock Incentive Plan of the Company, as Amended (7)*
10.17 Smart & Final Pension Plan, as amended (12)*
10.18 Adoption Agreement #004, Nonstandardized Profit Sharing Plan
for Port Stockton, dated August 28, 1990 (1)
10.19 Guaranty of Casino USA, dated as of June 7, 1991(1)
10.20 Smart & Final Amended and Restated 401(k) Savings Plan (12)*
10.21 Registration Rights Agreement, dated August 6, 1991, by and
among the Company, Casino USA and Mr. Emmons (3), as amended
10.22 Tax Termination Agreement, dated as of August 6, 1991, by and
between the Company and Casino USA, as amended (including as
an exhibit thereto the Tax Sharing Agreement, dated as of
November 5, 1984, by and between the Company and Casino USA,
as amended) (6)
10.23 Adoption Agreement #008, Nonstandardized Code(S) 401(k)
Profit Sharing Plan for Port Stockton, dated August 4, 1992
(12)
10.24 Intercompany Agreement, dated August 6, 1991, by and between
Casino USA, Casino Realty, Inc. and the Company (3)
10.25 Truck Lease and Service Agreement, dated December 13, 1991,
between Smart & Final and Ryder Truck Rental, Inc. (2)
10.26 Agreement to Sell and Purchase Real Property and Escrow
Instructions By and Between Mr. Del Prete, individually and
doing business as "ADP Properties," and Mrs. Del Prete and
Port Stockton Food Distributors, Inc., dated August 25, 1992
(4)
10.27 Agreement to Sell and Purchase Real Property and Escrow
Instructions By and Between Mr. Del Prete and Port Stockton
Food Distributors, Inc. dated August 25, 1992 (4)
</TABLE>
42
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
10.28 Employment Agreement between the Company and Mr. Laverty*
10.29 Employment Agreement between the Company and Mr. Lynch (5)*
10.30 Severance Agreement between the Company and Mr. Alvarado (5)*
10.31 Severance Agreement between the Company and Mr. Chiavelli (5)*
10.32 [Intentionally Blank]
10.33 [Intentionally Blank]
10.34 Severance Agreement between the Company and Mr. Goneau (5)*
10.35 Severance Agreement between the Company and Mr. Griffin (5)*
10.36 Stock Purchase Agreement dated November 8, 1994, among the
Company, Sternlieb Family Investments, Ltd., and Edward I.
Sternlieb, Henry Sternlieb and Rose Sternlieb (8)
10.37 Severance Agreement between the Company and Mr. Magruder (5)*
10.38 Severance Agreement between the Company and Mr. Martin (5)*
10.39 Severance Agreement between the Company and Ms. Mullins (5)*
10.40 Severance Agreement between the Company and Mr. Shah (5)*
10.41 Severance Agreement between the Company and Mr. Taylor (5)*
10.42 Deferred Compensation Agreement between the Company and Mr.
Laverty (6)*
10.43 Deferred Compensation Agreement between the Company and Mr.
Lynch (6)*
10.44 Non-Negotiable Promissory Note dated November 8, 1994, of the
Company for the benefit of Sternlieb Family Investments, Ltd.
(8)
</TABLE>
43
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
10.45 Stockholders' Agreement dated as of November 8, 1994, among
the Company, Sternlieb Family Investments, Ltd. and Henry Lee
(8)
10.46 Employment Agreement dated as of November 8, 1994, between
Henry Lee and Edward I. Sternlieb (8)*
10.47 Consulting Agreement dated as of November 8, 1994, between
Henry Lee and Sternlieb Consulting, Inc. (8)
10.48 Lease dated as of November 8, 1994, between Henry Sternlieb
and Henry Lee (8)
10.49 Lease dated as of July 2, 1985, as amended by First Amendment
of Lease, between Edward I. Sternlieb and Henry Lee (8)
10.50 Lease dated as of August 1, 1980, and related Agreement dated
as of November 8, 1994, between Henry and Rose Sternlieb and
Henry Lee (8)
10.51 Purchase and Sale Agreement dated October 7, 1994, between
Nestle Food Company and Port Stockton (8)
10.52 Revolving Credit and Reimbursement Agreement dated November
21, 1991 between Henry Lee and NCNB National Bank of Florida,
as amended (8)
10.53 Henry Lee Company Second Profit Sharing Plan and Trust, as
amended (12)
10.54 Henry Lee Company Guaranty of Edward I. Sternlieb, dated
October 1, 1993 (12)
10.55 Henry Lee Company Guaranty of Henry and Rose Sternlieb, dated
August 1, 1980 (12)
10.56 Smart & Final Inc. Supplemental Deferred Compensation Plan
(9), as amended*
10.57 Smart & Final Inc. Directors Deferred Compensation Plan (9),
as amended*
10.58 Participation Agreement dated December 15, 1994, among the
Company, Smart & Final, Port Stockton, Shawmut Bank
Connecticut, National Association, Credit Lyonnais Cayman
Island Branch and Credit Lyonnais New York Branch; with the
associated Loan Agreement among Shawmut Bank Connecticut,
National Association, Credit Lyonnais Cayman Island Branch and
Credit Lyonnais New York Branch, and Trust Agreement between
Shawmut Bank Connecticut, National Association and Credit
Lyonnais New York Branch (12), as amended
</TABLE>
44
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
10.59 Agency Agreement dated December 15, 1994, between Shawmut Bank
Connecticut, National Association and the Company (12)
10.60 Lease Agreement dated December 15, 1994, between Shawmut Bank
Connecticut, National Association and the Company (12)
10.61 Agreement between PortStockton Food Distributors, Inc.and Food
Distribution Employees Association (9)
10.62 Vehicle Lease Service Agreement (9)
10.63 Consulting Agreement dated October 1, 1995 between Yves
Guichard and the Company (10)
10.64 Consulting Agreement dated Ocrtober 1, 1995 between Gilles
Pinocely and the Company (10)
10.65 Credit Agreement dated November 20, 1995 between Credit
Lyonnais-Los Angeles Branch and the Company (10)
10.66 Asset Purchase Agreement between Falcone & Italia Foods, Inc.,
Salvatore J. Falcone, Mark Gilden, and Henry Lee Company (13)
10.67 Asset Purchase Agreement between Craig & Hamilton Meat Co.,
Inc., Patrick D. Craig and Port Stockton Food Distributors,
Inc. (14)
10.68 Smart & Final Inc. Trust for Deferred Compensation Plans*
10.69 Agreement for Conveyance of Real Property dated as of October
31, 1996 by and among the Company, Casino USA and Casino
Realty, Inc. and the First Amendment thereto dated December
19, 1996 (15)
10.70 Letter Agreement dated as of December 10, 1996, among the
Company and Wells Fargo Bank, N.A.
21 Subsidiaries
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
45
<PAGE>
- -----------------
(1) Incorporated herein by reference to the corresponding Exhibit number in the
Company's Registration Statement on Form S-1 (Registration No. 33-41103)
which became effective on July 30, 1991.
(2) Incorporated herein by reference to the corresponding Exhibit number in the
Company's Form 8- Amendment No. 1 to its Annual Report for the fiscal year
ended December 29, 1991 on Form 10-K, which was filed on March 30, 1992.
(3) Incorporated herein by reference to the corresponding Exhibit number in the
Company's Annual Report for the fiscal year ended December 29, 1991 on Form
10-K, which was filed on March 24, 1992.
(4) Incorporated herein by reference to the corresponding Exhibit number in the
Company's Annual Report for the fiscal year ended January 3, 1993 on Form
10-K, which was filed on March 30, 1993.
(5) Incorporated herein by reference to the corresponding Exhibit number in the
Company's Quarterly Report for the quarter ended October 10, 1993 on Form
10-Q, which was filed on November 22, 1993.
(6) Incorporated herein by reference to the corresponding Exhibit number in the
Company's Annual Report for the fiscal year ended January 2, 1994 on Form
10-K, which was filed on April 4, 1994.
(7) Incorporated herein by reference to the corresponding Exhibit number in the
Company's Quarterly Report for the quarter ended March 27, 1994 on Form 10-
Q, which was filed on May 5, 1994.
(8) Incorporated herein by reference to the corresponding Exhibit number
(except for Exhibit number 10.36 which was filed as Exhibit number 2) in
the Company's Quarterly Report for the quarter ended October 9, 1994 on
Form 10-Q, which was filed on November 23, 1994.
(9) Incorporated herein by reference to the corresponding Exhibit number in the
Company's quarterly report for the quarter ended March 26, 1995 on Form
10-Q which was filed on May 4, 1995.
46
<PAGE>
(10) Incorporated herein by reference to the corresponding Exhibit number in the
Company`s Quarterly Report for the quarter ended October 8, 1995 on Form
10-Q which was filed on November 22, 1995.
(11) Incorporated by reference to the corresponding Exhibit number in the
Company's Annual Report for the year ended January 1, 1995 on Form 10-K
which was filed on April 3, 1995.
(12) Incorporated by reference to the corresponding Exhibit number in the
Company's Annual Report for the year ended December 31, 1995 on Form 10-K
which was filed on March 29 , 1996.
(13) Incorporated herein by reference to the corresponding Exhibit number in the
Company's quarterly report for the quarter ended March 24, 1996 on Form 10-
Q which was filed on May 1, 1996.
(14) Incorporated herein by reference to the corresponding Exhibit number in the
Company's quarterly report for the quarter ended June 16, 1996 on Form 10-Q
which was filed on July 31, 1996.
(15) Incorporated herein by reference to the corresponding Exhibit number in the
Company's Definitive Proxy Statement Proxy Statement dated February 19,
1997 in connection with a Special Meeting of Shareholders of the Company
held March 19, 1997, which was filed on February 19, 1997.
* Management contracts and compensatory plans, contracts and arrangements of
the Company.
During the quarter ended December 29, 1996, the Company filed no reports on Form
8-K.
47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Smart & Final Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Smart & Final Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon dated
February 10, 1997. Our audits were made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole. The schedules
listed in the index in Item 14 are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audits of the basic consolidated financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 10, 1997
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on March 17, 1997.
Smart & Final Inc.
By: /s/ Martin A. Lynch
-----------------------------
Martin A. Lynch
Executive Vice President,
Chief Financial Officer and Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on
March 17, 1997.
<TABLE>
<S> <C>
/s/Robert J. Emmons Chairman of the Board
-------------------------
Robert J. Emmons
/s/Roger M. Laverty III President and Chief Executive Officer
-------------------------
Roger M. Laverty III
/s/Martin A. Lynch Executive Vice President,
------------------------- Chief Financial Officer, and
Martin A. Lynch Principal Accounting Officer
/s/Pierre B. Bouchut Director
-------------------------
Pierre Bouchut
/s/Timm F. Crull Director
-------------------------
Timm F. Crull
/s/James S. Gold Director
-------------------------
James S. Gold
/s/Antoine Guichard Director
-------------------------
Antoine Guichard
/s/David J. McLaughlin Director
-------------------------
David J. McLaughlin
/s/Thomas G. Plaskett Director
-------------------------
Thomas G. Plaskett
/s/ Georges Plassat Director
-------------------------
Georges Plassat
/s/Ross E. Roeder Director
-------------------------
Ross E. Roeder
/s/Louis E. Scott Director
-------------------------
Louis E. Scott
49
</TABLE>
<PAGE>
SMART & FINAL INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS 1996, 1995 AND 1994
<TABLE>
<CAPTION>
BALANCE AT ACQUISITION BALANCE AT
BEGINNING OF END OF
OF PERIOD BUSINESS ADDITIONS DEDUCTIONS PERIOD
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Fiscal year 1996................. $1,867,000 $354,000 $1,256,000 $ 909,000 $2,568,000
========== ======== ========== ========== ==========
Allowance for doubtful accounts
Fiscal year 1995................. $1,596,000 - $1,405,000 $1,134,000 $1,867,000
========== ======== ========== ========== ==========
Allowance for doubtful accounts
Fiscal year 1994................. $ 936,000 $531,000 $ 391,000 $ 262,000 $1,596,000
========== ======== ========== ========== ==========
</TABLE>
50
<PAGE>
EXHIBIT 10.6
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
This First Amendment to Stock Purchase Agreement ("First Amendment") is
entered into as of December 29, 1996, by and between ROBERT J. EMMONS,
("Emmons"), CASINO USA, INC., a California corporation ("Casino USA"), CASINO
GUICHARD-PERRACHON, S. A., a French joint stock limited liability company
("Casino France") and SMART & FINAL INC., a Delaware corporation (the "Company")
and successor in interest to SFI Corporation, a California corporation ("SFI"),
with reference to the following facts:
A. Emmons, Casino USA, Casino France and SFI have heretofore entered into
a Stock Purchase Agreement dated as of March 7, 1991, and a Memorandum of
Clarification thereto dated as of July 29, 1991 (collectively referred to as the
"Agreement"), whereby Emmons has certain rights with respect to the purchase of
143,000 shares of Company stock ("Shares").
B. The parties wish to amend the Agreement to provide for the
establishment of a fixed purchase price for the Shares outstanding under the
Agreement, and such other matters as are set forth below.
NOW, THEREFORE, the parties agree as follows:
1. Article III of the Agreement is hereby amended to add Section 3.3 as
follows:
"Shares Purchased After December 29, 1996. The purchase price of the
----------------------------------------
Shares purchased after December 29, 1996 pursuant to this Agreement
shall be $8.90 per share."
2. All capitalized terms not defined herein shall have the same meaning
as set forth in the Agreement. Except as amended herein all other terms and
conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date first written above.
/s/ ROBERT J. EMMONS
_____________________________________
ROBERT J. EMMONS
SMART & FINAL INC.
a Delaware corporation
/s/ DONALD G. ALVARADO
By:___________________________________
Senior Vice President
Title:_________________________________
1
<PAGE>
/s/ MARTIN A. LYNCH
By:___________________________________
Executive Vice President, CFO
Title:_________________________________
CASINO USA, INC.
a California corporation
/s/ ROBERT J. EMMONS
By:_____________________________________
President
Title: _________________________________
/s/ WAYNE GEFFEN
By:_____________________________________
Assistant Treasurer
Title: _________________________________
2
<PAGE>
EXHIBIT 10.15
Description of Certain Management
Compensatory Plans and Arrangements
------------------------------------
In addition to the written management contracts and compensatory plans,
contracts and arrangements of Smart & Final Inc. (the "Company") which are
Exhibits to this Annual Report on Form10-K, the Company maintains the following
unwritten plans and policies as a means to provide incentive to its executive
officers. These plans and policies are reviewed and revised annually by the
Compensation Committee of the Company's Board of Directors and are in addition
to the other plans and policies which are generally available to all of the
full-time employees of the Company other than employees of Port Stockton Food
Distributors, Inc. and Henry Lee Company (who have separate benefit plans and
arrangements).
1. Executive Medical Insurance Plan. In addition to the generally
--------------------------------
available medical insurance coverage, the Company also maintains an executive
medical insurance plan for its executive officers. This plan reimburses such
executive officers for certain medical expenses that are not covered by the
general medical insurance plan and extends the medical benefits otherwise
available under the general medical insurance plan in the event of such
executive officers' total disability.
2. Executive Life Insurance Plan. The Company gives its executive
-----------------------------
officers the opportunity to obtain individual term life insurance policies in
addition to being covered under the Company's group term life insurance plan.
If an executive officer elects to obtain an individual policy, the Company takes
responsibility for that portion of the individual policy's premium equal to the
cost of such executive's coverage under the group plan minus a $50,000 exclusion
for group term life insurance still provided under the group plan. The Company
pays the entire premium for each individual policy and invoices the appropriate
executive officer for the portion of the premium that is not covered by the
Company.
3. Annual Incentive Bonus Plan. The Company maintains an annual
---------------------------
incentive bonus plan for executive officers. For fiscal 1996 target bonus
amounts for executive officers were based almost entirely on the attainment of
certain corporate earnings per share, with a small portion of the target bonus
amount based on the attainment of approximately five to eight individual
performance goals. Once goals were selected, competitive target bonuses were
established at median levels, when compared with other companies of comparable
size and complexity in the retail and wholesale food distribution business and
in other comparable businesses (including, for example, certain non-food multi-
unit retail companies), with target bonus amounts varying by level of
responsibility. Actual bonuses are determined after the company's fiscal year
end, and in fiscal 1996, ranged from 0% to 65% of base salary for senior
management (other than the Chief Executive Officer) to 105% of base salary for
the Chief Executive Officer.
4. Tax Preparation/Financial Planning Reimbursement Plan. The Company
-----------------------------------------------------
has a tax preparation and financial planning reimbursement plan under which
eligible executive officers
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of the Company are entitled to receive reimbursement for reasonable expenses
incurred in connection with the preparation of their personal income tax filings
and/or in connection with their financial planning up to a maximum of $2,500.
This plan does not provide for reimbursement of any income tax liabilities or
payments.
5. Automobile Allowance and Expense Plan. The Company provides a monthly
-------------------------------------
automobile allowance to eligible executive officers of between $600 and $800 per
month ($1,000 in the case of the Chief Executive Officer). The plan also
provides general liability automobile insurance coverage for the eligible
officer's vehicle, a gasoline credit card, and a vehicle maintenance allowance
of $2,500/year.
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EXHIBIT 10.21
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This First Amendment to Registration Rights Agreement ("First Amendment")
is entered into as of August 6, 1996, by and between SMART & FINAL INC., a
Delaware corporation (the "Company"), CASINO USA, INC., a California corporation
("Casino USA"), and ROBERT J. EMMONS ("Emmons"), a stockholder of the Company
(Casino USA and Emmons are hereinafter referred to collectively as the "Holders"
and individually as a "Holder"), with reference to the following facts:
A. The Company and the Holders have heretofore entered into a
Registration Rights Agreement dated as of August 6, 1991 (the "Agreement"),
whereby the Holders have certain rights with respect to registration of their
shares of Company stock ("Shares").
B. The parties wish to amend the Agreement to provide for the extension
of its termination date, and such other matters as are set forth below.
NOW, THEREFORE, the parties agree as follows:
1. The definition of "Shares" in Section 1 of the Agreement is hereby
amended to read in its entirety as follows:
""Shares" means the shares of Common Stock owned by the Holders at any
------
time during the term of this Agreement."
2. The first sentence of Section 3(b)(ii) of the Agreement is hereby
amended to read in its entirety as follows:
"The Company agrees to use its best efforts to keep the Registration
Statement filed pursuant to this Section 3 continuously effective and
usable for the resale of the Registrable Shares for a period of 30
days from the date on which the SEC declares such Registration
Statement effective, (i) such shorter period which will terminate when
all the Registrable Shares covered by such Registration Statement have
been sold pursuant to such Registration Statement, or (ii) such
longer period as may be required under the rules governing the
continuing effectiveness of such Registration Statement."
3. Section 8(a) of the Agreement is hereby amended to read in its
entirety as follows:
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"(a) Termination. This Agreement and the obligations of the Company
-----------
hereunder shall terminate on the earlier of: (i) August 6, 1999 or
(ii) the first date on which no Registrable Shares remain
outstanding."
4. All capitalized terms not defined herein shall have the same meaning
as set forth in the Agreement. Except as amended herein all other terms and
conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date first written above.
SMART & FINAL INC.
a Delaware corporation
/s/ DONALD G. ALVARADO
By:___________________________________
Senior Vice President
Title:_________________________________
/s/ MARTIN A. LYNCH
By:___________________________________
Executive Vice President, CFO
Title:_________________________________
CASINO USA, INC.
a California corporation
/s/ ROBERT J. EMMONS
By:___________________________________
President
Title: _________________________________
/s/ WAYNE GEFFEN
By:___________________________________
Assistant Treasurer
Title: _________________________________
/s/ ROBERT J. EMMONS
_____________________________________
ROBERT J. EMMONS
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EXHIBIT 10.28
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as
of this first day of January, 1997 (hereinafter referred to as the "Effective
Date"), by and between Smart & Final Inc. (hereinafter referred to as the
"Company"), a Delaware corporation having its principal offices at Los Angeles,
California and Roger M. Laverty, III (hereinafter referred to as the
"Executive").
WHEREAS, the Executive is presently employed by the Company in the
capacity of Chief Executive Officer and as a member of the Board of Directors of
the Company;
WHEREAS, the Executive possesses considerable experience and an
intimate knowledge of the business and affairs of the Company, its policies,
methods, personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has
been substantial and meritorious and, as such, the Executive has demonstrated
unique qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment
of the Executive in the above stated capacity, and Executive is desirous of
having such assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1. TERM OF EMPLOYMENT
The Company hereby agrees to employ the Executive and the Executive
hereby agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of three (3) years,
commencing as of the Effective Date of this Agreement, as indicated above;
subject, however, to earlier termination as expressly provided in Section 6
herein.
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The initial three (3) year period of employment automatically shall be
extended for one (1) additional year at the end of the first year, and then
again after each successive year thereafter. However, either party may elect not
to have the then term of this Agreement extended by giving the other party
written notice of its election not to extend delivered at least ninety (90)
calendar days prior to the end of any calendar year, in which event the then
term shall expire in accordance with its terms. For example, if at the end of
calendar 1997 notice of election not to extend has not been given by either
party (thus extending the term through December 31, 2000), but on September 15,
1997 the Company delivers its election not to extend, then the term of this
Agreement shall terminate December 31, 2000 (other than the provisions of
Section 8, which shall survive such termination).
However, upon the effective date of the expiration, the Company shall
provide to the Executive a continuation of his Base Salary (at the rate then in
effect, as provided in Paragraph 4.1 herein) for a period of twenty-four (24)
months, paid in equal installments in accordance with the normal payroll
practices of the Company. The Company shall also promptly pay to the Executive
an amount equal to twice the average Bonus paid to the Executive relative to the
three fiscal years ending with the date of the expiration of the term. The
Company also shall provide to the Executive all benefits to which the Executive
has a vested right to at that time including, but not limited to, the retirement
benefits described in Paragraph 4.4 herein, and the retiree medical insurance
benefits described in Paragraph 4.6 herein.
SECTION 2. POSITION AND RESPONSIBILITIES
During the term of this Agreement, the Executive agrees to serve as
Chief Executive Officer of the Company. In his capacity as Chief Executive
Officer of the Company, the Executive shall report directly to the Board of
Directors, and shall maintain the level of duties and responsibilities as in
effect as of the Effective Date, or such higher level of duties and
responsibilities as he may be assigned during the term of this Agreement. The
Executive shall have the same status, privileges, and responsibilities normally
inherent in such capacities in corporations of similar size and character. The
Executive acknowledges that such duties shall include serving as an officer
and/or director of affiliates of the Company from time to time without the
payment of additional compensation for doing so.
SECTION 3. STANDARD OF CARE
During the term of this Agreement, the Executive agrees to devote
substantially his full time, attention, and energies to the Company's business
and shall not be engaged in any other business activity, whether or not such
business activity is pursued for gain, profit, or other pecuniary advantage.
However, subject to Section 8 herein, the Executive may serve as a director of
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other companies so long as such service is not injurious to the Company. The
Executive covenants, warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his
employment obligations; and
(b) Exercise the highest degree of loyalty and the highest standards
of conduct in the performance of his duties.
This Section 3 shall not be construed as preventing the Executive from
investing assets in such form or manner as will not require his services in
the daily operations of the affairs of the companies in which such investments
are made.
SECTION 4. COMPENSATION
As remuneration for all services to be rendered by the Executive
during the term of this Agreement, and as consideration for complying with the
covenants herein, the Company shall pay and provide to the Executive the
following:
4.1. BASE SALARY. The Company shall pay the Executive a Base Salary
in an amount which shall be established from time to time by the Board of
Directors of the Company or the Board's designee provided, however, that such
Base Salary shall not be less than $400,000 per year. Once increased, such Base
Salary shall not thereafter be decreased during the term of this Agreement. This
Base Salary shall be paid to the Executive in equal installments throughout the
year, consistent with the normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following
the Effective Date of this Agreement, while this Agreement is in force, to
ascertain whether, in the judgment of the Board or the Board's designee, such
Base Salary should be increased. If so increased, the Base Salary as stated
above shall, likewise, be increased for all purposes of this Agreement.
4.2. ANNUAL BONUS. The Company shall provide the Executive with the
opportunity to earn an annual cash bonus, at a level which is commensurate with
the opportunity typically offered to executives having the same or similar
duties and responsibilities as the Executive at companies similar in size and
character to the Company. The Company shall, however, provide the Executive with
a minimum target annual bonus opportunity equal to one hundred percent (100%) of
the Executive's annual Base Salary.
Nothing in this paragraph shall be construed as obligating the Company
to pay the Executive an Annual Bonus or to refrain from changing and/or amending
the annual bonus/incentive plan so long as such changes are similarly applicable
to all executives generally.
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4.3. LONG-TERM INCENTIVES. The Company shall provide the Executive
the opportunity to earn a long-term incentive award, at a level which is
commensurate with the opportunity typically offered to executives having the
same or similar duties and responsibilities as the Executive at companies
similar in size and in character to the Company.
Nothing in this paragraph shall be construed as obligating the Company
to refrain from changing, and/or amending the long-term incentive plan, so long
as such changes are similarly applicable to all executives generally.
4.4. RETIREMENT BENEFITS. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, including, but not limited to, the 401(k) savings plan,
subject to the eligibility and participation requirements of such plans. The
Executive shall be entitled to benefits provided under the Deferred Compensation
Agreement currently in effect.
4.5. EMPLOYEE BENEFITS. During the term of this Agreement, and as
otherwise provided within the provisions of each of the respective plans, the
Company shall provide to the Executive all benefits to which other executives
and employees of the Company are entitled to receive, as commensurate with the
Executive's position. Such benefits shall include, but not be limited to, group
term life insurance, comprehensive health and major medical insurance, and
short-term and long-term disability.
The Executive shall be entitled to paid vacation of a minimum of five
(5) weeks per calendar year, in accordance with the standard written policy of
the Company with regard to vacations of employees.
The Executive shall likewise participate in any additional benefit as
may be established during the term of this Agreement, by standard written policy
of the Company.
4.6. RETIREE MEDICAL INSURANCE. The Company shall provide the
Executive, and the Executive's surviving spouse, full retiree medical insurance
coverage (as defined under the Company's retiree medical insurance arrangement)
for the remainder of their lives in the event of the Executive's termination of
employment hereunder, due to the Executive's Death (as provided in Paragraph 6.2
herein), due to Retirement (as provided in Paragraph 6.1 herein), due to
Disability (as provided in Paragraph 6.3 herein), due to an involuntary
termination by the Company without Cause (as provided in Paragraph 6.5 herein),
due to a termination by the Executive for Good Reason (as provided in Paragraph
6.7 herein), or in the event this Agreement is not renewed by the Company (as
provided in Section 1 herein).
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Retiree medical insurance coverage will not be provided to the
Executive in the event his employment hereunder is terminated voluntarily by the
Executive (as provided in Paragraph 6.4 herein), or in the event of a for Cause
termination (as provided in Paragraph 6.6 herein).
4.7. PERQUISITES. The Company shall provide to the Executive, at the
Company's cost, all perquisites currently being afforded the Executive as well
as all other perquisites to which other executives of the Company are entitled
to receive and such other perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties hereunder.
4.8. RIGHT TO CHANGE PLANS. By reason of Paragraphs 4.5, 4.6, and 4.7
herein, the Company shall not be obligated to institute, maintain, or refrain
from changing, amending, or discontinuing any benefit plan, program, or
perquisite, so long as such changes are similarly applicable to executive
employees generally.
SECTION 5. EXPENSES
The Company shall pay, or reimburse the Executive, for all ordinary
and necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
SECTION 6. EMPLOYMENT TERMINATIONS
6.1. TERMINATION DUE TO RETIREMENT. In the event the Executive's
employment is terminated, while this Agreement is in force, by reason of
Retirement (as defined under the then established rules of the Company's tax-
qualified retirement plan), the Executive's benefits shall be determined in
accordance with the Company's retirement, survivor's benefits, insurance, and
other applicable programs of the Company then in effect.
Upon the effective date of such termination, the Company's obligation
to pay and provide to the Executive Base Salary, Annual Bonus, and Long-Term
Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3 herein, respectively),
shall immediately expire. However, the Executive shall receive all rights and
benefits that he is vested in, pursuant to other plans and programs of the
Company including, but not limited to, the retirement benefits as described in
Paragraph 4.4 herein, and the retiree medical insurance coverage as described in
Paragraph 4.6 herein.
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6.2. TERMINATION DUE TO DEATH. In the event of the death of the
Executive during the term of this Agreement, or during any period of Disability
during which he is receiving compensation pursuant to Paragraph 6.3 herein, the
Company shall pay to the Executive's surviving spouse, or other beneficiary as
so designated by the Executive during his lifetime, or to the Executive's
estate, as appropriate, all benefits to which the Executive had a vested right
to pursuant to this Agreement.
The Company also shall provide to the Executive's surviving spouse
medical insurance coverage for the remainder of her life, as further provided in
Paragraph 4.6 herein.
6.3. TERMINATION DUE TO DISABILITY. In the event that the Executive
becomes Disabled during the term of this Agreement and is, therefore, unable to
perform his duties herein for a period of more than ninety (90) calendar days in
the aggregate, during any period of twelve (12) consecutive months, or in the
event of the Board's reasonable expectation that the Executive's Disability will
exist for more than a period of ninety (90) calendar days, the Company shall
have the right to terminate the Executive's active employment as provided in
this Agreement. However, the Board shall deliver written notice to the Executive
of the Company's intent to terminate for Disability at least thirty (30)
calendar days prior to the effective date of such termination.
A termination for Disability shall become effective upon the end of
the thirty (30) day notice period. Upon such effective date, the Company's
obligation to pay and provide to the Executive Base Salary, Annual Bonus, and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3,
respectively), shall immediately expire. However, the Executive shall receive
all rights and benefits that he is vested in, pursuant to other plans and
programs of the Company, including, but not limited to, short- and long-term
disability benefits, retirement benefits as described in Paragraph 4.4 herein,
and retiree medical insurance coverage as described in Paragraph 4.6 herein.
The term "Disability" shall mean, for all purposes of this Agreement,
the incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company as contemplated by Section 2 herein, such
Disability to be determined by the Board of Directors of the Company upon
receipt and in reliance on competent medical advice from one or more
individuals, selected by the Board, who are qualified to give such professional
medical advice.
It is expressly understood that the Disability of the Executive for a
period of ninety (90) calendar days or less in the aggregate during any period
of twelve
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(12) consecutive months, in the absence of any reasonable expectation that his
Disability will exist for more than such a period of time, shall not constitute
a failure by him to perform his duties hereunder and shall not be deemed a
breach or default and the Executive shall receive full compensation for any such
period of Disability or for any other temporary illness or incapacity during the
term of this Agreement.
6.4. VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may
terminate this Agreement at any time by giving the Board of Directors of the
Company written notice of intent to terminate, delivered at least ninety (90)
calendar days prior to the effective date of such termination (such period not
to include vacation). The termination automatically shall become effective upon
the expiration of the notice period.
Upon the effective date of such termination, the Company shall pay to
the Executive his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, and a pro rata
bonus payment based upon the level of achievement of preestablished performance
goals up through and including the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. The Company also shall provide to the
Executive the retirement benefits described in Paragraph 4.4 herein. With the
exception of the covenants contained in Section 8 herein (which shall survive
such termination), the Company and the Executive thereafter shall have no
further obligations under this Agreement.
6.5. TERMINATION BY THE COMPANY WITHOUT CAUSE. At all times prior to
six (6) full calendar months before the effective date of a Change in Control,
or at any time more than two (2) years after the effective date of a Change in
Control, the Board may terminate the Executive's employment, as provided under
this Agreement, at any time, for reasons other than death, Disability,
Retirement, or for Cause, by notifying the Executive in writing of the Company's
intent to terminate, at least thirty (30) calendar days prior the effective date
of such termination.
Upon the effective date of such termination, following the expiration
of the thirty (30) day notice period, the Company shall continue to pay to the
Executive in equal monthly installments the greater of: (a) the Base Salary then
in effect and Bonus, equal to the average of bonuses paid in the prior three (3)
years, for the remaining term of this Agreement (assuming no additional
extensions of this Agreement's term beyond that in effect as of the effective
date of termination), together with continuation of health and welfare benefits
for the remaining term of this Agreement; or (b) two (2) full years of his Base
Salary in effect and Bonus, equal to the average of bonuses paid in the prior
three (3) years, as of the
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effective date of termination, plus a two (2) year continuation of health and
welfare benefits.
Further, the Company shall pay the Executive all other benefits to
which the Executive has a vested right at the time, according to the provisions
of the governing plan or program. The Company and the Executive thereafter shall
have no further obligations under this Agreement.
6.6. TERMINATION FOR CAUSE. Nothing in this Agreement shall be
construed to prevent the Board from terminating the Executive's employment under
this Agreement for "Cause." In the event the Board determines that Cause exists,
the Board shall deliver written notice to the Executive of the facts and
circumstances leading to the Board's determination. Upon receipt of this written
notification, all provisions of this Agreement shall terminate, except for the
noncompete provisions of Section 8 herein (which shall survive such
termination).
"Cause" shall be determined by the Board in the exercise of good faith
and reasonable judgment; and shall mean and be limited to the consistent wilful
misconduct, fraud, conviction of a felony, consistent gross neglect of duties,
or consistent wanton negligence by the Executive in the performance of his
duties hereunder, or the material breach by the Executive of the terms of this
Agreement.
In the event this Agreement is terminated by the Board for Cause, the
Company shall pay to the Executive his Base Salary, at the rate then in effect,
as provided in Paragraph 4.1 herein, through the effective date of the
employment termination and the Executive shall immediately thereafter forfeit
all rights and benefits (other than vested benefits) he would otherwise have
been entitled to receive under this Agreement. The Company and the Executive
thereafter shall have no further obligations under this Agreement.
6.7. TERMINATION FOR GOOD REASON. At any time during the term of this
Agreement, the Executive may terminate this Agreement for Good Reason (as
defined below) by giving the Board of Directors of the Company thirty (30)
calendar days written notice of intent to terminate, which notice sets forth
in reasonable detail the facts and circumstances claimed to provide a basis
for such termination.
Upon the expiration of the thirty (30) day notice period, the Good
Reason termination shall become effective, and the Company shall pay and provide
to the Executive the benefits set forth in this Section 6.7 (or, in the event of
termination for Good Reason within the six (6) full calendar month period prior
to the effective date of a Change in Control, or within twenty-four (24)
calendar months following the effective date of a Change in Control, the
benefits set forth in Section 7.1 herein).
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Good Reason shall mean, without the Executive's express written
consent, the occurrence of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent
with the Executive's authorities, duties, responsibilities, and
status (including offices, titles, and reporting requirements) as
an officer of the Company, or a reduction or alteration in the
nature or status of the Executive's authorities, duties, or
responsibilities from those in effect during the immediately
preceding fiscal year;
(b) Without the Executive's consent, the Company's requiring the
Executive to be based at a location which is at least fifty (50)
miles further from the Executive's current primary residence than
is such residence from the Company's current headquarters, except
for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations
as of the Effective Date;
(c) A material reduction in the Executive's level of participation in
any of the Company's short- and/or long-term incentive
compensation plans, or employee benefit or retirement plans,
policies, practices, or arrangements in which the Executive
participates as of the Effective Date; provided, however, that
reductions in the levels of participation in any such plans shall
not be deemed to be "Good Reason" if the Executive's reduced level
of participation in each such program remains substantially
consistent with the average level of participation of other
executives who have positions commensurate with the Executive's
position; or
(d) The failure of the Company to obtain a satisfactory agreement from
any successor to the Company to assume and agree to perform this
Agreement, as contemplated in Section 10.1 herein.
Upon a termination of the Executive's employment for Good Reason at
any time other than the six (6) full calendar month period prior to the
effective date of a Change in Control, or the twenty-four (24) month period
following the effective date of a Change in Control, the Executive shall be
entitled to receive the same payments and benefits as he is entitled to receive
following an involuntary termination of his employment by the Company without
Cause, as specified in Section 6.4 herein. The payment of Base Salary and pro
rata Bonus shall be made to the Executive within thirty (30) calendar days
following the effective date of employment termination. Upon a termination for
Good Reason within the six (6) full calendar month period prior to the effective
date of a Change in Control, or within the twenty-four (24) months following the
effective date of a Change in Control, the Executive shall be entitled to
receive the
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payments and benefits set forth in Section 7.1 herein in lieu of those set forth
in this Section 6.7.
The Executive's right to terminate employment for Good Reason shall
not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or
a waiver of rights with respect to, any circumstance constituting Good
Reason herein.
SECTION 7. CHANGE IN CONTROL
7.1 EMPLOYMENT TERMINATIONS IN CONNECTION WITH A CHANGE IN CONTROL. In
the event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive and provide
him with the following severance benefits (hereinafter referred to as the
"Severance Benefits"):
(a) An amount equal to three (3) times the highest rate of the
Executive's annualized Base Salary rate in effect at any time up
to and including the effective date of termination;
(b) An amount equal to three (3) times the Executive's average annual
bonus earned over the three (3) fiscal years prior to the Change
in Control (whether or not deferred);
(c) An amount equal to the Executive's unpaid Base Salary and accrued
vacation pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective
date of termination occurs, adjusted for the Company's performance
through the date of termination, multiplied by a fraction, the
numerator of which is the number of completed days in the then-
existing fiscal year through the effective date of termination,
and the denominator of which is three hundred sixty-five (365);
(e) A continuation of the welfare benefits in effect for three (3)
full years after the effective date of termination. These benefits
shall be provided to the Executive at the same premium cost, and
at the same coverage level, as in effect as of the Executive's
effective date of termination.
However, in the event the premium cost and/or level of coverage
shall change for all employees of the Company, the cost and/or
coverage
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level, likewise, shall change for the Executive in a corresponding
manner.
The continuation of these welfare benefits shall be discontinued
prior to the end of the three (3) year period in the event the
Executive has available substantially similar benefits from a
subsequent employer, as determined by the Company's Board of
Directors or the Board's designee;
(f) A lump-sum cash payment of the actuarial present value equivalent
of the aggregate benefits accrued by the Executive as of the
effective date of termination under the terms of any and all
supplemental retirement plans in which the Executive participates.
For this purpose, such benefits shall be calculated under the
assumption that the Executive's employment continued following the
effective date of termination for three (3) full years (i.e.,
three (3) additional years of age and service credits shall be
added); provided, however, that for purposes of determining "final
average pay" under such programs, the Executive's actual pay
history as of the effective date of termination shall be used;
(g) A lump-sum cash payment of the entire balance of the Executive's
compensation which has been deferred under the Company's
nonqualified deferred compensation plan(s) together with all
interest that has been credited with respect to such deferred
compensation balance;
(h) A lump-sum cash payment of all amounts owed to the Employee under
the Deferred Compensation Plan computed as if the Employee had
continued to participate in the Deferred Compensation Plan and
received a deemed credit thereunder for an additional period equal
to the greater of (A) the number of full and partial years
remaining under the term of this Agreement or (B) three (3) years,
within five (5) days of the Date of Termination.
For purposes of this Section 7, a Qualifying Termination shall mean
any termination of the Executive's employment OTHER THAN: (1) by the Company for
Cause (as provided in Section 6.6 herein); (2) by reason of death, Disability
(as provided in Section 6.2 herein), or Retirement (as such term is then defined
in the Company's tax qualified defined benefit retirement plan; provided that a
termination which qualifies as a Retirement and which occurs within the thirty
(30) day period described in subparagraph (3) of this Section 7.1 will be deemed
to be a Qualifying Termination); or (3) by the Executive without Good Reason (as
provided in Section 6.7 herein, but specifically excluding voluntary
terminations within the period beginning on the first anniversary of the
effective date of the Change in Control and ending thirty (30) days after such
date--i.e.,
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any voluntary termination by the Executive within such period shall be deemed to
be a Qualifying Termination).
7.2 DEFINITION OF "CHANGE IN CONTROL." A Change in Control of the
Company shall be deemed to have occurred as of the first day any one or more of
the following conditions shall have been satisfied:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act") (other
than the Company; any trustee or other fiduciary holding
securities under an employee benefit plan of the Company; any
Company-owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership
of the stock of the Company) is or becomes the "beneficial owner"
(as defend in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates) representing
thirty-five percent (35%) or more of the combined voting power of
the Company's then outstanding securities;
(b) During any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board and any new
director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction
described in clause (a), (c), or (d) of this paragraph) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at
the beginning of the period of whose election or nomination for
election was previously so approved, cease for any reason to
constitute a majority thereof;
(c) The stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity), in combination
with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, at least
sixty-five percent (65%) of the combined voting power of the
voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or (B)
a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no
12
<PAGE>
person acquires more than fifty percent (50%) of the combined
voting power of the Company's then outstanding securities; or
(d) The stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the
Company's assets.
Notwithstanding the foregoing, a Change in Control shall not
include (A) any event, circumstance, or transaction that results
from the action of any entity or group that includes, is
affiliated with, or is wholly or partly controlled by the Employee
(e.g., a management-led buyout) or (B) the repurchase by the
Company or the redemption, directly or indirectly, of securities
of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding
securities.
7.3 EXCISE TAX EQUALIZATION PAYMENT. In the event that the Executive
becomes entitled to Severance Benefits or any other payment or benefit under
this Agreement, or under any other agreement with or plan of the Company (in the
aggregate, the "Total Payments"), if any of the Total Payments will be subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any
similar tax that may hereafter be imposed), the Company shall pay to the
Executive in cash an additional amount (the "Gross-Up Payment") such that the
net amount retained by the Executive after deduction of any Excise Tax upon the
Total Payments and any Federal, state and local income tax and Excise Tax upon
the Gross-Up Payment provided for by this Section 7.3 (including FICA and FUTA),
shall be equal to the Total Payments. Such payment shall be made by the Company
to the Executive as soon as practical following the effective date of
termination, but in no event beyond thirty (30) days from such date.
7.4 TAX COMPUTATION. For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the amounts of such Excise
Tax:
(a) Any other payments or benefits received or to be received by the
Executive in connection with a Change in Control of the Company or
the Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement, or
agreement with the Company, or with any person (which shall have
the meaning set forth in Section 3(a)(9) of the Securities
Exchange Act of 1934, including a "group" as defined in Section
13(d) therein) whose actions result in a Change in Control of the
Company or any person affiliated with the Company or such persons)
shall be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section
13
<PAGE>
280G(b)(1) shall be treated as subject to the Excise Tax, unless
in the opinion of tax counsel as supported by the Company's
independent auditors and acceptable to the Executive, such other
payments or benefits (in whole or in part) do not constitute
parachute payments, or unless such excess parachute payments (in
whole or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount within the meaning of Section
280G(b)(3) of the Code, or are otherwise not subject to the Excise
Tax;
(b) The amount of the Total Payments which shall be treated as subject
to the Excise Tax shall be equal to the lesser of: (i) the total
amount of the Total Payments; or (ii) the amount of excess
parachute payments within the meaning of Section 280G(b)(1) (after
applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors
in accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay Federal income taxes at the highest marginal
rate of Federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
effective date of termination, net of the maximum reduction in Federal income
taxes which could be obtained from deduction of such state and local taxes.
7.5 SUBSEQUENT RECALCULATION. In the event the Internal Revenue
Service adjusts the computation of the Company under Section 7.4 herein so that
the Executive did not receive the greatest net benefit, the Company shall
reimburse the Executive for the full amount necessary to make the Executive
whole, plus a market rate of interest, as determined by the Committee.
SECTION 8. NONCOMPETITION
8.1 PROHIBITION ON COMPETITION. Without the prior written consent of
the Company, during the term of this Agreement, and for the greater of twelve
(12) months following the expiration of this Agreement, or any other period in
which amounts are paid hereunder, the Executive shall not, as an employee or an
officer, engage directly or indirectly in any business or enterprise which is
"in competition" with the Company or its successors or assigns.
8.2 DISCLOSURE OF INFORMATION. The Executive recognizes that he has
access to and knowledge of certain confidential and proprietary information of
the Company which is essential to the performance of his duties under this
14
<PAGE>
Agreement. The Executive will not, during or after the term of his employment by
the Company, in whole or in part, disclose such information to any person, firm,
corporation, association, or other entity for any reason or purpose whatsoever,
nor shall he make use of any such information for his own purposes.
8.3 COVENANTS REGARDING OTHER EMPLOYEES. During the term of this
Agreement, and for a period of twenty four (24) months following the expiration
of this Agreement, the Executive agrees not to attempt to induce any employee of
the Company to terminate his or her employment with the Company, accept
employment with any competitor of the Company, or to interfere in a similar
manner with the business of the Company.
SECTION 9. INDEMNIFICATION
The Company hereby covenants and agrees to indemnify and hold harmless
the Executive fully, completely, and absolutely against and in respect to any
and all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the terms of this
Agreement.
SECTION 10. ASSIGNMENT
10.1. ASSIGNMENT BY COMPANY. This Agreement may and shall be assigned
or transferred to, and shall be binding upon and shall inure to the benefit of,
any successor of the Company, and any such successor shall be deemed substituted
for all purposes of the "Company" under the terms of this Agreement. As used in
this Agreement, the term "successor" shall mean any person, firm, corporation,
or business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall immediately entitle the Executive to compensation from the Company in the
same amount and on the same terms as the Executive would be entitled in the
event of an involuntary termination by the Company, as provided in
Paragraph 6.6 herein.
Except as herein provided, this Agreement may not otherwise be
assigned by the Company.
10.2. ASSIGNMENT BY EXECUTIVE. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives,
15
<PAGE>
executors, and administrators, successors, heirs, distributees, devisees, and
legatees. If the Executive should die while any amounts payable to the Executive
hereunder remain outstanding, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee or, in the absence of such
designee, to the Executive's estate.
SECTION 11. DISPUTE RESOLUTION AND NOTICE
11.1. DISPUTE RESOLUTION. Any dispute arising under or in connection
with this Agreement shall be settled exclusively by arbitration.
Such proceeding shall be conducted before a panel of three (3)
arbitrators sitting in a location selected by the Executive within fifty (50)
miles from the location of his principal place of employment, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the award of the arbitrator in any court having jurisdiction.
All expenses of such arbitration, including the reasonable fees and
expenses of the legal representation, and necessary costs and disbursements
incurred as a result of such dispute, and any prejudgment interest, shall be
borne by the unsuccessful party.
11.2. NOTICE. Any notices, requests, demands, or other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
SECTION 12. MISCELLANEOUS
12.1. ENTIRE AGREEMENT. This Agreement supersedes the prior Employment
Agreement between the Company and the Executive dated August 1, 1993 (provided
that the Executive shall continue to be entitled to receive all amounts and
benefits accrued thereunder through the Effective Date) as well as all
negotiations or understandings, oral or written, between the Executive and the
Company, with respect to the subject matter hereof and constitutes the entire
Agreement of the parties with respect thereto. The parties acknowledge, however,
that there are various other prior agreements between them, which shall remain
unmodified and in full force and effect.
12.2. MODIFICATION. This Agreement shall not be varied, altered,
modified, canceled, changed, or in any way amended except by mutual agreement of
the parties in a written instrument executed by the parties hereto or their
legal representatives.
16
<PAGE>
12.3. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
12.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
12.5. TAX WITHHOLDING. The Company may withhold from any benefits
payable under this Agreement all Federal, state, city, or other taxes as may be
required pursuant to any law or govern-mental regulation or ruling.
12.6. BENEFICIARIES. The Executive may designate one or more persons
or entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a signed
writing acceptable to the Board or the Board's designee. The Executive may make
or change such designation at any time.
SECTION 13. GOVERNING LAW
To the extent not preempted by federal law, the provisions of this
Agreement shall be construed and enforced in accordance with the laws of the
state of California.
17
<PAGE>
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a
resolution adopted at a duly constituted meeting of its Board of Directors) have
executed this Agreement, as of the day and year first above written.
Executive:
/s/ROGER M. LAVERTY, III
-----------------------------------------
Roger M. Laverty, III
Smart & Final Inc.
ATTEST
By: /s/DONALD G. ALVARADO By: /s/ROBERT J. EMMONS
--------------------------- -------------------------------------
Corporate Secretary Robert J. Emmons
Chairman of the Board of Directors
18
<PAGE>
EXHIBIT 10.56-1
FIRST AMENDMENT TO THE
SMART & FINAL
SUPPLEMENTAL DEFERRED COMPENSATION PLAN
The Smart & Final Supplemental Deferred Compensation Plan ("Plan") is
amended, effective as if included in the Plan as originally adopted; as follows:
1. Section 2.15 of the Plan is amended to read as follows:
2.15 "Eligible Associate" means any individual employed by an
Employer in a management position with annual Base Compensation of not
less than $75,000 for 1994. This amount may be adjusted from time to
time by the Committee to reflect increases in the cost of living.
2. Section 2.24 of the Plan is amended to read as follows:
2.24 "Qualified 401(k) Plan" means the plan qualified under
Section 401(k) of the Code which is sponsored by the Employer.
3. Section 2.24A is added to the Plan to read as follows:
2.24A "Qualified Pension Plan" means the defined benefit pension
plan qualified under Section 401(a) of the Code which is sponsored by
the Employer.
4. Section 2.25 of the Plan is amended to read as follows:
2.25 "Retirement" means a Participant's Severance after the
earlier of his Early Retirement Date, Normal Retirement Date or
becoming Disabled. A Disabled Participant shall be deemed to retire
when his Base Compensation ceases to be paid.
5. Section 2.26 of the Plan is amended by deleting the final sentence
thereof.
6. Section 3.2 of the Plan is amended to read as follows:
3.2 A Participant who has not timely submitted a valid Deferral
Election may not defer any Covered Compensation (or receive the
corresponding company contributions under Article IV) for the
applicable Plan Year.
7. Section 4.1 of the Plan is amended to read as follows:
<PAGE>
4.1 With respect to each Plan Year, the Company shall allocate
to each Participant as of January 1 of the following Plan Year an
amount, if any, equal to such Participant's lost share of Company
profit sharing contributions and forfeitures under the Qualified
401(k) Plan attributable solely to the reduction in his compensation
by reason of Deferrals hereunder, provided that the Participant is
employed by the Employer on such January 1.
8. Section 4.2 of the Plan is amended to read as follows:
4.2 With respect to each Plan Year, the Company shall allocate
to each Participant as of January 1 of the following Plan Year an
amount, if any, equal to such Participant's lost share of Employer
nondiscretionary matching contributions under the Qualified 401(k)
Plan attributable solely to the reduction in his compensation by
reason of Deferrals hereunder, provided that the Participant is
employed by the Employer on such January 1.
9. Section 4.3 is added to the Plan to read as follows:
4.3 With respect to each Plan Year, the Company shall allocate
to each Participant during the following Plan Year an amount, if any,
equal to such Participant's lost share of Employer discretionary
matching contributions under the Qualified 401(k) Plan attributable
solely to the reduction in his compensation by reason of Deferrals
hereunder, provided that the Participant is employed by the Employer
on the date of such allocation. Such allocation shall be made as of
the first day of the month in which the Employer contributes and
allocates the discretionary matching contribution in the Qualified
401(k) Plan.
10. Section 4.4 is added to the Plan to read as follows:
4.4 In the event that a Participant receives a retirement or
severance benefit (but not a death benefit) from the Qualified Pension
Plan which has been reduced due to the reduction in his compensation
by reason of Deferrals hereunder, the Company shall pay to the
Participant the lump sum actuarial equivalent (based upon the
actuarial factors set forth in the Qualified Pension Plan)
<PAGE>
of such reduction in benefit. Notwithstanding any provision in the
Plan to the contrary, such amount shall be paid directly by the
Company to the Participant in a lump sum subject to applicable
withholding as soon as practicable after receipt by the Participant of
benefits from the Qualified Pension Plan, and shall at no time be
considered as part of his Account.
11. Section 5.1 of the Plan is amended by substituting the word "first"
for the word "last" in the first sentence thereof.
12. Section 5.2 of the Plan is amended by the addition of the phrase "(net
earnings rate)" between the phrase "on the performance" and the phrase "of the
investment options" in the first sentence thereof.
13. Section 6.1 of the Plan is amended by the addition of the following
language to the end thereof:
"Notwithstanding the foregoing, a Disabled Participant may
request distribution in the form of a lump sum payout. The Committee,
in its sole and absolute discretion, may approve or disapprove such
request."
14. Section 6.5 of the Plan is amended by substituting the following
language for the final sentence thereof:
"The Participant shall be paid the Withdrawal Amount, less
penalty and applicable withholding, within 60 days of his election."
15. Section 8.3 of the Plan is amended to read as follows:
8.3 The portion of the death benefit payable pursuant to
Sections 8.1 and 8.2 representing the Account balance shall be paid in
three equal annual installments. In addition, interest on the
Account, to be paid with each installment, shall be computed in the
following manner:
(a) Subject to Section 12.1, the Company may, in its
discretion, segregate a portion of its general assets equal to the
Account balance and invest such portion in a short term, fixed income
investment such as an interest bearing bank account or a money market
account, in which event the interest credited with respect to the
Account shall be
<PAGE>
equal to the actual yield on the Company's account.
(b) In the event that the trustee of a grantor trust
described in Section 12.1 holds funds that are intended by the
Committee to be used to pay the death benefit, then the interest
credited with respect to the Account shall be equal to the actual
positive yield received by the trustee on the investment of such
funds.
(c) If neither subsection (a) nor (b) is applicable,
interest shall be credited at the prime rate of interest as reported
in the national financial press reduced by 3% per annum, but in no
event shall the interest rate determined under this subsection be less
than 4% per annum.
IN WITNESS WHEREOF, this First Amendment has been executed as of
August 29, 1996.
SMART & FINAL, INC.
By: /s/ JAMES E. ROBINSON
--------------------------
<PAGE>
EXHIBIT 10.56-2
SECOND AMENDMENT TO THE
SMART & FINAL
SUPPLEMENTAL DEFERRED COMPENSATION PLAN
The Smart & Final Supplemental Deferred Compensation Plan ("Plan"), as
amended by the First Amendment dated as of is amended, effective as if included
in the Plan as originally adopted; as follows:
1. Section 2.9 of the Plan is hereby deleted and replaced with the
following section:
2.9 "Covered Compensation" means annual base salary and bonus, net of
deferrals to any plan other than this Plan, and any other compensation
designated by the Committee.
2. Section 3.1 of the Plan is hereby amended to add the following
sentence following the first sentence of Section 3.1:
"Each Eligible Associate who has become a Participant in the Plan
shall indicate in their Deferral Election, his selection for investment
options pursuant to Section 5.3."
3. Section 5.3 of the Plan is hereby deleted and replaced with the
following section:
5.3 The Committee shall specify two or more investment funds which
shall serve as indices for the investment performance of amounts credited
to the Accounts. The Committee shall also permit the total shareholder
return on the Company's common stock to serve as an index for investment
performance of amounts credited to the Accounts. The Accounts shall be
adjusted to reflect the gain or loss such Accounts would experience had
they actually been invested in the specified funds or in the Company's
common stock at the relevant times. The Committee may vary the available
investment funds from time to time, but not more frequently than quarterly.
Subject to Section 5.5, the Participant may select his investment options
for new Deferrals and Contributions, or for amounts already credited to his
Account, once per calendar quarter effective as of the last day of such
quarter.
<PAGE>
4. A new Section 5.5 is hereby added to the Plan to read as follows:
5.5 Notwithstanding any other provision herein, amounts which are
elected to be invested in the Company's common stock may not be moved out
of such investment alternative. Such amounts shall be denominated and paid
solely in shares of the Company's common stock.
5. Section 6.6 of the Plan is hereby deleted and replaced with the
following section:
6.6 Subject to Section 5.5, all distributions of a Participant's
Account shall be made in cash, and shall be subject to applicable
withholding for taxes.
6. In all respects, except as otherwise set forth herein, the Plan shall
remain in force and effect.
IN WITNESS WHEREOF, this Second Amendment has been executed as of February 21,
1997.
SMART & FINAL, INC.
By: /s/ DONALD G. ALVARADO
--------------------------------
Title: Senior Vice President
-----------------------------
By: /s/ MARTIN A. LYNCH
--------------------------------
Title: Executive Vice President, CFO
-----------------------------
<PAGE>
EXHIBIT 10.57
FIRST AMENDMENT TO THE
SMART & FINAL
DIRECTORS DEFERRED COMPENSATION PLAN
The Smart & Final Directors Deferred Compensation Plan ("Plan") is
amended, effective as if included in the Plan as originally adopted; as follows:
1. Section 2.8 of the Plan is amended to read as follows:
2.8 "Covered Compensation" means director's fees received in cash
by a Participant from the Company.
2. Section 2.20 of the Plan is amended to read as follows:
2.20 "Retirement" means a Participant's Severance after the earlier
of his Normal Retirement Date or becoming Disabled. A Disabled
Participant shall be deemed to retire when his Covered Compensation
ceases to be paid.
3. Section 2.21 of the Plan is amended by deleting the final sentence
thereof.
4. Section 4.1 of the Plan is amended by substituting the word "first"
for the word "last" in the first sentence thereof.
5. Section 4.2 of the Plan is amended by the addition of the phrase "(net
earnings rate)" between the phrase "on the performance" and the phrase "of the
investment options" in the first sentence thereof.
6. Section 5.1 of the Plan is amended by the addition of the following
language to the end thereof:
"Notwithstanding the foregoing, a Disabled Participant may request
distribution in the form of a lump sum payout. The Committee, in its
sole and absolute discretion, may approve or disapprove such request."
7. Section 5.5 of the Plan is amended by substituting the following
language for the final sentence thereof:
"The Participant shall be paid the Withdrawal Amount, less penalty
and applicable withholding, within 60 days of his election."
<PAGE>
8. Section 7.3 of the Plan is amended to read as follows:
7.3 The portion of the death benefit payable pursuant to Sections
7.1 and 7.2 representing the Account balance shall be paid in three
equal annual installments. In addition, interest on the Account, to be
paid with each installment, shall be computed in the following manner:
(a) Subject to Section 11.1, the Company may, in its
discretion, segregate a portion of its general assets equal to the
Account balance and invest such portion in a short term, fixed income
investment such as an interest bearing bank account or a money market
account, in which event the interest credited with respect to the
Account shall be equal to the actual yield on the Company's account.
(b) In the event that the trustee of a grantor trust described
in Section 11.1 holds funds that are intended by the Committee to be
used to pay the death benefit, then the interest credited with respect
to the Account shall be equal to the actual positive yield received by
the trustee on the investment of such funds.
(c) If neither subsection (a) nor (b) is applicable, interest
shall be credited at the prime rate of interest as reported in the
national financial press reduced by 3% per annum, but in no event shall
the interest rate determined under this subsection be less than 4% per
annum.
IN WITNESS WHEREOF, this First Amendment has been executed as of
August 29, 1996.
SMART & FINAL, INC.
By: /s/ JAMES E. ROBINSON
----------------------------
<PAGE>
EXHIBIT 10.58
OMNIBUS AMENDMENT, DIRECTION AND CONSENT NO. 3
OMNIBUS AMENDMENT, DIRECTION AND CONSENT NO. 3, dated January 31,
1997, among SMART & FINAL INC., a Delaware corporation (the "Lessee"), SMART &
FINAL STORES CORPORATION, a California corporation, and PORT STOCKTON FOOD
DISTRIBUTORS, INC., a California corporation (each a "Permitted Sublessee" and
together, the "Permitted Sublessees"), FLEET NATIONAL BANK OF CONNECTICUT, a
national banking association, not in its individual capacity but solely as the
Owner Trustee under the Trust Agreement (the "Lessor"), FIRST HAWAIIAN BANK, as
holder of Series A Notes and as holder of Series B Notes ("First Hawaiian"),
CREDIT LYONNAIS LOS ANGELES BRANCH, as holder of Series A Notes and Series B
Notes ("CLLA"), BANK LEUMI LE-ISRAEL B.M., as holder of Series A Notes and
Series B Notes ("Bank Leumi") and, together with First Hawaiian and CLLA, the
"Lenders", and CREDIT LYONNAIS NEW YORK BRANCH, a branch duly licensed under the
laws of New York of a banking corporation organized and existing under the laws
of the Republic of France, as the Equity Participant under the Trust Agreement
(the "Equity Participant") and as agent for the Lenders (the "Agent").
RECITALS
WHEREAS, the Equity Participant and Shawmut Bank Connecticut, National
Association entered into a Trust Agreement, dated as of December 15, 1994;
WHEREAS, the Lessor and the Lessee entered into a Lease Agreement (the
"Lease Agreement"), dated as of December 15, 1994;
WHEREAS, the Lessor and the Lessee entered into an Agency Agreement
(the "Agency Agreement"), dated as of December 15, 1994;
WHEREAS, the Lessor, the Lenders and the Agent entered into a Loan
Agreement (the "Loan Agreement"), dated as of December 15, 1994;
WHEREAS, the Lessee, the Permitted Sublessees, the Lessor, the
Lenders, the Agent and the Equity Participant entered into a Participation
Agreement (the "Participation Agreement"), dated as of December 15, 1994;
WHEREAS, the Transaction Documents were amended pursuant to (i) an
Omnibus Amendment, Direction and Consent, dated December 27, 1995, among the
Lessee, the Permitted Sublessees, the Lessor, the Lenders, the Equity
Participant and the Agent and (ii) an Omnibus Amendment, Direction and Consent
No. 2, dated April __, 1996, among the Lessee, the Permitted Sublessees, the
Lessor, the Lenders, the Equity Participant and the Agent;
WHEREAS, the parties hereto desire to further amend the Transaction
Documents as set forth herein;
<PAGE>
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the parties hereto agree as follows:
Section 1. Capitalized terms used but not defined herein shall have
the meaning assigned thereto in the Participation Agreement.
Section 2. In accordance with Section 6.02 of the Trust Agreement,
the Equity Participant hereby instructs Fleet National Bank of Connecticut,
formerly known as Shawmut Bank Connecticut, National Association, to execute and
delivery this Omnibus Amendment, Direction and Consent No. 3 as Lessor.
Section 3. In accordance with the terms and conditions of the Loan
Agreement and the Participation Agreement, the Lenders and the Agent hereby
consent to the amendments set forth herein to the Transaction Documents.
Section 4. Section 1.06 of the Participation Agreement is hereby
amended by deleting such Section in its entirety and inserting the following:
SECTION 1.06. Fees Payable by Lessee. The Lessee shall pay to the
----------------------
Agent the Administration Fee on the initial Closing Date and each December
1 thereafter occurring during the Lease Term. The Lessee shall pay to the
Lenders and the Equity Participant a commitment fee for the period
beginning on the initial Closing Date and ending on April 30, 1997, equal
to 0.20% per annum of the excess from time to time of $30,000,000 over the
Outstanding Property Cost. Such commitment fee shall be paid to the Agent,
quarterly in arrears on each Payment Date, for distribution to the parties
entitled thereto.
Section 5. Section 1.07 of the Participation Agreement is hereby
amended by deleting such Section in its entirety and inserting the following:
SECTION 1.07. Closing. Each closing (a "Closing") of (a) the
-------
acquisition of one or more Leased Premises by the Lessor, (b) the payment
of an Advance by the Lessor to the Lessee and, (c) in the case of the
initial closing, the execution and delivery of the Transaction Documents
and the payment to the Agent of the Arrangement Fee, shall take place at
the offices of Orrick, Herrington & Sutcliffe, 666 Fifth Avenue, New York,
New York at 12:00 noon, New York City time, on such date (the "Closing
Date") or in the case of the payment of an Advance (the "Advance Date") on
or before (x) with respect to Leased Premises in the 1995 Tranche, December
31, 1995 (except that (i) with respect to Leased Premises the Purchase
Price of which has been paid by the Lessor prior to December 31, 1995,
Advances may be made in respect of such Leased Premises after December 31,
1995 but may occur no later than March 31, 1996 and (ii) with respect to
the Leased Premises located at 5925 E. Carson Street, Lakewood, California,
Advances may be made in respect of such Leased Premises after March 31,
1996 but may occur no later than May 20, 1996) or (y) with respect to
Leased Premises in the 1996 Tranche, December 31, 1996 (except that with
respect to (i) Leased Premises the Purchase Price of which has been paid by
the Lessor prior to December 31, 1996,
2
<PAGE>
Advances may be made in respect of such Leased Premises after December 31,
1996 but may occur no later than March 31, 1997 and (ii) the Leased
Premises located at 16201 Harbor Blvd., Fountain Valley, California, the
Closing Date may occur after December 31, 1996 but may occur no later than
January 31, 1997 and Advances may be made in respect of such Leased
Premises after December 31, 1996 but may occur no later than April 30,
1997), or, in the case of the initial Closing Date, December 31, 1994, as
the Lessee shall specify by not less than three Business Days' written
notice (the "Closing Notice") delivered to the Lessor, each Lender, the
Equity Participant and the Agent. The Closing Notice shall set forth the
aggregate Purchase Price of the Leased Premises and the Lessor's Share of
Improvement Cost funded with the funds advanced to the Lessee and shall
have attached thereto the fully completed form of Lease Supplement which
the Lessee contemplates will be executed and delivered on the Closing Date
or Advance Date, as the case may be.
Section 6. The definition of the term "Completion Date" in the Agency
Agreement is hereby amended by deleting such term in its entirety and inserting
the following:
"Completion Date" shall mean, for the Improvements for any Leased
Premises, the earlier of (a) with respect to each of the Leased Premises in
the 1995 Tranche, (i) the estimated completion date set forth in the Final
Construction Plans therefor plus one month, (ii) March 31, 1996 or (iii)
with respect to the Leased Premises located at 5925 E. Carson Street,
Lakewood, California, May 20, 1996 and (b) with respect to each of the
Leased Premises in the 1996 Tranche, (i) the estimated completion date set
forth in the Final Construction Plans therefor plus one month, (ii) March
31, 1997 or (iii) with respect to the Leased Premises located at 16201
Harbor Blvd., Fountain Valley, California, April 30, 1997, as the same may
be extended by the Agent pursuant to Section 4.10(a) of the Agency
Agreement.
Section 7. Section 2(b) of the Lease Agreement is hereby amended by
deleting such clause in its entirety and inserting the following:
(b) The lease of each of the Leased Premises to the Lessee under this
Lease Agreement shall be evidenced by the execution and delivery to the
Lessor and the Lessee of a Lease Supplement. In addition, each Advance made
by the Lessor to the Lessee under the Agency Agreement shall be evidenced
by a Lease Supplement. With respect to each of the Leased Premises in the
1995 Tranche, there shall be no more than 12 Closing Dates and Advance
Dates, and no Closing Date shall occur after December 31, 1995; provided
that with respect to Leased Premises the Purchase Price of which has been
paid by the Lessor prior to December 31, 1995, Advance Dates may occur
after December 31, 1995 but may occur no later than March 31, 1996;
provided, further that with respect to the Leased Premises located at 5925
E. Carson Street, Lakewood, California, Advance Dated may occur after March
31, 1996 but may occur no later than May 20, 1996. With respect to each of
the Leased Premises in the 1996 Tranche, there shall be no more than 8
Closing Dates and Advance Dates, and no Closing Date shall occur after
January 31, 1997; provided that with respect to (i) Leased
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Premises the Purchase Price of which has been paid by the Lessor prior to
December 31, 1996, Advance Dates may occur after December 31, 1996 but may
occur no later than March 31, 1997 and (ii) the Leased Premises located at
16201 Harbor Blvd., Fountain Valley, California, the Closing Date may occur
after December 31, 1996 but may occur no later than January 31, 1997 and
Advances Dates may occur after December 31, 1996 but may occur no later
than April 30, 1997.
Section 8. This Omnibus Amendment, Direction and Consent No. 3 shall
be governed by and construed in accordance with the laws of the State of New
York without regard to principles of conflicts of law. All agreements herein of
the parties hereto shall bind any successors or assigns, whether so expressed or
not. In case any provision herein shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby. This Omnibus Amendment, Direction
and Consent No. 3 may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the Lessee, the Permitted Sublessees, the Lessor,
the Lenders, the Equity Participant and the Agent have caused this Omnibus
Amendment, Direction and Consent No. 3 to be duly executed as of the day and
year first above written.
SMART & FINAL INC.,
as Lessee
By: /s/DONALD G. ALVARADO
----------------------------------------
Name: DONALD G. ALVARADO
Title: SENIOR VICE PRESIDENT LAW/DEVELOPMENT
SMART & FINAL STORES CORPORATION,
as Permitted Sublessee
By: /s/DONALD G. ALVARADO
----------------------------------------
Name: DONALD G. ALVARADO
Title: SENIOR VICE PRESIDENT LAW/DEVELOPMENT
PORT STOCKTON FOOD DISTRIBUTORS, INC.,
as Permitted Sublessee
By: /s/DONALD G. ALVARADO
----------------------------------------
Name: DONALD G. ALVARADO
Title: SECRETARY
FLEET NATIONAL BANK, not in its individual
capacity but solely as the Owner Trustee
under the Trust Agreement, as Lessor
By: _________________________________
Name:
Title:
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FIRST HAWAIIAN BANK, as Series A Lender
and Series B Lender
By: _________________________________
Name:
Title:
CREDIT LYONNAIS LOS ANGELES BRANCH,
as Series A Lender and Series B Lender
By: _________________________________
Name:
Title:
BANK LEUMI LE-ISRAEL B.M., as Series A
Lender and Series B Lender
By: _________________________________
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH,
as Equity Participant and Agent
By: _________________________________
Name:
Title:
6
<PAGE>
EXHIBIT 10.68
SMART & FINAL, INC.
TRUST FOR DEFERRED COMPENSATION PLANS
<PAGE>
SMART & FINAL TRUST FOR DEFERRED COMPENSATION PLANS
WHEREAS, this Agreement, made effective as of the 17th day of October,
1996, by and between Smart & Final, Inc. (the "Company") and City National Bank
(the "Trustee"), evidences the terms of a trust to hold assets in respect of
certain non-qualified deferred compensation plans; and
WHEREAS, the Company has adopted the non-qualified deferred compensation
plan(s) as listed in Appendix A (each a "Plan," together the "Plans");
WHEREAS, the Company has incurred or expects to incur liability under the
terms of such Plan(s) with respect to the individuals participating in such
Plan(s);
WHEREAS, the Company wishes to establish a trust (hereinafter referred to
as the "Trust") and to contribute to the Trust assets that shall be held
therein, subject to the claims of the Company's creditors in the event of the
Company's Insolvency, as herein defined, until paid to Plan participants and
their beneficiaries in such manner and at such times as specified in the
Plan(s);
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plan(s) as unfunded plans maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974
and for directors of the Company;
WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plan(s);
NOW, THEREFORE, the parties do hereby establish the Trust, to be known as
the "SMART & FINAL, INC. TRUST FOR DEFERRED COMPENSATION PLANS," and agree that
the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee in trust $100, which shall
become the principal of the Trust to be held, administered and disposed of by
the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall become irrevocable upon approval by
the Board of Directors of the Company.
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
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(d) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Company and (subject to Section 1(f)
herein) shall be used exclusively for the uses and purposes of Plan participants
and general creditors as herein set forth. Plan participants and their
beneficiaries shall have no preferred claim on, or any beneficial ownership
interest in, any assets of the Trust. Any rights created under the Plan(s) and
this Trust Agreement shall be mere unsecured contractual rights of Plan
participants and their beneficiaries against the Company. Any assets held by
the Trust will be subject to the claims of the Company's general creditors under
federal and state law in the event of Insolvency, as defined in Section 3(a)
herein.
(e) After the Trust has become irrevocable pursuant to Section 1(b), within
90 days following the end of each Plan year, the Company shall deposit cash
and/or additional property to the Trust as follows:
(i) With respect to each Plan providing a "defined benefit" type of
benefit structure, an amount equal to the excess, if any, of the present value
of the accrued benefits thereunder over the fair market value of the Trust's
assets attributable or allocated to the Plan as of the end of the Plan year,
calculated using the actuarial assumptions specified in the Plan.
(ii) With respect to each other Plan, an amount equal to the excess,
if any, of the aggregate amount credited to participants' accounts over the fair
market value of the Trust's assets attributable or allocated to the Plan as of
the end of the Plan year.
Nothing contained in this subsection shall prohibit the Company from making
additional deposits into the Trust at any time in its sole and absolute
discretion.
(f) The Company in its sole and absolute discretion may elect to withdraw
at any time all or a portion of the amount by which the fair market value of the
Trust's assets exceeds one hundred and twenty-five percent (125%) of the sum of
the present value of the accrued benefits described in Section 1(e)(i) hereof
and the aggregate amount credited to participants' accounts described in Section
1(e)(ii) hereof, determined as of the date of such withdrawal.
(g) The Company may permit other affiliated corporations whose employees
participate in one or more Plans ("Affiliates") to contribute to this Trust.
The contributions and earnings thereon of each Affiliate shall be held in a
subtrust hereunder. The assets in each such subtrust shall be subject solely to
the claims of the participants employed by that respective Affiliate and its
creditors, the Affiliate shall be treated as the grantor of such subtrust, and
Sections 2, 3 and 4 herein shall be applied separately to each subtrust with
reference to the respective Affiliate as if the Affiliate were the "Company."
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<PAGE>
2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
(a) The Company or such party as it shall designate in writing shall
deliver to the Trustee from time to time a written schedule or schedules (each,
a "Payment Schedule") that indicates the amounts payable in respect of each Plan
participant (and his or her beneficiaries) or that provides a formula or other
instructions acceptable to Trustee for determining the amounts so payable, the
form in which such amount is to be paid (as provided for or available under the
Plan(s)), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, the Trustee shall make payments to the Plan
participants and their beneficiaries in accordance with such Payment Schedule.
The Trustee shall make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld with respect
to the payment of benefits pursuant to the terms of the Plan(s) and shall pay
amounts withheld to the appropriate taxing authorities or determine that such
amounts have been reported, withheld and paid by the Company.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan(s) shall be determined by the Company or such party as
it shall designate under the Plan(s), and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan(s).
Notwithstanding the foregoing, upon a Change in Control (as defined in Section
12(d)), the responsibility of the Company and any of its delegates for
determining benefit entitlement or directing any payment or disbursement shall
cease and the Trustee shall have full authority and responsibility for such
matters.
(c) The Company may make payment of benefits directly to Plan participants
or their beneficiaries as they become due under the terms of the Plan(s). The
Company shall notify the Trustee of its decision to make payment of benefits
directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plan(s), the Company shall make the balance of each such payment as
it falls due. The Trustee shall notify the Company where principal and earnings
are not sufficient. In addition, the Trustee shall provide the Company with
written confirmation of the fact and time of any payment hereunder within the
time limit agreed to by the Company and the Trustee from time to time.
(d) To enable the Trustee to perform its functions after a Change in
Control, the Company shall supply full and timely information to the Trustee on
all matters relating to the compensation of Plan participants, the date and
circumstances of the termination of employment or death of a Plan participant
and such other pertinent information as the Trustee may reasonably require. In
addition, each Plan participant shall cooperate with the Trustee by furnishing
any and all information reasonably requested by the Trustee and take such other
actions as may be requested in order to facilitate the administration of the
Trust and the payment of benefits hereunder.
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<PAGE>
(e) The Trustee and its officers, directors and employees shall be entitled
to rely on all certificates and reports made by any duly appointed accountants,
actuaries and consultants, and on all opinions given by any properly consulted
legal counsel, which legal counsel may be counsel for the Trustee or the
Company.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING
PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if the Company is Insolvent. The Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) it is unable
to pay its debts as they become due, or (ii) it is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code. For purposes of
this Section 3, if the Company is determined to be Insolvent, no affiliate in
which the Company has an equity interest shall be deemed to be an Insolvent
entity by reason of the Company's Insolvency. Similarly, the Insolvency of an
affiliate will not cause the Company to be deemed Insolvent.
(b) At all times during the continuance of this Trust, as provided in
Section l(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company and its affiliates under federal and
state law, as set forth below.
(i) The Board of Directors and the Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become Insolvent, the Trustee shall
determine whether the Company is Insolvent and, pending such determination, the
Trustee shall discontinue payment of benefits to Plan participants or their
beneficiaries.
(ii) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to be a
creditor alleging that the Company is Insolvent, the Trustee shall have no duty
to inquire whether the Company is Insolvent. The Trustee may in all events rely
on such evidence concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(iii) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Plan participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of the
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of Plan participants or their beneficiaries to pursue their
rights as general creditors of the Company with respect to benefits due under
the Plan(s) or otherwise.
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<PAGE>
(iv) The Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this Trust
Agreement only after the Trustee has determined that the Company is not
Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan(s) for the
period of such discontinuance, less the aggregate amount of any payments made to
Plan participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
SECTION 4. PAYMENTS TO COMPANY.
Except as provided in Sections 1(f), 3 and 11 hereof, after the Trust has
become irrevocable, the Company shall have no right or power to direct the
Trustee to return to the Company or to divert to others any of the Trust assets
before all payment of benefits have been made to Plan participants and their
beneficiaries pursuant to the terms of the Plan(s).
SECTION 5. INVESTMENT AUTHORITY.
(a) Prior to a Change in Control, the Trustee shall invest and manage the
assets of the Trust in accordance with written directions from the
administrative committee appointed in accordance with the Plan(s) (the
"Committee"). Upon a Change in Control, the authority of the Company and the
Committee hereunder shall cease and the Trustee shall have the exclusive
authority and responsibility for the investment of Trust assets.
(b) The Company shall have the right, at any time, and from time to time in
its sole discretion, to substitute assets of equal fair market value for any
asset held by the Trust.
(c) Subject to the foregoing provisions of this Section 5, the Trustee
shall have, without exclusion, all powers conferred on the Trustee by applicable
law, unless expressly provided otherwise herein, and all rights associated with
assets of the Trust shall be exercised by the Trustee or the person designated
by the Trustee, and shall in no event be exercisable by or rest with
Participants. The Trustee shall have full power and authority to invest and
reinvest the Trust funds in any investment permitted by law, under the standards
set forth in Section 8(a) including, without limiting the generality of the
foregoing, the power:
(i) To hold, invest and reinvest the principal or income of the Trust
in bonds, common or preferred stock, other securities, or other personal, real
or mixed tangible or intangible property
5
<PAGE>
provided, however, that in no event may the Trustee invest in securities
(including stock or rights to acquire stock) or obligations issued by the
Company or its affiliates, other than a de minimis amount held in common
investment vehicles in which the Trustee invests;
(ii) To deposit or invest all or any part of the assets of the Trust
Fund in savings accounts or certificates of deposit or other deposits which bear
a reasonable interest rate in a bank, including the commercial department of the
Trustee, if such bank is supervised by the United States or any State;
(iii) To hold in cash, without liability for interest, such portion
of the Trust funds which, in its discretion, shall be reasonable under the
circumstances, pending investments, or payment of expenses, or the distribution
of benefits;
(iv) To employ such agents including custodians and counsel-as may be
reasonably necessary and to pay them reasonable compensation; to settle,
compromise or abandon all claims and demands in favor of or against the Trust
assets;
(v) To cause title to property of the Trust to be issued, held or
registered in the individual name of the Trustee, or in the name of its
nominee(s) or agent(s), or in such form that title will pass by delivery;
(vi) To exercise all of the further rights, powers, options and
privileges granted, provided for, or vested in trustees generally under the laws
of the State of California, so that the powers conferred upon the Trustee herein
shall not be in limitation of any authority conferred by law, but shall be in
addition thereto;
(vii) To borrow money from any source (including the Trustee) and
to execute promissory notes, mortgages or other obligations and to pledge or
mortgage any Trust assets as security;
(viii) To lend certificates representing stocks, bonds, or other
securities to any brokerage or other firm selected by the Trustee;
(ix) To institute, compromise and defend actions and proceedings; to
pay or contest any claim; to settle a claim by or against the Trustee by
compromise, arbitration, or otherwise; to release, in whole or in part, any
claim belonging to the Trust to the extent that the claim is uncollectible;
(x) To use securities depositories or custodians and to allow such
securities as may be held by a depository or custodian to be registered in the
name of such depository or its nominee or in the name of such custodian or its
nominee;
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(xi) To invest the Trust funds from time to time in one or more
investment funds, which funds shall be registered under the Investment Company
Act of 1940;
(xii) To invest part or all of the Trust funds in insurance
contracts, the type and amount thereof to be specified by the Company. The
Trustee shall be under no duty to make inquiry as to the propriety of the type
or amount so specified. Each insurance contract issued shall provide that the
Trustee shall be the owner thereof with the power to exercise all rights,
privileges, options and elections granted by or permitted under such contract or
under the rules of the insurer. The exercise by the Trustee of any incidents of
ownership under any contract shall, prior to a Change in Control, be subject to
the direction of the Company or the Committee. The Trustee shall have no power
to name a beneficiary of the policy other than the Trust, to assign the policy
(as distinct from conversion of the policy to a different form) other than to a
successor Trustee, or to loan to any person the proceeds of any borrowing
against such policy; and
(xiii) To do all other acts necessary or desirable for the proper
administration of the Trust Fund, as if the Trustee were the absolute owner
thereof. However, nothing in this section shall be construed to mean the
Trustee assumes any responsibility for the performance of any investment made by
the Trustee in its capacity as trustee under the operations of this Trust
Agreement.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 7. ACCOUNTING BY TRUSTEE.
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within 90 days following the close of each calendar
year and within 90 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest paid
or receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be. Upon the request of the
Company, the Trustee shall maintain records based upon information provided by
the Company or the Committee regarding the attribution or allocation of Trust
assets to each Plan.
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<PAGE>
SECTION 8. RESPONSIBILITY OF TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated by,
and in conformity with, the terms of the Plan(s) or this Trust and is given in
writing by the Company. In the event of a dispute between the Company and a
party, the Trustee may apply to a court of competent jurisdiction to resolve the
dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's reasonable costs, expenses and liabilities (including, without
limitation, attorneys' fees and expenses) relating thereto and to be primarily
liable for such payments; provided that the Trustee must first afford the
Company the opportunity to defend any action against the Trust or the Trustee in
connection with this Trust. If the Company does not pay such costs, expenses
and liabilities in a reasonably timely manner, the Trustee may obtain payment
from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel for
the Company generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE.
The Company shall pay the Trustee such reasonable compensation for its
services as may be agreed upon from time to time by the Company and the Trustee,
and the Trustee shall be reimbursed by the Company for its expenses that are
reasonably necessary and incident to its administration of the Trust. Following
reasonable consultation with the Company, such expenses shall include counsel
fees, if any,
8
<PAGE>
incurred by the Trustee for the purpose of determining its responsibilities
under the Trust. If not so paid, such compensation, fees and expenses shall be
paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF TRUSTEE;
APPOINTMENT OF SUCCESSOR.
(a) The Trustee may resign at any time by written notice to Company, which
shall be effective 30 days after receipt of such notice unless the Company and
the Trustee agree otherwise. If the Trustee resigns at any time after a Change
in Control, the Company shall appoint a successor Trustee which must be approved
by a majority of all Trust beneficiaries then in existence.
(b) The Trustee may be removed by the Company on 30 days' notice or upon
shorter notice accepted by the Trustee; provided that, after a Change in
Control, the Trustee may not be removed by the Company unless such removal is
approved by a majority of all Trust beneficiaries then in existence.
(c) Any successor Trustee may be a bank trust department or other party
that may be granted corporate trustee powers under state law. Upon resignation
or removal of the Trustee and appointment of a successor Trustee, all assets
shall subsequently be transferred to the successor Trustee. The transfer shall
be completed within 30 days after receipt of notice of resignation, removal or
transfer, unless the Company extends the time limit; provided that after a
Change in Control any extension must be approved by a majority of all Trust
beneficiaries then in existence.
(d) A successor Trustee must be appointed by the effective date of
resignation or removal of the original Trustee. If no such appointment has been
made, the original Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
(e) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 5, 7 and 8 hereof. The successor Trustee shall not be responsible for
and the Company shall indemnify and defend the successor Trustee from any claim
or liability resulting from any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it becomes successor
Trustee.
SECTION 11. AMENDMENTS OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument executed by
the Trustee and the Company, provided that after a Change in Control any
amendment of this Agreement must be approved by a majority of Trust
beneficiaries then in existence. Notwithstanding
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<PAGE>
the foregoing, no such amendment shall conflict with the terms of the Plan(s) or
shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which Plan participants
and their beneficiaries are no longer entitled to benefits pursuant to the terms
of the Plan(s). Such date shall be determined by the Company and communicated
to the Trustee in writing. Upon termination of the Trust, any assets remaining
in the Trust shall be returned to the Company.
(c) Notwithstanding the foregoing, the Company may terminate the Trust upon
(i) written approval of all participants or beneficiaries entitled to payment of
benefits pursuant to the terms of the Plan(s), (ii) the exhaustion of all
appeals of a final determination of a court of competent jurisdiction that the
interests in the Trust of Trust beneficiaries is includible for federal income
tax purposes in the gross income of such Trust beneficiaries, without such
determination having been reversed (or the earlier expiration of the time to
appeal), (iii) a determination by the Company that applicable law requires the
Trust to be amended in a way that could make it taxable to its beneficiaries and
failure to so amend would subject the Company to material penalties, (iv) the
expiration of the maximum length of time for which trusts may be established
under any applicable state law, or (v) a determination of the Company to
terminate the Trust because the Company concludes, after consulting with legal
counsel, that judicial authority or the opinion of the U.S. Department of Labor
(as expressed in its proposed or final regulations, advisory opinions, or
similar administrative announcements) creates a significant possibility that the
Trust will not be considered a component of an unfunded plan maintained
primarily to provide deferred compensation for a select group of management or
highly compensated employees, as described in Section 201(2) of the Employee
Retirement Income Security Act of 1974, as amended. All assets in the Trust at
termination shall be returned to the Company.
SECTION 12. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of California.
(d) For purposes of this Trust, "Change in Control" shall mean the purchase
or other acquisition by any person, entity or group of persons, within the
meaning of Sections 13(d) or 14(d) of the Securi-
10
<PAGE>
ties Exchange Act of 1934 ("Act"), or any comparable successor provisions, of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Act) of 30 percent or more of either the outstanding shares of common stock or
the combined voting power of the Company's then outstanding voting securities
entitled to vote generally, or the approval by the stockholders of the Company
of a reorganization, merger, or consolidation, in each case, with respect to
which persons who were stockholders of the company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than 50 percent of the combined voting power entitled to vote generally in the
election of directors of the reorganized, merged or consolidated Company's then
outstanding securities, or a liquidation or dissolution of the Company or of the
sale of all or substantially all of the Company's assets.
(e) This instrument may be executed in one or more counterparts, each of
which is legally binding and enforceable.
(f) Terms used in the masculine shall include the feminine and vice versa
and terms used in the singular shall include the plural and vice versa, unless
the context clearly indicates otherwise.
(g) This Trust Agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their successors and assigns.
IN WITNESS WHEREOF, this Trust Agreement is executed this 17th day of
October, 1996.
SMART & FINAL, INC.
By: /s/JAMES E. ROBINSON
-----------------------------------
CITY NATIONAL BANK
By: /s/ALBERT C. WOLFING
-----------------------------------
ALBERT C. WOLFING
Assistant Vice President
11
<PAGE>
EXHIBIT 10.70
December 10, 1996
- -----------------
Smart & Final, Inc.
4700 South Boyle Avenue
Los Angeles, CA 90058
Attention: Richard Phegley, Vice President and Treasurer
Ladies and Gentlemen:
I am pleased to advise you that Wells Fargo Bank, N.A. ("WFB") has approved for
use by Smart & Final, Inc. an uncommitted short term money market facility in
the principal amount of up to thirty-five million dollars ($35,000,000), subject
to the following terms and conditions:
BORROWER: Smart & Final, Inc. ("BORROWER")
-------------------------------------------------------------
PRINCIPAL AMOUNT: Up to thirty-five million dollars ($35,000,000). Advances
under this facility shall be made in multiples of one million
dollars ($1,000,000) up to an aggregate of $35,000,000
outstanding at any one time. WFB shall not have any
commitment or obligation to make any advances and each
advance will be made only in WFB's sole discretion.
INTEREST RATE: A fixed rate of interest as quoted by WFB on the date of each
advance.
TERM OF ADVANCE: As mutually agreed by WFB and BORROWER at the time of each
--------
advance provided that no advance shall have a term exceeding
ninety (90) days and no advance shall mature after March 10,
1998. Principal and interest of each advance shall be payable
at the maturity of each advance. WFB shall have the option of
assigning or selling participations in any advances.
PURPOSE: For working capital requirements.
EFFECTIVE DATE: December 10, 1996.
TERMINATION DATE: At any time upon written notice by either BORROWER or WFB,
--------
provided, however, that such termination shall not affect any
advance outstanding at the time of termination. In any event,
this line of credit will expire no later than December 10,
1997.
DOCUMENTATION: 1. Note as enclosed.
2. Supporting documentation, including Board Resolution,
Certificate of Incumbency and Authorized Signatures.
<PAGE>
December 10, 1996
Page 2
OTHER TERMS: 1. Continued maintenance of financial conditional
satisfactory to WFB.
2. Provision in a timely manner to WFB of quarterly
unaudited financial statements and an audited fiscal
year-end report certified by a nationally recognized
accounting firm. Provision of 10Q and 10K reports.
WIRE INSTRUCTIONS: WFB will wire monies to the following instructions only. Any
changes must be communicated to WFB in writing and signed by
an authorized signer.
Bank Name : Wells Fargo Bank, N.A.
----------------------
ABA Number : 121000248
----------------------
Credit To : Smart & Final, Inc.
----------------------
Account Number : 4159-391218
----------------------
COMMITMENT FEE: It is understood that this facility does not constitute a
commitment by WFB to lend at any time and that any advance
hereunder shall be at WFB's sole discretion. Accordingly, no
commitment fee will be payable to WFB.
ARBITRATION: 1. Arbitration. Upon the demand of any party, any Dispute
-----------
shall be resolved by binding arbitration (except as set
forth in paragraph 5 below) in accordance with the terms
of this letter. A "Dispute" shall mean any action,
dispute, claim or controversy of any kind, whether in
contract or tort, statutory or common law, legal or
equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this letter
or the enclosed note, or any past, present or future
extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly
to this letter or the enclosed note, including without
limitation, any of the foregoing arising in connection
with the exercise of any self-help, ancillary or other
remedies pursuant to this letter or the enclosed note.
Any party may by summary proceedings bring an action in
court to compel arbitration of a Dispute. Any party who
fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and
expenses incurred by such other party in compelling
arbitration of any Dispute.
2. Governing Rules. Arbitration proceedings shall be
---------------
administered by the American Arbitration Association
("AAA") or such other administrator as the parties shall
mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration
shall be resolved in accordance with the Federal
Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision
in this letter or the enclosed note. The arbitration
shall be conducted at a location in California selected
by the AAA or other
<PAGE>
December 10, 1996
Page 3
administrator. If there is any inconsistency between the
terms hereof and any such rules, the terms and procedures
set forth herein shall control. All statutes of
limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be
expressly limited to matters directly relevant to the
Dispute being arbitrated. Judgment upon any award
rendered in an arbitration may be entered in any court
having jurisdiction; provided however, that nothing
contained herein shall be deemed to be a waiver by any
party that is a bank of the protections afforded to it
under 12 U.S.C. (S)91 or any similar applicable state
law.
3. No Waiver; Provisional Remedies, Self-Help and
----------------------------------------------
Foreclosure. No provision hereof shall limit the right of
-----------
any party to exercise self-help remedies such as setoff,
foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional
or ancillary remedies, including without limitation
injunctive relief, sequestration, attachment, garnishment
or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the
pendency of any arbitration or other proceeding. The
exercise of any such remedy shall not waive the right of
any party to compel arbitration hereunder.
4. Arbitrator Qualifications and Powers; Awards. Arbitrators
--------------------------------------------
must be active members of the California State Bar or
retired judges of the state or federal judiciary of
California, with expertise in the substantive law
applicable to the subject matter of the Dispute.
Arbitrators are empowered to resolve Disputes by summary
rulings in response to motions filed prior to the final
arbitration hearing. Arbitrators (i) shall resolve all
Disputes in accordance with the substantive law of the
state of California, (ii) may grant any remedy or relief
that a court of the state of California could order or
grant within the scope hereof and such ancillary relief
as is necessary to make effective any award, and (iii)
shall have the power to award recovery of all costs and
fees, to impose sanctions and to take such other actions
as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the
California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is
$5,000,000 or less shall be decided by a single arbitor
who shall not render an award of greater than $5,000,000
(including damages, costs, fees and expenses). By
submission to a single arbitrator, each party expressly
waives any right or claim to recover more than
$5,000,000. Any Dispute in which the amount in
controversy exceeds $5,000,000 shall be decided by
majority vote of a panel of three arbitrators; provided
however, that all three arbitrators must actively
participate in all hearings and deliberations.
5. Judicial Review. Notwithstanding anything herein to the
---------------
contrary, in any arbitration in which the amount in
controversy exceeds $25,000,000, the arbitrators shall be
required to make specific, written
<PAGE>
December 10, 1996
Page 4
findings of fact and conclusions of law. In such
arbitrations (i) the arbitrators shall not have the power
to make any award which is not supported by substantial
evidence or which is based on legal error, (ii) an award
shall not be binding upon the parties unless the findings
of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the
substantive law of the state of California, and (iii) the
parties shall have in addition to the grounds referred to
in the Federal Arbitration Act for vacating, modifying or
correcting an award the right to judicial review of (A)
whether the findings of fact rendered by the arbitrators
are supported by substantial evidence, and (B) whether
the conclusions of law are erroneous under the
substantive law of the state of California. Judgment
confirming an award in such a proceeding may be entered
only if a court determines the award is supported by
substantial evidence and not based on legal error under
the substantive law of the state of California.
6. Miscellaneous. To the maximum extent practicable, the
-------------
AAA, the arbitrators and the parties shall take all
action required to conclude any arbitration proceeding
within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results
thereof, except for disclosures of information by a party
required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary
to exercise any judicial review rights set forth herein.
If more than one agreement for arbitration by or between
the parties potentially applies to a Dispute, the
arbitration provision most directly related to this
letter or the enclosed note or the subject matter of the
Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of this
letter or the enclosed note and any relationship between
the parties.
If the above terms and conditions are acceptable to you, please indicate by
signing and returning the enclosed copy of this letter and the original note.
<PAGE>
December 10, 1996
Page 5
We sincerely appreciate the opportunity to provide you with this competitive
source of short-term funding and look forward to your active use of this
facility.
WELLS FARGO BANK, N.A.
By: /s/MICHAEL CORDAS
----------------------------
Michael Cordas
- --------------------------------
Name
Vice President
- --------------------------------
Title
Accepted By:
Smart & Final, Inc.
- --------------------------------
Company Name
By: /s/RICHARD PHEGLEY
----------------------------
Richard Phegley
- --------------------------------
Name
Vice President and Treasurer
- --------------------------------
Title
Enclosures
<PAGE>
NOTE
----
$35,000,000 December 10, 1996
For value received, the undersigned, Smart & Final, Inc. ("Borrower"),
hereby promises to pay to the order of WELLS FARGO BANK, N.A. ("WFB"), in United
States dollars and in immediately available funds at 707 Wilshire Boulevard, Los
Angeles, California, the principal sum of thirty-five million dollars
($35,000,000) or so much thereof as may be outstanding hereunder, whichever is
less, together with interest from the date of each advance on the daily unpaid
principal balance of said advance. Each advance hereunder shall be repaid on the
date mutually agreed by Borrower and WFB at the time of making such advance,
together with interest thereon at the rate per annum mutually agreed by Borrower
and WFB at the time of making of such advance, provided that all principal and
interest outstanding on December 10, 1997 shall be due and payable on such date.
WFB shall not be obligated to make any advance hereunder and any advances
will be made solely in WFB's discretion.
Interest on each advance hereunder shall be computed on the basis of a year
of 360 days for the actual number of days elapsed. Any amount of principal not
paid when due hereunder shall thereafter bear interest at a rate per annum equal
to 1% in excess of the rate announced by WFB from time to time as its "Prime"
rate. Interest not paid when due shall thereafter bear like interest as the
principal.
In the event any advance hereunder is prepaid prior to the maturity date
agreed upon for that advance, the Borrower shall reimburse WFB on demand for any
loss incurred by WFB as a result of such prepayment, including any loss of
income resulting from WFB's reinvestment or remployment of the amount prepaid at
a rate which is less than the interest rate agreed upon for such advance.
WFB is authorized to record on the schedule attached to and made a part of
this Note (a) the date, amount, maturity date and rate of interest agreed upon
by WFB and Borrower with respect to each advance and (b) all payments received
by WFB hereunder. Such schedule shall be prima facie evidence of the matters so
----- -----
recorded, provided that WFB's failure to make any such entries shall not affect
Borrower's obligations hereunder.
Borrower hereby waives diligence, presentment, demand, protest and notice
of any kind whatsoever. Borrower promises to pay costs of collection and
reasonable attorneys' fees if default is made in the payment of this Note.
In the event of nonpayment when due of principal of or interest on this
Note, the whole amount of principal and interest shall, at the option of the
holder of this Note, become immediately due and payable without diligence,
demand, presentment, protest or notice of any kind whatsoever.
Advances under this Note may be requested, and the interest rate quoted by
WFB agreed to, by any authorized officer of the undersigned. The undersigned
hereby authorizes WFB to rely upon the telephonic or written instruction of any
person identifying himself or herself as an
<PAGE>
authorized officer of the undersigned without any obligation on the part of WFB
to confirm the identity or authority of such persons.
This Note shall be governed by and construed under the laws of the State of
California.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by
its officer or officers thereunto duly authorized and directed by appropriate
corporate authority.
Smart & Final, Inc.
- --------------------------------
Borrower Name
By: /s/RICHARD PHEGLEY
----------------------------
Richard Phegley
- --------------------------------
Name
Vice President and Treasurer
- --------------------------------
Title
2
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES LIST
Set forth below is information with respect to the Company and its
subsidiaries, along with the respective states or countries of incorporation.
Unless otherwise noted, each subsidiary is wholly owned.
<TABLE>
<CAPTION>
STATE OR COUNTRY
NAME OF INCORPORATION
---- ----------------
<S> <C>
Smart & Final Inc. Delaware
Smart & Final Stores Corporation California
Smart & Final Nevada Nevada
Smart & Final de Mexico, S.A. de C. V. Mexico
Smart & Final del Noroeste, S.A. de C. V.* Mexico
Casino Frozen Foods, Inc. California
American Foodservice Distributors, Inc. California
Port Stockton Food Distributors, Inc. California
CB Foods, Inc. California
Henry Lee Company** Florida
Henry Lee Exports Corp. Florida
Okun Produce Company Florida
AmeriFoods Trading Company Florida
</TABLE>
____________________
* Smart & Final del Noroeste, S.A. de C.V. is a 50% owned subsidiary of Smart
& Final de Mexico, S.A. de C. V.
** Henry Lee is a 90% owned subsidiary of American Foodservice Distributors,
Inc.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-60502 and 333-01360.
-------- ---------
ARTHUR ANDERSEN LLP
Los Angeles, California
March 20, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 16,795
<SECURITIES> 0
<RECEIVABLES> 70,263
<ALLOWANCES> 2,568
<INVENTORY> 125,721
<CURRENT-ASSETS> 220,691
<PP&E> 264,339
<DEPRECIATION> 77,156
<TOTAL-ASSETS> 441,424
<CURRENT-LIABILITIES> 141,446
<BONDS> 82,644
0
0
<COMMON> 220
<OTHER-SE> 195,435
<TOTAL-LIABILITY-AND-EQUITY> 441,424
<SALES> 1,302,561
<TOTAL-REVENUES> 1,302,561
<CGS> 1,094,933
<TOTAL-COSTS> 1,112,166
<OTHER-EXPENSES> 147,807
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,373
<INCOME-PRETAX> 39,215
<INCOME-TAX> 14,858
<INCOME-CONTINUING> 24,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,334
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
