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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
____________________
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 January 4, 1998
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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 __X__ No___.
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. [ X ]
As of MARCH 26, 1998, 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 $174,936,077
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As of MARCH 26, 1998, the registrant had outstanding 22,410,182 SHARES OF
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COMMON STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Definitive Proxy Statement for its Annual Meeting of
Shareholders to be held May 13, 1998 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 January 4, 1998
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<TABLE>
<CAPTION>
CAPTION PAGE
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<S> <C> <C>
PART I
Item 1 Business.............................................................................. 3
Item 2 Properties............................................................................ 11
Item 3 Legal Proceedings..................................................................... 12
Item 4 Submission of Matters to a Vote of Security Holders................................... 12
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........................................... 20
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 46
PART III
Item 10 Directors and Executive Officers of the Registrant.................................... 46
Item 11 Executive Compensation................................................................ 46
Item 12 Security Ownership of Certain Beneficial Owners and Management........................ 46
Item 13 Certain Relationships and Related Transactions........................................ 46
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 46
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Smart & Final Inc. (the "Company") operated 167 non-membership
warehouse grocery stores in California, Nevada, Arizona and Florida at fiscal
year end 1997 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 ("AFD"), which is a holding company for traditional broadline
foodservice distributors. At year end, AFD owned 100% of Port Stockton Food
Distributors, Inc., a California corporation ("Port Stockton"), an institutional
full-line food distributor in Northern California, and 90% of the Henry Lee
Company, a Florida corporation ("Henry Lee"). In late 1997, AFD acquired the
assets of Orlando Foodservice, Inc. and Capricorn Foods of Central Florida, Inc.
(collectively "Orlando Foodservice"), processing and distribution companies in
Florida, and the assets of Southern Foods, a meat processing and distribution
company in Florida. Subsequent to year end, AFD purchased the remaining 10% of
the stock of Henry Lee. In early 1998, in order to further its name
recognition, Port Stockton began doing business under the name Smart & Final
Foodservice Distributors.
In early 1998, the company announced that it had entered into an
agreement in principle to acquire the Cash & Carry grocery warehouse stores of
United Grocers. The proposed acquisition involves 39 Cash & Carry stores located
primarily in the Pacific Northwest. The transaction is anticipated to close in
the second quarter of 1998 subject to governmental regulatory approval.
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 1997, had 5,205 employees. In fiscal 1997,
the Company had sales of $1,453 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 15,448 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 shopping
experience for the customer.
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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 operators. Smart &
Final positions itself competitively by offering convenience, attractive
pricing, a wide assortment including high quality corporate brand items, and a
high level of customer service. The Company's specific focus on foodservice
operators 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.
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 is
continually evaluating 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 in Florida. The Company experienced
difficulty in this market in 1997, which resulted in the closure of two stores
outside the greater Miami area late in 1997. In 1997, the Company opened one
new store in Carol City, Florida. With concentrated marketing efforts in
specific metropolitan areas, the Company believes Florida, with its vibrant
economy, its significant Hispanic presence, and its concentration of small
independent restaurants and businesses, will ultimately support more Smart &
Final stores.
The Company has also acquired several traditional foodservice
distribution companies in recent years (See American Foodservice Distributors).
Product for stores and foodservice customers is being handled from the same
distribution facility. Management believes that ownership of foodservice
distributors facilitates store expansion in new markets because it reduces
product costs and distribution expenses inherent in new markets.
The Company's current plans are to open as many as 50-60 stores during
the next three years; approximately 15 are scheduled to open in 1998. In
addition, the Company believes it can continue to achieve balanced growth in
sales and profits by scheduling new stores, relocations and remodels in
appropriate markets, maximizing distribution economies, and keeping new store
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
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
USA
Beginning store count 168 155 144 135 124
Stores opened:
New stores 4 13 11 10 10
Relocations 7 6 4 3 5
Stores relocated or closed (12) (6) (4) (4) (4)
------ ------ ------ ------ ------
Ending store count 167 168 155 144 135
====== ====== ====== ====== ======
MEXICO
Beginning store count 5 3 3 1 --
New stores opened - 2 - 2 1
------ ------ ------ ------ ------
Ending store count 5 5 3 3 1
====== ====== ====== ====== ======
Total Ending Store Count 172 173 158 147 136
====== ====== ====== ====== ======
STATISTICAL DATA:
Average selling square feet
per store at end of period:
USA 15,448 14,859 14,431 14,239 13,973
MEXICO 16,946 16,946 16,473 16,473 16,600
New store data:
New markets stores (USA) 1 10 5 6 6
Average selling square feet
USA 21,462 16,788 14,698 15,820 15,380
MEXICO -- 17,656 16,473 16,473 16,600
</TABLE>
Mexico operations are not consolidated and are reported on the equity
basis.
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. Equipment and inventory for each new store
averages $490,000, and $390,000 respectively. On average, each retrofitted store
costs approximately $430,000 in leasehold improvements and requires up to
$490,000 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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Effective December 29, 1996, the Company acquired certain properties and
leasehold interests from its majority shareholder, Casino USA and its wholly-
owned subsidiary, Casino Realty. 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 well suited to 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. 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.
During 1997, the Company marketed the completely restructured Corporate
Brands program introduced in 1996, that was developed to compete aggressively
with other large foodservice distribution companies. The new program consists
of a three-quality-tier core program. The SmartBuy(R) Brand is a standard grade,
quality controlled label positioned as "the price leader"; Smart & Final(R), the
Company's national brand equivalent, is a consistent, quality-driven,
competitively priced brand; and Smart & Final Premium Brand(R) represents the
highest quality within the product line. There are approximately 1,250 Stock
Keeping Units (SKUs) represented by these brands.
The Montecito(R) and La Romanella(R) Corporate Brands are designed to reach
niche ethnic markets while enhancing our core products. Our authentic Hispanic
brand, Montecito, represents over 100 SKUs. The La Romanella brand, a high
quality line of Italian products, consists of approximately 175 SKUs.
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Management believes that the assortment and value of the Company's
Corporate Brands are an important element in Smart & Final's market positioning.
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. In addition, stores take customers' special orders for
a wide variety of products not carried regularly in its assortment. The Company
also provides customers with telephone and fax order service, enhancing its in-
store capability. 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.
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. During
1997, marketing efforts generally consisted of frequent circular distribution
via newspaper insertion or direct mail, selective use of mass media, promotional
direct mail, and cooperative newspaper advertisements. Marketing efforts have
recently been refocused on addressing more specific and targeted customer
communication. Distribution of promotional communication has shifted from
newspaper insertion and large scale direct mail, to targeted direct mail to
specific customer groups with promotional messages that meet these customers'
needs. Cooperative advertisements have become focused addressing specific
customer needs. This advertising is distributed in conjunction with
participating suppliers, thereby reducing Smart & Final's cost for those
vehicles.
Smart & Final bases its marketing strategies 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. For the last three years, new stores have ranged between
13,000 and 33,000 square feet. Management enhances selling space by storing
inventory overhead.
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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 staffed by approximately 15
employees.
Website. In May 1996, the Company launched a site on the World Wide Web at
http://www.smartandfinal.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
Company, 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, Inc., while Port Stockton is a member of Nugget
Distributors, Inc. (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 approximately 5,000
foodservice customers and 39 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 in Miami,
Florida and a recently opened 160,000 square foot distribution facility in
Orlando, Florida. Henry Lee also operates an additional 30,000 square foot off-
site facility.
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Smart & Final utilizes computerized inventory management systems, radio
frequency technology, and integrated labor management systems in its warehouses.
Smart & Final operates a fleet of 205 tractors and 319 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 inbound
deliveries.
Approximately 52% of Smart & Final's warehouse merchandise is delivered to the
warehouse by its own trucks.
Management Information Systems. The Company has invested over $10 million in
new systems during the past several 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 ("AFD") is a holding company for the
Company's two institutional broadline foodservice distributors Port Stockton and
Henry Lee, and for its Southern Foods and Orlando Foodservice divisions
operating in Florida. Port Stockton's 1997 sales were $177.7 million. Florida
foodservice sales, including Henry Lee, Southern Foods and Orlando Foodservice,
were $223.4 million in 1997. 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, fresh meat, 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 Fresno on the South. Port Stockton is a member of the
Nugget Distributor buying group which has annual member sales of over $5.8
billion. Port Stockton is the fifth largest member of the Nugget Distributors,
Inc. group. About 30% of Port Stockton sales are Smart & Final Corporate Brand
products.
Port Stockton serves approximately 5,000 foodservice customers such as
restaurants, coffee shops and institutions along with 39 Smart & Final stores.
Port Stockton was founded in 1962 and at year end employed approximately 830
associates.
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Henry Lee is headquartered in Miami, Florida, and serves approximately
3,700 foodservice operator customers primarily located in the state of Florida
and certain markets in the Caribbean, South and Central America. Henry Lee
serves a significant hotel clientele, institutions, restaurants and cruise
ships. Henry Lee is a member of the All Kitchens, Inc. buying group, which has
annual member sales of $7.2 billion. Henry Lee's distribution center in Miami
provides the infrastructure to service Smart & Final stores in Florida. Founded
in 1946, Henry Lee had approximately 450 associates at year end. The 10% of
Henry Lee not owned by AFD was, until recently, owned by one of the founders of
Henry Lee and his family. Subsequent to year end, AFD purchased the remaining
10% of Henry Lee.
Southern Foods is engaged in meat processing and distribution serving
approximately 1,600 foodservice operator customers. Southern Foods had
approximately 100 associates at year end. Orlando Foodservice is also a meat
processing and distribution division of AFD serving approximately 115
foodservice operator customers. Orlando Foodservice had approximately 22
associates at year end.
COMPETITION
The Company participates in the highly competitive $134 billion annual
sales domestic food distribution industry. Its competitors include membership
and non-membership 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.
Intense price competition and rapid store growth have characterized the
membership warehouse club segment of the industry over the past decade. The
Company's two major warehouse club competitors are Costco and Sam's Club.
The Company believes 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.
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(TM) and many smaller, regional distributors. About 95% of all
distributors have annual revenues less than $30 million and fewer than 4% do
more than $50 million.
Competition from supermarket chains continues to increase as such chains
emphasize price and service, while widening their assortment of goods and
lowering certain prices to more effectively compete with warehouse clubs.
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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 through the Company's own Smart
University 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 and stock option programs, reward superior performance and
motivate associates. In addition, approximately 8.2% 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.
At fiscal year end, the Company and its subsidiaries employed approximately
5,205 persons, including 3,666 at Smart & Final, 830 at Port Stockton and 709 at
Henry Lee, including Southern Foods & Orlando Foodservice.
No employee groups are currently represented by third party unions. Port
Stockton is a party to an agreement with its Food Distribution Employees
Association which contains certain procedures and policies with respect to
management and associate relations. The Company considers relations with its
employees to be good.
ITEM 2. PROPERTIES
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 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"). 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 1997, the Company leased 86 store properties directly
from third party lessors, with an average remaining lease term of 13 years. The
Company leased 12 store properties, at year end, under its two lease programs
described below. In addition, the Company has eight stores on real property that
is ground leased from third party lessors. The remaining 61 store properties are
owned.
Late in 1997, the Company sold its owned 595,000 square feet of warehouse
space and 60,795 square feet of office space in Los Angeles, California and
entered into a leaseback with the purchaser for approximately one year. The
Company is building a new 417,000 square foot distribution facility in the Los
Angeles, California area which is scheduled to be occupied late in 1998.
Since April 1995, Port Stockton has supported its customers from a 300,000
square foot distribution facility located in Stockton. The Port Stockton
distribution facility is leased under one of the Company's lease arrangements
described below.
Henry Lee occupies 230,000 square feet of warehouse space in Miami,
Florida, including 22,000 square
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feet of office space. Henry Lee's warehouse is leased from the former owners of
Henry Lee. The remaining term of this lease is eight 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 former owners of Henry Lee. The remaining term of
this lease is eight years. The leases contain terms and rates considered to be
equivalent to those available from unrelated third party lessors. A frozen food
facility is under construction in Miami, Florida. This facility is being leased
under one of the lease facilities described below.
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 two
$30 million lease facilities which provided for the lease of the distribution
center in Stockton and for store expansion and distribution facilities in
California and Florida. As of January 4, 1998, $43.5 million had been utilized
under these facilities for 13 stores and two distribution facilities.
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
There were no matters submitted to the security holders of the Company for a
vote during the quarter ended January 4, 1998.
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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 26, 1998 there were 212 registered
holders of the common stock and the closing price per share of the common stock
as listed on the NYSE composite tape was $19.188. 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
- --------------------------------------------------------
<S> <C> <C> <C>
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
First Quarter of 1997 23 3/4 20 7/8 $0.05
Second Quarter of 1997 22 3/4 19 1/8 $0.05
Third Quarter of 1997 25 3/4 22 11/16 $0.05
Fourth Quarter of 1997 24 3/4 16 5/16 $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.
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<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share and statistical data)
<TABLE>
<CAPTION>
Fiscal Year (A) (B)
------------------------------------------------------------------------
1997 (F) 1996 1995 1994 (D) 1993
---------- ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales................................................... $1,453,020 $1,302,561 $1,173,325 $952,477 $837,178
Gross margin............................................ 194,663 190,395 171,732 144,396 125,185
Income from operations.................................. 15,930 42,588 32,465 28,511 24,188
Interest income (expense), net.......................... (8,117) (3,373) (2,028) 521 843
Income before provision for income taxes, minority
share of net income and cumulative effect of
accounting changes................................. 7,813 39,215 30,437 29,032 25,031
Net income ............................................. 6,636 24,334 18,296 17,470 1,962 (C)
Earnings per common share, assuming dilution............ 0.29 1.15 0.88 0.85 0.10 (C)
Dividend per share...................................... $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
Weighted average common shares outstanding.............. 22,753 21,206 20,751 20,520 20,494
Financial Data (at fiscal year-end):
Cash and cash equivalents............................... $ 22,891 $ 16,795 $ 15,415 $ 10,494 $ 31,314
Working capital......................................... 68,482 79,245 79,493 62,501 56,006
Total assets............................................ 488,145 441,424 314,656 267,813 208,587
Long-term debt, excluding current maturities............ 80,024 82,644 43,586 21,124 1,882
Stockholders' equity.................................... 200,329 195,655 (E) 140,052 125,330 112,108
Other Statistical Data:
Comparable store sales growth........................... 2.0% 2.7% 5.0% 5.5% 4.7%
Stores at year end (including Mexico)................... 172 173 158 147 136
Total retail square footage at year end (thousands)..... 2,610 2,496 2,237 2,050 1,886
Sales per selling square foot........................... $ 389 $ 406 $ 441 $ 428 $ 425
Store customer transactions (thousands)................. 33,538 31,132 29,097 26,688 24,075
Employees at year end................................... 5,205 4,577 4,341 3,718 2,903
- --------------------
</TABLE>
(A) For all years, 52 weeks except fiscal year 1997, 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".
(F) Amounts include results of Davis Lay division from May 1997. Amounts
include results of Orlando Foodservice Inc., Capricorn Foods of Central
Florida, Inc. and Southern Foods since their dates of asset acquisitions in
September 1997.
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>
53 Weeks 52 Weeks 52 Weeks
(Dollars in millions, except per share amounts) 1997 1996 1995
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Sales $1,453.0 100.0% $1,302.6 100.0% $1,173.3 100.0%
- -----------------------------------------------------------------------------------------------------------------
Cost of sales, buying and occupancy 1,258.3 86.6 1,112.2 85.4 1,001.6 85.4
=================================================================================================================
Gross margin 194.7 13.4 190.4 14.6 171.7 14.6
- -----------------------------------------------------------------------------------------------------------------
Operating and administrative expenses 169.9 11.7 147.8 11.3 135.0 11.5
- -----------------------------------------------------------------------------------------------------------------
Warehouse start up costs - - - - 4.3 0.4
- -----------------------------------------------------------------------------------------------------------------
Special charges 8.9 0.6 - - - -
- -----------------------------------------------------------------------------------------------------------------
Income from operations 15.9 1.1 42.6 3.3 32.4 2.8
- -----------------------------------------------------------------------------------------------------------------
Interest expense, net 8.1 0.6 3.4 0.3 2.0 0.2
=================================================================================================================
Income before provision for income taxes and
minority share of net income 7.8 0.5 39.2 3.0 30.4 2.6
- -----------------------------------------------------------------------------------------------------------------
Provision for income taxes 1.9 0.1 14.9 1.1 12.0 1.0
- -----------------------------------------------------------------------------------------------------------------
Minority share of net income (0.5) - 0.2 - 0.2 -
=================================================================================================================
Income from consolidated subsidiaries 6.4 0.4 24.1 1.9 18.2 1.5
- -----------------------------------------------------------------------------------------------------------------
Equity earnings in unconsolidated subsidiary 0.2 - 0.2 - 0.1 -
=================================================================================================================
Net income $6.6 0.5% $24.3 1.9% $18.3 1.6%
=================================================================================================================
Earnings per common share $0.30 $1.20 $0.90
=================================================================================================================
Earnings per common share, assuming dilution $0.29 $1.15 $0.88
=================================================================================================================
</TABLE>
15
<PAGE>
RESULTS OF OPERATIONS
The Company's net income was $6.6 million ($0.29 per diluted share) in 1997,
$24.3 million ($1.15 per diluted share) in 1996, and $18.3 million ($0.88 per
diluted share) in 1995.
SEVERAL FACTORS CAUSED THE DECLINE IN INCOME IN 1997:
. Florida operating results declined sharply as a result of inadequate
distribution capacity. Overcrowded warehouse conditions caused service levels
to decline which reduced sales as customers chose other alternatives, reduced
gross margins as prices were cut to retain customers, and sharply increased
distribution costs in both foodservice and store operations. The Company's
Florida foodservice operations, which earned $4.0 million pretax in 1996, lost
$7.9 million pretax in 1997.
. Florida new store sales growth did not meet expectations, particularly in the
sites situated well outside the Metropolitan Miami area.
. A special pretax charge of $8.9 million was recorded in the fourth quarter
which included the cost of closing two of the Florida stores, a write-off of
certain distribution software system costs, and expenses of an extensive
management reorganization.
. Approximately $3.0 million of inventory write-downs were recorded in 1997
primarily as a result of an intense inventory turnover review, which reduced on
hand inventory levels.
. Approximately $3.0 million of additional provision for doubtful accounts
receivable was recorded in 1997, in part due to introduction of more stringent
credit controls in Henry Lee's export business.
. A reduced price program was introduced at Smart & Final stores early in 1997,
reducing gross margin by approximately $5.0 million, but it failed to increase
same store sales growth to the level expected.
Quarterly results deteriorated throughout 1997:
Comparative year to year quarterly results increased 10% in the first
quarter, were flat in the second quarter, decreased 21% in the third quarter,
and then significantly deteriorated from a profit in the fourth quarter of 1996
to a loss in the 1997 quarter.
Quarterly earnings per common share, assuming dilution:
<TABLE>
<CAPTION>
First Second Third Fourth Year
----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C>
1997 $0.22 $0.30 $0.30 $(0.54) $0.29
1996 $0.20 $0.30 $0.38 $ 0.27 $1.15
</TABLE>
Operating results remained consistent between 1996 and 1997 during the
first half of each year. However, late in the first quarter of 1997 the Company
introduced the reduced price program in an effort to increase store sales. The
program's sales goals were not achieved and gross margins were negatively
affected during the remainder of the year.
During the third quarter of 1997, Henry Lee began a comprehensive
integration of their Miami distribution center to provide the capability for
stores distribution in addition to the existing foodservice distribution
capability. This was a significant undertaking which required reconfiguration
and re-racking of
16
<PAGE>
portions of the distribution center, the installation of new warehouse
management and distribution software systems and the movement of numerous
store's product into the distribution center. It also increased the complexity
of product distribution. Significant problems were encountered in this
conversion which resulted in declines in service levels and overstocked
inventory levels in the distribution center. These conditions resulted in a
significant impact on sales, gross margin, and distribution expense in the third
and fourth quarters.
During the fourth quarter of 1997, management reviewed all inventory with
the objective of reducing the number of strategic product units and the
establishment of increased turnover criteria. As a result of the review, a $3
million write-down was recorded. A $3 million provision for doubtful accounts
receivable was also recorded, primarily due to the introduction of more
stringent credit control in the Henry Lee export business.
Fourth quarter 1997 results also include an $8.9 million special charge as
a result of a decision to close two Florida stores, replace certain distribution
center software systems and reorganize the Company into three geographic
regions. The charge reflects the write-down of store assets and computer
software to estimated realizable values and to accrue for related lease and
severance obligations for certain of the Company's executive management which
were separated as part of the reorganization.
SALES. Sales were $1,453.0 million in 1997, $1,302.6 million in 1996, and
$1,173.3 million in 1995. Same store sales growth was achieved in each of the
years, with comparable sales increasing 2.0% in 1997, 2.7% in 1996, and 5.0% in
1995. Total sales increased 11.6% in 1997, 11.0% in 1996, and 23.2% in 1995 as
a result of an aggressive new store opening program and the acquisition of Henry
Lee in late 1994. Forty-seven new stores, including relocations and two in
Mexico, were opened during the three years, 11 in 1997, 21 in 1996, and 15 in
1995. The Company follows a 52-53 week fiscal year and 1997 included a fifty-
third week.
GROSS PROFIT. As a percentage of sales, gross profit was 13.4% in 1997, and
14.6% in both 1996 and 1995. The reduction in gross profit in 1997 was caused
in part by the increasing mix of foodservice distribution business which grew at
a stronger rate than stores. The foodservice distribution business operates at
much lower gross margins and lower operating expenses than Smart & Final stores.
Gross margin also declined as a result of the reduced price program introduced
in the Smart & Final stores early in 1997. Gross margin was also impacted by
the inventory write-downs recorded in the fourth quarter of 1997.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
were 11.7% of sales in 1997, compared to 11.3% in 1996, and 11.5% in 1995.
Factors causing the increase in 1997 include the additional provision for
doubtful accounts recorded in 1997 as well as the charges related to the
management reorganization. Operating and administrative expenses, in 1997,
includes $0.5 million related to remediation of year 2000 issues in the
Company's management information systems.
INTEREST EXPENSE, NET. Interest expense, net increased to $8.1 million in 1997
compared to $3.4 million in 1996 and $2.0 million in 1995 because of interest
costs related to cash used and debt incurred to fund capital spending required
for working capital and the Company's expansion program. Additionally, at the
end of 1996, the Company acquired $76 million of operating properties from an
affiliated company (the "Casino Transaction") through the issuance of $38
million of debt.
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 1997 and 1996 and $0.1 million in 1995. Two
new stores were opened during 1996.
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 bank facilities. In 1997 net cash provided by operating activities was
$21.4 million. The Company has a $50.0 million five year revolving credit line
with a group of
17
<PAGE>
banks, under which $45.0 million was outstanding at fiscal year end 1997. The
Company also has a $50.0 million short-term bank line of credit under which
$37.0 million was outstanding at fiscal year end 1997.
The Company had cash and cash equivalents of $22.9 million, stockholders'
equity of $200.3 million and long-term debt of $82.4 million at the end of
fiscal year 1997. The long-term debt consists of the $30.4 million notes issued
for the Casino Transaction (less the current portion of $7.6 million or $22.8
million), the $45 million outstanding on the revolving credit line, and $7.0
million primarily from the acquisition of Henry Lee Company in 1994 (less the
current portion of $3.0 million or $4.0 million). The weighted average interest
rate on the Company's variable rate debt for 1997 was 6.12%.
The aggregate amount required for the Company's expansion program and other
capital expenditures in 1998 is estimated to be approximately $80 million. This
amount includes approximately $26 million required to fund the construction of a
new Los Angeles distribution facility and the purchase of related land.
Since 1994, the Company has utilized committed lease facilities, with an
aggregate capacity of $60 million, to finance most of its real property
additions. Management expects that an additional lease facility will be arranged
in 1998 to fund substantially all of the land and building costs of the new Los
Angeles distribution facility.
In the first quarter of 1998, the Company announced plans to acquire a
chain of Cash & Carry stores, located primarily in the Pacific Northwest, from
United Grocers for $60 million consisting of a cash payment of $42.5 million and
issuance of $17.5 million unsecured notes. Negotiations to expand the Company's
bank lines to provide for the cash payment are currently underway.
Management believes that its other sources of funds are adequate to provide
for working capital, other capital expenditures, and debt service requirements
for the forseeable future.
The Company has conducted a detailed review of its computer systems to
identify those areas that could be affected by problems associated with the
failure of these systems to correctly process the year 2000. This review
resulted in an identification of steps necessary to address issues related to
required changes in computer systems for the year 2000. The Company is
identifying those systems that require modification or replacement to address
the year 2000 issues; many of the modifications are being accomplished as part
of the ongoing systems improvement. Management believes that there is no
material risk that the Company will fail to address the year 2000 issues in a
timely manner. The Company believes that the related costs to replace, modify
and/or upgrade its existing systems and products to address this problem will
not have a material impact on the Company's financial condition, results of
operations, liquidity or cash flows for any year.
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 1997 was 21%
in the first quarter, 23% in the second, 30% in the third, and 26% 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
When used in this report, the words "believe," "expect," "anticipate" and
similar expressions, together with other discussion of future trends or results,
are intended to identify forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the
18
<PAGE>
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
statements are subject to certain risks and uncertainties, including those
discussed below, that could cause actual results to differ materially from those
projected. These forward-looking statements speak only as of the date hereof.
All of these forward-looking statements are based on estimates and assumptions
made by management of the Company which, although believed to be reasonable, are
inherently uncertain and difficult to predict; therefore, undue reliance should
not be placed upon such statements. The following important factors, among
others, could cause the Company's results of operations to be adversely affected
in future periods: (i) increased competitive pressures from existing competitors
and new entrants, including price-cutting strategies, store openings and
remodels; (ii) increases in interest rates or the Company's cost of borrowing or
a default under any material debt agreements; (iii) deterioration in general or
regional economic conditions (iv) adverse state or federal legislation or
regulation that increases the costs of compliance, or adverse findings by a
regulator with respect to existing operations; (v) loss of customers or sales
weakness; (vi) inability to achieve future sales levels or other operating
results; (vii) the unavailability of funds for capital expenditures; and (viii)
operational inefficiencies in distribution or other Company systems. Many of
such factors are beyond the control of the Company. There can be no assurance
that the Company will not incur new or additional unforeseen costs in connection
with the ongoing conduct of its business. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized. In addition, assumptions relating to
budgeting, marketing, advertising, litigation and other management decisions are
subjective in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and business developments, the impact of
which may cause the Company to alter its marketing, capital expenditure or other
budgets, which may in turn affect the Company's financial positions and results
of operations.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following information is included in this section:
PAGE
----
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants 21
Consolidated Balance Sheets 22
Consolidated Statements of Income 23
Consolidated Statements of Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26
Supplementary Data -
Summary of Quarterly Results of Operations 44
</TABLE>
20
<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 55.5 percent owned subsidiary of
Casino USA, Inc.) and subsidiaries as of January 4, 1998 and December 29, 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three fiscal years in the period ended January 4, 1998.
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 January 4, 1998 and December 29, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 4, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 25, 1998
21
<PAGE>
SMART & FINAL INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
End End
ASSETS 1997 1996
- ------ ----------- -----------
<S> <C> <C>
Current assets:
Cash & cash equivalents $ 22,891 $ 16,795
Trade notes and accounts receivable, less
allowance for doubtful accounts of
$5,518 in 1997 and $2,568 in 1996 75,995 67,695
Inventories 129,761 125,721
Prepaid expenses 15,906 4,346
Deferred tax asset 9,600 6,134
-------- --------
Total current assets 254,153 220,691
Property, plant and equipment:
Land 35,631 39,079
Buildings and improvements 29,530 34,364
Leasehold improvements 67,821 60,943
Fixtures and equipment 139,316 129,953
-------- --------
272,298 264,339
Less - Accumulated depreciation and amortization 85,808 77,156
-------- --------
Net property, plant and equipment 186,490 187,183
Assets under capital leases, net 4,535 671
Goodwill 18,940 10,162
Deferred tax asset 3,148 4,157
Other assets 20,879 18,560
-------- --------
Total Assets $488,145 $441,424
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 3,576 $ 2,756
Current maturities of notes payable to affiliates 7,600 7,600
Bank line of credit 37,000 17,000
Accounts payable 77,116 70,936
Payable to Parent and affiliates 18,589 8,759
Accrued salaries and wages 9,528 9,940
Other accrued liabilities 32,262 24,455
-------- --------
Total current liabilities 185,671 141,446
Long-term liabilities:
Notes payable, net of current maturities 4,061 6,663
Notes payable to affiliates 22,800 30,400
Bank debt 45,000 45,000
Obligations under capital leases 8,163 581
Other long-term liabilities 2,937 -
Workers' compensation reserve, postretirement
and postemployment benefits 18,068 20,000
-------- --------
Total long-term liabilities 101,029 102,644
Minority interest 1,116 1,679
Stockholders' equity:
Preferred stock, $1 par value (authorized-
10,000,000 shares; no shares issued) - -
Common stock, $0.01 par value (authorized-
100,000,000 shares; 22,386,181 shares issued
and outstanding in 1997 and 21,976,406 in 1996) 224 220
Additional paid-in capital 142,865 140,371
Cumulative translation loss (835) (835)
Retained earnings 58,075 55,899
-------- --------
Total stockholders' equity 200,329 195,655
-------- --------
Total liabilities and stockholders' equity $488,145 $441,424
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
22
<PAGE>
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Sales...................................................... $ 1,453,020 $ 1,302,561 $ 1,173,325
Cost of sales, buying and occupancy........................ 1,258,357 1,112,166 1,001,593
----------- ----------- -----------
Gross margin............................................... 194,663 190,395 171,732
Operating and administrative expenses...................... 169,849 147,807 135,017
Warehouse start up costs - - 4,250
Special charges............................................ 8,884 - -
----------- ----------- -----------
Income from operations.............................. 15,930 42,588 32,465
Interest expense, net...................................... 8,117 3,373 2,028
----------- ----------- -----------
Income before provision for income taxes
and minority share of net income ..................... 7,813 39,215 30,437
Provision for income taxes................................. 1,940 14,858 12,043
Minority share of net income............................... (563) 244 248
----------- ----------- -----------
Income from consolidated subsidiaries............... 6,436 24,113 18,146
Equity earnings in unconsolidated subsidiary.............. 200 221 150
----------- ----------- -----------
Net income.......................................... $ 6,636 $ 24,334 $ 18,296
=========== =========== ===========
Earnings per common share ................................ $ 0.30 $ 1.20 $ 0.90
=========== =========== ===========
Weighted average common shares ........................... 22,158,673 20,309,555 20,234,494
=========== =========== ===========
Earnings per common share, assuming dilution ............. $ 0.29 $ 1.15 $ 0.88
=========== =========== ===========
Weighted average common shares
and common share equivalents ......................... 22,753,333 21,206,126 20,750,818
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except per share amounts)
For the fiscal years 1997, 1996 and 1995
<TABLE>
<CAPTION>
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 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
Issuance of common stock...................... 409,775 4 5,706 - - 5,710
Restricted stock accrual...................... - - 208 - - 208
Tax benefit associated with stock options
exercised................................. - - 1,776 - - 1,776
Capital lease and deferred rent transfer...... - - (5,196) - - (5,196)
Dividend ($0.20 per share).................... - - - (4,460) - (4,460)
Net income.................................... - - - 6,636 - 6,636
---------- ---- -------- ------- ----- --------
Balance, fiscal year-end 1997................. 22,386,181 $224 $142,865 $58,075 $(835) $200,329
========== ==== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income.......................................................... $ 6,636 $ 24,334 $ 18,296
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization...................................... 25,761 19,882 16,388
Deferred tax provision (benefit)................................... (800) 1,320 (1,090)
Minority share of net income....................................... (563) 244 248
Equity earnings in unconsolidated subsidiary....................... (200) (221) (150)
Decrease (increase) in:
Trade notes and accounts receivable............................... (3,771) (22,132) (5,465)
Inventories....................................................... (2,504) (7,426) (14,586)
Prepaid expenses and other........................................ (11,546) (709) (11)
Increase (decrease) in:
Accounts payable.................................................. 4,601 2,028 (382)
Accrued liabilities............................................... (412) 2,087 (394)
Other liabilities................................................. 4,210 (5,158) 6,862
-------- -------- --------
Net cash provided by operating activities........................ 21,412 14,249 19,716
-------- -------- --------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment....................... (30,270) (33,359) (31,647)
Proceeds from disposal of property, plant and equipment............ 10,471 252 296
Acquisition of business (net of acquired cash)..................... (11,300) (1,391) -
Acquisition of municipal bonds..................................... - (540) (1,300)
Proceeds from redemption of municipal bonds........................ - 440 825
Other.............................................................. (3,573) (4,590) (3,630)
-------- -------- --------
Net cash used in investing activities............................ (34,672) (39,188) (35,456)
-------- -------- --------
Cash Flows From Financing Activities:
Process from issuance of common stock.............................. 5,135 1,059 509
Bank line of credit................................................ 20,000 16,000 1,000
Payments on notes payable and bank line of credit.................. (11,161) (3,089) (12,378)
Increase in payable to Parent and affiliates....................... 9,830 6,409 576
Quarterly dividend paid............................................ (4,448) (4,060) (4,046)
Borrowings of long-term debt....................................... - 10,000 35,000
-------- -------- --------
Net cash provided by financing activities........................ 19,356 26,319 20,661
-------- -------- --------
Increase in cash and cash equivalents................................. 6,096 1,380 4,921
Cash and cash equivalents at beginning of year........................ 16,795 15,415 10,494
-------- -------- --------
Cash and cash equivalents at end of year.............................. $ 22,891 $ 16,795 $ 15,415
======== ======== ========
Noncash Investing and Financing Activities:
Notes payable and common stock issued for properties
acquired from affiliates......................................... $ - $ 71,440 $ -
Notes issued in connection with acquisition of business........... 1,000 300 -
Capital contribution to unconsolidated subsidiary................. - - 350
Construction in progress costs incurred but not paid.............. 763 552 2,129
-------- -------- --------
Total noncash transactions......................................... $ 1,763 $ 72,292 $ 2,479
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<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 1997 was a 55.5 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
owns American Foodservice Distributors ("AFD"), a holding company, which owns
100% of Port Stockton Food Distributors, Inc. ("Port Stockton"), and 90% of
Henry Lee Corporation ("Henry Lee"). In late 1997, AFD acquired the assets of
Orlando Foodservice, Inc. and Capricorn Foods of Central Florida, Inc.
(collectively "Orlando Foodservice") and the assets of Southern Foods. 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
for all periods prior to January 1997 and is reflected in stockholders' equity.
Since January 1997, in accordance with generally accepted accounting principles,
the functional currency has been the U.S. dollar. As such, changes in foreign
currency exchange rates are included in results of operations.
All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain prior years' amounts have been reclassified
to conform to the fiscal year 1997 presentation.
Fiscal years
The Company's fiscal year ends on the Sunday closest to December 31.
Fiscal year 1997 included 53 weeks and fiscal years 1996 and 1995 included 52
weeks. Fiscal years 1997, 1996 and 1995 ended on January 4, 1998, December 29,
1996, and December 31, 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. The fourth quarter
of a 53 week year consists of thirteen weeks.
Cash and cash equivalents
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 majority of 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.
26
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 $1,015,000 and $1,163,000
as of fiscal year end 1997 and 1996, 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 at fiscal
year end 1997 and 1996 which secure the Company's workers' compensation
reserves. The fair value of the municipal bonds, estimated based on quoted
market prices for similar investments, approximate their carrying amounts.
These municipal bonds have varying maturity dates ranging from 2006 through
2015.
Capitalized software costs, net of amortization, of $7,743,000 and
$6,548,000 are included in other assets at fiscal year end 1997 and 1996,
respectively. These costs include third party purchased software costs, direct
labor associated with internally developed software, and installation costs.
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.
27
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Also included in other assets are preopening costs of $1,716,000 and
$1,329,000 at fiscal year end 1997 and 1996, 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.
Goodwill
Goodwill is amortized on a straight-line basis over 40 years. The Company
assesses the recoverability of goodwill based on forecasted operating income.
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 proforma net income per share amounts in the notes to the
consolidated financial statements using the fair-value method.
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 $5,727,000 and $6,298,000 at fiscal
year end 1997 and 1996, 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.
28
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCOUNTING PRONOUNCEMENTS
In 1997, the Company adopted Statements of Financial Accounting Standards
No. 128 "Earnings per Share" ("SFAS No. 128") and No. 129 "Disclosure of
Information About Capital Structure" ("SFAS No. 129"). As a result of SFAS No.
128, the Company has presented earnings per share in accordance with SFAS No.
128 for all fiscal years.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive Income" ("SFAS
No. 130"), in June 1997, which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 establishes standards for reporting and display
of comprehensive income. The Company will adopt the provisions of SFAS No. 130
in fiscal 1998 and expects no financial impact on the consolidated financial
statements. The FASB issued Statement of Financial Accounting Standard No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"), in June 1997, which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 establishes standards for reporting segment
information. The Company will adopt the provisions of SFAS No. 131 in fiscal
1998 and expects no financial impact on the consolidated financial statements.
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>
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Income tax at federal statutory rate $2,735,000 $13,725,000 $10,653,000
State income taxes, net of federal tax benefit 448,000 2,373,000 1,918,000
Revitalization zone credit (884,000) (960,000) (420,000)
Other (359,000) (280,000) (108,000)
---------- ----------- -----------
Income tax provision $1,940,000 $14,858,000 $12,043,000
========== =========== ===========
<CAPTION>
The Company's provision for income taxes consists of the following:
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $3,520,000 $11,632,000 $10,912,000
State (780,000) 1,906,000 2,221,000
---------- ----------- -----------
2,740,000 13,538,000 13,133,000
Deferred
Federal (800,000) 1,320,000 (1,090,000)
---------- ----------- -----------
Income tax provision $1,940,000 $14,858,000 $12,043,000
========== =========== ===========
</TABLE>
29
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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>
1997 1996
------------ ------------
<S> <C> <C>
Property, plant and equipment depreciation
differences $(5,989,000) $(3,920,000)
Employee benefits including postretirement
and postemployment reserves 9,871,000 10,663,000
Operating reserves and accruals 8,807,000 3,419,000
Other 59,000 129,000
----------- -----------
Net deferred tax asset $12,748,000 $10,291,000
=========== ===========
</TABLE>
The deferred tax asset is reflected on the fiscal year end 1997 balance
sheet as a current asset of $9.6 million and a long-term portion of $3.1
million.
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 $1,776,000 and $658,000 associated with the Company's
stock option plan has been credited to additional paid-in capital in 1997 and
1996, respectively.
Tax sharing and termination payments made by the Company to Casino USA
were $2,353,000, $2,560,000 and $1,945,000 in 1997, 1996 and 1995, respectively.
Federal income taxes paid during 1997, 1996 and 1995 were $11,575,000,
$11,155,000 and $9,125,000, respectively. At year end 1997, the Company had a
$9.0 million Federal income tax prepayment included in prepaid expenses.
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. At January 4, 1998, four out of twelve such properties remained.
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 additional
paid-in capital.
30
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The historical carrying cost of the assets acquired and the value of
the consideration issued is as follows (dollars in thousands):
<TABLE>
<S> <C>
Assets acquired:
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 January
4, 1998 the LIBOR rate was 5.875%. The notes are 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 were outstanding under this line as of fiscal year end 1997 and 1996.
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 years 1997 and 1996.
The Company also has a short-term unsecured line of credit available
with a bank in the amount of $50 million. The line of credit bears interest at
the bank's reference rate which was 6.69% as of January 4, 1998. Borrowings of
$37.0 million and $17.0 million were outstanding under this line as of the
fiscal year end 1997 and 1996, respectively.
The Company has guaranteed $933,000 of Smart & Final Del Noroeste S.A.
de C.V. debt under a Standby Letter of Credit. The Company has a $120,000
letter of credit outstanding as of January 4, 1998 relating to self-insurance.
31
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Other notes payable of $6,982,000 and $9,158,000 at fiscal year end 1997
and 1996, respectively bear interest at various rates ranging from 6.5% to 9.5%.
Of these notes payable, $5.5 million is at an interest rate of 7.5% and is
unsecured. Interest paid on these notes and bank lines of credit aggregated
$7,416,000, $3,627,000, and $2,500,000 for the fiscal years ended 1997, 1996 and
1995, respectively. The weighted average interest rate for the Company's
variable rate debt for 1997 was 6.12%.
Aggregate future principal payments are as follows:
<TABLE>
<CAPTION>
Fiscal Year:
<S> <C>
1998...................... $47,521,000
1999...................... 10,936,000
2000...................... 53,074,000
2001...................... 7,815,000
2002...................... 35,000
Subsequent to 2002........ 1,000
-----------
$119,382,000
============
</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.
The Company's involvement with derivative financial instruments has been
limited to interest rate collar agreements to limit the impact of interest rate
fluctuations on revolving debt. The Company has entered into interest rate
collar agreements with various banks to hedge principal amounts of up to $100
million. The agreements have interest rate ranges from 4.7% to 8.0% and extend
up to seven years.
5. LEASE OBLIGATIONS
As of fiscal year end 1997, the Company leased 86 properties directly from
third party lessors, with an average remaining lease term of 13 years. The
Company leased 12 store properties, at year end, under its two lease programs
described below. In addition, the Company has 8 stores on real property that is
ground leased from third party lessors.
During fiscal year 1996 and prior, 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.
32
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company also leased five additional properties from Casino Realty
during fiscal year 1996 and prior, which included its Vernon, California
distribution facility and several non-store locations. These properties were
acquired by the Company on December 29, 1996. Late in 1997, the Company sold
its owned combination distribution and office facility and entered into a
leaseback with the purchaser for approximately one year.
Henry Lee's warehouse is leased from the former owners of Henry Lee. The
leases contain terms and rates considered to be equivalent to those available
from unrelated third party lessors.
In December 1994, the Company entered into a $30.0 million lease facility
which has provided for the lease of a new distribution center for Port Stockton
and for new store sites. During 1997, the Company entered into a second $30.0
million lease facility which has provided for store expansion and distribution
facilities in California and Florida. During fiscal years 1997 and 1996, the
Company leased assets valued at approximately $43.5 million and $25.7 million,
respectively, under these facilities. The related minimum lease obligation is
included in the table below.
Henry Lee guarantees $2,779,000 of obligations of the former owners of
Henry Lee. These obligations are related to properties leased by Henry Lee.
Lease expense for operating leases included in the accompanying financial
statements is as follows:
<TABLE>
<CAPTION>
Property Leased From
--------------------
Casino USA or Casino Realty
---------------------------
Fiscal Year: Subleased Owned Third Party
--------------- -------------- -----------
<S> <C> <C> <C>
1995................................. $7,179,000 $ 9,271,000 $ 9,487,000
1996................................. $7,334,000 $ 9,212,000 $13,954,000
1997................................. - - $23,819,000
</TABLE>
Aggregate minimum future lease payments for real property, as
well as equipment and other property at fiscal year end 1997 are
as follows:
<TABLE>
<CAPTION>
Operating Leases Capital Leases
---------------- --------------
Fiscal Year: Related Parties Third Parties
--------------- ---------------
<S> <C> <C> <C>
1998...................................... $ 791,000 $ 21,324,000 $ 1,539,000
1999...................................... 790,000 19,715,000 1,438,000
2000...................................... 791,000 18,953,000 1,399,000
2001...................................... 790,000 48,306,000 1,448,000
2002...................................... 791,000 27,988,000 1,478,000
Subsequent to 2002 ....................... 2,836,000 132,670,000 7,229,000
---------- ------------ -----------
Future minimum lease payments $6,789,000 $268,956,000 14,531,000
========== ============
Less amount representing
interest.................................. 5,713,000
-----------
Present value of future lease payments..... $ 8,818,000
===========
</TABLE>
Capital lease obligations vary in amount with interest rates ranging from
7.50% to 12.00%.
33
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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
$300,000, $402,000, and $435,000 for the fiscal years 1997, 1996, and 1995,
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.
Intercompany interest charges/credits
Intercompany interest charges from affiliates were $563,000 and
$161,000 for advances of $21,001,000 and $5,960,000 made during 1997 and 1996.
There were no material advances in 1995.
Other related party transactions
During 1997, the Company's President and former Chief Executive
Officer borrowed $29,965 from the Company by a note dated October 22, 1997. The
note is secured by his deferred compensation account. The note bears interest at
8 1/2% per year and the entire balance and accrued interest on the note is due
on October 21, 2002.
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>
1997 1996 1995
- -------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Service cost component $ 1,285,000 $ 1,196,000 $ 920,000
Interest cost component 2,362,000 2,169,000 1,995,000
Actual return on plan assets (4,656,000) (2,323,000) (3,700,000)
Net amortization and deferral 2,805,000 722,000 2,494,000
----------- ----------- -----------
Net pension expense $ 1,796,000 $ 1,764,000 $ 1,709,000
=========== =========== ===========
</TABLE>
34
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Discount rate 7.50% 7.50% 8.50%
Rate of increase in compensation levels 4.00% 4.00% 5.00%
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>
1997 1996
----------- -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $27,894,000 $24,238,000
Non-vested 1,052,000 1,019,000
----------- -----------
$28,946,000 $25,257,000
=========== ===========
Present value of projected benefit obligation $35,017,000 $30,794,000
Fair value of plan assets 29,299,000 23,903,000
----------- -----------
Present value of projected benefit obligation
in excess of plan assets 5,718,000 6,891,000
Remaining unrecognized net obligation (588,000) (686,000)
Unrecognized prior service cost (1,782,000) (1,996,000)
Unrecognized net loss (1,215,000) (2,194,000)
----------- -----------
Accrued pension costs in excess of cash
payments made by the Company $ 2,133,000 $ 2,015,000
=========== ===========
</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>
1997 1996
---- ----
<S> <C> <C>
Discount rate 7.25% 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>
35
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
During fiscal year 1997, the plan's accumulated benefit obligation and
projected benefit obligation increased $3,689,000 and $4,223,000, 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 1997
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 and 1995. Smart & Final has provided $713,000,
$1,231,000, and $1,250,000 for contributions to the 401(k) Savings Plan for
fiscal years 1997, 1996, and 1995, 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 $14,483,000, and
$9,446,000 as of fiscal year end 1997 and 1996, respectively. The cash
surrender value of these policies amount to $1,778,000 and $753,000 as of fiscal
year end 1997 and 1996, respectively.
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.
36
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The expense for postretirement benefits included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost $ 234,000 $ 222,000 $ 206,000
Interest cost 685,000 689,000 820,000
Net amortization and deferral (282,000) (270,000) (222,000)
--------- --------- ---------
Postretirement benefits expense $ 637,000 $ 641,000 $ 804,000
========= ========= =========
</TABLE>
The discount rates used for fiscal years 1997, 1996 and 1995, to
determine the postretirement expense were 7.50%, 7.50% and 8.50%, respectively.
The components of the accrued liability for the accumulated
postretirement benefit obligation as reflected on the balance sheet at fiscal
year end 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Retirees $ 7,755,000 $ 9,984,000
Fully eligible active plan participants 585,000 564,000
Other active plan participants 6,997,000 6,749,000
----------- -----------
Accumulated postretirement benefit obligation $15,337,000 $17,297,000
=========== ===========
</TABLE>
The accumulated postretirement benefit obligation is reflected on the
fiscal year end 1997 balance sheet as a current liability of $1.0 million and a
long term portion of $14.3 million. For measurement purposes, an 11.0% and 11.5%
annual rate of increase in the per capita cost of covered claims was assumed for
1997 and 1996, 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 1997 and 1996 was 7.25% and 7.5%,
respectively.
Effective January 1, 1998, the Company adopted a supplemental
executive retirement plan which provides supplemental income payments for
certain officers in retirement. Expense associated with this plan is expected to
be approximately $500,000 in fiscal 1998.
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.
37
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 purchase 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 and
$1,037,000 for fiscal years 1996 and 1995, respectively. At December 29, 1996
the agreement was amended to establish a fixed purchase price of $8.90 per
share.
During 1997, the Company adopted a Long-Term Equity Compensation Plan,
under which 1,270,000 shares of common stock are available for award as stock
options, stock appreciation rights, restricted stock awards, performance units
or performance shares. The Company granted options to purchase 304,357 shares
of Company common stock and issued 86,100 shares of restricted stock during 1997
under this plan. Compensation expense is computed based on the market price on
the grant date. Compensation expense associated with the restricted stock was
$208,000 in fiscal year 1997.
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. Common stock
equivalents relate to the employee stock options and a stock purchase agreement.
Earnings per common share computation:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net Income $ 6,636,000 $24,334,000 $18,296,000
=========== =========== ===========
Denominator:
Weighted average common shares outstanding 22,158,673 20,309,555 20,234,494
=========== =========== ===========
Earnings per common share $ 0.30 $ 1.20 $ 0.90
=========== =========== ===========
</TABLE>
38
<PAGE>
Earning per common share, assuming dilution computation:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net Income $ 6,636,000 $24,334,000 $18,296,000
=========== =========== ===========
Denominator:
Weighted average common shares outstanding 22,158,673 20,309,555 20,234,494
Dilutive effect of stock options outstanding 594,660 896,571 516,324
----------- ----------- -----------
Weighted average common shares, assuming
dilution 22,753,333 21,206,126 20,750,818
=========== =========== ===========
Earnings per common share, assuming dilution $ 0.29 $ 1.15 $ 0.88
=========== =========== ===========
</TABLE>
13. STOCK OPTIONS
In addition to options available under the Long-Term Equity Compensation
Plan, the Company has a Stock Incentive Plan. During 1997, the Stock Incentive
Plan was amended to increase the maximum amount of shares for which options may
be granted to 2,450,000 shares from 2,250,000 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 directors granted at the
time of the Company's initial public offering were granted at 85% of fair market
value. Options for directors elected subsequent to the Company's initial public
offering have been 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.
39
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of changes in the shares under option follows:
<TABLE>
<CAPTION>
Weighted
Shares Average Price
---------- -------------
<S> <C> <C>
Shares under option at fiscal year end 1994 1,820,950 $13.00
--------- ------
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
Fiscal year 1997:
Options granted 499,057 $21.33
Options exercised (405,131) 12.68
Options canceled (54,309) 16.79
---------
Shares under option at fiscal year end 1997 2,036,844 16.17
--------- ------
Shares exercisable at fiscal year end 1997 964,616 13.33
</TABLE>
Stock options outstanding at January 4, 1998 are as follows:
<TABLE>
<CAPTION>
Number Weighted Average Weighted
Range of Outstanding Remaining Average
Exercise Prices as of 1/4/98 Contractual Life Exercise Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$10.7700 370,450 3.45 $10.7700
$13.0000 - $13.8750 27,862 6.09 13.1413
$14.0000 590,393 6.13 14.0000
$14.5000 - $16.5000 284,483 6.92 15.6267
$16.7500 - $20.3750 230,499 7.54 18.3617
$20.7500 32,500 9.34 20.7500
$21.1250 276,857 9.34 21.1250
$21.8750 - $22.8750 79,100 9.09 22.3216
$23.0000 109,100 9.68 23.0000
$23.6250 35,600 8.69 23.6250
- ------------------------------------------------------------------------------------------------------
$10.7700 - $23.6250 2,036,844 6.75 $16.1712
</TABLE>
40
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Stock options exercisable as of January 4, 1998 as follows:
<TABLE>
<CAPTION>
Range of Number Weighted Average
Exercise Prices Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
$10.7700 370,450 $10.7700
$13.0000 - $13.8750 19,843 13.1984
$14.0000 347,254 14.0000
$14.5000 - $16.5000 139,973 15.4719
$16.7500 - $20.3750 87,096 18.1110
$20.7500 - -
$21.1250 - -
$21.8750 - $22.8750 - -
$23.0000 - -
$23.6250 - -
- ---------------------------------------------------------------------------------------------------
$10.7700 - $23.6250 964,616 $13.3278
</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 1997, 1996 and 1995, respectively; dividend yield of
1.0%, 1.0% and 1.2%, expected volatility of 24%, 22% and 22%, risk-free interest
rates of 5.7%, 6.6% and 6.4%, and weighted average expected lives of 4.53 years
for non-executives and 5.06 years for executives for 1997 and 4.16 years for
non-executives and 3.75 years for executives for both 1996 and 1995. The
weighted-average fair value of options granted during 1997, 1996 and 1995 was
$6.04, $5.89 and $4.46, respectively.
Common stock shares available for future grant under the Stock Incentive Plan
at fiscal year end 1997, 1996 and 1995 were 86,904, 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
for fiscal year 1995. Compensation expense 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
$6,016,000 and $0.26, respectively for fiscal year 1997, $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 of 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.
41
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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. An employment agreement
has been entered into with one other principal executive officer. These
agreements contain provisions for base salary and bonuses, and expire during
fiscal year 1998. Annual payments under these agreements were approximately
$1,072,000 in 1997 and will total approximately $1,452,000 in fiscal 1998.
Since 1994, the Company has had a consulting agreement with an affiliate of the
former minority shareholder of Henry Lee which expires during fiscal year 1998.
In early 1998 the Company entered into a Consulting Agreement with Ed Sternlieb,
former President of Henry Lee, which expires at the end of 1999. Annual
payments under these agreements were approximately $480,000 in 1997 and will
total approximately $146,000 in fiscal 1998.
In early 1998, the Company entered into a Separation Agreement with its
President and former Chief Executive Officer, Roger M. Laverty, III, detailing
the terms of Mr. Laverty's separation from the Company to occur April 30, 1998.
The Separation Agreement provides for cash payments and continuation of certain
Company benefits including health insurance and stock options for a period of 36
months. Annual payments under the Separation Agreement will total approximately
$489,000 in fiscal 1998.
15. ADVERTISING EXPENSE
The Company expenses the costs of advertising as incurred. Total
advertising expense was $14.2 million, $13.6 million and $11.7 million in 1997,
1996 and 1995, respectively.
16. ACQUISITION OF SUBSIDIARIES
On May 30, 1997, Port Stockton acquired the assets of the Davis Lay
foodservice division of Mallard's Food Products, Inc., for $5.0 million cash and
a $0.5 million note. On September 26, 1997, AFD acquired the net assets of two
Florida foodservice distributors, Orlando Foodservice Inc. and Capricorn Foods
of Central Florida, Inc. for a total purchase price of $1.3 million cash and a
$0.5 million note. On September 29, 1997, AFD acquired the net assets of
Southern Foods, a foodservice distributor, from Continental Grain Company for
$5.0 million in cash. The Company recorded these acquisitions using the purchase
method of accounting. The total assets acquired from these acquisitions and the
results of operations since the dates of the asset acquisitions are immaterial
relative to the Company's consolidated financial statements.
17. SPECIAL CHARGE
During the fourth quarter of 1997, the Company decided to close two Florida
stores, replace certain distribution software systems, and reorganize the
Company into three geographic regions. An $8.9 million provision was recorded
to write down related store assets, and computer software to estimated
realizable values and to accrue for related lease and severance obligations.
42
<PAGE>
18. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
In early March 1998, the Company announced that it had entered into an
agreement in principle to acquire the Cash & Carry grocery warehouse stores of
United Grocers. The proposed acquisition involves 39 Cash & Carry stores located
in Washington, Oregon, Idaho and Northern California and is expected to close in
late March 1998. The terms of the agreement are still under negotiation.
43
<PAGE>
Smart & Final Inc.
Summary of Quarterly Results of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal year 1997 (A)
--------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
12 12 16 13 53
Weeks Weeks Weeks Weeks (C) Weeks
----------- ----------- ----------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales................................................... $ 306,984 $ 334,948 $ 442,522 $ 368,566 $ 1,453,020
Cost of sales, buying and occupancy..................... 262,397 285,250 381,236 329,474 1,258,357
----------- ----------- ----------- ----------- -----------
Gross margin............................................ 44,587 49,698 61,286 39,092 194,663
Operating and administrative expenses................... 34,827 37,177 47,746 50,099 169,849
Special charges......................................... - - - 8,884 8,884
----------- ----------- ----------- ----------- -----------
Income (loss) from operations...................... 9,760 12,521 13,540 (19,891) 15,930
Interest expense, net................................... 1,537 1,727 2,613 2,240 8,117
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
minority share of net income (loss).................... 8,223 10,794 10,927 (22,131) 7,813
Income taxes............................................ 3,235 4,043 4,227 (9,565) 1,940
Minority share of net income (loss)..................... 106 10 (140) (539) (563)
----------- ----------- ----------- ----------- -----------
Income (loss) from consolidated subsidiaries............ 4,882 6,741 6,840 (12,027) 6,436
Equity earnings in unconsolidated subsidiary............ 100 100 - - 200
----------- ----------- ----------- ----------- -----------
Net income (loss)....................................... $ 4,982 $ 6,841 $ 6,840 $ (12,027) $ 6,636
=========== =========== =========== =========== ===========
Earnings (loss) per common share........................ $ 0.22 $ 0.31 $ 0.31 $ (0.54) $ 0.30
=========== =========== =========== =========== ===========
Weighted average common shares ......................... 21,995,285 22,054,168 22,196,781 22,359,055 22,158,673
=========== =========== =========== =========== ===========
Earnings (loss) per common share, assuming dilution..... $ 0.22 $ 0.30 $ 0.30 $ (0.54) $ 0.29
=========== =========== =========== =========== ===========
Weighted average common shares and
common share equivalents (B)...................... 22,822,384 22,763,837 23,014,019 22,359,055 22,753,333
=========== =========== =========== =========== ===========
</TABLE>
(A) 1997 fiscal year consists of twelve week periods in the first and second
quarters, sixteen week period in the third quarter and thirteen week period
in the fourth quarter.
(B) The weighted average shares includes the common stock equivalents related
to employee stock options and a stock purchase agreement.
(C) Includes year end adjustments of $6.0 million related to reserves for
doubtful accounts and an intense inventory turnover review.
44
<PAGE>
Smart & Final Inc.
Summary of Quarterly Results of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal year 1996 (A)
--------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
12 12 16 12 52
Weeks Weeks Weeks Weeks Weeks
--------------------------------------------------------------
(Unaudited)
<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........... 241,904 260,726 347,895 261,641 1,112,166
----------- ----------- ----------- ----------- -----------
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
----------- ----------- ----------- ----------- -----------
Income from operations................... 7,833 10,662 14,225 9,868 42,588
Interest expense, net......................... 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..................... $ 0.21 $ 0.31 $ 0.40 $ 0.28 $ 1.20
=========== =========== =========== =========== ===========
Weighted average common shares................ 20,268,014 20,298,218 20,327,853 20,338,037 20,309,555
=========== =========== =========== =========== ===========
Earnings per common share, assuming dilution.. $ 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) 1996 fiscal year 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.
45
<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 13, 1998, 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" "Section 16(a)
Beneficial Ownership Regarding Compliance" 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>
(A-1) FINANCIAL STATEMENTS: PAGE
----
<S> <C>
Report of Independent Public Accountants.......................... 21
Consolidated Balance Sheets....................................... 22
Consolidated Statements of Income................................. 23
Consolidated Statements of Stockholders' Equity................... 24
Consolidated Statements of Cash Flows............................. 25
Notes to Consolidated Financial Statements........................ 26
Supplementary Data - Summary of Quarterly Results of Operations... 44
(A-2) FINANCIAL STATEMENT SCHEDULES:
Report of Independent Public Accountants.......................... 57
II - Valuation and Qualifying Accounts............................ 58
</TABLE>
All other schedules are omitted since the required information is not
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.
46
<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 Amended and Restated 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 (16)*
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)
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*
</TABLE>
47
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
10.16 Amended and Restated Stock Incentive Plan of the Company*
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 (16)*
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)
10.28 Employment Agreement between the Company and Mr. Laverty (16)*
10.29 Employment Agreement between the Company and Mr. Lynch (17)*
</TABLE>
48
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
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)
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), as amended
</TABLE>
49
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
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 (16)*
10.57 Smart & Final Inc. Directors Deferred Compensation Plan (9), as
amended (16)*
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 (19)
10.59 Agency Agreement dated December 15, 1994, between Shawmut Bank
Connecticut, National Association and the Company (12), as amended
(19)
10.60 Lease Agreement dated December 15, 1994, between Shawmut Bank
Connecticut, National Association and the Company (12), as amended
(19)
</TABLE>
50
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
10.61 Agreement between Port Stockton 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), as amended
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 (16)*
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. (16)
10.71 Participation Agreement dated as of April 16, 1997, among the Company,
Smart & Final Stores Corporation, Port Stockton Food Distributors,
Inc., Fleet National Bank, a national banking association, not in its
individual capacity but solely as the Owner Trustee under the Trust
Agreement, Credit Lyonnais New York Branch, Credit Lyonnais Leasing
Corp. and the Lenders named therein (18), as amended (20)
</TABLE>
51
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
10.75 First Amendment and Restatement dated as of June 20, 1997, to
Participation Agreement dated December 15, 1994, among the Company,
Smart & Final Stores Corporation, Port Stockton Food Distributors
Inc., Fleet National Bank, a national banking association, not in its
individual capacity but solely as the Owner Trustee under the Trust
Agreement, Credit Lyonnais Los Angeles Branch, Bank Leumi Le-Israel
B.M, The Fuji Bank Limited, Los Angeles Agency, The Industrial Bank of
Japan, Limited, Los Angeles Agency, Via Banque, Credit Lyonnais New
York Branch and Credit Lyonnais Leasing Corp. (19), as amended (20)
10.76 First Amendment and Restatement dated as of June 20, 1997 to Agency
Agreement dated December 15, 1994 (19)
10.77 First Amendment and Restatement dated as of June 20, 1997 to Loan
Agreement dated December 15, 1994 (19)
10.78 First Amendment and Restatement dated as of June 20, 1997 to Lease
Agreement dated December 15, 1994 (19)
10.79 Asset Purchase Agreement dated as of May 30, 1997, among American
Foodservice Distributors and Mallard's Food Products, Inc. (19)
10.80 1997 Executive Severance Agreement (20)*
10.81 Agreement to Sell and Purchase Real Property and Escrow Instructions
dated as of September 1, 1997, among the Company and Fred Kayne, as
amended (20)
10.82 Agreement to Sell and Purchase Real Property and Escrow Instructions
dated as of September 12, 1997, among Smart & Final Stores Corporation
and Certified Grocers of California, Ltd. (20)
10.83 Letter Agreement dated as of September 18, 1997 among the Company and
Wells Fargo Bank, N.A. (20)
10.84 Asset Purchase Agreement dated as of September 26, 1997 among American
Foodservice Distributors, Orlando Foodservice, Inc., Capricorn Foods
of Central Florida, Inc., Michael Altif and Frederick Coe (20)
10.85 Asset Purchase Agreement dated as of September 26, 1997, among
American Foodservice Distributors and Continental Grain Company (20)
</TABLE>
52
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
10.86 Supplemental Executive Retirement Plan Master Plan Document*
10.87 Stock Purchase Agreement dated as of January 5, 1998, among American
Foodservice Distributors and Sternlieb Family Investments, Ltd.
10.88 Consulting Agreement dated as of January 5, 1998, among Henry Lee
Company and Edward I. Sternlieb
10.89 Long-Term Equity Compensation Plan of the Company (17)*
10.90 Separation Agreement and Mutual General Release among the Company and
Mr. Laverty*
21 Subsidiaries
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
_________________
(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.
53
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
(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.
(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 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.
(16) Incorporated by reference to the corresponding Exhibit number in the
Company's Annual Report for the year ended December 29, 1996 on Form
10-K which was filed on March 25, 1997.
</TABLE>
54
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
- ------ ---------------------- --------------
<S> <C> <C>
(17) Incorporated herein by reference to the corresponding Exhibit number
in the Company's Definitive Proxy Statement dated May 9, 1997 in
connection with the Annual Meeting of Shareholders of the Company held
May 9, 1997, which was filed on April 8, 1997.
(18) Incorporated herein by reference to the corresponding Exhibit number
in the Company's Quarterly Report for the quarter ended March 23, 1997
on Form 10-Q, which was filed on May 2, 1997.
(19) Incorporated herein by reference to the corresponding Exhibit number
in the Company's Quarterly Report for the quarter ended June 15, 1997
on Form 10-Q, which was filed on July 29, 1997.
(20) Incorporated herein by reference to the corresponding Exhibit number
in the Company's Quarterly Report for the quarter ended October 5,
1997 on Form 10-Q, which was filed on November 18, 1997.
</TABLE>
*Management contracts and compensatory plans, contracts and arrangements of the
Company.
During the quarter ended January 4, 1998, the Company filed no reports on Form
8-K.
55
<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 30, 1998.
--------------
Smart & Final Inc.
/s/ Martin A. Lynch
By: -------------------
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 30, 1998.
- --------------
/s/ Robert J. Emmons
- -------------------- Chairman of the Board and Chief Executive Officer
Robert J. Emmons
/s/ Martin A. Lynch
- -------------------- Executive Vice President, Chief Financial Officer,
Martin A. Lynch and Principal Accounting Officer
/s/ Pierre Bouchut
- -------------------- Director
Pierre Bouchut
/s/ Jean-Louis Bourgier
- ----------------------- Director
Jean-Louis Bourgier
/s/ Christian Couvreux
- ---------------------- Director
Christian Couvreux
/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/ Ross E. Roeder
- -------------------- Director
Ross E. Roeder
56
<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 25, 1998. 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.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 25, 1998
57
<PAGE>
SMART & FINAL INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years 1997, 1996 and 1995
<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 1997.............. $2,568,000 $507,000 $4,354,000 $1,911,000 $5,518,000
========== ======== ========== ========== ==========
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
========== ======== ========== ========== ==========
</TABLE>
58
<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 Form 10-K, the Company maintains the following
unwritten plans and policies as a means to provide incentives 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 1997 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. In fiscal
1997, no bonuses were paid to executive officers other than certain bonuses
guaranteed pursuant to employment agreements with two executive officers (other
than the Chief Executive Officer), which averaged approximately 34% of their
base salaries.
1
<PAGE>
4. Tax Preparation/Financial Planning Reimbursement Plan. The Company has a
-----------------------------------------------------
tax preparation and financial planning reimbursement plan under which eligible
executive officers 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.
2
<PAGE>
EXHIBIT 10.16
-------------
SMART & FINAL INC.
AMENDED AND RESTATED
STOCK INCENTIVE PLAN
--------------------
1. PURPOSE
The purposes of the Smart & Final Inc. Amended and Restated Stock
Incentive Plan (the "Plan") are to promote the interests of Smart & Final Inc.
(the "Corporation") and its shareholders by (a) attracting, motivating and
retaining highly qualified individuals as employees and non-employee directors,
(b) providing them with an opportunity to acquire proprietary interests in the
Corporation, and (c) linking their personal interests with the shareholders'
interests in the continuing success of the Corporation.
Options granted pursuant to the Plan are nonqualified or nonstatutory
options and not incentive stock options within the meaning of Section 422A of
the Code.
2. DEFINITIONS
For purposes of this Plan:
2.1 "AFFILIATE" means a corporation, 50% or more of the voting power of
which is owned by the Corporation and any other subsidiary corporation in an
unbroken chain of corporations ending with the Corporation, if at the time of
granting the Option, 50% or more of the voting power of such corporation is
owned by another corporation in the chain.
2.2 "BOARD" means the Board of Directors of the Corporation or an
Affiliate.
2.3 "CODE" means the Internal Revenue Code of 1986, as amended.
2.4 "COMMITTEE" means the Smart & Final Inc. Stock Option Plan Committee
appointed pursuant to this Plan.
2.5 "DATE OF GRANT" means any person who is a member of the Board.
2.7 "EMPLOYEE" means any officer or employee of the Corporation or an
Affiliate, including employee Directors.
Page 1 of 9
<PAGE>
2.8 "OPTION" means an option granted under the Plan to purchase shares of
Stock.
2.9 "PARTICIPANT" means a person to whom an Option is granted under this
Plan.
2.10 "STOCK" means the Common Stock of the Corporation. Unless the
context expressly indicates otherwise, "shares" means shares of Stock.
3. SHARES SUBJECT TO THE PLAN
Options may be granted under this Plan to acquire an aggregate of
2,450,000 shares of Stock, subject to adjustment as provided in Section 6.12 of
this Plan. If an Option terminates, expires or is canceled with respect to any
Stock, new Options may be granted thereafter with respect to such Stock.
4. ELIGIBILITY
Any employee (other than Robert Emmons), shall be eligible to become a
Participant as the Committee, in its sole discretion, shall determine and each
non-employee Director shall become a Participant in accordance with the terms
hereof. The adoption of this Plan shall not be deemed to give any Employee or
non-employee Director any right to be granted an Option except to the extent and
upon the terms and conditions set forth in this Plan.
5. GRANTING OF OPTIONS
The Committee, from time to time and in its absolute discretion, shall
determine and designate which employees shall become Participants and the Terms
and conditions, consistent with this Plan, of each Option.
6. OPTION AGREEMENT: TERMS AND CONDITIONS
Each Option shall be evidenced by a written Stock Option Agreement in
a form approved by the Committee. Each Stock Option Agreement shall be executed
by the Corporation and the Participant receiving the Option. Each Option shall
be subject to the following terms and conditions and to such other terms and
conditions as the Committee may deem appropriate:
6.1 NUMBER OF SHARES
Each Stock Option Agreement shall specify the number of shares of Stock
which are subject to the Option.
Page 2 of 9
<PAGE>
6.2 EXERCISE PERIOD
Each Stock Option Agreement shall specify the time period during which the
Option granted thereunder may be exercised, which period shall not exceed ten
years from the Date of Grant.
6.3 OPTION PRICE
The price of the shares subject to each Option shall be determined by the
Committee and set forth in the Stock Option Agreement, provided, however, that
the price per share shall not be less than 85% of the Fair Market Value of a
share on the Date of Grant.
The price of the shares subject to each Option shall be determined by the
Committee and set forth in the Stock Option Agreement, provided, however, that
the price per share shall not be less than 85% of the Fair Market Value of a
share on the Date of Grant.
For purposes of this Plan, the Fair Market Value of a share means the price
of a share of Stock, determined by the Committee, as follows:
(a) If the Common Share is traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite-transactions report for such date.
(b) If the Common Share is traded over-the-counter on the date in question
and was classified as a national market issue, then the Fair Market Value shall
be equal to the last transaction price quoted by the NASDAQ system for such
date.
(c) If the Common Share is traded over-the-counter on the date in question
but was not classified as a national market issue, then the Fair Market Value
shall be equal to the mean between the last reported representative bid and
asked prices quoted by the NASDAQ system for such date; and
(d) If non of the foregoing provisions is applicable, then the Fair Market
Value shall be determined by the Committee in good faith on such basis as it
deems appropriate.
6.4 PAYMENT OF OPTION PRICE
The price of the shares transferred to a Participant pursuant to the
exercise of an Option shall be paid to the Corporation at such time and in such
manner, consistent with applicable law, as determined by the Committee at the
Date of Grant or, in the
Page 3 of 9
<PAGE>
absence of such determination, in case or a cashier's check in U.S. dollars at
the time of exercise.
6.5 PAYMENT OF TAXES
Each Stock Option Agreement shall contain a provision requiring a
Participant or any other person exercising an Option to make any payment or
other arrangement determined by the Committee to be necessary to satisfy all
taxes required to be withheld upon the exercise of an Option. The obligations
of the Company shall be conditioned upon such payment or other arrangements, and
the Company shall be conditioned upon such payment or other arrangements, and
the Company shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the Participant.
6.6 EXERCISE OF OPTION
To exercise an Option, the Participant or any other person exercising such
Option shall give written notice to the Secretary of the Corporation specifying
the number of shares to be purchased upon exercise, provided, however, that an
Option may not be exercised with respect to less than 50 shares subject to an
Option unless there are less than 50 shares remaining subject to the Option. An
Option may be exercised in whole or in part, provided that it may not be
exercised with respect to fractional shares, and provided, further, that no cash
payment shall be made in lieu of fractional shares. The notice shall be
accompanied by payment in full for the shares being purchased and by such
documents as are required by the Committee. Options shall be exercisable at
such time and in such installments as determined by the Committee at the Date of
Grant or, in the absence of such determination, as follows:
<TABLE>
<CAPTION>
Percentage
From To Exercisable
---- -- -----------
<S> <C> <C>
Date of Grant Day prior to 1st anniversary 0%
1st Anniversary Day prior to 2nd anniversary 0%
2nd Anniversary Day prior to 3rd anniversary 33-1/3%
3rd Anniversary Day prior to 4th anniversary 66-2/3%
4th Anniversary Expiration of Option 100%
</TABLE>
The Committee may, in its absolute discretion and on such terms and
conditions as it considers appropriate, accelerate the times at which an Option
may be exercised in whole or in part.
Page 4 of 9
<PAGE>
6.7 NONTRANSFERABILITY
No Option shall be transferable, other than by will or the laws of descent
and distribution, and, during the lifetime of the Participant, an Option shall
be exercisable only by the Participant except as otherwise provided in this
Plan. No interest of any participant under this Plan shall be subject to
attachment, execution, garnishment, sequestration, the laws of bankruptcy or any
other legal or equitable process. If a Participant who is an Employee dies
while an Employee, without having fully exercised his or her Option, or if a
Participant, not an Employee, who serves as a Director, dies while serving in
such capacity, such Participant's estate or any persons who acquired the right
to exercise the Option by bequest or inheritance or by reason of the death of
the Participant, shall have the right to purchase, within one year after the
death of such Participant, by exercise of said Option, all or any portion of the
shares which the Participant could have purchased at the time of his or her
death and any Options which would otherwise become exercisable within such one-
year period, provided, however, that no Option may be exercised at any time
after the expiration date thereof.
6.8 EXPIRATION OF GRANTS
Options granted pursuant to the Plan shall expire and cease to be
exercisable upon the first to occur of any one of the following events or
occurrences: (i) the expiration of the period of the Option pursuant to Section
6.2; (ii) if the Participant is an Employee, 90 days following termination of
employment with the Corporation or an Affiliate for any reason, or 90 days
following retirement, provided that if the Participant's termination of
employment is caused by his or her death or Permanent Disability, one year
following such death or Permanent Disability; or (iii) in the case of a
Participant who is not an Employee but serves as a Director 90 days following
termination of such service for any reason, provided that if such Participant's
termination of service is caused by his or her death or Permanent Disability,
one year following such death or Permanent Disability.
6.9 PERMANENT DISABILITY
For this purpose, "Permanent Disability" means a permanent and total
disability within the meaning of Code Section 22(e) (3). In the event of a
Participant's death, options may be exercised within the period and to the
extent described above by the Participant's estate or any person who acquired
the right to exercise the option by bequest or inheritance or by reason of the
death of the Participant. If a Participant becomes Permanently Disabled while
an Employee or while serving as a Director, without having fully exercised his
Option, he or she may, within one year after the date of such Permanent
Disability, exercise all or any portion of the shares which he or she could have
purchased at the time of such
Page 5 of 9
<PAGE>
Permanent Disability and any Options which would otherwise become exercisable
within such one-year period, provided, however, that no Option may be exercised
at any time after the expiration date thereof.
6.10 INVESTMENT REPRESENTATION
Each Stock Option Agreement, as a condition precedent to the grant of any
Option, shall contain a provision that the Participant represents to the
Committee that the Option and the Stock to be acquired upon exercise of the
Option will be acquired for investment and not for resale or with a view to the
distribution thereof.
6.11 COMPLIANCE WITH LAWS AND REGULATIONS: LEGENDS
This Plan, the grant and exercise of Options under this Plan and the
obligations of the Corporation to sell and deliver Stock under Options shall be
subject to all applicable federal and state laws, rules and regulations and to
any approvals by any government or regulatory agency as may be required. The
Corporation shall not be required to issue or deliver any certificate for shares
of Stock either (a) prior to (1) the listing of such shares on any stock
exchange on which the Stock may then be listed and (2) the completion of any
registration or qualification of such shares which is required under any federal
or state law, or any ruling or regulation of any government body, and which the
Corporation shall, in its sole discretion, determine to be necessary or
advisable or (b) until exemptions from such registration and qualification
requirements are established to the reasonable satisfaction of the Corporation
and its counsel. In connection with the exercise of Options by persons who
could be considered to be "affiliates" as that term is defined in the Rules and
Regulations under the Securities Act of 1933, the Corporation may, in order to
insure that resales are made in compliance with that Act, imprint a legend on
certificates representing shares acquired on the exercise of Options to the
effect that the shares may not be resold in the absence of compliance with the
applicable restrictions or a determination that no restrictions are applicable.
Any stock certificate evidencing shares of Stock issued pursuant to the exercise
of an Option shall bear such other legends as the Committee, in the exercise of
reasonable discretion, shall require.
6.12 ADJUSTMENTS IN OUTSTANDING OPTIONS
In the event of any change in the outstanding Stock by reason of a
recapitalization, stock dividend, stock split, split-up, combination or exchange
of shares or any similar change affecting the Stock, the aggregate number of
shares (including shares subject to outstanding Options) for which Options may
be granted under the Plan, shall be equitably adjusted to the nearest whole
share by the Board, whose determination shall be conclusive, to prevent
enlargement or diminution of rights to the extent possible in order to preserve
the proportionate interest in the aggregate number of shares under Option and to
continue the aggregate purchase price of all shares under Option as nearly the
same as possible.
Page 6 of 9
<PAGE>
6.13 CERTAIN CORPORATE TRANSACTIONS
Nothing in the Plan shall in any way prohibit the Corporation from merging
with or consolidating into another corporation, or from selling or transferring
all or substantially all of its assets, or from distributing all or
substantially all of its assets to its stockholders in liquidation, or from
dissolving and terminating its corporate existence, and in any such event (other
than a merger in which the Corporation is the surviving corporation and under
the terms of which the shares of Stock outstanding immediately prior to the
merger remain outstanding and unchanged), each Participant shall have the right,
immediately prior to such merger, consolidation, sale or transfer of assets,
liquidation or dissolution, to exercise an Option whether or not the Option is
then exercisable, except to the extent that any agreement or undertaking of any
party to any such merger, consolidation or sale or transfer of assets, or any
plan pursuant to which such liquidation or dissolution is effected, may make
specific provision with respect to the assumption of or substitution for the
Option. To the extent that the Participant's right to exercise is accelerated
in accordance with this Section 6.13, (i) the exercise shall be contingent upon
the consummation of such merger, consolidation, sale or transfer of assets,
liquidation or dissolution, and (ii) if such merger, consolidation, sale or
transfer of assets, liquidation or dissolution is consummated and an option is
not exercised immediately before such event, such Option shall expire and
thereafter shall cease to be exercisable. The Committee shall notify the
Participant of the provision of any such merger, consolidation, sale or transfer
of assets, liquidation or dissolution, not less than ten days prior to the
effective date thereof.
6.14 NO RIGHTS AS A SHAREHOLDER
No Participant shall have any rights as a shareholder with respect to any
shares subject to Options prior to the date of issuance to him or her of a
certificate for such shares.
6.15 NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in this Plan or in any document executed pursuant this Plan shall
confer upon any Participant or any other person any right to continued
employment by the Corporation or any Affiliate or interfere in any way with the
right of the Corporation or an Affiliate to terminate the employment of a
participant at any time.
6.16 SPECIAL PROVISIONS REGARDING NON-EMPLOYEE DIRECTORS
Notwithstanding any other provision of the Plan, Options granted to any
non-employee Directors shall be subject to the following conditions and
limitations:
Page 7 of 9
<PAGE>
(a) Each non-employee Director, who has not been awarded an Option prior to
the Effective Date (as defined in this Section 6.16(a)), shall automatically
receive an Option to purchase 22,500 Shares as of the Effective Date. After the
Effective Date, each newly elected or appointed non-employee Director shall
automatically receive an Option to purchase 22,500 Shares as of the Effective
Date. After the Effective Date, each newly elected or appointed non-employee
Director shall automatically receive an Option to purchase 22,500 Shares
(subject to adjustment as provided in Section 6.12 of the Plan) as of the date
of the initial election or appointment of such non-employee Director. For
purposes of this Section 6.16(a) only, the "Effective Date" shall be the date on
which this Section 6.16(a) is approved by the stockholders of the Corporation.
If at any time there are not sufficient shares of Stock available under the Plan
to fully permit the automatic Option grants described in this Section 6.16(a),
such Option grants shall be reduced prorata (to zero if necessary) so as to not
exceed the number of shares of Stock available.
(b) The price per Share subject to any such Option shall equal the Fair
Market Value of a Share as of the date such Option is automatically awarded.
(c) Options shall be exercisable within ten years of Date of Grant.
(d) Payment for any Shares subject to any such Option shall be payable only
in cash or cashier's check upon exercise.
(e) Options shall be exercisable only in accordance with the schedule set
forth in Section 6.6 above.
(f) Notwithstanding any provision of the Plan, this Section 6.16 shall not
be amended more than once every six months, other than to comport with changes
in the Code, the Employment Retirement Income Security Act of 1974, as amended,
or the rules and regulations thereunder.
7. ADMINISTRATION
The Compensation Committee, consisting of at least three non-employee
members of the Board who are appointed by the Board, as such Compensation
Committee is constituted from time to time, shall be the Stock Option Plan
Committee to administer this Plan. Members of the Committee shall serve without
compensation for their services as members, but all expenses and liabilities
they incur in connection with the administration of the Plan shall be borne by
the Corporation. If the Board does not appoint a Committee, the Board shall
administer the Plan and shall have the powers and duties granted to the
Committee in this Plan.
The Committee shall act by a majority of its members by vote in a
meeting or by written instrument signed by a majority of its members.
Page 8 of 9
<PAGE>
The Committee shall administer this Plan in accordance with its
provisions and shall interpret this Plan, prescribe, amend and rescind any rules
and regulations necessary or appropriate for the administration of the Plan and
make such other determinations and take such other action as it deems necessary
or advisable, except as otherwise expressly reserved to the Board in this Plan.
Without limiting the generality of the preceding sentence, the Committee may, in
its discretion, determine that for Option purposes a Participant remains an
Employee or Director during all or any portion of a leave of absence approved by
the Corporation or an Affiliate. Any interpretation, determination, or other
action made or taken by the Committee shall be final and binding upon all
Participants.
Neither the Committee members or the directors, officers or employees
of the Corporation shall be under any duty to provide to any Participant tax or
legal advice concerning any Option or any other matter relating to the Plan.
No member of Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan or
any Option, and all such persons shall be fully protected by the Corporation
with respect to any such action, determination or interpretation.
8. AMENDMENT AND DISCONTINUANCE
The Board may from time to time amend, suspend or discontinue this
Plan, provided, however, that, subject to the provisions of Sections 6.12 and
6.16(f), without approval of the shareholders of the Corporation no action of
the Corporation shall (a) increase the number of shares reserved for Options
pursuant to Section 3 of this Plan, (b) permit the granting of any Option at a
price less than that determined in accordance with Section 6.3 of this Plan, or
(c) permit the granting of Options which expire beyond the period provided for
in Section 6.2 of this Plan. Without the written consent of a Participant, no
amendment or suspension of this Plan shall alter or impair any Option previously
granted to such Participant pursuant to this Plan.
9. TERM OF THE PLAN
Unless terminated earlier as provided herein, the Plan shall terminate
on the date ten years from the date hereof, and no further Options shall be
granted pursuant to the Plan thereafter, provided that Options granted prior to
such termination may extend beyond that date.
IN WITNESS WHEREOF, This Amended and Restated Smart & Final Inc. Stock
Incentive Plan has been executed at Vernon, California, as of November 18, 1997.
Smart & Final Inc.
Page 9 of 9
<PAGE>
By /s/ JAMES E. ROBINSON
----------------------------
James E. Robinson
Vice President, Human Resources
Page 10 of 9
<PAGE>
EXHIBIT 10.47
-------------
FIRST AMENDMENT TO CONSULTING AGREEMENT
---------------------------------------
This FIRST AMENDMENT TO CONSULTING AGREEMENT (the "First Amendment")
is made and entered into as of the 5th day of January, 1998, by and between
HENRY LEE COMPANY, a Florida corporation (the "Company"), and STERNLIEB
CONSULTING, INC., a Florida corporation ("SCI").
A. The Company and SCI entered into a Consulting Agreement dated as of
November 8, 1994 (the "Agreement"), whereby SCI agreed to provide the services
of Henry Sternlieb ("Consultant"), under contract to SCI, as a consultant to the
Company.
B. The parties wish to amend the Agreement on the terms and conditions set
forth in this First Amendment.
Accordingly, in consideration of the mutual covenants set forth below, the
parties agree as follows:
1. Section 3.1 of the Agreement is hereby amended to read in its entirety
as follows:
"3.1 Compensation. As the total consideration for the services and
------------
obligations which SCI performs and observes hereunder, SCI shall receive a fee
of Twelve Thousand Five Thousand and No/100 Dollars ($12,500.00) per quarter,
payable on the last day of each calendar quarter."
2. Section 3.2 of the Agreement is hereby amended to read in its entirety
as follows:
"3.2 Reimbursement of Expenses. Commencing as of January 3, 1998 the
-------------------------
Company will be responsible for reimbursing only those reasonable and necessary
travel and entertainment expenses directly associated with the performance of
Consultant's duties under the Agreement, including but not limited to the
following: gasoline, mileage, cellular phone charges and other such expenses to
be reimbursed subject to approval by the Company according to its existing
policy for similar expenses as it may be amended from time to time. Any excess
mileage or other charges assessed upon disposition of any leased automobiles
currently in use by Consultant shall be allocated 26/36ths to the Company and
10/36ths to Consultant. All other expenses, including but not limited to, car
lease payments, country club dues and other such expenses will be for the
account of Consultant. Reimbursements will be made on a quarterly basis
payable on the last day of each calendar quarter commencing March 31, 1998 and
ending on December 31, 1998, assuming submission of required documentation in
accordance with current Company procedures for requesting reimbursement. The
Company will continue to provide health and automobile insurance for Consultant
through December 31, 1999, but Consultant shall reimburse the Company in full
for the actual cost of such insurance coverage for Consultant."
1
<PAGE>
3. Section 5.7 of the Agreement is hereby amended to read in its entirety
as follows:
"5.7 Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing, and shall be deemed to have been given
if personally delivered, or delivered by facsimile transmission, or actually
delivered (as evidenced by appropriate receipt) by overnight courier, or 72
hours after being placed in the United States mail, registered or certified-
return receipt requested, postage prepaid, addressed as follows:
If to SCI: Sternlieb Consulting, Inc.
c/o Mr. Henry Sternlieb
6608 Maynada Street
Coral Gables, FL 33146
With a copy to: Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.C.
515 East Las Olas Boulevard
Fort Lauderdale, FL 33301
Attn: C. Deryl Couch, Esq.
Phone: (954) 768-8202
Fax: (954) 765-1477
If to the Company: Henry Lee Company
4700 South Boyle Avenue
Los Angeles, CA 90058
Attn: Mr. Martin A. Lynch
Phone: (213) 589-9720
Fax: (213) 589-2074
With a copy to: Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, CA 90058
Attn: Donald G. Alvarado, Esq.
Phone: (213) 589-9726
Fax: (213) 589-0415
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.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment as of the
date first written above.
THE COMPANY: SCI:
HENRY LEE COMPANY, STERNLIEB CONSULTING, INC.,
a Florida corporation a Florida corporation
By:/s/ Michael Primrose By:/s/ Henry Sternlieb
-------------------- -------------------
Its: President Its:President
--------- ---------
By:/s/ Donald G. Alvarado
----------------------
Its: Secretary
---------
3
<PAGE>
EXHIBIT 10.65
-------------
AMENDMENT NO. 2
Dated as of March 2, 1998
to
CREDIT AGREEMENT
Dated as of November 20, 1995
THIS AMENDMENT NO. 2 ("Amendment") dated as of March 2, 1998, is
entered into among Smart & Final Inc. (the "Company"), the Banks (as defined in
the Credit Agreement referred to below) and Credit Lyonnais Los Angeles Branch,
in its individual capacity as a Bank and in its capacity as Agent for the Banks
(in such capacity, the "Agent").
PRELIMINARY STATEMENT. The Agent, the Banks and the Company are
parties to that certain Credit Agreement dated as of November 20, 1995 and that
certain Amendment No. 1 to Credit Agreement dated as of May 10, 1996 (as so
amended, the "Credit Agreement"). The Company has requested that the Banks
agree to further amend the Credit Agreement as provided herein. Capitalized
terms used herein without definition are used herein as defined in the Credit
Agreement.
SECTION 1. Amendments to the Credit Agreement.
----------------------------------
Effective as of the date of this Amendment and subject to the
satisfaction (or waiver) of the conditions precedent set forth in Section 2 of
this Amendment, the Credit Agreement is hereby amended as follows:
1.1 The definition of "Cash Flow" as set forth in Section 1.01 of the
Credit Agreement is hereby amended and restated in its entirety to read as
follows:
" 'Cash Flow' shall mean, at any date and for any period, the sum of
net income (excluding pre-tax special charges recorded in the fourth
quarter of fiscal year 1997 in an amount not to exceed $8.9 million,
and non-cash unusual items and minority interest in earnings), plus
interest expense, income taxes, depreciation, amortization and lease
expense (to the extent deducted in determining net income) for such
period."
1.2 The definition of "Calculated Debt" as set forth in Section 1.01
of the Credit Agreement is hereby amended and restated in its entirety to read
as follows:
" 'Calculated Debt' shall mean, as to any Person, at any date, for any
period and without duplication, the sum of (i) all obligations of such
Person for borrowed money, excluding obligations under synthetic
leases to the extent that operating lease expenses for such synthetic
leases are included in the calculation of (iv) thereafter, (ii) all
obligations of such Person
<PAGE>
2
evidenced by bonds, debentures, notes or similar instruments, (iii)
all obligations of such Person as lessee under capital leases, and
(iv) the product of (1) eight and (2) operating lease expense of such
Person (determined in accordance with generally accepted accounting
principles) for the period in question."
1.3 Section 6.13 of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
"The Company will not permit its Tangible Net Worth at any time of
determination to be less than (A) for the period commencing on January
1, 1995 and ending on the last day of the 3rd quarter of fiscal 1997,
the sum of (i) $100,000,000 and (ii) fifty percent (50%) of the net
income (but only to the extent that such net income is a positive
number) of the Company; (B) as of fiscal year ended January 4, 1998,
$150,000,000; and (C) thereafter, the sum of (i) $150,000,000 and (ii)
fifty percent (50%) of the net income earned in those fiscal quarters
for which net income of the Company is positive, and which end after
January 4, 1998."
1.4 Section 6.14 of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
"The Company will not permit the Cash Flow Ratio, as of the last day
of the following fiscal quarters of the Company and determined with
respect to the four (4) fiscal quarters of the Company then ended, to
be greater than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Period Maximum Ratio
------ -------------
<S> <C>
4th Quarter of Fiscal 1995 4.00 to 1
1st Quarter of Fiscal 1996 4.00 to 1
2nd Quarter of Fiscal 1996 4.00 to 1
3rd Quarter of Fiscal 1996 4.00 to 1
4th Quarter of Fiscal 1996 4.00 to 1
1st Quarter of Fiscal 1997 4.00 to 1
2nd Quarter of Fiscal 1997 4.00 to 1
3rd Quarter of Fiscal 1997 4.00 to 1
4th Quarter of Fiscal 1997 5.00 to 1
1st Quarter of Fiscal 1998 5.00 to 1
2nd Quarter of Fiscal 1998 5.00 to 1
3rd Quarter of Fiscal 1998 5.00 to 1
4th Quarter of Fiscal 1998 4.50 to 1
Thereafter 4.25 to 1"
</TABLE>
SECTION 2. Conditions Precedent; Effectiveness. This Amendment shall
-----------------------------------
become effective and be deemed effective as of the date hereof, if, and only if,
the Agent
<PAGE>
3
shall have received on or before midnight (Los Angeles time) on the date hereof
executed counterparts of this Amendment executed by the Company, the Majority
Banks and the Agent.
SECTION 3. Covenants, Representations and Warranties of the Company.
--------------------------------------------------------
3.1 On the date of its execution hereof, the Company hereby reaffirms
all covenants, representations and warranties made by it in the Credit Agreement
(except for any such representations and warranties which are stated to be made
as of a specific date) and all such covenants, representations and warranties
shall be deemed to have been remade as of the date of the Company's execution
hereof.
3.2 The Company represents and warrants that this Amendment
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
SECTION 4. Reference to and Effect on the Credit Agreement.
-----------------------------------------------
4.1 Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of like import shall mean and be a reference to the Credit Agreement, as amended
hereby, and each reference to the Credit Agreement in any other document,
instrument or agreement executed and/or delivered in connection with the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended
hereby.
4.2 Except as specifically amended or waived above, the Credit
Agreement, the Notes and all other loan documents executed in connection
therewith shall remain in full force and effect and are hereby ratified and
confirmed.
4.3 The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of any Bank or the Agent
under the Credit Agreement, the Notes or any other loan document, nor constitute
a waiver of any provision contained therein, except as specifically set forth
herein.
SECTION 5. Execution in Counterpart. This Amendment may be executed
------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
SECTION 6. Governing Law. This Amendment shall be governed by and
-------------
construed in accordance with the internal laws of the State of California
without regard to its conflicts of law rules.
<PAGE>
4
SECTION 7. Headings. Section headings in this Amendment are included
--------
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
SMART & FINAL INC.
By: /s/ DONALD G. ALVARADO
------------------------
Name: Donald G. Alvarado
Title: Secretary
CREDIT LYONNAIS
LOS ANGELES BRANCH,
as Agent and as Bank
By: /s/ DIANNE M. SCOTT
-------------------------
Name: Dianne M. Scott
Title: Vice President & Manager
CREDIT LYONNAIS
CAYMAN ISLAND BRANCH,
as Bank
By: /s/ DIANNE M. SCOTT
-------------------------
Name: Dianne M. Scott
Title: Authorized Signatory
NATIONSBANK OF TEXAS, N.A.,
as Bank
By: /s/ BRAD W. DESPAIN
-------------------------
Name: Brad W. DeSpain
Title: Senior Vice President
WELLS FARGO BANK, N.A.,
as successor of First Interstate
Bank of California, as Bank
By: /s/ JUDY A. VODHANEL
-------------------------
Name: Judy A. Vodhanel
Title: Vice President
Name: Eugene Fuentes
Title: Vice President
FIRST HAWAIIAN BANK,
as Bank
By: /s/ SCOTT R. NAHME
-------------------------
Name: Scott R. Nahme
Title: Assistant Vice President
National Corporate Banking
<PAGE>
EXHIBIT 10.71
-------------
SECOND AMENDMENT
TO
PARTICIPATION AGREEMENT
This SECOND AMENDMENT TO PARTICIPATION AGREEMENT (this "Amendment") is
entered into as of March 2, 1998 by and among Smart & Final Inc., a Delaware
corporation, Smart & Final Stores Corporation, a California corporation, and
American Foodservice Distributors, a California corporation, State Street Bank
and Trust Company of California N.A., a national banking association, not in its
individual capacity, but solely as successor Owner Trustee, each of the banks
listed on the signature pages hereto, Credit Lyonnais Leasing Corp., a Delaware
corporation, 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.
WHEREAS, each of the parties hereto has entered into that certain
Participation Agreement dated as of April 16, 1997 and that certain First
Amendment to Participation Agreement dated as of August 15, 1997 (as so
amended, the "Participation Agreement"); and
WHEREAS, each of the parties hereto desire to further amend the
Participation Agreement as herein provided.
NOW, THEREFORE, the parties hereto agree as follows (capitalized
terms used herein but not otherwise defined herein having the meanings ascribed
to them in the Participation Agreement):
SECTION 1. Amendments. Effective as of the date of this Amendment
----------
and subject to the satisfaction (or waiver) of the conditions precedent set
forth in Section 2 of this Amendment, the Participation Agreement is hereby
amended as follows:
1.1. The definition of "Consolidated Cash Flow" as set forth in
Exhibit A of the Participation Agreement is hereby amended and
restated in its entirety to read as follows:
"'Consolidated Cash Flow' shall mean, at any date and for any period,
the sum of net income (excluding pre-tax special charges recorded in
the fourth quarter of fiscal year 1997 in an amount not to exceed $8.9
million, and non-cash unusual items and minority interest in
earnings), plus interest expense, income taxes, depreciation,
amortization and lease expense (to the extent deducted in determining
net income) for such period."
1.2 The definition of "Consolidated Indebtedness" as set forth in
Exhibit A of the Participation Agreement is hereby amended and
restated in its entirety to read as follows:
<PAGE>
2
"'Consolidated Indebtedness' shall mean, as to any Person, at any
date, for any period and without duplication, the sum of (i) all
obligations of such Person for borrowed money, excluding obligations
under synthetic leases to the extent that operating lease expenses for
such synthetic leases are included in the calculation of subclause
(iv) hereafter, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, (iii) all obligations
of such Person as lessee under capital leases, and (iv) the product of
(1) eight and (2) operating lease expense (determined in accordance
with generally accepted accounting principles) for the period in
question."
1.3 Subsection (c) of Section 4.03 of the Participation Agreement is
hereby amended and restated to read in its entirety as follows:
"The Lessee and each Significant Sublessee will not permit the
Consolidated Tangible Net Worth of Lessee at any time to be less than
(A) for the period commencing on January 1, 1995 and ending on the
last day of the 3rd quarter of fiscal year 1997, the sum of (i)
$100,000,000 and (ii) fifty percent (50%) of the net income (but only
to the extent that such net income is a positive number) of the
Lessee; (B) as of fiscal year ended January 4, 1998, $150,000,000; and
(C) thereafter, the sum of (i) $150,000,000 and (ii) fifty percent
(50%) of the net income of the Lessee earned in those fiscal quarters
for which net income is positive, and which end after January 4, 1998;
provided that if the Lessee enters into a financing agreement after
--------
the date hereof containing a similar or comparable covenant with a
higher minimum, such higher minimum shall thereafter apply for the
purposes of this subsection."
1.4 Subsection (d) of Section 4 .03 of the Participation Agreement is
hereby amended and restated to read in its entirety as follows:
"The Lessee and each Significant Sublessee shall not at any time
permit the ratio of (i) the Consolidated Indebtedness of Lessee to
(ii) the Consolidated Cash Flow of Lessee, as of the last day of the
following fiscal quarters of the Lessee and determined with respect to
the four (4) fiscal quarters of the Lessee then ended, to be greater
than the ratio set forth opposite such period:
Period Maximum Ratio
------ -------------
2nd Quarter of Fiscal 1997 4.00 to 1
3rd Quarter of Fiscal 1997 4.00 to 1
4th Quarter of Fiscal 1997 5.00 to 1
1st Quarter of Fiscal 1998 5.00 to 1
2nd Quarter of Fiscal 1998 5.00 to 1
3rd Quarter of Fiscal 1998 5.00 to 1
<PAGE>
3
4th Quarter of Fiscal 1998 4.50 to 1
thereafter 4.25 to 1;
provided that if the Lessee enters into a financing agreement after the
--------
date hereof containing a similar or comparable covenant with a lower ratio,
such lower ratio shall thereafter apply for the purposes of this
subsection."
SECTION 2. Conditions Precedent; Effectiveness. This Amendment shall
-----------------------------------
become effective and be deemed effective as of the date hereof, if, and only if,
the Agent shall have received on or before midnight (New York time) on the date
hereof executed counterparts of this Amendment executed by the Lessee, the
Significant Sublessees, the Majority Banks and the Agent.
SECTION 3. Covenants, Representations and Warranties of the Lessee and
------------------------------------------------------------
each of the Significant Sublessees.
----------------------------------
3.1 On the date of their execution hereof, the Lessee and each of the
Significant Sublessees hereby reaffirm all covenants, representations and
warranties made by them, respectively, in the Participation Agreement
(except for any such representations and warranties which are stated to be
made as of a specific date) and all such covenants, representations and
warranties shall be deemed to have been remade as of the date hereof.
3.2 The Lessee and each of the Significant Sublessees each represents and
warrants that this Amendment constitutes a legal, valid and binding
obligation of such party, enforceable against such party in accordance
with its terms.
SECTION 4. Reference to and Effect on Participation Agreement. Upon the
--------------------------------------------------
effectiveness of this Amendment, each reference in the Participation Agreement
to "this Agreement", "hereunder", "hereof", "herein" or words of like import
shall mean and be a reference to the Participation Agreement, as amended hereby,
and each reference to the Participation Agreement in any other document,
instrument or agreement executed and/or delivered in connection with the
Participation Agreement shall mean and be a reference to the Participation
Agreement as amended hereby.
SECTION 5. Governing Law. This Amendment shall be governed by the laws
-------------
of the State of New York without regard to the conflict of laws rules thereof.
SECTION 6. Counterparts. This Amendment may be executed in any number of
------------
counterparts, all of which, taken together, shall constitute one complete
document.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
CREDIT LYONNAIS NEW YORK BRANCH,
as Agent
By: /s/ Conrad Meyer
----------------
Its: Vice President
--------------
CREDIT LYONNAIS LOS ANGELES BRANCH,
as Lender
By: /s/ Dianne M. Scott
-------------------
Its: Vice President and Manager
--------------------------
BANQUE NATIONALE DE PARIS,
as Lender
By: /s/ C. Bettles
--------------
Its: Sr. V.P. and Manager
--------------------
By: /s/ J.L. Tourne
---------------
Its: V.P. and Deputy Manager
-----------------------
UNION BANK OF CALIFORNIA, N.A.,
as Lender
By: /s/ D.E. Fenwick
----------------
Its:
---------------
CREDIT LYONNAIS LEASING CORP.,
as Equity Participant
By: /s/ L.M. Wertheim
-----------------
Its: Secretary/Vice President
------------------------
CIBC INC., as Lender
By: /s/ Christopher Kleczkowski
---------------------------
Its: Executive Director, CIBC Oppenheimer as Agent
---------------------------------------------
<PAGE>
5
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA N.A., not in its
individual capacity, but solely as successor to
Fleet National Bank as Owner Trustee under the
Trust Agreement, as the Lessor
By: /s/ Mark Henson
---------------
Its: Assistant Vice President
------------------------
SMART & FINAL INC.,
as Lessee
By: /s/ Donald G. Alvarado
----------------------
Its: Secretary
---------
SMART & FINAL STORES CORPORATION,
as Significant Sublessee
By: /s/ Donald G. Alvarado
----------------------
Its: Secretary
---------
AMERICAN FOODSERVICE DISTRIBUTORS,
as Significant Sublessee
By: /s/ Donald G. Alvarado
----------------------
Its: Secretary
---------
<PAGE>
EXHIBIT 10.75
-------------
THIRD AMENDMENT
TO
PARTICIPATION AGREEMENT
This THIRD AMENDMENT TO PARTICIPATION AGREEMENT (this "Amendment") is
entered into as of March 2, 1998 by and among Smart & Final Inc., a Delaware
corporation, Smart & Final Stores Corporation, a California corporation, and
Port Stockton Food Distributors, Inc., a California corporation, State Street
Bank and Trust Company of California N.A., a national banking association, not
in its individual capacity, but solely as successor Owner Trustee, Credit
Lyonnais Los Angeles Branch, a branch duly licensed under the laws of California
of a banking corporation organized and existing under the laws of the Republic
of France, Bank Leumi USA., a New York State chartered bank, The Industrial Bank
of Japan, Limited, Los Angeles Agency, an agency duly licensed under the laws of
California of a banking corporation organized and existing under the laws of
Japan, and Via Banque, S.A., a banking corporation organized and existing under
the laws of the Republic of France, Credit Lyonnais Leasing Corp., a Delaware
corporation, 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.
WHEREAS, each of the parties hereto has entered into that certain First
Amendment and Restatement dated as of June 20, 1997 (the "First Restatement") to
that certain Participation Agreement dated as of December 15, 1994 and into that
certain Second Amendment to Participation Agreement dated as of August 15, 1997
(the "Second Amendment") (as so amended and restated by the First Restatement
and further amended by the Second Amendment, the "Participation Agreement"); and
WHEREAS, each of the parties hereto desire to further amend the
Participation Agreement as provided herein.
NOW, THEREFORE, the parties hereto agree as follows (capitalized terms
used herein but not otherwise defined herein having the meanings ascribed to
them in the Participation Agreement):
SECTION 1. Amendments. Effective as of the date of this Amendment and
----------
subject to the satisfaction (or waiver) of the conditions precedent set forth in
Section 2 of this Amendment, the Participation Agreement is hereby amended as
follows:
1.1 The definition of "Consolidated Cash Flow" as set forth in Exhibit A
of the Participation Agreement is hereby amended and restated in its
entirety to read as follows:
" `Consolidated Cash Flow' shall mean, at any date and for any period, the
sum of net income (excluding pre-tax special charges recorded in the fourth
quarter of
<PAGE>
2
fiscal year 1997 in an amount not to exceed $8.9 million, and
non-cash unusual items and minority interest in earnings), plus interest
expense, income taxes, depreciation, amortization and lease expense (to the
extent deducted in determining net income) for such period."
1.2 The definition of "Consolidated Indebtedness" as set forth in
Exhibit A of the Participation Agreement is hereby amended and
restated in its entirety to read as follows:
" `Consolidated Indebtedness' shall mean, as to any Person, at any date,
for any period and without duplication, the sum of (i) all obligations of
such Person for borrowed money, excluding obligations under synthetic
leases to the extent that operating lease expenses for such synthetic
leases are included in the calculation of subclause (iv) hereafter, (ii)
all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, (iii) all obligations of such Person as lessee under
capital leases, and (iv) the product of (1) eight and (2) operating lease
expense (determined in accordance with generally accepted accounting
principles) for the period in question."
1.3 Subsection (c) of Section 4.03 of the Participation Agreement is
hereby amended and restated to read in its entirety as follows:
"The Lessee and each Permitted Sublessee will not permit the Consolidated
Tangible Net Worth of Lessee at any time to be less than (A) for the period
commencing on January 1, 1995 and ending on the last day of the 3rd quarter
of fiscal year 1997, the sum of (i) $100,000,000 and (ii) fifty percent
(50%) of the net income (but only to the extent that such net income is a
positive number) of the Lessee; (B) as of fiscal year ended January 4,
1998, $150,000,000; and (C) thereafter, the sum of (i) $150,000,000 and
(ii) fifty percent (50%) of the net income of the Lessee earned in those
fiscal quarters for which net income is positive, and which end after
January 4, 1998; provided that if the Lessee enters into a financing
--------
agreement after the date hereof containing a similar or comparable covenant
with a higher minimum, such higher minimum shall thereafter apply for the
purposes of this subsection."
1.4 Subsection (d) of Section 4.03 of the Participation Agreement is
hereby amended and restated to read in its entirety as follows:
"The Lessee and each Permitted Sublessee shall not at any time permit the
ratio of (i) the Consolidated Indebtedness of Lessee to (ii) the
Consolidated Cash Flow of Lessee, as of the last day of the following
fiscal quarters of the Lessee and determined with respect to the four (4)
fiscal quarters of the Lessee then ended, to be greater than the ratio set
forth opposite such period:
<PAGE>
3
<TABLE>
<CAPTION>
Period Maximum Ratio
-------------------------- -------------
<S> <C>
1st Quarter of Fiscal 1995 4.00 to 1
2nd Quarter of Fiscal 1995 4.00 to 1
3rd Quarter of Fiscal 1995 4.00 to 1
4th Quarter of Fiscal 1995 4.00 to 1
1st Quarter of Fiscal 1996 4.00 to 1
2nd Quarter of Fiscal 1996 4.00 to 1
3rd Quarter of Fiscal 1996 4.00 to 1
4th Quarter of Fiscal 1996 4.00 to 1
1st Quarter of Fiscal 1997 4.00 to 1
2nd Quarter of Fiscal 1997 4.00 to 1
3rd Quarter of Fiscal 1997 4.00 to 1
4th Quarter of Fiscal 1997 5.00 to 1
1st Quarter of Fiscal 1998 5.00 to 1
2nd Quarter of Fiscal 1998 5.00 to 1
3rd Quarter of Fiscal 1998 5.00 to 1
4th Quarter of Fiscal 1998 4.50 to 1
thereafter 4.25 to 1;
</TABLE>
provided that if the Lessee enters into a financing agreement after the
--------
date hereof containing a similar or comparable covenant with a lower ratio,
such lower ratio shall thereafter apply for the purposes of this
subsection."
SECTION 2. Conditions Precedent; Effectiveness. This Amendment shall
-----------------------------------
become effective and be deemed effective as of the date hereof, if, and only if,
the Agent shall have received on or before midnight (New York time) on the date
hereof executed counterparts of this Amendment executed by the Lessee, the
Permitted Sublessees, the Majority Banks and the Agent.
SECTION 3. Covenants, Representations and Warranties of the Lessee and
-----------------------------------------------------------
each of the Permitted Sublessees.
---------------------------------
3.1 On the date of their execution hereof, the Lessee and each of the
Permitted Sublessees hereby reaffirm all covenants, representations and
warranties made by them, respectively, in the Participation Agreement
(except for any such representations and warranties which are stated to be
made as of a specific date) and all such covenants, representations and
warranties shall be deemed to have been remade as of the date hereof.
3.2 The Lessee and each of the Permitted Sublessees each represents and
warrants that this Amendment constitutes a legal, valid and binding
obligation of such party, enforceable against such party in accordance
with its terms.
<PAGE>
4
SECTION 4. Reference to and Effect on Participation Agreement. Upon the
--------------------------------------------------
effectiveness of this Amendment, each reference in the Participation Agreement
to "this Agreement", "hereunder", "hereof", "herein" or words of like import
shall mean and be a reference to the Participation Agreement, as amended hereby,
and each reference to the Participation Agreement in any other document,
instrument or agreement executed and/or delivered in connection with the
Participation Agreement shall mean and be a reference to the Participation
Agreement as amended hereby.
SECTION 5. Governing Law. This Amendment shall be governed by the laws of
-------------
the State of New York without regard to the conflict of laws rules thereof.
SECTION 6. Counterparts. This Amendment may be executed in any number of
------------
counterparts, all of which, taken together, shall constitute one complete
document.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
CREDIT LYONNAIS LOS ANGELES BRANCH, as Lender
By: /s/ DIANNE M. SCOTT
--------------------------
Dianne M. Scott
Its: Vice President and Manager
--------------------------
BANK LEUMI USA, as Lender
By: /s/ JACQUES DELVOY
--------------------------
Jacques Delvoy
Its: Vice President
--------------
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
LOS ANGELES AGENCY, as Lender
By: /s/ VICENTE L. TIMIRAOS
--------------------------
Vicente L. Timiraos
Its: Senior Vice President & Senior Deputy
General Manager
VIA BANQUE, S.A., as Lender
By: /s/ CHRISTEL PROT
--------------------------
Christel Prot
Its: Sous-Directeur
--------------
<PAGE>
5
CREDIT LYONNAIS NEW YORK BRANCH, as Agent
By: /s/ CONRAD MEYER
--------------------------
Conrad Meyer
Its: Vice President
--------------
CREDIT LYONNAIS LEASING CORP.,
as Equity Participant
By: /s/ L.M. WERTHEIM
--------------------------
L.M. Wertheim
Its: Secretary/Vice President
------------------------
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA N.A., not in its
individual capacity, but solely as successor to Fleet
National Bank as Owner Trustee under the Trust
Agreement, as the Lessor
By: /s/ MARK HENSON
-------------------------
Mark Henson
Its: Assistant Vice President
------------------------
SMART & FINAL INC.,
as Lessee
By: /s/ DONALD G. ALVARADO
-------------------------
Donald G. Alvarado
Its: Secretary
---------
SMART & FINAL STORES CORPORATION,
as Permitted Sublessee
By: /s/ DONALD G. ALVARADO
-------------------------
Donald G. Alvarado
Its: Secretary
---------
<PAGE>
6
PORT STOCKTON FOOD DISTRIBUTORS,
INC., as Permitted Sublessee
By: /s/ DONALD G. ALVARADO
-------------------------
Donald G. Alvarado
Its: Secretary
---------
<PAGE>
EXHIBIT 10.86
-------------
Smart & Final
Supplemental Executive Retirement Plan
Master Plan Document
November 1997
<PAGE>
Smart & Final
Supplemental Executive Retirement Plan
Master Plan Document
- -------------------------------------------------------------------------------
===============================================================================
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PURPOSE.......................................................... 4
ARTICLE 1 DEFINITIONS.......................................... 4
ARTICLE 2 ELIGIBILITY.......................................... 10
2.1 SELECTION BY PLAN ADMINISTRATOR...................... 10
2.2 ENROLLMENT REQUIREMENTS.............................. 10
2.3 COMMENCEMENT OF PARTICIPATION........................ 10
ARTICLE 3 VESTING.............................................. 10
3.1 VESTING IN BENEFITS.................................. 10
ARTICLE 4 BENEFITS............................................. 11
4.1 ELIGIBILITY FOR BENEFITS............................. 11
4.2 PAYMENT OF BENEFITS.................................. 12
4.3 ALTERNATIVE FORMS OF PAYMENT; ELECTIONS.............. 12
4.4 LIMITATION ON BENEFITS............................... 14
4.5 WITHHOLDING AND PAYROLL TAXES........................ 14
ARTICLE 5 TERMINATION, AMENDMENT OR MODIFICATION OF THE PLAN... 14
5.1 TERMINATION.......................................... 14
5.2 AMENDMENT............................................ 14
5.3 TERMINATION OF PLAN AGREEMENT........................ 15
ARTICLE 6 OTHER BENEFITS AND AGREEMENTS......................... 15
6.1 COORDINATION WITH OTHER BENEFITS..................... 15
ARTICLE 7 ADMINISTRATION OF THE PLAN........................... 15
7.1 PLAN ADMINISTRATOR DUTIES............................ 15
7.2 AGENTS............................................... 15
7.3 BINDING EFFECT OF DECISIONS.......................... 16
7.4 INDEMNITY OF PLAN ADMINISTRATOR...................... 16
7.5 EMPLOYER INFORMATION................................. 16
</TABLE>
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Master Plan Document
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<TABLE>
<S> <C>
ARTICLE 8 CLAIMS PROCEDURES.................................. 16
8.1 PRESENTATION OF CLAIM.............................. 16
8.2 NOTIFICATION OF DECISION........................... 16
8.3 REVIEW OF A DENIED CLAIM........................... 17
8.4 DECISION ON REVIEW................................. 17
8.5 LEGAL ACTION....................................... 18
ARTICLE 9 BENEFICIARY DESIGNATION............................ 18
9.1 BENEFICIARY........................................ 18
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT... 18
9.3 ACKNOWLEDGEMENT.................................... 18
9.4 NO BENEFICIARY DESIGNATION......................... 18
9.5 DOUBT AS TO BENEFICIARY............................ 19
9.6 DISCHARGE OF OBLIGATIONS........................... 19
ARTICLE 10 TRUST.............................................. 19
10.1 ESTABLISHMENT OF THE TRUST......................... 19
10.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST........ 19
ARTICLE 11 MISCELLANEOUS...................................... 19
11.1 UNSECURED GENERAL CREDITOR......................... 19
11.2 EMPLOYER'S LIABILITY............................... 20
11.3 NONASSIGNABILITY................................... 20
11.4 NOT A CONTRACT OF EMPLOYMENT....................... 20
11.5 FURNISHING INFORMATION............................. 20
11.6 TERMS.............................................. 20
11.7 CAPTIONS........................................... 21
11.8 GOVERNING LAW...................................... 21
11.9 VALIDITY........................................... 21
11.10 NOTICE............................................. 21
11.11 SUCCESSORS......................................... 21
11.12 SPOUSE'S INTEREST.................................. 21
11.13 INCOMPETENT........................................ 22
11.14 COURT ORDER........................................ 22
11.15 DISTRIBUTION IN THE EVENT OF TAXATION.............. 22
</TABLE>
3
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Smart & Final
Supplemental Executive Retirement Plan
Master Plan Document
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SMART & FINAL INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE JANUARY 1, 1998
PURPOSE
The purpose of this Plan is to provide specified benefits to a select group
of management and highly compensated employees of Smart & Final Inc., a Delaware
corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan
shall be unfunded for tax purposes and for purposes of Title I of ERISA.
ARTICLE 1
DEFINITIONS
-----------
For purposes hereof, unless otherwise clearly apparent from the context,
the following phrases or terms shall have the following indicated meanings:
1.1 "Actuarial Equivalent" shall mean an actuarial equivalent value of an
amount payable in a different form or at a different date computed on the
basis of the following actuarial assumptions:
<TABLE>
<S> <C>
Mortality: UP 1984 Mortality Table
Interest Rate: 7.5%;
</TABLE>
provided, however, that Actuarial Equivalent, for purposes of calculating
the Withdrawal Amount under Section 4.3(e) below, shall be computed on the
basis of the above interest rate assumption only, with no mortality
assumption for the period of time between the assumed benefit commencement
date for purpose of applying the Reduction Percentage and the actual date
of the distribution of the Withdrawal Amount.
1.2 "Beneficiary" shall mean the individual designated, in accordance with
Article 9, that is entitled to receive benefits under this Plan upon the
death of a Participant.
1.3 "Beneficiary Designation Form" shall mean the form established from time to
time by the Plan Administrator that a Participant completes, signs and
returns to the Plan Administrator to designate a Beneficiary.
4
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Supplemental Executive Retirement Plan
Master Plan Document
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1.4 "Board" shall mean the board of directors of the Company.
1.5 "Change in Control" shall mean the first to occur, after the execution date
of this Plan, of any of the following events:
(a) Any "person" (as that term is used in Section 13 and 14(d)(2) of the
Securities Exchange Act of 1934 ("Exchange Act")) becomes the
beneficial owner (as that term is used in Section 13(d) of the
Exchange Act), directly or indirectly, of 50% or more of the Company's
capital stock entitled to vote in the election of directors;
(b) During any period of not more than two consecutive years, not
including any period prior to the adoption of this Plan, individuals
who, at the beginning of such period constitute the board of directors
of the Company, 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), (d) or (e) of this
Section 1.6) whose election by the board of directors or nomination
for election by the Company's stockholders was approved by a vote of
at least three-fourths (3/4ths) of the directors then still in office,
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease
for any reason to constitute at least a majority thereof;
(c) The shareholders of the Company approve any consolidation or merger of
the Company, other than a consolidation or merger of the Company in
which the holders of the common stock of the Company immediately prior
to the consolidation or merger hold more than 50% of the common stock
of the surviving corporation immediately after the consolidation or
merger;
(d) The shareholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company; or
(e) The shareholders of the Company approve the sale or transfer of all or
substantially all of the assets of the Company to parties that are not
within a "controlled group of corporations" (as defined in Code
Section 1563) in which the Company is a member.
1.6 "Claimant" shall have the meaning set forth in Section 8.1.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
1.8 "Company" shall mean Smart & Final Inc., a Delaware corporation.
1.9 "Compensation" shall mean, for a calendar year, a Participant's annual
compensation, including bonuses, but excluding commissions, overtime,
relocation expenses, incentive payments, non-monetary awards, directors
fees and other fees, automobile allowances, and income attributable to
stock grants of exercise of options paid to a Participant for employment
services rendered to any Employer, before reduction for compensation
5
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Supplemental Executive Retirement Plan
Master Plan Document
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deferred pursuant to all qualified, non-qualified and Code Section 125
plans of any Employer.
1.10 "Disability" shall mean a period of disability during which a Participant
qualifies for permanent benefits under the Employer's Group Disability Plan
applicable to Participant or, if a Participant does not participate in such
a plan, a period of disability during which the Participant would have
qualified for benefits under such a plan had the Participant been a
participant in such a plan, as determined in the sole discretion of the
Plan Administrator. If the Participant's Employer does not sponsor such a
plan or discontinues to sponsor such a plan, Disability shall be determined
by the Plan Administrator in its reasonable sole discretion.
1.11 "Early Retirement" shall mean a Participant ceasing to be an employee of
all Employers on or after his or her attainment of both age fifty-five (55)
and five (5) Years of Service for any reason other than a leave of absence,
Normal Retirement, death, Disability or Termination of Employment;
provided, however, a Participant's Early Retirement under this Plan must be
approved by the Board, which approval may be unreasonably withheld, unless
the Participant has attained both age fifty-five (55) and ten (10) Years of
Service, in which case Board approval may not be withheld and shall be
deemed granted.
1.12 "Employer(s)" shall mean the Company and any subsidiaries of the Company
that have been selected by the Board to participate in the Plan.
1.13 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.14 "Fifteen Year Term Certain Annuity" shall mean an annuity payable to the
Participant or his or her Beneficiary for a term certain of 15 years from
the benefit commencement date, without regard to the date of the
Participant's death.
1.15 "Final Average Compensation" shall mean the average of the final five (5)
calendar years of a Participant's Compensation, including the annualized
Compensation for the calendar year in which the event that entitled the
Participant to a distribution of benefits under this Plan (the
"Distribution Event") occurred. Annualized Compensation for the calendar
year of the Distribution Event shall be a sum calculated as though: (i) the
Participant received 100% of his or her then base annual compensation, and
(ii) the Participant received 100% of his or her annual bonus opportunity
for such calendar year, unless prior to the Distribution Event the annual
bonus was actually paid or determined to be a zero amount on the normal
payment date, in which case the bonus component of annualized Compensation
for the calendar year of the Distribution Event shall be the actual bonus
paid.
1.16 "Joint and Survivor Annuity" shall mean a benefit that is the Actuarial
Equivalent of the Participant's Vested SERP Benefit and that is payable
monthly in the form of an annuity for the life of the Participant with a
survivor annuity for the life of such Participant's
6
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Supplemental Executive Retirement Plan
Master Plan Document
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Beneficiary. Such a survivor annuity must be 50% of the amount of the
annuity payable during the joint lives of the Participant and his or her
Beneficiary, as elected by the Participant in accordance with Section 4.3
below.
1.17 "Life Annuity" shall mean a benefit that is the Actuarial Equivalent of
the Participant's Vested SERP Benefit and that is payable monthly in the
form of an annuity for the life of the Participant.
1.18 "Normal Retirement" shall mean a Participant ceasing to be an employee of
all Employers on or after his other attainment of both age sixty-five (65)
and ten (10) Years of Service for any reason other than a leave of absence,
death, Disability or Termination of Employment.
1.19 "Participant" shall mean any employee (i) who is selected to participate
in the Plan, and (ii) who elects to participate in the Plan, and (iii) who
signs a Plan Agreement and a Beneficiary Designation Form, and (iv) whose
signed Plan Agreement Form and Beneficiary Designation Form are accepted by
the Plan Administrator, and (v) who commences participation in the Plan,
and (vi) whose Plan Agreement has not terminated.
1.20 "Plan" shall mean the Company's Supplemental Executive Retirement Plan,
which shall be evidenced by this instrument and by each Plan Agreement, as
amended from time to time.
1.21 "Plan Administrator" shall mean the plan administrator described in
Article 7.
1.22 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant shall provide
for the entire benefit to which such Participant is entitled under the
Plan, and the Plan Agreement bearing the latest date of acceptance by the
Plan Administrator shall govern such entitlement.
1.23 "Plan Year" shall, for the first Plan Year, begin on January 1, 1998, and
end on December 31, 1998. For each Plan Year thereafter, the Plan Year
shall begin on January 1 of each year and continue through December 31.
1.24 "Preretirement Survivor Benefit" shall mean, in the event of the
Participant's death prior to his or her Retirement, Disability or
Termination of Employment, a benefit equal to two times the Participant's
current Compensation (calculated as though the Participant received 100% of
his or her base annual compensation and 100% of his or her annual bonus
opportunity for the calendar year of his or her death), payable in the form
of a lump sum to the Participant's Beneficiary.
1.25 "Reduction Percentage" shall mean, for a Participant, an annualized
monthly percentage selected by the Board in its sole discretion; provided,
however, that the Reduction Percentage selected by the Board in its sole
discretion for a Participant may be higher or
7
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Smart & Final
Supplemental Executive Retirement Plan
Master Plan Document
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lower than the Reduction Percentage selected by the Board for any other
Participant, but may not exceed a simple annualized percentage of one half
percent (0.5%) per month.
1.26 "Retirement" or "Retires" shall mean, in each instance, Early Retirement
or Normal Retirement, as the case may be.
1.27 "Retirement Income Plan" shall mean the Company's defined benefit
retirement income plan, The Smart & Final Pension Plan, restated effective
April 1, 1992, as it may be further amended from time to time.
1.28 "SERP Benefit" shall mean, for a Participant, a single life annuity,
payable monthly and commencing at age sixty-five (65), that is equal in
monthly amount to 1/12 of the Standard Benefit; provided, however, that:
(a) in the case of Early Retirement, the SERP Benefit shall be reduced by
the Participant's Reduction Percentage for each full month between (i)
the month of the Participant's Early Retirement, and (ii) the month
the Participant will attain age sixty-five (65); and
(b) in the case of Termination of Employment after a Change in Control,
the SERP Benefit shall be reduced by the Participant's Reduction
Percentage for each full month between (i) the later of the month of
the Participant's Termination of Employment or the month the
Participant will attain age fifty-five (55), and (ii) the month the
Participant will attain age sixty-five (65).
1.29 "Standard Benefit" shall mean, for a Participant:
(a) the product of the Standard Benefit Percentage multiplied by the
Participant's Final Average Compensation; less
----
(b) the Actuarial Equivalent of the Participant's benefits under the
Retirement Income Plan, calculated as a single life annuity at age
sixty-five (65).
1.30 "Standard Benefit Percentage" shall mean, for a Participant, a percentage
based upon the Participant's job title at the Company at Retirement, in
accordance with the following chart:
8
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Master Plan Document
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<TABLE>
<CAPTION>
STANDARD BENEFIT PERCENTAGE
- ------------------------------------------------------------------------------------------------------------
Participant's Job Title at Participant's Standard
Retirement Benefit Percentage
- ------------------------------------------------------------------------------------------------------------
<S> <C>
President or Chief Executive Officer 50%
- ------------------------------------------------------------------------------------------------------------
Executive Vice President 50%
- ------------------------------------------------------------------------------------------------------------
Senior Vice President 40%
- ------------------------------------------------------------------------------------------------------------
Vice President 40%
- ------------------------------------------------------------------------------------------------------------
Other Participants as may be selected by the Plan Administrator Amount to be Established,
Not to Exceed 40%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
1.31 "Termination of Employment" shall mean a Participant ceasing to be an
employee of all Employers, voluntarily or involuntarily, but shall exclude
cessation of employment with all Employers as a result of Normal
Retirement, Early Retirement, death or Disability.
1.32 "Trust" shall mean the trust established pursuant to that certain Master
Trust Agreement for this Plan, dated as of January 1, 1998, between the
Company and the trustee named therein, as amended from time to time.
1.33 "Vested" shall mean that portion of a Participant's benefits under this
Plan in which the Participant has a nonforfeitable right and 100% vested
interest, as determined in accordance with Section 3.1 below.
1.34 "Years of Service" shall mean the total number of full years in which a
Participant has been employed by one or more Employers. For purposes of
this definition, a year of employment shall be a 365 day period (or 366 day
period in the case of a leap year) that, for the first year of employment,
commences on the Employee's date of hiring and that, for any subsequent
year, commences on an anniversary of that hiring date. Any partial year of
employment shall not be counted. Service shall continue to accrue during
periods of disability, whether permanent or temporary, regardless of
whether employment by Employer shall continue during such disability.
ARTICLE 2
ELIGIBILITY
-----------
2.1 SELECTION BY PLAN ADMINISTRATOR.
-------------------------------
9
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Supplemental Executive Retirement Plan
Master Plan Document
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Participation in the Plan shall be limited to a select group of management
and highly compensated employees of the Employers. From that group, the
Plan Administrator shall select, in its sole discretion, employees to
participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS.
-----------------------
As a condition to participation, each selected employee shall complete,
execute and return to the Plan Administrator a Plan Agreement, a Consent to
Insure form for corporate-owned or trust-owned life insurance, and a
Beneficiary Designation Form. In addition, the Plan Administrator shall
establish from time to time such other enrollment requirements as it
determines in its sole discretion are necessary.
2.3 COMMENCEMENT OF PARTICIPATION.
-----------------------------
Provided an employee selected to participate in the Plan has met all
enrollment requirements set forth in this Plan and required by the Plan
Administrator, that employee shall commence participation in the Plan on
the date specified by the Plan Administrator. If a selected employee fails
to meet all such requirements prior to that date, that employee shall not
be eligible to participate in the Plan until the completion of those
requirements.
ARTICLE 3
VESTING
-------
3.1 VESTING IN BENEFITS.
-------------------
(a) GENERAL. Except as otherwise provided in this Section 3.1, each
-------
Participant shall have no nonforfeitable right and a 0% vested
interest in his or her SERP Benefit or Preretirement Survivor Benefit.
(b) VESTED SERP BENEFIT UPON RETIREMENT OR DISABILITY. Notwithstanding
-------------------------------------------------
Section 3.1(a) above, and subject to Section 4.4 and Section 9.4
below, a Participant, or his or her Beneficiary in the case of a
survivor benefit, shall have a nonforfeitable right and 100% vested
interest in the Participant's SERP Benefit upon the Participant's
Early Retirement, Normal Retirement or Disability.
(c) VESTED SERP BENEFIT UPON CHANGE IN CONTROL. Notwithstanding Section
------------------------------------------
3.1(a) above, and subject to Section 4.4 and Section 9.4 below, a
Participant, or his or her Beneficiary in the case of a survivor
benefit, shall have a nonforfeitable right and 100% vested interest in
the Participant's SERP Benefit upon the occurrence of a Change in
Control.
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(d) VESTED PRERETIREMENT SURVIVOR BENEFIT. Notwithstanding Section 3.1(a)
-------------------------------------
above, and subject to Section 4.4 and Section 9.4 below, a
Participant's Beneficiary shall have a nonforfeitable right and 100%
vested interest in the Participant's Preretirement Survivor Benefit if
the Participant dies prior to the Participant's Termination of
Employment, Disability or Retirement.
ARTICLE 4
BENEFITS
--------
4.1 ELIGIBILITY FOR BENEFITS.
------------------------
(a) RETIREMENT OR DISABILITY BENEFIT. If a Participant Retires or suffers
--------------------------------
a Disability, he or she shall be entitled to receive his or her Vested
SERP Benefit paid in the form of (i) a Joint and Survivor Annuity, or
(ii) a Life Annuity, or (iii) a Fifteen Year Term Certain Annuity,
that, in each instance, is increased or decreased, as the case may be,
on an Actuarial Equivalent basis, to reflect the form of benefit
payments.
(b) PRERETIREMENT SURVIVOR BENEFIT. If a Participant dies prior to his or
------------------------------
her Termination of Employment, Disability or Retirement, the
Participant's Beneficiary shall be entitled to receive the
Participant's Preretirement Survivor Benefit.
(c) TERMINATION BENEFIT AFTER A CHANGE IN CONTROL. If a Participant
---------------------------------------------
experiences a Termination of Employment after a Change in Control, but
prior to his or her death, Disability or Retirement, he or she shall
be entitled to receive his or her Vested SERP Benefit paid in the form
of (i) a Joint and Survivor Annuity, if he or she is legally married
at the commencement of the payment of benefits, or (ii) a Life
Annuity, if he or she is not legally married at that time, that, in
each instance, is increased or decreased, as the case may be, on an
Actuarial Equivalent basis, to reflect the form of the benefit
payments.
4.2 PAYMENT OF BENEFITS.
-------------------
Payments of benefits shall be made in the following manner:
(a) NORMAL RETIREMENT. If a Participant's benefits become payable because
-----------------
of his or her Normal Retirement, such Participant's benefit payments
shall commence as soon as is administratively practical after the date
on which such Participant Retired.
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(b) EARLY RETIREMENT. If a Participant's benefits become payable because
----------------
of his or her Early Retirement, such Participant's benefit payments
shall commence as soon as is administratively practical after the date
on which such Participant Retired.
(c) DISABILITY OR DEATH. If a Participant's benefits become payable
-------------------
because of his or her death or Disability, such benefit payments shall
commence as soon as is administratively practical following the Plan
Administrator's receipt of written proof or determination of such
Participant's death or Disability.
(d) TERMINATION OF EMPLOYMENT AFTER A CHANGE IN CONTROL. If a
---------------------------------------------------
Participant's benefits become payable because of his or his
Termination of Employment after a Change in Control, such benefit
payments shall commence as soon as is administratively practical after
the later of (i) the date the Participant experiences the Termination
of Employment and (ii) the date the Participant attains age fifty-five
(55).
(e) REASONABLE TIME. For purposes of this Section 4.2, "as soon as is
---------------
administratively practical" shall not exceed 120 days from the date of
the specified event, except in extraordinary circumstances, as
determined in the sole discretion of the Plan Administrator.
4.3 ALTERNATIVE FORMS OF PAYMENT; ELECTIONS.
---------------------------------------
(a) LIFE ANNUITY. A Participant who is entitled to receive a Joint and
------------
Survivor Annuity, in accordance with Section 4.1 above, may elect at
any time prior to one year before his or her Retirement or, in the
case of a Disability or Termination of Employment after a Change in
Control, in connection with his or her commencement of participation
in the Plan, to receive his or her Vested SERP Benefit in the form of
a Life Annuity that is the Actuarial Equivalent of the Joint and
Survivor Annuity that he or she was otherwise entitled to receive.
This election must be consented to in writing by the electing
Participant's spouse before the election shall be valid. Such an
election shall be made in accordance with the Plan Administrator's
rules and procedures as may be in effect from time to time.
(b) JOINT AND SURVIVOR ANNUITY. A Participant who is entitled to receive
--------------------------
a Joint and Survivor Annuity, in accordance with Section 4.1 above,
may at any time prior to one year before his or her Retirement or, in
the case of a Disability or Termination of Employment after a Change
in Control, in connection with his or her commencement of
participation in the Plan, elect to receive his or her Joint and
Survivor Benefits in the form of a 50% survivor annuity. Such an
election shall be made in accordance with the Plan Administrator's
rules and procedures as may be in effect from time to time.
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(c) FIFTEEN YEAR TERM CERTAIN ANNUITY. A Participant who is entitled to
---------------------------------
receive either a Life Annuity or a Joint and Survivor Annuity, in
accordance with Section 4.1 above, may elect at any time prior to one
year before his or her Retirement or, in the case of a Disability or
Termination of Employment after a Change in Control, in connection
with his or her commencement of participation in the Plan, to receive
his or her Vested SERP Benefit in the form of a Fifteen Year Term
Certain Annuity that is the Actuarial Equivalent of the Life Annuity
or Joint and Survivor Annuity that he or she was otherwise entitled to
receive, as the case may be. This election must be consented to in
writing by the electing Participant's spouse, if any, before the
election shall be valid. Such an election shall be made in accordance
with the Plan Administrator's rules and procedures as may be in effect
from time to time.
(d) LUMP SUM. If a Participant's Vested SERP Benefit under this Plan at
--------
the time he or she, or his or her Beneficiary (whether primary or
contingent), becomes eligible to receive a distribution under this
Plan, when expressed on an Actuarial Equivalent basis as a lump sum,
is less than $25,000, the Plan Administrator, it sole discretion, may
pay that benefit in a lump sum at the time that benefit payments would
otherwise commence.
(e) WITHDRAWAL ELECTION. A Participant or his or her Beneficiary, as the
-------------------
case may be, may elect, at any time after he or she has a Vested SERP
Benefit, in accordance with Section 3.1 above, to receive his or her
remaining Vested SERP Benefit paid in a lump sum, based on the
Actuarial Equivalent of his or her remaining Vested SERP Benefit, less
a 10% penalty (as described below) (the net amount shall be referred
to as the "Withdrawal Amount"). No election to partially accelerate
benefits shall be allowed. The Participant shall make this election
by giving the Plan Administrator advance written notice of the
election in a form determined from time to time by the Plan
Administrator. The penalty shall be equal to 10% of the Participant's
remaining Vested SERP Benefit, determined on an Actuarial Equivalent
basis. The Participant shall be paid the Withdrawal Amount within 60
days of his or her election. Once the Withdrawal Amount is paid, the
Participant's participation in the Plan shall terminate and the
Participant shall not be eligible to participate in the Plan in the
future.
(f) PLAN ADMINISTRATOR DISCRETION. Upon the request of a Participant, the
-----------------------------
Plan Administrator, in its sole discretion and consistent with its
established procedures and rules, may consider other forms of benefit
payments, or the timing of benefit payments, as it deems necessary and
prudent under the circumstances.
4.4 LIMITATION ON BENEFITS.
----------------------
Notwithstanding the foregoing provisions of this Article 4, in no event
shall a Participant or his or her Beneficiary receive more than one type or
form of benefit under this Article 4. If a Participant dies after Change
in Control but before Termination of Employment, Retirement or Disability,
the Participant's Beneficiary shall receive the greater of the
Participant's Vested
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SERP Benefit or the Participant's Vested Preretirement Survivor Benefit,
calculated on an Actuarial Equivalent basis.
4.5 WITHHOLDING AND PAYROLL TAXES.
-----------------------------
The Employers shall withhold from any and all benefits made under this
Article 4, all federal, state and local income, employment and other taxes
required to be withheld by the Employer in connection with the benefits
hereunder, at such times and in such amounts to be determined in the sole
discretion of the Employers.
ARTICLE 5
TERMINATION, AMENDMENT OR MODIFICATION OF THE PLAN
--------------------------------------------------
5.1 TERMINATION.
-----------
Each Employer reserves the right to terminate the Plan at any time with
respect to its participating employees by the actions of its board of
directors. The termination of the Plan shall not adversely affect any
Participant or his or her Beneficiary who has become entitled to the
payment of any benefits under the Plan as of the date of termination;
provided, however, that the Employer shall have the right to accelerate
payments by paying the Actuarial Equivalent value of such payments. For
all other Participants, upon the termination of the Plan, all Plan
Agreements shall terminate and the Actuarial Equivalent of a Participant's
Vested SERP Benefit shall be paid out in a lump sum.
5.2 AMENDMENT.
---------
Any Employer may, at any time, amend or modify the Plan in whole or in part
with respect to its participating employees by the actions of its board of
directors; provided, however, that no amendment or modification shall be
effective to decrease or restrict a Participant's then Vested SERP Benefit,
determined on an Actuarial Equivalent basis. The amendment or modification
of the Plan shall not affect any Participant or his or her Beneficiary who
has become entitled to the payment of benefits under the Plan as of the
date of the amendment or modification; provided, however, that the Employer
shall have the right to accelerate installment payments by paying the
Actuarial Equivalent value of such payments either in a lump sum or in some
other accelerated form of payment.
5.3 TERMINATION OF PLAN AGREEMENT.
-----------------------------
Absent the earlier termination, modification or amendment of the Plan, the
Plan Agreement of any Participant shall terminate upon the full payment of
the applicable Vested SERP Benefit as provided under Article 4.
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ARTICLE 6
OTHER BENEFITS AND AGREEMENTS
-----------------------------
6.1 COORDINATION WITH OTHER BENEFITS.
--------------------------------
The benefits provided for a Participant under this Plan are in addition to
any other benefits available to such Participant under any other plan or
program for employees of the Employers. The Plan shall supplement and
shall not supersede, modify or amend any other such plan or program except
as may otherwise be expressly provided.
ARTICLE 7
ADMINISTRATION OF THE PLAN
--------------------------
7.1 PLAN ADMINISTRATOR DUTIES.
-------------------------
This Plan shall be administered by a Plan Administrator which shall consist
of the Board, or such committee as the Board shall appoint. Members of the
Plan Administrator may be Participants under this Plan. The Plan
Administrator shall also have the discretion and authority to (i) make,
amend, interpret and enforce all appropriate rules and regulations for the
administration of this Plan and (ii) decide or resolve any and all
questions including interpretations of this Plan, as may arise in
connection with the Plan.
7.2 AGENTS.
------
In the administration of this Plan, the Plan Administrator may employ
agents and delegate to them such administrative duties as it sees fit,
(including acting through a duly appointed representative), and may from
time to time consult with counsel who may be counsel to any Employer.
7.3 BINDING EFFECT OF DECISIONS.
---------------------------
The decision or action of the Plan Administrator with respect to any
question arising out of or in connection with the administration,
interpretation and application of the Plan and the rules and regulations
promulgated hereunder shall be final and conclusive and binding upon all
persons having any interest in the Plan.
7.4 INDEMNITY OF PLAN ADMINISTRATOR.
-------------------------------
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All Employers shall indemnify and hold harmless the members of the Plan
Administrator against any and all claims, losses, damages, expenses or
liabilities arising from any action or failure to act with respect to this
Plan, except in the case of willful misconduct by the Plan Administrator or
any of its members.
7.5 EMPLOYER INFORMATION.
--------------------
To enable the Plan Administrator to perform its functions, each Employer
shall supply full and timely information to the Plan Administrator on all
matters relating to the compensation of its Participants, the date and
circumstances of the retirement, Disability, death or Termination of
Employment of its Participants, and such other pertinent information as the
Plan Administrator may reasonably require.
ARTICLE 8
CLAIMS PROCEDURES
-----------------
8.1 PRESENTATION OF CLAIM.
---------------------
Any Participant or Beneficiary of a deceased Participant (such Participant
or Beneficiary being referred to below as a "Claimant") may deliver to the
Plan Administrator a written claim for a determination with respect to the
amounts distributable to such Claimant from the Plan. If such a claim
relates to the contents of a notice received by the Claimant, the claim
must be made within 60 days after such notice was received by the Claimant.
The claim must state with particularity the determination desired by the
Claimant. All other claims must be made within 180 days of the date on
which the event that caused the claim to arise occurred. The claim must
state with particularity the determination desired by the Claimant.
8.2 NOTIFICATION OF DECISION.
------------------------
The Plan Administrator shall consider a Claimant's claim within a
reasonable time, and shall notify the Claimant in writing:
(a) that the Claimant's requested determination has been made, and that
the claim has been allowed in full; or
(b) that the Plan Administrator has reached a conclusion contrary, in
whole or in part, to the Claimant's requested determination, and such
notice must set forth in a manner calculated to be understood by the
Claimant:
(c) the specific reason(s) for the denial of the claim, or any part of it;
(i) specific reference(s) to pertinent provisions of the Plan upon
which such denial was based;
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(ii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is necessary;
and
(iii) an explanation of the claim review procedure set forth in
Section 8.3 below.
8.3 REVIEW OF A DENIED CLAIM.
------------------------
Within 60 days after receiving a notice from the Plan Administrator that a
claim has been denied, in whole or in part, a Claimant (or the Claimant's
duly authorized representative) may file with the Plan Administrator a
written request for a review of the denial of the claim. Thereafter, but
not later than 30 days after the review procedure began, the Claimant (or
the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Plan Administrator, in its sole
discretion, may grant.
8.4 DECISION ON REVIEW.
------------------
The Plan Administrator shall render its decision on review promptly, and
not later than 60 days after the filing of a written request for review of
the denial, unless a hearing is held or other special circumstances require
additional time, in which case the Plan Administrator's decision must be
rendered within 120 days after such date. Such decision must be written in
a manner calculated to be understood by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which the
decision was based; and
(c) such other matters as the Plan Administrator deems relevant.
8.5 LEGAL ACTION.
------------
A Claimant's compliance with the foregoing provisions of this Article 8 is
a mandatory prerequisite to a Claimant's right to commence any legal action
with respect to any claim for benefits under this Plan.
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ARTICLE 9
BENEFICIARY DESIGNATION
-----------------------
9.1 BENEFICIARY.
-----------
Each Participant shall have the right, at any time, to designate his or her
Beneficiary(ies) (both primary as well as contingent) to receive any
benefits payable under the Plan to a beneficiary upon the death of a
Participant. The Beneficiary designated under this Plan may be the same as
or different from the Beneficiary designation under any other plan of an
Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT.
------------------------------------------------
A Participant shall designate his or her Beneficiary by completing and
signing the Beneficiary Designation Form, and returning it to the Plan
Administrator or its designated agent. A Participant shall have the right
to change a Beneficiary by completing, signing and otherwise complying with
the terms of the Beneficiary Designation Form and the Plan Administrator's
rules and procedures, as in effect from time to time. If the Participant
names someone other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Plan Administrator, must be signed
by that Participant's spouse and returned to the Plan Administrator. Upon
the acceptance by the Plan Administrator of a new Beneficiary Designation
Form, all Beneficiary designations previously filed shall be canceled. The
Plan Administrator shall be entitled to rely on the last Beneficiary
Designation Form filed by the Participant and accepted by the Plan
Administrator prior to his or her death.
9.3 ACKNOWLEDGMENT.
--------------
No designation or change in designation of a Beneficiary shall be effective
until received, accepted and acknowledged in writing by the Plan
Administrator or its designated agent.
9.4 NO BENEFICIARY DESIGNATION.
--------------------------
If a Participant fails to designate a Beneficiary as provided in Sections
9.1, 9.2 and 9.3 above or, if all designated Beneficiaries predecease the
Participant or die prior to complete distribution of the Participant's
benefits, then the Participant's spouse shall be the designated
Beneficiary. If the Participant then has no surviving spouse, the benefits
remaining under the Plan shall be forfeited.
9.5 DOUBT AS TO BENEFICIARY.
-----------------------
If the Plan Administrator has any doubt as to the proper Beneficiary to
receive payments pursuant to this Plan, the Plan Administrator shall have
the right, exercisable in its discretion, to cause the Participant's
Employer to withhold such payments until this matter is resolved to the
Plan Administrator's satisfaction.
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9.6 DISCHARGE OF OBLIGATIONS.
------------------------
The complete and full payment of benefits under the Plan to a Beneficiary
shall fully and completely discharge all Employers and the Plan
Administrator from all further obligations under this Plan with respect to
the Participant, and that Participant's Plan Agreement shall terminate upon
such full payment of benefits.
ARTICLE 10
TRUST
-----
10.1 ESTABLISHMENT OF THE TRUST.
--------------------------
The Company shall establish the Trust. The Employers shall transfer over
to the Trust such assets, if any, as the Employers determine, in their sole
discretion.
10.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST.
-------------------------------------------
The provisions of the Plan and the Plan Agreement shall govern the rights
of a Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Employers,
Participants and the creditors of the Employers to the assets transferred
to the Trust. Each Employer shall at all times remain liable to carry out
its obligations under the Plan. Each Employer's obligations under the Plan
may be satisfied with Trust assets distributed pursuant to the terms of the
Trust, and any such distribution shall reduce the Employer's obligations
under this Agreement.
ARTICLE 11
MISCELLANEOUS
-------------
11.1 UNSECURED GENERAL CREDITOR.
--------------------------
Participants and their Beneficiaries successors and assigns shall have no
legal or equitable rights, interests or claims in any specific property or
assets of an Employer. Any and all of an Employer's assets shall be, and
remain, the general, unpledged unrestricted assets of the Employer. An
Employer's obligation under the Plan shall be merely that of an unfunded
and unsecured promise to pay money in the future.
11.2 EMPLOYER'S LIABILITY.
--------------------
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An Employer's liability for the payment of benefits shall be defined only
by the Plan and the Plan Agreement, as entered into between the Employer
and a Participant. An Employer shall have no obligation to a Participant
under the Plan except as expressly provided in the Plan and his or her Plan
Agreement.
11.3 NONASSIGNABILITY.
----------------
Neither a Participant nor any other person shall have any right to commute,
sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
transfer, hypothecate or convey in advance of actual receipt, the amounts,
if any, payable hereunder, or any part thereof, which are, and all rights
to which are, expressly declared to be, unassignable and non-transferable.
No part of the amounts payable shall, prior to actual payment, be subject
to seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or any other person,
nor be transferable by operation of law in the event of a Participant's or
any other person's bankruptcy or insolvency.
11.4 NOT A CONTRACT OF EMPLOYMENT.
----------------------------
The terms and conditions of this Plan shall not be deemed to constitute a
contract of employment between any Employer and the Participant. Such
employment is hereby acknowledged to be an "at will" employment
relationship that can be terminated at any time for any reason, with or
without cause, unless expressly provided in a written employment agreement.
Nothing in this Plan shall be deemed to give a Participant the right to be
retained in the service of any Employer or to interfere with the right of
any Employer to discipline or discharge the Participant at any time.
11.5 FURNISHING INFORMATION.
----------------------
A Participant or his or her Beneficiary will cooperate with the Plan
Administrator by furnishing any and all information reasonably requested by
the Plan Administrator and take such other actions as may be reasonably
requested in order to facilitate the administration of the Plan and the
payments of benefits hereunder, including but not limited to taking such
physical examinations for the limited purpose of securing corporate-owned
or trust-owned life insurance, as the Plan Administrator may deem
necessary.
11.6 TERMS.
-----
Whenever any words are used herein in the masculine, they shall be
construed as though they were in the feminine in all cases where they would
so apply; and wherever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or
the singular, as the case may be, in all cases where they would so apply.
11.7 CAPTIONS.
--------
The captions of the articles, sections and paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or
construction of any of its provisions.
11.8 GOVERNING LAW.
-------------
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Subject to ERISA, the provisions of this Plan shall be construed and
interpreted according to the internal laws of the State of California
without regard to its conflict of laws principles.
11.9 VALIDITY.
--------
In case any provision of this Plan shall be illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining
parts hereof, but this Plan shall be construed and enforced as if such
illegal and invalid provision had never been inserted herein.
11.10 NOTICE.
------
Any notice or filing required or permitted to be given to the Plan
Administrator under this Plan shall be sufficient if in writing and hand-
delivered, or sent by registered or certified mail, to the address below:
Donald G. Alvarado, Esq.
Senior Vice President & General Counsel
Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, California 90058
------------------------------------------
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or
sent by mail, to the last known address of the Participant.
11.11 SUCCESSORS.
----------
The provisions of this Plan shall bind and inure to the benefit of the
Participant's Employer and its successors and assigns and the Participant
and the Participant's Beneficiary.
11.12 SPOUSE'S INTEREST.
-----------------
The interest in the benefits hereunder of a spouse of a Participant who
has predeceased the Participant shall automatically pass to the
Participant and shall not be transferable by such spouse in any manner,
including but not limited to such spouse's will, nor shall such interest
pass under the laws of intestate succession.
11.13 INCOMPETENT.
-----------
If the Plan Administrator determines in its discretion that a benefit
under this Plan is to be paid to a minor, a person declared incompetent
or to a person incapable of handling the disposition of that person's
property, the Plan Administrator may direct payment of such benefit to
the guardian, legal representative or person having the care and custody
of such minor, incompetent or incapable person. The Plan Administrator
may require proof of minority, incompetency,
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incapacity or guardianship, as it may deem appropriate prior to
distribution of the benefit. Any payment of a benefit shall be a payment
for the account of the Participant and the Participant's Beneficiary, as
the case may be, and shall be a complete discharge of any liability under
the Plan for such payment amount.
11.14 COURT ORDER.
-----------
The Plan Administrator is authorized to make any payments directed by
court order in any action in which the Plan or Plan Administrator has
been named as a party.
11.15 DISTRIBUTION IN THE EVENT OF TAXATION.
-------------------------------------
If, for any reason, all or any portion of a Participant's benefit under
this Plan becomes taxable to the Participant prior to receipt, a
Participant may petition the Plan Administrator for a distribution of
that portion of his or her benefit that has become taxable. Upon the
grant of such a petition, which grant shall not be unreasonably withheld,
a Participant's Employer shall distribute to the Participant immediately
available funds in an amount equal to the taxable portion of his or her
benefit (which amount shall not exceed a Participant's unpaid Account
Balance under the Plan). If the petition is granted, the tax liability
distribution shall be made within 90 days of the date when the
Participant's petition is granted. Such a distribution shall affect and
reduce the benefits to be paid under this Plan.
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IN WITNESS WHEREOF, Roger M. Laverty III has signed this Plan document on
November 24, 1997.
"Company"
Smart & Final Inc.
a Delaware corporation
By: /s/ ROGER M. LAVERTY, III
--------------------------
Roger M. Laverty III
Title: President and Chief Executive Officer
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EXHIBIT 10.87
-------------
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of the 5th day of January, 1998, by and among (i) AMERICAN FOODSERVICE
DISTRIBUTORS, a California corporation (the "Buyer"), and (ii) STERNLIEB FAMILY
INVESTMENTS, LTD., a Florida limited partnership ("Seller").
Recitals
--------
A. On November 8, 1994, Buyer's predecessor in interest and parent company
Smart & Final Inc. ("SFI") entered into a Stock Purchase Agreement (the "HL
Agreement") whereby SFI purchased from Seller ninety percent (90%) of the common
shares (4500 shares) in the Henry Lee Company ("HL"), a Florida corporation.
SFI transferred its interest to Buyer in 1996. The remaining ten percent (10%)
of the shares (500 shares) in HL was retained by Seller.
B. As part of the terms of the HL Agreement, SFI and Seller negotiated an
agreement whereby under certain terms and conditions SFI (and now Buyer) would
have the option to purchase the remaining interest (the "Minority Interest") in
HL.
C. Seller and Buyer have now agreed to the sale and purchase of the
Minority Interest, on the terms and conditions set forth below.
ACCORDINGLY, in consideration of the foregoing and the mutual covenants set
forth below, the parties agree as follows:
Agreement
---------
1. PURCHASE AND SALE OF MINORITY INTEREST. In consideration of the
--------------------------------------
payment of the purchase price set forth below, Seller shall sell, assign and
deliver to Buyer, on the Closing Date (as defined below), free and clear of any
and all liens, charges, claims, encumbrances, pledges, security interests,
community property rights, equities, liabilities, debts, obligations,
restrictions on transfer or other defects in title of any kind or nature,
whether known or unknown, fixed or contingent, and Buyer shall purchase and
accept the Minority Interest. Seller shall deliver to Buyer such stock
certificates, stock powers, and other instruments satisfactory to Buyer and its
counsel as are necessary or desirable to transfer the Minority Interest.
2. PURCHASE PRICE. As consideration for the receipt of the Minority
--------------
Interest, Buyer will pay to Seller the following upon execution of this
Agreement and delivery of the agreements and documents described herein: (i)
One Million Eight Hundred Fifty Thousand and No/100 Dollars ($1,850,000.00), and
(ii) the additional sum of Seventy Three Thousand Six Hundred Three and No/100
($73,603.00) as provided for in the Stockholders Agreement attached as Exhibit B
to the HL Agreement.
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3. EXCLUSION OF LIABILITIES. Notwithstanding anything to the contrary
------------------------
contained in this Agreement and regardless of whether such liability or
obligation is disclosed herein or on any Exhibit or Schedule hereto, Buyer shall
not assume or in any way be responsible or liable for any liabilities or
obligations of the Seller related to the Minority Interest at any time on or
prior to the Closing Date (the "Excluded Liabilities"). Without limiting the
generality of the foregoing, the Excluded Liabilities shall include, without
limitation, all obligations, claims and liabilities against the Seller by third
parties or governmental entities.
4. OTHER CONSIDERATION. As part of the consideration for the agreement to
-------------------
purchase the Minority Interest, Buyer agrees to modify its employment and
consulting arrangements with certain principals of Seller, Edward I. Sternlieb
("ES") and Henry Sternlieb (in his capacity as the principal of Sternlieb
Consulting, Inc. ("HS")), as follows:
4.1 The Employment Agreement between ES and HL will convert to a
Consulting Agreement to be in effect from the Closing Date through December
31, 1999. In consideration for the services to be performed under the
Consulting Agreement, ES will be entitled to receive payments of Twelve
Thousand Five Hundred and No/100 Dollars ($12,500.00) per quarter, payable
on the last day of each calendar quarter commencing March 31, 1998 and
ending on December 31, 1999. ES will also be eligible for a bonus of
Twenty-Five Thousand and No/100 Dollars ($25,000.00) if HL achieves 100% of
its profit plan for 1999 and Fifty Thousand and No/100 Dollars ($50,000.00)
if HL achieves 125% of its profit plan for 1999, payable on or before March
31, 2000. The provisions of the Employment Agreement with respect to ES'
stock option vesting and exercise shall continue to be in effect through
December 31, 1999. The services to be performed by ES under the Consulting
Agreement shall include making himself available for consultation, Board of
Directors and other meetings, conference calls and the like for an average
of three days per week during regular business hours, for calendar 1998 and
thereafter from time to time as mutually agreed upon by HL and ES. ES'
title shall remain Chairman of the Board throughout the term of the
Consulting Agreement and pursuant to same ES shall report to either Ross
Roeder or Robert Emmons.
4.2 HS' current Consulting Agreement with HL will continue to be in
effect from the Closing Date through December 31, 1998. From the Closing
Date through December 31, 1998, the Consulting Agreement will provide for
HS to receive payments of Twelve Thousand Five Thousand and No/100 Dollars
($12,500.00) per quarter, payable on the last day of each calendar quarter.
4.3 HL will continue to provide health and automobile insurance for
ES and HS through December 31, 1999, but ES and HS shall reimburse HL in
full for the actual cost of such insurance coverage for ES and HS,
respectively.
4.4 The Consulting Agreements for both HS and ES will provide that
commencing on January 3, 1998 (the first day after HL's payroll period
ended January 2, 1998), HL will be responsible for reimbursing only those
reasonable and necessary travel and entertainment expenses directly
associated with the performance of HS' and ES' duties under their
respective Consulting Agreements, including but not limited to the
following: gasoline,
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mileage, cellular phone charges and other such expenses to be reimbursed
subject to approval by HL according to its existing company policy for
similar expenses as it may be amended from time to time. Any excess mileage
or other charges assessed upon disposition of any leased automobiles
currently in use by ES and HS shall be allocated 26/36ths to HL and
10/36ths to ES and/or HS. All other expenses, including but not limited to,
car lease payments, country club dues and other such expenses will be for
the account of HS and ES. Reimbursements for travel and entertainment
expenses will be made on a quarterly basis payable on the last day of each
calendar quarter commencing March 31, 1998 and ending on December 31, 1998
for HS and December 31, 1999 for ES, assuming submission of required
documentation in accordance with current company procedures for requesting
reimbursement.
5. THE CLOSING. The purchase and sale of the Minority Interest shall
-----------
take place as soon as the parties are reasonably able to provide the various
documents and funds as set forth in this Agreement. For purposes of this
Agreement, the time and date of purchase and sale (the "Closing" or the "Closing
Date" shall be deemed to have occurred as of January 5, 1998, regardless of the
actual date on which the documents and funds are delivered by the parties. On
and after the Closing Date, Seller will cooperate with Buyer in the filing of
all necessary governmental documents or filings, including, but not limited to
the preparation and filing of SFI's public disclosure documents which make
reference to the sale and purchase of the Minority Interest.
6. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and
-----------------------------------------
warrants to Buyer that: (i) Seller has good and marketable title to the
Minority Interest; (ii) the Minority Interest is owned by Seller, and at the
Closing will be delivered to Buyer, free and clear of any and all liens,
charges, claims, encumbrances, pledges, security interests, community property
rights, equities, liabilities, debts, obligations, restrictions on transfer or
other defects in title of any kind or nature, whether known or unknown, fixed or
contingent, other than Buyer's right to purchase the Minority Interest under the
HL Agreement; (iii) Seller has the right, power, legal capacity and authority to
enter into and to carry out the terms and provisions of this Agreement; (iv)
this Agreement and the other agreements relating to the Minority Interest
constitute legal, valid and binding agreements of Seller, enforceable in
accordance with their respective terms; (v) there is no suit, action or legal,
administrative, arbitration or other proceeding pending, filed or initiated by,
against or affecting the Minority Interest or Seller, and Seller knows of no
suit, action or legal, administrative, arbitration or other proceeding
threatened by, against or affecting the Minority Interest or Seller; and (vi)
Seller knows of no event or circumstance which could form the basis of any such
suit, action, proceeding or investigation.
7. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
---------------------------------------
warrants to Seller as follows: (i) Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
with full power and authority (corporate and other) to carry on its business and
to enter into and carry out the terms of this Agreement; (ii) except for the
requirement that the terms and conditions of this Agreement and the other
agreements to be entered into by Buyer in connection with the consummation of
this Agreement be approved by Buyer's Board of Directors, Buyer has the right,
power and authority to enter into and to carry out the terms of this Agreement
and such other agreements, without obtaining the approval or consent of any
other party or authority; (iii) this Agreement and such other agreements
constitute the legal,
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valid and binding agreements of Buyer, enforceable against it in accordance with
their respective terms; and (iv) neither the execution and delivery of this
Agreement or such other agreements, nor the consummation of the transactions
contemplated by this Agreement and such other agreements, will conflict with, or
result in a violation or breach of, or constitute a default under, any term or
provision of Buyer's Articles of Incorporation or Bylaws or any order, judgment,
writ, injunction, decree, license, permit, law, statute ordinance, rule or
regulation of any court or any governmental or regulatory authority or any
indenture, mortgage, deed of trust, lease, contract, instrument, commitment or
other agreement or arrangement to which Buyer is a party or by which it or its
properties are bound.
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.Buyer's obligation
---------------------------------------------------
to consummate this Agreement is expressly subject to the satisfaction, on or
prior to the Closing Date, of all of the following conditions (compliance with
which or the occurrence of which may be waived in whole or in part by Buyer in
writing): (i) all representations and warranties of the Seller shall be true,
correct and complete as of the Closing Date as if made at and as of such date;
(ii) Seller shall have performed and satisfied all covenants and conditions and
delivered any and all documents required by this Agreement to be performed or
delivered by them on or prior to the Closing Date; (iii) no action or proceeding
shall have been instituted or threatened prior to or at the Closing Date before
any court or other governmental body, or instituted or threatened by any public
authority, the result of which could prevent or make illegal the consummation of
the transactions contemplated hereunder or under the other agreements to be
entered into in connection with this Agreement or which could have a material
adverse effect the Company or its assets, business or prospects; (iv) the
assets of HL shall not have suffered any substantial damage or destruction,
whether by fire or otherwise, and whether or not covered by insurance, which
could have a material adverse effect on the value of the Minority Interest, HL's
business or prospects.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER TO CLOSE. The
--------------------------------------------------------------
obligation of the Seller to consummate this Agreement is expressly subject to
the satisfaction, on or prior to the Closing Date, of all of the following
conditions (compliance with which or the occurrence of which may be waived in
whole or in part in writing by Seller): (i) all representations and warranties
of Buyer contained in this Agreement shall be true, correct and complete as of
the Closing Date as if made at and as of such date; (ii) Buyer shall have
performed and satisfied all covenants and conditions required by this Agreement
to be performed or satisfied by it on or prior to the Closing Date; (iii) Seller
shall not have discovered any material error, misstatement or omission in any of
the representations or warranties made by Buyer in this Agreement, or any
certificate, schedule, exhibit, statement, report or other document delivered or
furnished by Buyer pursuant to this Agreement, or failure on the part of Buyer
to perform or satisfy any covenants or conditions required to be performed or
satisfied by it hereunder; (iv) no action or proceeding shall have been
instituted prior to or at the Closing Date before any court or other
governmental body, or instituted or threatened by any public authority, the
result of which could prevent or make illegal the consummation of the
transactions contemplated hereunder or under the other agreements to be entered
into in connection with this Agreement; (v) the form and substance of all
opinions, certificates and other documents to be delivered by Buyer and its
counsel under this Agreement shall be satisfactory in all reasonable respects to
Seller and its counsel, and (vi) the consideration referred to in Paragraph 2
above shall have been delivered to Seller.
4
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10. TERMINATION AND ABANDONMENT. This Agreement may be terminated on or
---------------------------
before the Closing Date without liability on the part of any party exercising
such right of termination (i) by the mutual consent of Buyer and the Seller; or
(ii) by any party hereto if there has been a material misrepresentation or
breach on the part of the other party of the warranties of such other party as
set forth in this Agreement or made pursuant hereto, or if there has been any
material failure on the part of the other party to perform its obligations or
comply with the covenants under this Agreement; provided that for this purpose
the Seller shall be deemed one party and such termination by the Seller may only
be made by both of them. In the event of termination and abandonment by Buyer,
as one party, or by the Seller, as the other party, written notice thereof shall
be given to the other party and this Agreement shall terminate and be abandoned,
without further action by any of the parties hereto.
11. SURVIVAL AND INDEMNIFICATION. All parties acknowledge that since the
----------------------------
original closing date of the HL Agreement, Buyer or SFI has been in control of
the business of HL. The following provisions regarding survival and
indemnification are not intended to be inconsistent with, or supersede, any
provisions regarding survival and indemnification contained in the HL Agreement
and are specifically restricted to survival of representations and warranties
and indemnification for claims relating to Seller's ownership of the Minority
Interest and the transfer of same to Buyer.
11.1 All representations, warranties and agreements made by Buyer or
Seller in this Agreement (including statements contained in any exhibit or
schedule attached hereto), shall survive the execution, delivery and
performance of this Agreement and any investigations, inspections,
examinations, or audits made by or on behalf of the parties. All such
representations and warranties shall remain in full force and effect until
the expiration of the applicable statute of limitations, or an action at
law or in equity shall have been commenced or filed, in good faith, on or
prior to such dates. Nothing in this Section shall affect the obligations
and indemnities of the parties with respect to the covenants and agreements
contained in this Agreement that are permitted or required to be performed,
in whole or in part, after the Closing Date.
11.2 Buyer agrees to indemnify Seller and hold it harmless against
and in respect of any and all damages, claims, losses, expenses, costs,
obligations and liabilities, including court costs and reasonable
attorneys' fees, which arise or result from or are incident or related to
(i) the inaccuracy of any representation or breach of any warranty of
Buyer, or (ii) any default of the commitments or obligations of Buyer under
this Agreement, or (iii) by reason of any act or omission of Buyer which
constitutes a breach or default under this Agreement. Buyer shall
reimburse Seller on demand for any payment made or loss suffered by them at
any time after the execution of the Agreement, based on the judgment of any
court of competent jurisdiction or pursuant to a bona fide compromise or
settlement of claims, demands or actions, in respect of any damages to
which the foregoing indemnity relates. Consummations of the transaction
contemplated under this Agreement shall not be deemed or construed to be a
waiver of any right or remedy of the Seller, nor shall this Section or any
other provision of this Agreement be deemed or construed to be a waiver of
any ground of defense by them.
5
<PAGE>
11.3 The party indemnified hereunder (the "Indemnitee") shall
promptly notify the indemnifying party (the "Indemnitor") of the existence
of any claim, demand, or other matter involving liabilities to third
parties to which the Indemnitor's indemnification obligations would apply
and shall give the Indemnitor 30 days (or such shorter period as required
by the contingencies of such claim, demand or other matter involving
liabilities to third parties) in which to elect to defend the same at its
own expense and with counsel of its own selection (who shall be approved by
the Indemnitee, which approval shall not be unreasonably withheld);
provided that the Indemnitee shall at all times also have the right to
fully participate in the defense at its own expense. If the Indemnitor
shall, within such 30-day period, fail to defend, the Indemnitee shall have
the right, but not the obligation, to undertake the defense of, and to
compromise or settle (exercising reasonable business judgment) the claim or
other matter on behalf, for the account, and at the risk and expense of the
Indemnitor. Except as provided above, the Indemnitee shall not compromise
or settle the claim or other matter without the written consent of the
Indemnitor, such consent not to be unreasonably withheld. If the claim is
one that cannot by its nature be defended solely by the Indemnitor, the
Indemnitee shall make available all information and assistance that the
Indemnitor may reasonably request; provided that any associated expenses
shall be paid by the Indemnitor.
12. MISCELLANEOUS.
-------------
12.1 Any notice or other communication required or permitted hereunder
shall be in writing, and shall be deemed to have been given if personally
delivered or 72 hours after being placed in the United States mail, registered
or certified-return receipt requested, postage prepaid, addressed as follows:
If to Seller: Sternlieb Family Investments, Ltd.
c/o Mr. Edward I. Sternlieb
3088 Birkdale Drive
Fort Lauderdale, FL 32222
With a copy to: Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.C.
515 East Las Olas Boulevard
Fort Lauderdale, FL 33301
Attn: C. Deryl Couch, Esq.
Phone: (954) 768-8202
Fax: (954) 765-1477
If to Buyer: American Foodservice Distributors
4700 South Boyle Avenue
Los Angeles, CA 90058
Attn: Mr. Martin A. Lynch
Phone: (213) 589-9720
Fax: (213) 589-2074
6
<PAGE>
With a copy to: Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, CA 90058
Attn: Donald G. Alvarado, Esq.
Phone: (213) 589-9726
Fax: (213) 589-0415
Each of the parties shall be entitled to specify a different address by giving
notice as aforesaid.
12.2 This Agreement and any exhibits and schedules, which are incorporated
into this Agreement by reference and are made a part hereof, constitute the
entire agreement between the parties hereto pertaining to the subject matter
hereof and supersede all prior agreements, understandings, negotiations, and
discussions, whether oral or written.
12.3 No supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
12.4 Section and subsection headings are not to be considered part of this
Agreement and are included solely for convenience and reference and shall not be
held to define, construe or limit the meaning of any provision of this
Agreement.
12.5 All of the terms, provisions and obligations of this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, representatives, successors and assigns. Notwithstanding the
foregoing, neither this Agreement nor any rights or obligations hereunder shall
be assigned, pledged, hypothecated or otherwise transferred by a party without
the prior written consent of all other parties, except (i) by operation of law,
or (ii) by Buyer to any entity that Buyer controls (provided that such
assignment shall not relieve Buyer of its obligations hereunder, if such
assignee does not perform such obligations).
12.6 The validity, construction and interpretation of this Agreement shall
be governed by the internal laws of the State of Florida applicable to contracts
made and to be performed wholly within that state.
12.7 Nothing in this Agreement, expressed or implied, is intended to
confer upon any person other than the parties hereto any rights or remedies
under or by reason of this Agreement.
12.8 Each party shall bear the expenses (including, without limitation,
attorneys' fees) incurred by him or it in connection with the negotiation,
execution and delivery of this Agreement and the agreements contemplated by this
Agreement.
12.9 In the event any party takes legal action to enforce any of the terms
of this Agreement, the unsuccessful party to such action shall pay the
successful party's reasonable expenses, including attorneys' fees for pretrial
investigation, at trial, and on appeal, incurred in such action.
7
<PAGE>
12.10 This Agreement may be executed simultaneously and in two or more
counterparts, each one of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
12.11 If any of the provisions of this Agreement may be determined to be
illegal or otherwise unenforceable, in whole or in part, the remaining
provisions, and any partially unenforceable provisions to be the extent
enforceable, shall nevertheless be binding and enforceable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first set forth above.
BUYER: SELLER:
- ----- ------
AMERICAN FOODSERVICE STERNLIEB FAMILY
DISTRIBUTORS INVESTMENTS, LTD.
a California corporation a Florida limited partnership
By /s/ Martin A. Lynch By: its authorized general partner
------------------------ Sternlieb Investments, Inc.
Its Executive VP & CFO a Florida corporation
-----------------------
By /s/ Donald G. Alvarado
------------------------
Its Secretary By: /s/ EDWARD I. STERNLIEB
----------------------- ---------------------------
Edward I. Sternlieb
President
8
<PAGE>
EXHIBIT 10.88
-------------
CONSULTING AGREEMENT
--------------------
This CONSULTING AGREEMENT (the "Agreement") is made and entered into
as of the 5th day of January, 1998, by and between HENRY LEE COMPANY, a Florida
corporation (the "Company") and EDWARD I. STERNLIEB, an individual
("Consultant")
RECITALS
--------
A. The Company and Consultant are currently parties to an Employment
Agreement dated November 8, 1994 (the "Employment Agreement"), pursuant to which
Consultant served as President and later Chairman of the Board of Directors.
Pursuant to that certain Stock Purchase Agreement dated January 5, 1998 (the
"Purchase Agreement"), American Foodservice Distributors ("AFD"), owner of
ninety percent (90%) of the common stock of the Company, has purchased from an
affiliate of Consultant the remaining ten percent (10%) of the common stock in
the Company. As part of the terms and conditions of the Purchase Agreement, AFD
and Consultant have agreed to terminate the Employment Agreement except as
specifically set forth below.
B. The Company desires to engage Consultant in order to take
advantage of his extensive experience, knowledge and abilities relative to the
wholesale distribution of food and related equipment and supplies of the Company
(the "Business"), and Consultant desires to be so engaged, on the terms and
conditions set forth in this Agreement.
AGREEMENT
---------
Accordingly, in consideration of the mutual covenants set forth below,
the parties agree as follows:
1. ENGAGEMENT
----------
1.1 Engagement. The Company hereby engages Consultant and Consultant
----------
hereby accepts such engagement to perform during the term of this Agreement the
services described in Section 1.2.
1.2 Duties. Consultant will hold himself available for the term of
------
this Agreement to render consultation and advice to the Company in regard to all
aspects of the Business. In order to be in a position to render counsel, he
will, at the specific request and with the approval of either Mr. Ross E. Roeder
or Mr. Robert J. Emmons of the Board of Directors of the Company (the "Board"),
review such data and reports as from time to time may be furnished to him.
Consultant will make himself available for 750 hours during regular business
hours during calendar year 1998, and thereafter from time to time as mutually
agreed upon by Consultant and the Board, for meetings at the Company's offices,
for consultation at his residence or outside office by telephone and
correspondence, and shall use his best and reasonable efforts for projects
within his expertise with respect to any matters the Board may deem appropriate
for consultation. It is understood that Consultant may from time to time be
away from his residence or office for extended periods, but,
1
<PAGE>
where it is practicable, he will endeavor to remain available by telephone.
Consultant shall not have any administrative or supervisorial duties under this
Agreement.
2. TERM OF ENGAGEMENT AND TERMINATION
----------------------------------
2.1 Term. Unless sooner terminated pursuant to Section 2.2, the term
----
of engagement under this Agreement shall commence as of January 5, 1998 and
shall continue until December 31, 1999.
2.2 Termination. Consultant's engagement under this Agreement shall
-----------
terminate prior to the expiration of its term upon the happening of any of the
following events:
(a) the mutual agreement of the Company and Consultant;
(b) the death of Consultant;
(c) at the option of the Company or Consultant, it Consultant has become (in
the joint opinion of two licensed physicians, one selected by each of the
Company and Consultant, or if they are unable to agree, in the opinion of a
licensed physician selected by such two licensed physicians) so physically
or mentally disabled as to be incapable of substantially performing his
duties hereunder for a period of 180 consecutive days.
(d) By Consultant in the event of any material breach hereunder constituting
good cause, which shall mean the failure of the Company to pay any amounts
payable pursuant to Section 3 or the failure of the Company to perform any
obligation hereunder, following written notice from Consultant to the
Company specifying with particularity the amounts payable or obligations to
be so performed.
(e) By the Company in the event of any material breach hereunder constituting
good cause, which shall mean (i) the failure of Consultant to perform any
obligation hereunder, following written notice from Consultant to the
Company specifying with particularity the amounts payable or obligations to
be so performed, or (ii) the conviction of Consultant of any felony, or a
crime not a felony involving moral turpitude, or (iii) any willful
violation by Consultant of any material laws or regulations applicable to
the Business.
2.3 Duties Upon Termination. In the event that the engagement under
-----------------------
this Agreement is terminated pursuant to Section 2.2, neither the Company nor
Consultant shall have any remaining duties hereunder, except that (i) the
Company shall pay to Consultant such compensation as is due pursuant to Section
3 as and when it is due, (ii) Consultant's rights with respect to any stock
options as set forth in Section 3.4 shall remain in effect, and (iii) Consultant
shall continue to be bound by Section 4.
2
<PAGE>
3. COMPENSATION AND EXPENSE REIMBURSEMENT
--------------------------------------
3.1 Compensation. As the total consideration for the services and
------------
obligations which Consultant performs and observes hereunder, Consultant payable
on the last day of each calendar quarter commencing March 31, 1998 and ending on
December 31, 1999. Consultant will also be eligible for a bonus of Twenty-Five
Thousand and No/100 Dollars ($25,000.00) if the Company achieves 100% of its
profit plan for 1999 and Fifty Thousand and No/100 Dollars ($50,000.00) if the
Company achieves 125% of its profit plan for 1999, payable on or before March
31, 2000.
3.2 Reimbursement of Expenses. Commencing as of January 3, 1998 the
-------------------------
Company will be responsible for reimbursing only those reasonable and necessary
travel and entertainment expenses directly associated with the performance of
Consultant's duties under the Agreement, including but not limited to the
following: gasoline, mileage, cellular phone charges and other such expenses to
be reimbursed subject to approval by the Company according to its existing
company policy for similar expenses as it may be amended from time to time. Any
excess mileage or other charges assessed upon disposition of any leased
automobiles currently in use by Consultant shall be allocated 26/36ths to the
Company and 10/36ths to Consultant. All other expenses, including but not
limited to, car lease payments, country club dues and other such expenses will
be for the account of Consultant. Reimbursements will be made on a quarterly
basis payable on the last day of each calendar quarter commencing March 31, 1998
and ending on December 31, 1999, assuming submission of required documentation
in accordance with current Company procedures for requesting reimbursement. The
Company will continue to provide health and automobile insurance for Consultant
through December 31, 1999, the premiums for which will be reimbursed to the
Company by Consultant.
3.3 Other Benefits. The provisions of the Consultant's former
--------------
Employment Agreement dated November 8, 1994 with respect to Consultant's stock
option vesting and exercise shall continue to be in effect through December 31,
1999. Consultant shall not participate in any other bonus, incentive, or
perquisite plans except as set forth herein.
4. NONCOMPETITION
--------------
4.1 Solicitation of Customers. During the period commencing on the
-------------------------
date hereof and ending on the later of (i) the termination of this Agreement, or
(ii) November 7, 1998, Consultant shall not directly or indirectly, either for
his own benefit or purposes or for the benefit or purposes of any other person,
solicit, call on, interfere with, accept any business from, attempt to divert or
entice away any person or firm who was or is a customer of the Company, if such
business involves the wholesale distribution of food or related supplies.
4.2 Solicitation of Consultants. During the period commencing on the
---------------------------
date hereof and ending on the later of (i) the termination of this Agreement, or
(ii) November 7, 1998, Consultant shall not directly or indirectly, employ or
offer to employ, call on, solicit, interfere with,
3
<PAGE>
attempt to direct or entice away any prior or existing employee or independent
contractor of the Company in any capacity if that person possesses or has
knowledge of any trade secrets.
4.3 Trade Secrets. Consultant shall not, without the prior written
-------------
consent of the Company, except as may be required by law, governmental rules and
regulations or litigation between the parties, disclose or use, in any way, any
confidential business or technical information or trade secret of the Company,
whether or not conceived of or prepared by Consultant (the "Trade Secrets"),
including without limitation any information concerning any procedures,
operations, investments, techniques, data, compilations of information, records,
financing, costs, employees, purchasing, accounting, marketing, merchandising,
sales, customers, salaries, pricing, profits, plans for future development, and
the identity, requirements, preferences, practices and methods of doing business
of specific parties with whom the Company transacts business, and all other
information which is related to any service or business of the Company; all of
which Trade Secrets are the exclusive and valuable property of the Company.
4.4 Noncompetition.
--------------
(a) As used herein, the term "Competitive Activity" shall mean
any participation in, assistance of business from, engagement in business with,
or assistance, promotion or organization of, any person, partnership,
corporation, firm, association or other business organization, entity or
enterprise by Consultant (other than the Company) which, directly or indirectly,
is engaged in, or hereinafter engages in the wholesale distribution of food and
related equipment and supplies (other than ownership not to exceed two percent
in any publicly traded company) .
(b) During the period commencing on the date hereof and ending
on the later of (i) the termination of this Agreement, or (ii) November 7, 1998,
Consultant shall not engage in any Competitive Activity in any of the following
geographic areas:
(A) the State of Florida;
(B) Aruba;
(C) St. Maarten/St. Martin;
(D) Nevis;
(E) St. Croix;
(F) Trinidad/Tobago
(G) Turks & Caicos
(H) Grenada
(I) Peru
4
<PAGE>
(J) El Salvador
(K) Barbados
(L) Belize
(M) Curacao
(N) St. Eustatius
(O) Antigua
(P) British Virgin Islands
(Q) Grand Cayman
(R) Mexico-Cancun
(S) Colombia
(T) Nicaragua
(U) Honduras
(V) Dominican Republic
(W) Ecuador
(X) Bonaire
(Y) St. Kitts
(Z) St. Thomas
(AA) Jamaica
(BB) Bahamas
(CC) Anguilla
(DD) Venezuela
(EE) Costa Rica
(FF) Guatemala
5
<PAGE>
(GG) Holland
4.4 Injunctive Relief. Consultant hereby acknowledges and agrees that
-----------------
it would be difficult to fully compensate the Company for damages resulting from
the breach or threatened breach of the foregoing provisions and, accordingly,
that the Company, without being required to post any bond, shall be entitled to
temporary and injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, to enforce such provisions.
This provision with respect to injunctive relief shall not, however, diminish
the Company's right to claim and recover damages.
5. OTHER PROVISIONS.
----------------
5.1 Compliance With Other Agreements. Consultant represents and
--------------------------------
warrants to the Company that the execution, delivery and performance of this
Agreement will not conflict with or result in the violation or breach of any
term or provision of any order, judgment, injunction, contract, agreement,
commitment or other arrangement to which Consultant is a party or by which he
is bound, including without limitation any agreement restricting the sale of
products similar to the Company's products in any geographic location or
otherwise. Consultant acknowledges that the Company is relying on his
representation and warranty in entering into this Agreement, and agrees to
indemnify the Company from and against all claims, demands, causes of action,
damages, costs or expenses (including attorneys' fees) arising from any breach
thereof.
5.2 Severability. The invalidity or unenforceability of any
------------
particular provision of this Agreement shall not affect the other provisions,
and this Agreement shall be construed in all respects as if any invalid or
unenforceable provision were omitted.
5.3 Headings. The Section and other headings contained in this
--------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
5.4 Governing Law. The validity, construction and performance of
-------------
this Agreement shall be governed by the laws, without regard to the laws as to
choice or conflict of laws, of the State of Florida.
5.5 Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding between the parties pertaining to the subject matter of this
Agreement, and supersedes all prior agreements, understanding, negotiations,
representations and discussions, whether verbal or written, of the parties,
pertaining to that subject matter. There are no promises, terms, conditions or
obligations of the parties pertaining to that subject matter other than as
contained in this Agreement.
5.6 Assignment. Neither this Agreement nor any rights under this
----------
Agreement may be assigned by Consultant or the Company without the prior written
consent of the other; provided, however, that the Company may assign this
Agreement or any rights thereunder to a parent or other affiliated company
holding a controlling interest in Company without such consent.
6
<PAGE>
5.7 Binding Effect. The provisions of this Agreement shall bind and
--------------
inure to the benefit of the parties and their respective successors and
permitted assigns.
5.8 Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing, and shall be deemed to have been given if
personally delivered, or delivered by facsimile transmission, or actually
delivered (as evidenced by appropriate receipt) by overnight courier, or 72
hours after being placed in the United States mail, registered or certified-
return receipt requested, postage prepaid, addressed as follows:
If to Consultant: Mr. Edward I. Sternlieb
3088 Birkdale Drive
Fort Lauderdale, FL 32222
With a copy to: Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.C.
515 East Las Olas Boulevard
Fort Lauderdale, FL 33301
Attn: C. Deryl Couch, Esq.
Fax: (954) 765-1477
If to the Company: Henry Lee Company
4700 South Boyle Avenue
Los Angeles, CA 90058
Attn: Mr. Martin A. Lynch
Fax: (213) 589-2074
With a copy to: Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, CA 90058
Attn: Donald G. Alvarado, Esq.
Fax: (213) 589-0415
Each of the parties shall be entitled to specify a different address by giving
notice as aforesaid.
IN WITNESS WHEREOF, the parties hereto have executed this Consulting Agreement
as of the date first above written.
THE COMPANY: CONSULTANT:
HENRY LEE COMPANY, /s/ Edward I. Sternlieb
a Florida corporation -------------------------------
EDWARD I. STERNLIEB
By: Michael Primrose
----------------
Its: President
---------
By: Donald G. Alvarado
------------------
7
<PAGE>
Its: Secretary
---------
8
<PAGE>
EXHIBIT 10.90
-------------
SEPARATION AGREEMENT
AND MUTUAL GENERAL RELEASE
This Separation Agreement and Mutual General Release ("Agreement") is
made and entered into as of the 12th day of February, 1998, at Los Angeles,
---- --------
California by and among SMART & FINAL, INC., a Delaware corporation ("SFI"), on
the one hand; and ROGER M. LAVERTY, III, an individual ("Laverty") and JILL
LAVERTY, an individual, on the other hand.
R E C I T A L S
---------------
A. Laverty has been employed by SFI or its predecessor from April 2,
1979 through the present, most recently as Chief Executive Officer, as a member
of the Board of Directors of SFI, and as an officer and director of various
affiliates and subsidiaries of SFI.
B. Laverty has been most recently employed by SFI pursuant to that
certain Employee Agreement made, entered into, and effective as of January 1,
1997 (the "Employment Agreement").
C. SFI and Laverty have determined that Laverty should end his
employment as Chief Executive Officer of SFI, as a member of SFI's Board of
Directors, and as an officer and/or director of SFI's subsidiaries and
affiliates effective a date to be determined.
D. Certain differences have arisen as to the respective rights and
obligations of SFI and Laverty pursuant to the Employment Agreement.
E. Laverty and SFI desire to resolve their disputes and differences,
and to determine their respective rights, benefits, duties and obligations, and
therefore enter into this Agreement upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and agreements herein contained, the parties hereto agree as
follows:
<PAGE>
A G R E E M E N T
-----------------
1. Payments to Laverty. Commencing May 1, 1998 or such other date as
-------------------
the parties may agree (the "Commencement Date"), SFI shall pay Laverty the total
of Two Million Two Hundred and No/100 Dollars ($2,200,000.00) in equal monthly
payments for thirty-six (36) months, each installment to be payable on the last
day of each month, subject to the ordinary withholding taxes. Five Thousand and
No/100 Dollars ($5,000.00) of each such payment shall represent compensation of
Laverty pursuant to the Consultant Agreement described in Paragraph 5 of this
Agreement.
2. Continuing Benefits. For thirty-six (36) consecutive months
-------------------
commencing on the Commencement Date:
(a) Laverty shall receive health, dental, vision, life insurance, and
other incidental benefits (except the AYCO financial consulting services, which
are specifically excluded) on the same basis as Laverty receives such benefits
as of the date of execution of this Agreement.
(b) Laverty shall be eligible to contribute to SFI's 401(k) plan and
the Smart & Final Supplemental Deferred Compensation Plan; provided, however,
that SFI shall have no obligation to make any contributions to either plan on
Laverty's behalf.
(c) Laverty shall participate in the SFI automobile plan and receive
an automobile allowance on the same basis as that received by him during
calendar year 1997.
(d) Laverty shall continue to accrue years of service for purposes of
computing his SERP benefit under SFI's Supplemental Executive Retirement Plan
(the "SERP").
(e) Laverty may exercise all unqualified stock options which have
vested as of the Commencement Date to the extent such options have not expired
pursuant to their respective terms.
3. SERP Benefit. SFI and Laverty shall amend Laverty's SERP
------------
agreement to provide that Laverty will continue to be a Plan participant until
"Normal Retirement" or "Early Retirement" as those terms are defined in the SERP
Plan.
-2-
<PAGE>
Laverty's SERP Plan Agreement shall survive his termination of employment.
Depending on when Laverty opts to commence receiving benefits under the SERP,
Laverty's benefit may be actuarially reduced as provided in the SERP. The "Final
Average Compensation" which shall be utilized for determining Plan benefits Six
Hundred Ninety-Four Thousand and No/100 Dollars ($694,000.00) (determined using
"Compensation" of Eight Hundred Twenty Thousand and No/100 Dollars ($820,000.000
for calendar 1996, Four Hundred Fifty Thousand and No/100 Dollars ($450,000.00)
for calendar 1997 and an aggregate of Two Million Two Hundred Thousand and
No/100 Dollars ($2,200,000.00) for calendar years 1998 through and including
2000.
4. Retiree Medical Benefits. Laverty and his wife, Jill, shall be
------------------------
entitled to the maximum retiree health benefits available as those benefits are
defined in that certain SmartCare brochure entitled "General Information for
Retirees" and in the pertinent Plan documents and policies as they exist as of
the date of execution of this Agreement.
5. Deferred Compensation and 401(k) Plan Benefits. Laverty shall be
----------------------------------------------
entitled to all benefits under the Smart & Final Deferred Compensation Plan,
that certain Deferred Compensation Agreement between SFI and Laverty dated as of
March 31, 1994, that certain Deferred Compensation Agreement between SFI and
Laverty dated as of April 15, 1992, and SFI's 401(k) plan, to the extent such
benefits have vested as of the last day of the thirty-sixth (36th) month
following the Commencement Date.
6. Employment of Laverty as a Consultant. Commencing with the
-------------------------------------
Commencement Date and continuing for thirty-six (36) months thereafter, Laverty
shall be employed by SFI as a consultant. No later than the Commencement Date,
Laverty and SFI shall execute a Consultant Agreement in the form attached hereto
as Exhibit A.
7. Change of Control. In the event of a "change of control," all
-----------------
payment pursuant to Section 1 of this Agreement shall immediately become due and
payable. For purposes of this Agreement, "change of control" shall mean the
sale of fifty percent (50%) or more of the common stock or assets of SFI or when
current shareholders of SFI or their affiliates otherwise fail to own 50% or
more of the common stock of SFI or the approval by the stockholders of SFI of a
plan of complete liquidation of SFI or an agreement for the sale or disposition
(including, without limitation, dispositions through merger or consolidation) by
SFI of all or substantially all of SFI's assets.
8. General Release of SFI. Except for the obligations set forth
----------------------
herein and any obligation to indemnify Laverty imposed by operation of law or
provided in
-3-
<PAGE>
SFI's Certificate of Incorporation or Bylaws, Laverty and Jill Laverty hereby
acknowledge full and complete satisfaction of and do hereby release and fully
discharge SFI, its predecessor, successor, parent, subsidiary and affiliated
entities, past and present as well as its partners, officers, directors,
shareholders, agents, servants, employees, representatives, attorneys, heirs,
successors and assigns, past and present, and each of them (collectively
referred to as the "SFI Releasees"), from any and all claims, demands, and
causes of action of every kind and nature (including, without limitation, claims
for damages, costs, expenses, loss of services, loss of consortium, and
attorneys' and accountants' fees and expenses), whether known or unknown,
suspected or unsuspected, which Laverty and Jill Laverty now owns or holds or at
any time heretofore has owned or held against the SFI Releasees, or any of them,
arising out of, resulting from, or in any way related to any transaction,
agreement, occurrence, act, or omission whatsoever occurring, existing, or
omitted at any time before the date hereof, including, without limiting the
generality of the foregoing, such claims, demands, and causes of action
(a) Arising out of or in any way connected with Laverty's
employment by SFI.
(b) Arising out of any federal, state or other government statute or
ordinance, including without limitation, Title VII of the Civil Rights Act of
1964, the federal Age Discrimination in Employment Act of 1967 (29 U.S.C. (S) 21
et seq.), the California Fair Employment and Housing Act, or any other legal
limitation on the employment relationship.
9. Review and Revocation Period; Effective Date. SFI and Laverty
--------------------------------------------
agree that Laverty shall have twenty-one (21) days to review this Agreement and
consult legal counsel if he so chooses, during which time the proposed terms of
this Agreement shall not be amended, modified or revoked by SFI. Laverty may
revoke this Agreement if he so chooses by providing notice of his decision to
revoke the Agreement to SFI within seven days following the date he signs this
Agreement. This Agreement shall become effective and enforceable upon
expiration of such seven (7)-day revocation period. Laverty acknowledges and
agrees that the compensation and benefits he is receiving pursuant to this
Agreement is greater than the compensation and benefits to which he would
otherwise have been entitled to upon termination of his employment with SFI.
10. General Release of Laverty. Except for the obligations set forth
--------------------------
herein, any claims for willful misconduct or fraud, and any loans or borrowings
by Laverty from any deferred compensation plan or agreement, SFI for itself and
for its subsidiaries and affiliate corporations hereby acknowledges full and
complete satisfaction of and does hereby release and fully discharge Laverty,
his agents, servants, employees,
-4-
<PAGE>
representatives, attorneys, heirs, successors and assigns, past and present, and
each of them (collectively referred to as the "Laverty Releasees"), from any and
all claims, demands, and causes of action of every kind and nature (including,
without limitation, claims for damages, costs, expenses, loss of services, and
attorneys' and accountants' fees and expenses), whether known or unknown,
suspected or unsuspected, which SFI or its subsidiary or affiliate corporations
now own or hold or at any time heretofore has owned or held against the Laverty
Releasees, or any of them, arising out of, resulting from, or in any way related
to any transaction, agreement, occurrence, act, or omission whatsoever
occurring, existing, or omitted at any time before the date hereof, including,
without limiting the generality of the foregoing, such claims, demands, and
causes of action arising out of or in any way connected with Laverty's
employment by SFI.
11. Release of Unknown Claims. It is the intention of the parties
-------------------------
hereto in executing this Settlement Agreement that this instrument is a General
Release which shall be effective as a bar to each and every claim, demand, or
cause of action released hereby. Each party recognizes that he or it may have
some claim, demand, or cause of action against another party of which he or it
is totally unaware and unsuspecting, which he or it is giving up by execution of
the General Release. It is the intention of the parties in executing this
instrument that it will deprive them of each such claim, demand or cause of
action and prevent them from asserting it against any other party to whom a
General Release has been given. In furtherance of this intention, each party
hereto expressly waives any rights or benefits conferred by the provisions of
Section 1542 of the Civil Code of the State of California, which provides as
follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
12. Consultation With Counsel. Each party hereto acknowledges and
-------------------------
represents that he or it has consulted with legal counsel before effecting this
settlement and executing this Agreement and that he or it understands its
meaning, including the effect of Section 1542 of the California Civil Code and
the release of any claims under the Age Discrimination in Employment Act of 1967
(20 U.S.C. (S) 21, et. seq.), and expressly consents that this Agreement shall
be given full force and effect according to each and all of its express terms
and provisions, including those relating to the release of unknown and
unsuspected claims, demands, and causes of action.
13. No Admissions. This Agreement is part of the compromise and
-------------
settlement of contested claims. No action taken by the parties hereto, either
previously or
-5-
<PAGE>
in connection with the compromise reflected in this Agreement, shall be deemed
or construed to be an admission of the truth or falsity of any matter pertaining
to any claim, demand, or cause of action referred to herein or relating to the
subject matter of this Agreement, or any acknowledgment by them, or any of them,
of any fault or liability to any party hereto or to any other person in
connection with any matter or thing.
14. Non-Disparagement. Laverty shall not disparage or negatively
-----------------
criticize SFI, its management, its products, or any of its employees to any
other person in any manner whatsoever. SFI shall not disparage or negatively
criticize Laverty in any manner whatsoever.
15. No Assignments. Each party hereto represents and warrants to
--------------
each other party hereto, and each of them, that no portion of any claim, demand,
cause of action, or other matter released herein, nor any portion of any
recovery or settlement to which one party might be entitled from another party,
has been assigned or transferred to any other person or entity, either directly
or by way of subrogation or operation of law. Each party hereby agrees to
indemnify, defend, and hold harmless each other party, and each of them, from
all loss, cost, claim, or expense (including, but not limited to, all expenses
of investigation and defense of any such claim or action, including reasonable
attorneys' and accountants' fees and expenses) arising out of any claim made or
action instituted by any person or entity who claims to be the beneficiary of
such assignment or transfer, and to pay and satisfy any judgment resulting from
or any settlement of any such claim or action.
16. Governing Law. This Agreement and its terms and conditions shall
-------------
be governed by the laws and construed solely in accordance with the laws of the
of State of California.
17. Failure or Delay Not a Waiver. No failure or delay on the part
-----------------------------
of any party to exercise any right hereunder, nor any other indulgence of such
party, shall operate as a waiver of any other rights hereunder, nor shall any
single exercise by any party of any right hereunder preclude any other or
further exercise thereof. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies provided by law.
18. No Representations. Each party hereto acknowledges that he or it
------------------
has relied wholly upon his or its own judgment, belief and knowledge of the
existence, nature and extent of each claim, demand, or cause of action that he
or it may have against another which is hereby released and that he or it has
not been influenced to any extent in
-6-
<PAGE>
entering into this Agreement by any representations or statements regarding any
such claim, demand, or cause of action made by any other party hereto. Each
party acknowledges that he or it is executing and delivering this Agreement
after having received from legal counsel of his or its own choosing legal advice
as to her or its rights hereunder and the legal effect hereof.
19. Attorneys' Fees and Costs. SFI shall pay Laverty's reasonable
-------------------------
attorneys' fees, expenses, and costs incurred in the disputes being resolved by
this Agreement and the preparation of this Agreement. All disputes arising
under or relating in any fashion to this Agreement shall be determined by
arbitration before the American Arbitration Association at Los Angeles,
California. In the event any litigation, arbitration or other proceeding is
brought for the interpretation or enforcement of this Agreement, or because of
an alleged dispute, default, misrepresentation, or breach arising out of or
relating to any of the provisions of this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable attorneys'
fees, costs, and expenses actually incurred in connection therewith, in addition
to any other relief to which she, it, or they may be entitled.
20. Integration. This Agreement constitutes the entire understanding
-----------
between the parties hereto pertaining to the subject matter hereof and fully
supersedes any and all prior agreements and understandings, whether written or
oral, between the parties hereto pertaining to the subject matter hereof.
21. Amendments. No changes in, additions to, or modifications of
----------
this Agreement shall be valid unless set forth in writing executed by all
parties hereto.
22. Successors and Assigns. The provisions of this Agreement shall
----------------------
be binding upon and inure to the benefit of the respective parties and their
heirs, executors, administrators, agents, representatives, successors, and
assigns.
23. Additional Documents. The parties hereto agree to execute such
--------------------
additional documents and perform such further acts as may be reasonably
necessary to effectuate the purpose of this Agreement.
24. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-7-
<PAGE>
25. Headings. The Headings in this Agreement are for convenience or
--------
reference only, and shall not limit or otherwise affect the meaning hereof.
26. Authority to Execute. Each individual signing this Agreement,
--------------------
and any other documents executed in connection with this Agreement, whether
signed individually or on behalf of any person or entity, warrants and
represents that he or he has full authority to so execute the Agreement on
behalf of the parties on whose behalf he so signs. Each separately acknowledges
and represents that this representation and warranty is an essential and
material provision of this Agreement and shall survive execution of this
Agreement. The parties hereto each respectively represents that the attorneys
signing this Agreement and the documents executed with this Agreement on their
behalf respectively have been duly authorized and empowered to do so. SFI
represents and warrants that it has the authority and capacity to perform each
of its obligations under this Agreement or that it will cause such obligation to
be fulfilled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
consisting of eleven (11) pages, including Exhibit A, as of the date and year
first written above.
SMART & FINAL, INC.
a Delaware corporation
By: /s/ Robert J. Emmons
-----------------------------
Name: Robert J. Emmons
----------------
Its: Chairman & CEO
--------------
Date Signed: 2/11/98
-------
APPROVED AS TO FORM:
PERKINS COIE
By: /s/ Charles F. Palmer
---------------------------
Charles F. Palmer
Attorneys for Smart & Final, Inc.
-8-
<PAGE>
/s/ ROGER M. LAVERTY, III
------------------------------------
ROGER M. LAVERTY, III
Date Signed: 2/10/98
-------
/s/ JILL LAVERTY
------------------------------------
JILL LAVERTY
Date Signed: 2/10/98
-------
APPROVED AS TO FORM:
LAW OFFICES OF HUGH M. BOSS
By: /s/ HUGH M. BOSS
--------------------------------------
Hugh M. Boss
Attorneys for Roger M. Laverty, III
and Jill Laverty
-9-
<PAGE>
EXHIBIT A
CONSULTANT AGREEMENT
This Agreement is made and entered into as of the ____ day of
_____________, 1998 at Los Angeles, California by and between SMART & FINAL,
INC. (the "Company"), and ROGER M. LAVERTY, III ("Laverty").
R E C I T A L S
---------------
A. The Company desires to retain the services of Laverty as a
consultant to provide advice and assistance to the Company on various issues
related to the management of the Company.
B. Laverty desires to be employed by the Company as a consultant.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, the parties hereto agree as follows:
A G R E E M E N T
-----------------
1. Services. Laverty shall be employed by the Company as a consultant to
--------
advise and assist the Company on management issues or such other matters as the
Company from time to time may determine. Laverty shall provide such consulting
services at such times and in such manner as the Company may reasonably
determine. The Company shall give Laverty reasonable notice. During the term
of this Agreement, Laverty shall be available to provide such services for the
Company for at least twenty-five (25) hours per month. The Company agrees and
acknowledges that subject to Paragraph 4 hereof, Laverty may be employed on a
part-time or full-time basis by one or more third party employers during the
term hereof.
2. Compensation. Five Thousand and No/100 Dollars ($5,000.00) of each of the
------------
monthly payments provided in paragraph 1 of that certain Separation Agreement
and Mutual General Release between the Company, one the one hand, and Laverty
and Jill Laverty, on the other hand, shall constitute compensation to Laverty
for his services rendered under this Consultant Agreement.
3. Term. The term of this Consultant Agreement shall be three (3) years
----
commencing on May 1, 1998 or such other date as the parties may agree.
4. Noncompetition. During the first twelve (12) months of the term of this
--------------
Consultant Agreement, Laverty will not, directly or indirectly, be employed by,
own, manage, operate, join, control, or participate in the ownership,
management, operation or
-10-
<PAGE>
control of any business or entity engaged in the food service distribution
business or the cash-and-carry grocery business.
5. Nonsolicitation. During the term of this Consultant Agreement, Laverty
---------------
will not induce or attempt to induce, directly or indirectly, any employee of
the Company to terminate his or her employment with the Company to work for
Laverty or any other person or entity.
6. Remedy. Laverty acknowledges that any breach by Laverty of paragraphs 4
------
or 5 of this Consultant Agreement will cause irreparable injury to the Company.
Accordingly, in the event of such breach or an impending breach, the Company
shall be entitled to obtain temporary restraining orders, injunctions and other
equitable relief from a court in addition to and not in lieu of the right to
seek damages and any other right or remedy afforded to the Company by law or
otherwise. The prevailing party in any action to enforce the provisions of this
Consultant Agreement shall be entitled to recover from the other party all
reasonable expenses incurred in such action, including reasonable attorneys'
fees.
7. Entire Agreement. This Consultant Agreement constitutes the entire
----------------
agreement, and supersedes any and all prior agreements, whether written or oral,
of the parties hereto relating to the services rendered hereunder and the
subject matter hereof. This Consultant Agreement may only be amended by a
written agreement signed by all parties.
IN WITNESS WHEREOF, the parties hereto have executed this Consultant
Agreement as of the date and year first written above.
SMART & FINAL, INC.
a Delaware corporation
By ____________________________________
Name: ____________________________
Its: _______________________________
Date Signed: _______________________
/s/ ROGER M. LAVERTY, III
______________________________________
ROGER M. LAVERTY, III
Date Signed: ____________________________
-11-
<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 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.
** At year end, Henry Lee was a 90% owned subsidiary of American Foodservice
Distributors, Inc. American Foodservice Distributors acquired the remaining 10%
of Henry Lee in early 1998.
<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, 333-01360 and 333-35243.
-------- --------- ---------
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-04-1998
<PERIOD-START> DEC-30-1996
<PERIOD-END> JAN-04-1998
<CASH> 22,891
<SECURITIES> 0
<RECEIVABLES> 81,513
<ALLOWANCES> 5,518
<INVENTORY> 129,761
<CURRENT-ASSETS> 254,153
<PP&E> 272,298
<DEPRECIATION> 85,808
<TOTAL-ASSETS> 488,145
<CURRENT-LIABILITIES> 185,671
<BONDS> 80,024
0
0
<COMMON> 224
<OTHER-SE> 200,105
<TOTAL-LIABILITY-AND-EQUITY> 488,145
<SALES> 1,453,020
<TOTAL-REVENUES> 1,453,020
<CGS> 1,258,357
<TOTAL-COSTS> 1,258,357
<OTHER-EXPENSES> 178,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,117
<INCOME-PRETAX> 7,813
<INCOME-TAX> 1,940
<INCOME-CONTINUING> 6,636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,636
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
</TABLE>
