<PAGE>
Prospectus
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-75627
[LOGO OF SMART & FINAL]
Rights Offering of 6,486,406 Shares of Common Stock
at $9.25 per Share
If you held our common stock on May 12, 1999, Smart & Final has granted to
you rights to purchase additional shares of common stock for a subscription
price of $9.25 per share. You have been granted one right for each share of
common stock you held on that date. You may purchase one share of common stock
for every 3.4884 rights granted to you.
Our common stock is traded on the New York Stock Exchange under the symbol
"SMF". On May 3, 1999, the last reported sale price for the common stock was
$10.1875 per share. We anticipate that the rights will be eligible to trade on
the NYSE under the symbol "SMF Rt." We cannot assure you that there will be an
active trading market for the rights.
The rights expire at 5 p.m. New York City time, on June 3, 1999, if not
properly exercised before that date. If you fully exercise your rights, and
other stockholders do not fully exercise their rights, you may elect to
purchase additional shares on a pro rata basis. See "The Rights Offering" at
page 24.
Casino USA, Inc. owns approximately 55% of Smart & Final's outstanding
common stock. Casino USA has agreed to exercise its basic subscription
privilege with respect to all rights granted to it and to purchase all shares
offered that are not purchased by the other stockholders. If no other
stockholders exercise their rights under this offering, Casino USA's ownership
of Smart & Final will increase to approximately 65%.
Casino USA will pay for the shares it subscribes for by reducing a $55.4
million debt Smart & Final owes Casino USA by the total subscription price due
for those shares. If Casino USA's total subscription price exceeds $55.4
million, Casino USA will pay the excess in cash. Smart & Final will use all net
cash proceeds from the rights offering to prepay senior debt owed to its bank
lenders.
Neither the Smart & Final Board of Directors nor the Board's special
committee for the rights offering makes any recommendation to you about whether
you should exercise any rights.
Investing in Smart & Final common stock involves certain risks. See "Risk
Factors" beginning on page 12.
<TABLE>
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<CAPTION>
Subscription Discounts and Proceeds to the
Price Commissions Company
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $9.25 None $9.25
Total............................ $59,999,255.50 None $59,999,255.50
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is May 4, 1999.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. This prospectus
is not an offer to sell or a solicitation of an offer to buy any securities in
any state or other jurisdiction in which the offer or solicitation is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date of this prospectus.
In this prospectus, "Smart & Final," "we," "us" and "our" refer to Smart &
Final Inc. and its consolidated subsidiaries, unless the context specifically
indicates otherwise.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Available Information................................................. 3
Forward-Looking Statements............................................ 3
Questions and Answers About the Rights Offering....................... 4
Prospectus Summary.................................................... 6
Risk Factors.......................................................... 12
Use of Proceeds....................................................... 17
Price Range of Common Stock and Dividend Policy....................... 17
Capitalization........................................................ 18
Security Ownership of Certain Beneficial Owners and Management........ 19
Relationship Between Smart & Final and Casino USA..................... 20
The Rights Offering................................................... 24
Reasons for the Rights Offering..................................... 24
No Special Committee or Board Investment Recommendation to
Stockholders....................................................... 24
General Terms and Assumptions....................................... 24
ChaseMellon Shareholder Services, L.L.C............................. 25
The Rights.......................................................... 25
Basic and Oversubscription Privileges............................... 26
Subscription Price.................................................. 26
Expiration Time and Date............................................ 26
Casino USA Standby Purchase and Debt Reduction Agreement............ 27
Conditions Relating to the Rights Offering.......................... 27
Expenses of the Rights Offering..................................... 27
Exercise of Rights.................................................. 28
Required Forms of Payment........................................... 28
Special Procedure under "Notice of Guaranteed Delivery" Form........ 28
Incomplete Forms; Insufficient or Excess Payment.................... 29
Exercise of Less Than All Rights.................................... 29
Instructions to Nominee Holders..................................... 29
Risk of Loss on Delivery of Subscription Warrant Forms and
Payments........................................................... 30
How Procedural and Other Questions Are Resolved..................... 30
Questions and Assistance Concerning the Rights...................... 30
No Revocation....................................................... 30
How to Transfer Rights.............................................. 30
Procedures for Nominees Who Are DTC Participants.................... 32
Foreign and Unknown Addresses....................................... 32
Right to Block Exercise Due to Regulatory Issues.................... 32
No Adjustment to Outstanding Stock Options or Other Stock Awards.... 33
Amendment, Extension and Withdrawal................................. 33
Issuance of Stock Certificates...................................... 33
Certain Federal Income Tax Consequences............................. 33
Legal Matters......................................................... 35
Experts............................................................... 35
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
We file annual, quarterly and special reports and other information with the
Securities and Exchange Commission (the "SEC"). You may read and copy any
document we file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. You may call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. Our recent SEC filings
also are available to you at the SEC's web site at http://www.sec.gov.
This prospectus, which constitutes a part of a registration statement on
Form S-3 filed by us with the SEC under the Securities Act of 1933, omits
certain of the information set forth in the registration statement.
Accordingly, for further information, you should refer to the registration
statement and its exhibits on file with the SEC. Furthermore, statements
contained in this prospectus concerning any document filed as an exhibit are
not necessarily complete and, in each instance, we refer you to the copy of
such document filed as an exhibit to the registration statement.
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede the information in this
prospectus. Accordingly, we incorporate by reference the documents listed below
and, until this offering has been completed, any future filings made with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934:
. Annual Report on Form 10-K for the year ended January 3, 1999, as amended
on Form 10-K/A filed on April 2, 1999.
. Quarterly Report on Form 10-Q for the fiscal quarter ended March 28,
1999.
. Current Reports on Form 8-K filed February 25, 1999 and March 4, 1999.
. The description of the common stock contained in Smart & Final's
Registration Statement on Form 8-A filed with the SEC on July 19, 1991,
and any subsequent filing which updates the description.
We will provide each person to whom this prospectus is delivered, including
any beneficial owner of our shares, copies of these filings, upon request at no
cost, by writing or telephoning us at the address set forth below. You may also
obtain certain of these documents by accessing our web site at
http://www.smartandfinal.com.
Smart & Final Inc., 600 Citadel Drive, City of Commerce, California 90040
Attention: Corporate Communications (323) 869-7500
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Our statements of plans, intentions,
objectives and future economic or operating performance contained in this
prospectus are forward-looking statements. Forward-looking statements include
but are not limited to statements containing terms such as "believes," "does
not believe," "no reason to believe," "expects," "plans," "intends,"
"estimates," "anticipated" or "anticipates."
Forward-looking statements involve known and unknown risks and uncertainties
which may cause our actual results in future periods to differ materially from
results anticipated in the forward-looking statements. We make cautionary
statements in certain sections of this prospectus, including under "Risk
Factors." You should read these cautionary statements as being applicable to
all related forward-looking statements wherever they appear in this prospectus,
the materials referred to in this prospectus, or the materials incorporated by
reference into this prospectus. No forward-looking statement is a guarantee or
promise of future performance.
3
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
What is a right?
By exercising rights, you have the privilege to purchase additional shares
of Smart & Final common stock for $9.25 per share. Smart & Final has
granted to its stockholders on May 12, 1999 one right for each outstanding
share of common stock. Each stockholder may purchase one newly-issued share
of common stock for every 3.4884 rights. This is the "basic subscription
privilege."
May stockholders purchase shares in addition to the basic subscription
privilege?
If other stockholders do not elect to purchase all of the shares offered
under their basic subscription privilege, and if you fully exercise your
basic subscription privilege, you may elect to purchase additional shares.
If there are not enough shares available to fill all subscriptions for
additional shares, the available shares will be allocated pro rata based on
the number of shares each subscriber for additional shares has purchased
under the basic subscription privilege. If Smart & Final receives a payment
which exceeds the shares available to allocate to a particular holder,
Smart & Final will refund any excess payment without interest as soon as
practicable. This is the "oversubscription privilege."
Why is Smart & Final offering the rights?
As part of Smart & Final's refinancing of its senior debt in November 1998,
Smart & Final agreed with its banks and Casino USA to restructure the then
existing intercompany notes and advances with Casino USA into a new,
subordinated note. We also determined that it would be advisable to
increase equity capital to provide greater financial flexibility. Smart &
Final and Casino USA also agreed that it would be in Smart & Final's best
interests to reduce the $55.4 million debt owed by Smart & Final to Casino
USA, through conversion to equity. After review by management and a special
committee of the Board of Directors, and following the advice of outside
financial advisors, Smart & Final determined that this rights offering was
the best approach to providing additional equity capital.
In this rights offering, Casino USA has agreed to convert up to all of the
$55.4 million debt into additional common stock. At the same time, other
stockholders have the opportunity to maintain their percentage ownership in
Smart & Final by exercising their rights. Net cash proceeds from the rights
offering will be used to prepay a portion of Smart & Final's senior
revolving credit facility.
How soon must stockholders act?
The rights expire at 5:00 p.m., New York City time, on June 3, 1999. The
subscription agent must actually receive all required documents and
payments before that time and date.
Has the Board of Directors made a recommendation regarding this offering?
Neither the Smart & Final Board of Directors nor the Board's special
committee for the rights offering makes any recommendation to you about
whether you should exercise any rights.
To whom do stockholders direct questions or send forms and payment?
Questions about the rights or additional copies of offering documents: call
ChaseMellon Shareholder Services, L.L.C. at the toll free number 1-888-224-
2745.
Subscription documents and payments: send to ChaseMellon Shareholder
Services, L.L.C., at the address indicated in the instructions forwarded
with this prospectus.
Other questions and copies of recent Smart & Final SEC filings: contact
Smart & Final through its internet site or telephone number, or refer to
other sources, described under "Available Information" above.
4
<PAGE>
How are stockholders affected if they do not exercise any rights?
You are not required to exercise any rights or otherwise take any action in
response to this rights offering. If you do not exercise any rights, the
number of shares which you own will not change, but your percentage
ownership of Smart & Final's total outstanding common stock will decline,
if the rights offering is completed.
What forms and payment are required to purchase shares?
As a record holder of Smart & Final common stock on May 12, 1999, you are
receiving with this prospectus a subscription warrant and instructions on
how to purchase shares. The subscription warrant must be properly filled
out and delivered with full payment to ChaseMellon Shareholder Services,
L.L.C. before expiration of the rights. The instructions also describe an
alternate procedure called "Guaranteed Delivery," which allows an extra 3
days to deliver the subscription warrant if full payment is received before
the expiration date and a securities broker or qualified financial
institution signs the form to guaranty that the subscription warrant will
be timely delivered.
What if a broker, bank or other nominee is the record holder of my shares?
If you wish to purchase shares, please promptly contact the broker, bank or
other company holding your shares. Your broker or other nominee holder is
the record holder of the shares you own and must exercise the subscription
warrant on your behalf for shares you wish to purchase or arrange for a
subscription warrant issued in your name. The broker, bank or other nominee
has been requested to contact you for instructions on exercising your
rights.
May stockholders transfer rights?
The instructions which accompany this prospectus describe how to sell
rights through your broker or ChaseMellon Shareholder Services, L.L.C.
Smart & Final cannot ensure that any rights will have any value or can be
sold.
You may also wish to transfer rights to allow your broker or other person
to exercise your rights for you. The forms on the reverse side of the
subscription warrant contain instructions for these types of transfers.
Must all holders of rights pay the subscription price in cash?
All stockholders granted rights who wish to participate in the offering,
except Casino USA, must timely pay the subscription price by wire transfer,
certified or cashier's check drawn on a U.S. bank, or personal check that
clears before expiration of the rights. Casino USA will exchange up to
$55.4 million of debt owed by Smart & Final for shares it purchases and pay
cash for any balance of its total subscription price.
What if my rights result in fractional shares?
If your rights would allow you to purchase a fractional share, you may
exercise your rights only by rounding down to and paying for the nearest
whole share, or paying for any lesser number of whole shares. You may not
purchase fractional shares.
Will my money be returned if the rights offering is cancelled?
Yes, but without any payment of interest.
What fees or charges apply if I purchase shares or attempt to sell my rights?
Smart & Final is not charging any fee or sales commission to issue rights
to you or to issue shares to you if you exercise rights. If you exercise
rights through a broker or other holder of your shares, you are responsible
for paying any fees that person may charge. If you elect to sell your
rights, you are also responsible for any fees or sales commissions that may
apply to that transaction.
May I change or cancel my exercise of rights after I send in the required
forms?
No.
5
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information provided elsewhere in this
prospectus. The summary is not complete and may not provide all information you
should consider before deciding whether or not to exercise the rights. You
should read the entire prospectus carefully. Certain portions of this
prospectus, such as "Risk Factors," are not summarized below. See "Risk
Factors" beginning at page 12.
Smart & Final also encourages you to review the financial statements and
other information provided in the reports and other documents it files under
the Securities Exchange Act of 1934, as described under "Available Information"
in this prospectus.
Smart & Final's Business
Smart & Final operates its business in two segments, stores and foodservice,
through a number of subsidiary corporations.
Smart & Final operated 209 non-membership warehouse grocery stores at the
end of fiscal 1998 in California, Oregon, Washington, Arizona, Nevada, Idaho,
and Florida. Smart & Final also operated six stores in Mexico through a joint
venture with a Mexican company. The stores offer a selection of approximately
10,000 food items, supplies and equipment, primarily in institutional sizes and
quantities targeted at small food service businesses and other customer groups.
Smart & Final also operates traditional foodservice distribution businesses
through several subsidiaries and divisions in northern California and Florida.
These businesses offer a broad assortment of fresh, frozen and dry foods along
with other consumable supplies, food related services, and restaurant
equipment. Customers include restaurants, coffee shops, institutions, hotels
and cruise ships.
In fiscal 1998, Smart & Final had sales of $1,662 million, and at the end of
fiscal 1998, had 5,447 employees. Smart & Final is a Delaware corporation whose
principal office is located at 600 Citadel Drive, City of Commerce, California
90040 (telephone: (323) 869-7500).
The Rights Offering
Further details concerning this part of the summary are set forth under "The
Rights Offering" beginning at page 24. The summary below is qualified by the
following: (1) Smart & Final will not issue fractional shares; (2) if exercise
of your rights would result in a fractional share, you must round down to
purchase the nearest whole share or any lesser number of whole shares; and (3)
only holders of record of common stock at the close of business on the record
date stated below, or those to whom rights have been validly transferred, may
exercise rights.
Securities Offered.......... Smart & Final is offering 6,486,406 shares of its
common stock to be issued upon exercise of the
rights.
Shares of Common Stock
Outstanding Prior to this
Offering...................
22,627,179 outstanding on May 3, 1999.
Shares of Common Stock
Outstanding After this
Offering................... 29,123,585, if this offering is completed.
Record Date................. May 12, 1999.
Expiration Date and Time.... The rights expire at 5:00 p.m., New York City
time, on June 3, 1999, unless properly
exercised before that time and date.
6
<PAGE>
Basic Subscription Smart & Final has granted each person who was a
Privilege.................. record holder of common stock on the record date
one right for each share of common stock then
held. To exercise the basic subscription
privilege, you must deliver 3.4884 rights for
each share of common stock you subscribe for.
Oversubscription If you fully exercise the basic subscription
Privilege.................. privilege, you may also purchase at the
subscription price additional shares of common
stock that are not purchased by other
stockholders. If there are not enough shares
available to fill all subscriptions for
additional shares, the available shares will be
allocated pro rata based on the number of shares
each subscriber for additional shares has
purchased under the basic subscription privilege.
Reasons for the Rights As part of our refinancing of our senior debt in
Offering................... November 1998, we agreed with our banks and
Casino USA to restructure the then existing
intercompany notes and advances with Casino USA
into a new, subordinated note. We also determined
that it would be advisable to increase equity
capital to provide greater financial flexibility
for Smart & Final. We and Casino USA also agreed
that it would be in Smart & Final's best
interests to reduce our $55.4 million debt to
Casino USA through conversion to equity. After
review by management and a special committee of
the Board of Directors, and following the advice
of outside financial advisors, this rights
offering was determined to be the best approach
to providing additional equity capital.
In this rights offering, Casino USA has also
agreed to convert up to all of the $55.4 million
debt into additional common stock. At the same
time, other stockholders have the opportunity to
maintain their percentage ownership in our
company by exercising their rights. Stockholders
who do not exercise rights will continue to own
the same number of shares of our stock, but those
shares will represent a smaller percentage of the
outstanding common stock after completion of the
rights offering.
Net cash proceeds from the rights offering will
be used to prepay senior debt owed to our other
lenders.
No Board or Committee
Recommendation............. Neither the Smart & Final Board of Directors nor
any committee of the Board makes any
recommendation to stockholders regarding the
exercise of rights under this offering.
Stockholders who do exercise rights risk
investment loss on new money invested. Smart &
Final does not assure that the subscription price
will remain below the market price for the common
stock during the rights offering, or that anyone
purchasing shares at the subscription price will
be able to sell those shares in the future at a
higher price. See "Risk Factors."
7
<PAGE>
Casino Standby Purchase Casino USA has agreed to acquire all of the
Commitment................. shares offered under the rights offering that are
not purchased by the other stockholders under the
basic and oversubscription privileges. Depending
on the number of rights exercised, Casino USA
will hold between approximately 55% and 65% of
the outstanding common stock after completion of
the rights offering.
Casino USA will pay for shares it subscribes for
by reducing a $55.4 million debt Smart & Final
owes Casino USA by the total subscription price
due for those shares. If Casino USA's total
subscription price exceeds $55.4 million, Casino
USA will pay the excess in cash.
Smart & Final has agreed to pay up to $450,000 in
expenses incurred by Casino USA relating to the
rights offering. Smart & Final will also issue
10,000 shares of common stock to Casino USA as a
fee for acting as a standby purchaser.
Conditions to the Rights The obligations of Casino USA to complete its
Offering................... purchase of shares under its standby agreement
are subject to certain conditions described under
"The Rights Offering--Conditions Relating to the
Rights Offering." If the standby agreement with
Casino USA is not consummated in accordance with
its terms for any reason, or if the other
conditions are not satisfied or waived, Smart &
Final will terminate the rights offering in its
entirety. In that event, Smart & Final will
refund without interest to those persons who
subscribed for shares in the rights offering all
payments received from those subscribers.
Subscription Price.......... $9.25 per share, payable in cash. Payment by
personal check must clear payment on or before
the expiration date and may require five or more
business days in which to clear payment. Smart &
Final recommends that stockholders pay the
subscription price by certified or cashier's
check drawn on a U.S. bank, U.S. postal money
order or wire transfer of funds.
Basis for Subscription A special committee of the Board of Directors and
Price...................... the Board of Directors approved the subscription
price. This price is discounted from the closing
market price of the common stock stated on the
front cover page of this prospectus. The
subscription price is $0.75 less than that price,
rounded downward to the nearest multiple of
$0.25.
Transferability of Rights... The rights are transferable. Smart & Final
anticipates that the rights will be eligible for
trading on the NYSE under the symbol "SMF Rt"
until the close of business on the last trading
day prior to the expiration date. Smart & Final
cannot assure whether or how long a market for
the rights will exist.
The rights are issued in the form of subscription
warrants which accompany this prospectus sent to
the record holders. ChaseMellon
8
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Shareholder Services, L.L.C. will attempt to sell
rights by referring sell orders to a broker for
this purpose, for stockholders who deliver a
subscription warrant to ChaseMellon Shareholder
Services, L.L.C. with sale instructions properly
executed, no later than 11:00 a.m., New York City
time, on May 28, 1999. Smart & Final provides no
assurance that any rights will be sold or as to
the price that may be paid for any rights sold.
No Revocation............... If you exercise any rights, you are not allowed
to revoke or change the exercise or request a
refund of monies paid.
Subscription Agent.......... ChaseMellon Shareholder Services, L.L.C.
Information Agent........... ChaseMellon Shareholder Services, L.L.C.
Telephone: 1-888-224-2745.
Procedure for Exercising To exercise rights, you must complete the
Rights..................... subscription warrant and deliver it to
ChaseMellon Shareholder Services, L.L.C. with
full payment under both the basic and
oversubscription privileges you elect to
exercise. ChaseMellon Shareholder Services,
L.L.C. must receive the proper forms and payments
on or before the expiration date.
You may deliver the documents and payments by
mail or commercial courier. If regular mail is
used for this purpose, we recommend using
insured, registered mail. You may use an
alternative "Guaranteed Delivery" procedure if
you are unable to deliver the subscription
warrant before the expiration date, subject to
the requirements of this procedure described
under "The Rights Offering--Special Procedure
under 'Notice of Guaranteed Delivery' Form."
Payment Adjustments......... If you send a payment that is insufficient to
purchase the number of shares requested, or if
the number of shares requested is not specified
in the forms, the payment received will be
applied to exercise the basic subscription
privilege to the extent of the payment. If the
payment exceeds the subscription price for the
full exercise of the basic subscription
privilege, the excess payment will be applied to
exercise the oversubscription privilege. If the
payment exceeds the amount required to exercise
both the basic and oversubscription privileges,
that excess will be refunded as soon as
practicable. Smart & Final will not pay interest
on any payments received under the rights
offering.
Nominee Accounts............ If you wish to purchase shares in this offering
and your shares are held by a securities broker,
bank, trust company or other nominee, you should
promptly contact those record holders and request
them to exercise rights on your behalf. You may
also contact the nominee and request the nominee
to send a separate subscription warrant to you.
If you are a record holder who wishes an
institution such as a broker or bank to exercise
your rights for you, you should contact
9
<PAGE>
that institution promptly to arrange that method
of exercise. If you are a nominee which desires
subscription warrants re-issued in smaller
denominations, you must act promptly under
special procedures described under "The Rights
Offering--How to Transfer Rights."
You are responsible for the payment of any fees
that brokers or other persons holding your shares
may charge.
Exercise by Foreign and
Certain Other
Stockholders............... ChaseMellon Shareholder Services, L.L.C. will
hold subscription warrants for stockholders
having addresses outside the United States. In
order to exercise rights, holders with addresses
outside the United States must notify ChaseMellon
Shareholder Services, L.L.C. and timely follow
other procedures on or before the expiration date
of the rights.
U.S. Income Tax For United States federal income tax purposes,
Consequences............... Smart & Final believes that a stockholder will
not recognize taxable income upon the receipt or
exercise of rights. See "The Rights Offering--
Certain Federal Income Tax Consequences." Each
stockholder should consult the holder's own tax
adviser concerning the tax consequences of this
offering under the holder's own tax situation.
This prospectus does not summarize tax
consequences arising under state tax laws, non-
U.S. tax laws, or any tax laws relating to
special tax circumstances or particular types of
taxpayers.
Stock Certificates.......... Smart & Final will deliver stock certificates
representing common stock purchased by the
exercise of rights as soon as practicable after
the expiration date and after all prorations
under the oversubscription privilege have been
made.
Amendment, Extension and
Termination................ Smart & Final has agreed with Casino USA that
Smart & Final will not withdraw this rights
offering once the offering has commenced. With
the prior consent of Casino USA, Smart & Final
may amend or extend the rights offering. Subject
to the foregoing, Smart & Final reserves the
right to withdraw the rights offering at any time
prior to the expiration date and for any reason,
in which event all funds received in the rights
offering will be returned without interest to
those persons who subscribed for shares in the
rights offering.
10
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SELECTED FINANCIAL DATA
(in thousands, except per share and statistical data)
<TABLE>
<CAPTION>
12 Weeks
Ended Fiscal Year (A)
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March 28,
1999 1998 (D) 1997 (C) 1996 1995 1994 (B)
--------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales................. $398,337 $1,661,629 $1,453,020 $1,302,561 $1,173,325 $952,477
Income from
operations........... 3,976 1,151 15,930 42,588 32,465 28,511
Interest income
(expense), net....... (5,081) (13,304) (8,117) (3,373) (2,028) 521
Earnings (loss) per
common share,
assuming dilution.... (0.02) (0.38) 0.29 1.15 0.88 0.85
Dividend per share.... $ -- $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
Weighted average
common shares
outstanding.......... 22,527 22,596 22,753 21,206 20,751 20,520
Financial Data (at
period-end):
Total assets.......... 576,625 582,264 488,145 441,424 314,656 267,813
Long-term debt and
capital leases....... 77,901 78,712 80,024 82,644 43,586 21,124
Current maturities on
long term debt....... 149,126 139,680 11,176 10,356 39 1,554
</TABLE>
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(A) For all years, 52 weeks except fiscal year 1997, which had 53 weeks.
(B) Amounts include results of Henry Lee from the date of its acquisition in
November 1994.
(C) 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.
(D) Amounts include results of United Grocers Cash & Carry store operations
from the date of its acquisition in May 1998.
11
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RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before deciding to purchase shares in the rights
offering. Our shares are subject to significant investment risks. Many factors,
including the risks described below and other risks we have not recognized,
could cause Smart & Final's operating results to be different from our
expectations and plans.
Risks Relating to Our Operations
Smart & Final reported a consolidated net loss for the first quarter of
fiscal 1999. Smart & Final reported a net loss of $0.5 million, or $.02 per
diluted share, for its fiscal 1999 first quarter which ended on March 28,
compared with a net loss of $2.0 million, or $.09 cents per diluted share, for
the fiscal 1998 first quarter. Smart & Final's 1999 first quarter operating
earnings increased to $4.0 million from the 1998 first quarter operating
earnings of $0.3 million. Although the 1999 first quarter operating results
showed improvement over the 1998 first quarter results, Smart & Final reported
a net loss due to increased interest costs. Although we are encouraged by these
improved results, we cannot ensure that operating results will continue to
improve.
Consolidated operating results declined in 1997 and 1998, and Smart & Final
had a net loss in fiscal 1998. Smart & Final reported a fiscal 1998
consolidated net loss of $8.7 million, or $0.38 per diluted share, compared
with fiscal 1997 consolidated net income of $6.6 million, or $0.29 per diluted
share, and fiscal 1996 consolidated net income of $24.3 million, or $1.15 per
diluted share. The following table sets forth pre-tax profit or loss, in
millions, for each of Smart & Final's operating segments:
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Stores................................................ $ 23.1 $21.9 $40.0
Foodservice........................................... (18.0) (8.6) 6.7
------ ----- -----
Segment totals........................................ 5.1 13.3 46.7
Interest and other corporate expenses................. (17.2) (5.5) (7.5)
------ ----- -----
Consolidated pre-tax (loss) profit.................... $(12.1) $ 7.8 $39.2
====== ===== =====
</TABLE>
Factors affecting 1998 results:
. Actions taken late in 1998 by new executive management:
. A decision to sell non-core properties accounted for the substantial
portion of a $3.4 million pretax charge to reduce the value of
certain properties to their estimated realizable values.
. A pretax charge of $3.2 million was established to provide for
severance costs incurred in connection with the downsizing of
management.
. Certain activities in the Florida foodservice operations were
discontinued and administrative functions were consolidated,
resulting in a pretax charge of $3.0 million.
. In-store bakeries and certain other activities were discontinued,
causing a pretax write-off of $1.5 million.
. Focus on Northern California foodservice changed from aggressive
sales growth to credit quality of customers and improved margins
resulted in a $3.7 million pretax charge related primarily to
accounts receivable losses and inventory write-downs.
. Re-racking of the Northern California distribution center and other
charges resulted in write-downs of $1.6 million, pretax.
. Adoption of a new retirement program and other increased benefits at the
Northern California unit resulted in pretax charges of $1.4 million.
12
<PAGE>
. Florida food service results declined sharply as service levels
deteriorated due to inadequate distribution capacity starting in the
third quarter of 1997. The distribution inefficiencies continued into
1998. Service problems 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. Distribution capacity was increased during 1998.
. 1998 results included a cumulative effect of accounting change, pretax
charge of $1.9 million, related to adoption of the American Institute of
Certified Public Accountants Statement of Position 98-5, which requires
the write-off of start-up costs.
Factors affecting 1997 results:
. Florida distribution facility inefficiencies and related service level
problems commencing in the third quarter of the year reduced sales,
lowered gross margins, and increased expenses.
. A special pretax charge of $8.9 million was recorded in the fourth
quarter that included the cost of closing two Florida stores, write-off
of certain distribution software systems and expenses of a management
reorganization.
. Introduction of an inventory management program resulted in a $3.0
million pretax inventory write-down.
. Introduction of stringent credit controls in the Florida foodservice
export business resulted in an additional provision for doubtful accounts
of $3.0 million before taxes.
. A price reduction program introduced at Smart & Final stores early in
1997 reduced gross margin by $5.0 million, but failed to increase store
sales growth to the level that had been anticipated.
Smart & Final's store sales growth has slowed. The core strategy for Smart &
Final stores is to supply grocery products and related supplies to restaurants,
caterers, clubs, organizations and small and mid-sized businesses. The stores
also attract value-oriented retail consumers who prefer to purchase items in
large sizes or quantities.
In 1998, this store strategy did not produce the level of sales growth
achieved in prior years. Although overall sales in stores grew by 14.9% in 1998
due largely to the acquisition of the Cash and Carry Stores in May 1998, same
store sales declined 0.2% in 1998.
Florida stores continue to be unprofitable. Smart & Final has operated ten
stores in Florida since late 1996. We have experienced difficulty in achieving
profitable operations in this market. In 1998, we substantially revamped our
store operations and marketing in Florida. Although some progress has been
achieved, these stores remain unprofitable and we cannot ensure that our
efforts will result in future profitability.
Cash and Carry stores have not yet been integrated. Although the Cash &
Carry Stores acquired in 1998 contributed positively to operating results in
fiscal 1998, Smart & Final cannot predict the time ultimately needed to
integrate these new stores or whether we will be successful in this effort.
Foodservice integration strategy has not achieved desired results. Smart &
Final acquired several traditional foodservice distribution companies and
wholesale fresh meat and produce companies in recent years. To date these
operations have incurred significant operating losses.
Smart & Final has attempted in certain markets to use the same distribution
facility to handle products for both store and foodservice customers, because
this may reduce overall product costs and distribution expenses in new store
markets. Smart & Final has devoted significant resources to this "integration"
strategy, including constructing new facilities, increasing distribution
efficiencies, and management changes.
13
<PAGE>
We cannot predict when or whether this distribution integration strategy
will contribute to increased profitability. We have delayed a previously
announced plan to engage in the foodservice delivery business in our new
Southern California distribution facility.
Smart & Final faces intensified competition. Smart & Final historically
endeavored to differentiate its stores from the retail grocery supermarkets and
the warehouse club stores through competitive pricing on key items in local
markets and emphasizing customers such as restaurants and others in the food
service business.
The retail grocery industry in our markets is undergoing continued
consolidation with the mergers of such large chains as Fred Meyer and Kroger,
and American Stores and Albertson's. The number of warehouse and club stores in
our markets has also rapidly increased.
Recent covenant noncompliance and risks of default under senior debt. As a
result of Smart & Final's acquisition of the Cash and Carry stores in the
second fiscal quarter of 1998, and the decline in operating results during
1998, Smart & Final did not comply with financial covenants in certain of its
then existing loan agreements during a portion of fiscal 1998. The lenders
granted a waiver from compliance with these covenants until November 15, 1998.
Effective November 13, 1998, Smart & Final entered into senior secured
credit facilities with a group of banks totaling $240 million. These credit
facilities include a $150 million secured revolving credit facility and a $90
million secured lease facility. These facilities expire on November 13, 2001.
At Smart & Final's option, the revolving loan can be used to support up to $10
million of commercial letters of credit. The revolving loan replaced a $65
million bridge loan, $50 million revolving line of credit, and $50 million
short-term unsecured line of credit. The secured lease facility replaced Smart
& Final's three previously existing $30 million lease facilities.
Borrowings under the senior secured credit facilities are secured by
receivables, inventory and fixed assets. Interest for these facilities is at
LIBOR, or the lending agent's reference rate, plus designated amounts.
The senior secured credit facilities impose limitations on our payment of
dividends. Smart & Final announced in a press release dated February 17, 1999,
that, as part of a program to reduce debt levels and interest expense,
dividends on its common stock have been suspended indefinitely following
payment of the 1998 fourth quarter dividend.
The senior secured credit facilities, and the $55.4 million loan agreement
between Smart & Final and Casino USA, contain covenants requiring Smart & Final
to maintain certain financial ratios. As a result of the reported loss for the
fourth quarter and full year 1998, Smart & Final is not in compliance with
these covenants. Casino USA has agreed to waive compliance with these covenants
until Smart & Final reports its second quarter 1999 earnings or August 31,
1999, whichever comes first.
As of March 12, 1999, Smart & Final received a waiver of default of certain
financial covenants under the senior secured credit facilities, for a period
extending until June 30, 1999. Continuation of the waiver until such date
requires the performance by Smart & Final of certain operating earnings and
financial reporting requirements. The waiver also requires that Smart & Final
use its best efforts to complete this rights offering prior to June 30, 1999.
If the rights offering is completed, our overall debt will be reduced, by
reducing or eliminating the $55.4 million debt we owe to Casino USA and by
using all net cash proceeds of the offering to prepay revolving credit under
the senior secured credit facilities. We cannot ensure that we will avoid
further difficulties in complying with the obligations under the credit
facilities.
The credit facilities impose restrictions on incurring new debt, and Smart &
Final may not be able to re-borrow amounts equivalent to the debt reduced in
the rights offerings, if future borrowing becomes necessary or desirable.
14
<PAGE>
Unless Smart & Final is successful in reversing or otherwise compensating
for the trends in operating results noted above in this "Risk Factors" section,
it faces continued risks of violating one or more covenants in the senior
secured credit facilities. If Smart & Final violates these covenants, and is
not able to obtain satisfactory waivers or amendments from the lenders, the
lenders could accelerate the maturity of the obligations. If Smart & Final were
required to repay the credit facilities at one time, it cannot ensure that it
would be able to replace that debt on a timely basis or repay the accelerated
debt payment from cash flow or asset sales. Other risks of our leverage include
the need to use cash from operations to make scheduled debt repayments,
covenants which require lenders' consent for many types of material
transactions, and added risk to our business from possible economic downturns
or increased competitive pressures.
Recent Management Changes at Smart & Final. Smart & Final has recently
experienced significant turnover in senior management positions. Its current
chief executive officer Ross E. Roeder assumed that position in January 1999
following the retirement of Robert J. Emmons, who in turn assumed the chief
executive officer position in December 1997. In early 1999, Smart & Final
eliminated the positions of president and chief operating officer of store
operations, and executive vice president of buying, marketing and distribution
for store operations. In addition, 3 other executive officers have left Smart &
Final since early 1998.
Future results of operations depend in part on our ability to attract and
retain qualified personnel, including senior management and individual store
managers. We cannot ensure that Smart & Final will be able to attract or retain
the necessary personnel.
Status of Our Year 2000 Readiness. We, along with most businesses, face
possible risks concerning the ability of computer hardware and software and
embedded information technology systems to properly recognize dates and date-
related information as the year 2000 approaches and beyond. We estimate that
the total incremental cost of our Year 2000 compliance program will not exceed
$2.3 million. As of March 28, 1999, Smart & Final had incurred approximately
$1.5 million of these costs.
We have completed our analysis of our corporate and store information
systems, have completed a substantial portion of the needed modifications and
replacements, and anticipate that known remaining modifications and
replacements in our own systems will be completed by mid-1999. We are in the
process of reviewing Year 2000 compliance issues with third parties such as
vendors and service providers who are important to our business. Since we do
not control these third parties or have access to information beyond statements
they voluntarily provide, we have less ability to assess the Year 2000 issues
with third parties than we do with our own systems.
Although we do not believe that the actual impact of Year 2000 issues on our
business will be material to us based on what we know at this time, we cannot
ensure that we will complete our intended modifications or replacements on
schedule, that we have identified all Year 2000 issues material to our
business, or that any of our plans will be effective if problems in our own
systems or systems of third parties exceed our present expectations or
contingency plans.
Additional information concerning Year 2000 issues is provided under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in recent reports we have filed under the Securities Exchange Act
of 1934.
Control by Casino and Possible Conflicts of Interest. Conflicts of interest
between Smart & Final and Casino USA may arise as a result of past and possible
future transactions among Smart & Final, Casino USA and their affiliates.
Casino USA has controlled more than 50% of the voting power of our common stock
since 1984.
Since the common stock does not have cumulative voting rights, Casino USA
has the voting power to elect all members of Smart & Final's Board of
Directors. Although certain transactions may be subject to approval by
disinterested members of the Board of Directors, Casino USA acting as the
majority stockholder has the ability to approve any matter submitted to a vote
of stockholders, without the affirmative vote of any other stockholder.
15
<PAGE>
See "Relationship Between Smart & Final and Casino USA" for a description of
material transactions between Smart & Final and Casino USA.
Risks Relating to the Rights Offering
. Dilution: stockholders who do not exercise their rights will own a
smaller percentage of our outstanding stock.
. Stock Market Risks:
. The trading price of our stock has declined substantially since the
fourth quarter of fiscal 1997.
. Future prices of our stock may be affected positively or negatively
by our future revenues and earnings, changes in estimates by
analysts, our ability to meet analysts' estimates, speculation in the
trade or business press about our company, and overall conditions
affecting the retail grocery business, economic trends and the stock
market.
. We cannot assure you that the subscription price set by the rights
offering will remain below any trading prices, or that trading prices
will not decline during or after the rights offering.
. No Revocation: you are not allowed to revoke or change your exercise of
rights after you send in your subscription forms and payment. If certain
conditions to the rights offering are not met and the rights offering is
canceled, we are obligated only to refund payments actually received,
without interest.
. Need to Act Promptly and Follow Subscription Instructions: stockholders
who desire to purchase shares in the rights offering or to transfer or
sell their rights must act promptly to ensure that all required forms and
payments are actually received by ChaseMellon Shareholder Services,
L.L.C. on or prior to the expiration date. If you fail to complete and
sign the required subscription forms, send an incorrect payment amount,
or otherwise fail to follow the subscription procedures that apply to
your desired transaction, ChaseMellon Shareholder Services, L.L.C. may,
depending on the circumstances, reject your subscription or accept it to
the full extent of the payment received. Neither Smart & Final nor
ChaseMellon Shareholder Services, L.L.C. undertakes to contact you
concerning, or attempt to correct, an incomplete or incorrect
subscription form. Smart & Final has the sole discretion to determine
whether a subscription exercise properly follows the subscription
procedures.
. Risk of Personal Checks: any personal check used to pay for shares must
clear prior to the expiration date, and the clearing process may require
5 or more business days.
. Delay in Ability to Resell Shares: if you exercise rights, you may not be
able to resell the new shares purchased until you (or your broker or
other nominee) have received a stock certificate for the shares
purchased. Although we will endeavor to issue the appropriate
certificates as soon as practicable after completion of the rights
offering, there may be some delay between the expiration date and the
time we are able to issue the new stock certificates.
. Conditions to the Offering: if Casino USA's agreement to purchase shares
not subscribed by other holders is not closed because conditions are not
satisfied or otherwise, we will terminate the offering and refund all
payments received for the subscription price without interest. If this
agreement with Casino USA is closed, the rights offering will be
completed as described in this prospectus, and the senior debt and debt
we owe to Casino USA will be reduced accordingly. We cannot predict
whether and to what extent stockholders other than Casino USA will
exercise rights, or the relative reduction in this debt.
16
<PAGE>
USE OF PROCEEDS
Cash proceeds from the rights offering may be limited because Casino USA
will pay for shares it subscribes for by reducing a $55.4 million debt Smart &
Final owes Casino USA by the total subscription price due for those shares. If
Casino USA's total subscription price exceeds $55.4 million, Casino USA will
pay the excess in cash.
Smart & Final will use any net cash proceeds paid by stockholders to prepay
senior revolving debt owed to its nonaffiliated lenders. The terms of the
senior secured credit facilities require that we use net cash proceeds from the
sale of stock to make prepayments on the outstanding balance of the revolving
credit facility.
Smart & Final will pay from cash proceeds of the rights offering or
available cash estimated expenses of approximately $1,500,000 relating to the
offering of rights incurred by Smart & Final. Included within those expenses,
Smart & Final has agreed to pay up to $450,000 in expenses incurred by Casino
USA relating to the rights offering.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The common stock is listed on the NYSE under the symbol SMF. As of May 3,
1999, there were 235 registered holders of the common stock, and the closing
price per share of the common stock as listed on the NYSE composite tape was
$10.1875. 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 two most recent
fiscal years.
<TABLE>
<CAPTION>
Dividend
High Low Declared
---- --- --------
<S> <C> <C> <C>
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
First Quarter of 1998............................ 20 1/4 16 15/16 $0.05
Second Quarter of 1998........................... 19 3/16 17 $0.05
Third Quarter of 1998............................ 17 5/8 7 1/8 $0.05
Fourth Quarter of 1998........................... 11 1/8 8 1/8 $0.05
First Quarter of 1999............................ 10 8 1/16 -0-
</TABLE>
The declaration and payment of dividends is subject to the discretion of the
Smart & Final Board of Directors. Smart & Final cannot ensure whether or when
dividends will be paid in the future. Smart & Final announced in a press
release dated February 17, 1999 that, as part of a program to reduce debt
levels and interest expense, dividends on its common stock have been suspended
indefinitely following payment of the 1998 fourth quarter dividend.
Information concerning certain dividend restrictions under the senior
secured credit facilities is provided under "Risk Factors--Risks Relating to
Our Operations--Recent covenant noncompliance and risks of default under senior
debt."
17
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of March 28, 1999, in the
column labeled "Actual."
The table also shows, in the column labeled "As Adjusted," our
capitalization as adjusted for the completion of the rights offering (including
the application of the net cash proceeds from the offering) at a subscription
price of $9.25 per share. An integral assumption in this column is the
percentage of the offering which is subscribed for by Casino USA, because
shares allocated to Casino USA are paid for by a reduction in the note payable
to Casino USA. All other stockholders must subscribe for their shares in cash.
The "As Adjusted" column illustrates the completion of the rights offering
assuming 70% of the shares are subscribed for by Casino USA and 30% of the
shares are subscribed for by other stockholders. If an alternative assumption
was utilized where no stockholders other than Casino USA participate in the
rights offering, our note payable to Casino USA would be extinguished and
Casino USA would pay the balance of the offering price in cash, which after the
deduction of offering expenses would be used to reduce senior debt.
CAPITALIZATION TABLE
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 28, 1999
------------------
As
Actual Adjusted
-------- --------
<S> <C> <C>
Debt:
Short term debt, excluding capital leases (average
interest rate 7.54%)............................... $148,424 $131,924 (1)
Notes Payable, net of current maturities (average
interest rate 6.50%)............................... 15,212 15,212
Notes Payable to affiliates (average interest rate
9.58%)............................................. 55,388 13,388 (1)
-------- --------
Total debt........................................ 219,024 160,524
-------- --------
Stockholder's equity:
Preferred stock, $1.00 par value
(authorized--10,000,000 shares; no shares issued).. -- --
Common stock, $0.01 par value
(authorized--100,000,000 shares; 22,527,179 shares
issued and outstanding; proforma 29,023,585 shares
issued and outstanding, as adjusted)............... 225 290 (2,3)
Additional paid-in capital.......................... 145,043 202,686 (2,3,4)
Cumulative translation loss......................... (835) (835)
Retained earnings................................... 44,435 44,345 (5)
-------- --------
Total stockholders' equity........................ 188,868 246,486
-------- --------
Total capitalization.............................. $407,892 $407,010
======== ========
</TABLE>
- --------
(1) Assumes that 70% of the equity issued as a result of this offering will be
acquired by Casino USA and will reduce the note payable to Casino USA, and
that the balance of the net proceeds of the offering will be used to reduce
the principal amount of outstanding senior debt.
(2) Upon completion of this offering, 6,486,406 shares will be issued, for net
proceeds of approximately $58,500,000 after the deduction of expenses
associated with this offering.
(3) Upon completion of this offering, 10,000 shares will be issued to Casino
USA pursuant to a standby purchase and debt reduction agreement.
(4) Structuring fees of $792,000 related to the note payable to Casino USA and
related to this rights offering will be charged to additional paid-in
capital following the conversion of this note.
(5) Reflects a write-off of a pro rata portion of unamortized fees and costs of
$90,000 (after tax) due to reduction of the senior debt facility.
18
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the ownership of Smart
& Final common stock as of May 3, 1999 by (1) each person known to Smart &
Final to be the beneficial owner of more than five percent of the outstanding
common stock; (2) each director; (3) each executive officer and former
executive officer named in the Summary Compensation Table in Smart & Final's
proxy statement for its 1999 annual meeting; and (4) all directors and
executive officers as a group. Unless otherwise indicated, each of the
stockholders has sole voting and investment power with respect to the shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name Beneficially Owned Class
---- ------------------ ----------
<S> <C> <C>
More Than 5% Beneficial Owners
Casino USA, Inc.(1).......................... 12,415,925 54.9%
Baron Capital Group, Inc.(2)................. 5,260,020 23.2%
Directors and Executive Officers
Martin A. Lynch.............................. 197,492 *
Executive Vice President and Chief Financial
Officer
Dennis L. Chiavelli.......................... 117,752 *
Executive Vice President
Ross E. Roeder............................... 34,014 *
Chairman of the Board and Chief Executive
Officer
David J. McLaughlin(4)....................... 32,401 *
Director
James S. Gold(3)............................. 28,001 *
Director
Timm F. Crull(3)(5).......................... 27,001 *
Director
Thomas G. Plaskett(3)........................ 26,001 *
Director
Pierre B. Bouchut(3)......................... 25,001 *
Director
Christian P. Couvreux(3)..................... 10,046 *
Director
Antoine Guichard............................. 2,501 *
Director
Jean-Louis Bourgier.......................... 1,546 *
Director
Etienne Snollaerts........................... 987 *
Director
Former Executive Officers
Robert J. Emmons(6).......................... 977,500 4.3%
Roger M. Laverty, III(7)..................... 297,420 1.3%
All directors and executive officers as a
group (19 persons).......................... 661,234 2.9%
</TABLE>
- --------
* Less than 1%.
(1) Does not include shares which Casino USA may acquire in this rights
offering. Casino Guichard-Perrachon, S.A., as the owner of approximately
99% of the capital stock of Casino USA, may be deemed to beneficially own
such shares. The address of Casino USA is 524 Chapala Street, Santa
Barbara, California 93101, and the address of its parent company is 24, rue
de la Montat, 42008 St.-Etienne Cedex 2, France. Rallye, a publicly traded
French joint stock corporation, owns more than 50% of the voting interest
in Casino Guichard-Perrachon, S.A. Mr. Jean-Charles Naouri, through
intermediary companies, indirectly controls more than 50% of the voting
interest in Rallye. This note (1) is based solely on information obtained
from a report on Form 13D filed by Casino USA on July 22, 1998 and from
information provided to Smart & Final by Casino Guichard-Perrachon.
19
<PAGE>
(2) All information with respect to Baron Capital Group, Inc. ("BCG"), a
holding company controlled by Ronald Baron, is based solely on Amendment
No. 11 to Schedule 13D dated March 30, 1999, filed by BCG. Mr. Baron has
sole voting and dispositive power over 15,000 shares held by him personally
(or .06% of the outstanding shares) and shared voting and dispositive power
over 5,260,020 shares (or 23.2% of the outstanding shares). Of the
5,260,020 shares, 3,657,000 shares are held for the account of BAMCO, Inc.,
a registered investment advisor controlled by Mr. Baron, and of this amount
3,350,000 are held for the account of Baron Asset Fund, a registered
investment company advised by BAMCO, Inc. 1,603,020 shares are held for the
accounts of investment advisory clients of Baron Capital Management, Inc.,
a registered investment company controlled by Mr. Baron. The address of BCG
is 767 Fifth Avenue, 24th Floor, New York, New York 10153.
(3) Includes shares which such persons have the right to acquire within 60 days
pursuant to the exercise of outstanding stock options of which 7,500 shares
each are attributable to Messrs. Bouchut, Crull, Gold and Plaskett.
(4) Includes shares held in profit sharing or IRA accounts for the benefit of
the named individual or members of his immediate family.
(5) Shares held in family trust.
(6) Mr. Emmons is no longer employed by Smart & Final, and no longer serves as
a director. Includes 6,000 shares held by the Institute for Management and
Marketing Studies Trust of which Mr. Emmons is a beneficiary, 671,500
shares held by the Robert & Christine Emmons Family Trust, of which Mr.
Emmons is the trustee and a beneficiary, and 100,000 shares which Mr.
Emmons acquired in April 1999 under a certain stock purchase agreement, and
options to purchase of 200,000 shares which Mr. Emmons is entitled to
exercise under Smart & Final's Long-Term Equity Compensation Plan.
(7) Mr. Laverty is no longer employed by Smart & Final. Includes 450 shares
held directly by Mr. Laverty's wife, which Mr. Laverty may be deemed to
beneficially own.
RELATIONSHIP BETWEEN SMART & FINAL AND CASINO USA
Casino USA's Majority Stock Ownership
Casino USA is a subsidiary of Casino Guichard-Perrachon, S.A., a business
organization which is publicly-traded in France and is engaged in the retail
grocery, restaurant, food production and other businesses in France and
elsewhere in the world. Casino USA and Casino Guichard-Perrachon, S.A. are
ultimately controlled by Mr. Jean-Charles Naouri, a French citizen whose
principal business is making and managing investments.
Casino USA acquired Smart & Final's then parent company in 1984 and
currently owns approximately 55% of Smart & Final's outstanding common stock.
Since the common stock does not have cumulative voting rights, holders of
shares having more than 50% of the voting power may elect all of the directors
of Smart & Final, and the holders of the remaining shares would not be able to
elect any directors.
There is no agreement between Casino USA and any other party that would
prevent Casino USA from acquiring additional shares of common stock or
disposing of shares owned by it.
Smart & Final's Board of Directors currently includes 10 members, 5 of whom,
Messrs. Bouchut, Bourgier, Couvreux, Guichard, and Snollaerts, also serve as
directors of Casino USA and/or are otherwise affiliated with Casino Guichard-
Perrachon, S.A. Mr. Bourgier does not intend to run for election at the May 11,
1999 annual meeting. The board of directors has nominated Joel-Andre Ornstein
for election at the annual meeting to replace Mr. Bourgier. Mr. Ornstein is
affiliated with several companies controlled by Mr. Naouri.
Prior to his retirement, Mr. Robert J. Emmons served as a director and
Chairman of the Board, and Chief Executive Officer, of Smart & Final, and also
served as a director and as Chairman, Chief Executive Officer and Chief
Financial Officer of Casino USA. During fiscal 1998, Mr. Emmons devoted the
substantial portion of his efforts to Smart & Final's business. Mr. Emmons
retired or resigned from all of his positions with Smart & Final and Casino USA
in January 1999.
20
<PAGE>
Decisions on compensation of executive officers are generally made by the
Compensation Committee of Smart & Final's Board of Directors, and decisions on
the compensation of the Chief Executive Officer are generally made by the
Compensation Committee and the Governance Committee. All of the decisions
relating to the compensation of executive officers are reviewed, and in fiscal
1998 were approved without change, by the full Board.
In fiscal 1998, the Compensation Committee consisted of Messrs. Crull,
McLaughlin, Plaskett, and until his appointment as Chief Executive Officer,
Roeder. In fiscal 1998, the Governance Committee consisted of Messrs. Guichard
and until his retirement, Mr. Emmons as Chairman. Mr. Emmons did not
participate in any decisions that affected him. Except for Mr. Guichard and Mr.
Emmons (who in fiscal 1998 was Chairman of the Board and Chief Executive
Officer of Smart & Final), no other member of the Compensation Committee or the
Governance Committee is now or ever has been an employee of Smart & Final, its
subsidiaries, Casino USA or Casino Guichard-Perrachon, S.A.
Ross E. Roeder is Smart & Final's current chief executive officer and
Chairman of the Board. He has served as a Smart & Final director since 1984. He
is not now and has not ever been an employee or director of Casino USA or
Casino Guichard-Perrachon, S.A.
Certain Transactions between Smart & Final and Casino USA
Intercompany Services. Smart & Final, Casino USA and a former subsidiary of
Casino USA are parties to a 1991 intercompany agreement which provides for the
performance of administrative services among these parties. None of the parties
are obligated to use these services.
Intercompany services are provided at cost, including the estimated
allocable costs of (1) management and other employees performing the services,
(2) computer time, (3) allocable overhead and (4) out-of-pocket expenses. Cost,
for purposes of management and employees, is based on an estimated allocation
of their time, based on a study of the actual time spent in past periods. Any
fees for these services cannot exceed $100,000 in any three-month period
without the written consent of the user of the services.
Casino USA and its subsidiary also agreed that they and certain of their
affiliated companies will not engage in Smart & Final's business. The initial
term of the intercompany agreement was two years, and has been renewed from
time to time.
Since 1986, Smart & Final has performed a variety of services for Casino USA
and its former subsidiary, including accounting, human resources and systems
development work, the cost of which has been charged to the benefited
affiliated company. These charges amounted to $285,000 for fiscal 1998. It is
anticipated that Smart & Final will continue to provide these administrative
services to its affiliates at cost and that the levels of future services will
not vary significantly from prior levels.
Tax Sharing Agreement. Smart & Final and Casino USA are parties to a tax
sharing arrangement covering income tax obligations in the State of California.
Under this arrangement, Smart & Final has made tax sharing payments to or
received tax sharing benefits from Casino USA, based upon pre-tax income for
financial reporting purposes adjusted for certain agreed upon items. Smart &
Final received tax sharing benefits from Casino USA aggregating $705,000 in
fiscal 1998.
Smart & Final Purchase of 91 Properties from Casino USA. At a special
meeting of Smart & Final stockholders held on March 19, 1997, the stockholders
approved the acquisition by Smart & Final of 91 properties which were being
operated as Smart & Final stores, office and warehouse facilities, with a net
book value of $71,440,000 from Casino USA and its former subsidiary Casino
Realty, Inc., for a purchase price of approximately $76 million. Smart & Final
paid the $76 million in the form of 1,625,000 shares of Smart & Final's common
stock, then valued at $23.375 per share, and $38,000,000 in two five-year
unsecured notes.
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As part of this transaction, Smart & Final agreed to sell certain Casino USA
properties by December 31, 1998 that were not being operated as stores for at
least $5.7 million. The first $500,000 of any excess proceeds would be paid to
Smart & Final and any remaining proceeds split 2/3 to Casino USA and 1/3 to
Smart & Final. As of October 1998, Smart & Final had sold 10 of the 12
properties for total gross sales proceeds of approximately $3.9 million. During
1998, Smart & Final fulfilled its remaining obligation to Casino USA and
purchased the remaining two properties. Casino USA also agreed to pay to Smart
& Final certain management and administrative fees in connection with the
properties.
Cash Advances. Smart & Final also has borrowed cash from Casino USA and a
former subsidiary of Casino USA and has made cash advances to those affiliates
in prior years.
November 1998 Consolidation of Amounts Owed to Casino USA
As of November 12, 1998, Smart & Final owed Casino USA or affiliates of
Casino USA total outstanding principal and unpaid interest of approximately
$24.0 million for prior cash advances to Smart & Final, and approximately $30.4
million under the unsecured notes issued as part of the price for the purchase
of real property described above, or approximately $54.4 million in total.
Effective November 13, 1998, Smart & Final consolidated and replaced these
prior cash advances and unsecured notes with a single $55.4 million loan
agreement with Casino USA. The principal amount of this loan also includes a
structuring fee of 1.75% of the consolidated debt, or approximately $953,000.
The loan matures on February 15, 2002 and bears interest at LIBOR plus 4.50%.
Payments are due on the last day of each calendar quarter and commenced
December 31, 1998.
Smart & Final may only prepay the Casino USA loan with the express consent
of Casino USA and provided that the prepayment is allowed under Smart & Final's
senior secured credit facilities. The Casino USA loan also contains financial
covenants similar to those contained in the senior secured credit facilities.
The loan agreement between Smart & Final and Casino USA also contemplated
that, by mutual agreement, the loan could be converted in whole or in part into
an equity investment in Smart & Final, if this does not violate the senior
secured credit facilities. Smart & Final is not required to obtain the consent
of the senior lenders to carry out this rights offering or the issuance of
shares to Casino USA as provided in this rights offering. Smart & Final has
separately agreed with its bank lenders to use its best efforts to complete
this rights offering before June 30, 1999.
Smart & Final and Casino USA agreed to the terms of the Casino USA loan as
part of the refinancing of Smart & Final's senior secured credit facilities in
November 1998. A principal purpose of the Casino USA loan was to extend the
maturity of Smart & Final's consolidated obligations to Casino USA beyond the
maturity of the senior secured credit facilities as part of the terms required
by the senior lenders.
The senior secured credit facilities, and the $55.4 million loan agreement
between Smart & Final and Casino USA, contain financial covenants requiring
Smart & Final to maintain certain financial ratios. As a result of the reported
loss for the fourth quarter and full year 1998, Smart & Final is not in
compliance with these covenants. Casino USA has agreed to waive compliance with
certain covenants under its loan agreement with Smart & Final until Smart &
Final reports its second quarter 1999 earnings or August 31, 1999, whichever
comes first. Smart & Final paid Casino USA $139,000 in connection with this
waiver.
See "Risk Factors--Risks Relating to Our Operations--Recent covenant
noncompliance and risks of default under senior debt" for additional
information about the senior secured credit facilities.
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Standby Purchase Agreement with Casino USA in this Rights Offering
Pursuant to a Standby Purchase and Debt Reduction Agreement, Casino USA has
agreed to acquire all of the shares offered by this prospectus that are not
purchased by the other stockholders under the other stockholders' basic
subscription privilege and oversubscription privilege. Depending on the number
of shares purchased by others, Casino USA will hold between approximately 55%
and 65% of the outstanding common stock after completion of the rights
offering.
Casino USA will pay for shares it purchases in the rights offering by
reducing a $55.4 million debt Smart & Final owes Casino USA by the total
subscription price due for those shares. If Casino USA's total subscription
price exceeds $55.4 million, Casino USA will pay the excess in cash.
Smart & Final has agreed to pay up to $450,000 in expenses incurred by
Casino USA relating to the rights offering. Smart & Final will also issue to
Casino USA 10,000 shares of common stock as a standby purchaser fee.
Board and Special Committee Approval of the Rights Offering and Casino USA
Standby Agreement
As Smart & Final negotiated a refinancing of its senior debt in the fall of
1998, it agreed with its bank lenders to restructure the then existing
intercompany notes and advances with Casino USA into a new, subordinated note.
We also determined that it would be advisable to increase equity capital to
provide greater financial flexibility. Smart & Final and Casino USA also agreed
that it would be in Smart & Final's best interests to reduce the $55.4 million
debt owed by Smart & Final to Casino USA, through conversion to equity.
At meetings on November 9, 1998, and December 4, 1998, the Board of
Directors authorized Smart & Final to undertake a rights offering on terms
substantially as set forth in this prospectus and established a special
committee of the Board to review the terms of the rights offering. See "The
Rights Offering--Reasons for the Rights Offering."
The Board of Directors determined it prudent to appoint a committee of
outside directors to review any proposal to exchange or issue equity securities
in view of Casino USA's interest in any such proposal. The special committee
consisted of directors Plaskett, Crull and McLaughlin, none of whom had or have
any relationship with Casino USA or Smart & Final other than their status as
board members of Smart & Final. Smart & Final's senior management also actively
participated in considering and structuring the ultimate rights offering
proposal.
The special committee retained Merrill Lynch & Co. as its independent
financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as its
independent counsel. The special committee met twice in November 1998,
following which the special committee's financial advisor and a financial
advisor to Casino USA had further discussions concerning the proposed terms of
the rights offering, and the special committee proposed certain changes to the
rights offering term sheet. The special committee met again on December 3,
1998, and unanimously approved the rights offering, substantially as reflected
in this prospectus, as being in the best interests of Smart & Final.
The following were among the factors considered by the special committee in
support of its approval of the rights offering: the then current state of the
financial markets, the relatively small size of the rights offering, the term
sheet generally having customary parameters for a rights offering, the ability
of all stockholders to participate in the rights offering, Casino USA's
willingness to exchange its debt for additional equity, certain revisions in
the terms of the rights offering resulting from the discussions noted above
among the financial advisors, and the advice of the special committee's
financial advisor. The special committee also considered two other factors in
its decision to support of the rights offering: the possible increase in Casino
USA stock ownership, and the standby purchaser fee of 10,000 shares of common
stock to be paid to Casino USA.
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The Board of Directors and the special committee specifically approved a
formula for setting the subscription price so that the subscription price would
be fixed at $0.75 per share less than the closing price per share on the NYSE
on the day prior to the effective date of the registration statement to which
this prospectus relates, rounded downward to the nearest multiple of $0.25. The
subscription price has been determined by the special committee with the
approval of the Board of Directors, and represents a discount to the market
price of a share of the common stock on the date that the subscription price
was determined, in accordance with the previously approved formula for that
price referred to above.
Neither the Board of Directors nor the special committee makes any
recommendation to stockholders regarding the exercise of rights under this
offering.
THE RIGHTS OFFERING
Reasons for the Rights Offering
As part of Smart & Final's refinancing of its senior debt in November 1998,
Smart & Final agreed with its banks to restructure the then existing
intercompany notes and advances with Casino USA into a new, subordinated note.
We also determined that it would be advisable to also increase equity capital
to provide greater financial flexibility for Smart & Final. Smart & Final and
Casino USA also agreed that it would be in Smart & Final's best interests to
reduce our $55.4 million debt to Casino USA, through conversion to equity.
After review by management and a special committee of the Board of Directors,
and following the advice of outside financial advisors, this rights offering
was determined to be the best approach to providing additional equity capital.
In this rights offering, Casino USA has also agreed to convert up to all of
the $55.4 million debt Smart & Final owes Casino USA into additional common
stock. At the same time, other stockholders have the opportunity to maintain
their percentage ownership in our company by exercising their rights. Net cash
proceeds from the rights offering will be used to prepay senior debt owed to
our other lenders.
See "Relationship between Smart & Final and Casino USA" for more information
about the $55.4 million debt owed to Casino USA, and "Risk Factors--Risks
Relating to Our Operations--Recent covenant noncompliance and risks of default
under senior debt" for more information about the senior debt.
No Special Committee or Board Investment Recommendation to Stockholders
Neither the Board of Directors nor the Board's special committee for the
rights offering makes any recommendation to you about whether you should
exercise any rights. If you do not exercise all of your rights, you will own a
smaller percentage of the total outstanding common stock after completion of
the rights offering. If you exercise rights, you risk investment loss on new
money invested. Smart & Final does not ensure that the subscription price will
remain below the market price for the common stock during the rights offering,
or that anyone purchasing shares will be able to sell those shares in the
future at a higher price. See "Risk Factors."
General Terms and Assumptions
. The record date is May 12, 1999.
. Only holders of record of common stock at the close of business on the
record date, or those to whom rights have been validly transferred, may
exercise rights. You are a record holder for this purpose only if your
name is registered as a stockholder with our transfer agent, ChaseMellon
Shareholder Services, L.L.C., as of the record date.
. The text below generally assumes that you are a record holder of shares,
unless otherwise noted.
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. If you own shares held in a brokerage, bank or other custodial or nominee
account, you should promptly send the proper instruction form to your
broker or other person holding your shares, in order to exercise rights.
Your broker or other person holding your shares is the record holder and
will have to act in order for you to exercise rights. We have asked the
securities brokers and other nominee holders of our stock to contact you
to obtain your instructions concerning rights you are entitled to
exercise.
. No interest will be paid on your funds delivered to exercise rights,
regardless of whether the funds are applied to the purchase of shares or
returned for any reason.
. Smart & Final will not issue fractional shares, and will eliminate
fractional shares in making any required allocations of shares under the
rights offering.
. If exercise of your rights would result in a fractional share, you must
round down to purchase the nearest whole share or any lesser number of
whole shares, at the subscription price per share.
ChaseMellon Shareholder Services, L.L.C.
ChaseMellon Shareholder Services, L.L.C. is acting as the subscription agent
for the rights offering under an agreement with Smart & Final.
All subscription warrants, payments of the subscription price, nominee
holder certifications, notices of guaranteed delivery, and DTC participant
oversubscription exercise forms, to the extent applicable to your exercise of
rights, must be delivered to ChaseMellon Shareholder Services, L.L.C. as
follows:
<TABLE>
<CAPTION>
IF BY MAIL: IF BY HAND: IF BY OVERNIGHT COURIER:
<S> <C> <C>
ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C. Services, L.L.C.
Post Office Box 3301 120 Broadway, 13th Floor 85 Challenger Road--Mail Drop--Reorg
South Hackensack, NJ 07606 New York, New York 10271 Ridgefield Park, NJ 07660
Attn: Reorganization Attn: Reorganization Attn: Reorganization
Department Department Department
</TABLE>
ChaseMellon Shareholder Services, L.L.C.'s facsimile number is (201) 296-
4293.
The telephone number for confirmation of receipt of facsimiles is (201) 296-
4860.
Smart & Final will pay the fees and expenses of ChaseMellon Shareholder
Services, L.L.C., except for fees, applicable brokerage commissions, taxes and
other expenses relating to the sale of rights by ChaseMellon Shareholder
Services, L.L.C., which will be for the account of the seller of the rights.
Smart & Final has also agreed to indemnify ChaseMellon Shareholder Services,
L.L.C. against certain liabilities in connection with the rights offering.
The Rights
As soon as practicable after the date of this prospectus, Smart & Final is
distributing, at no charge, to holders of its common stock on the record date
transferable subscription rights to purchase additional shares of common stock.
We are distributing one right for each share of common stock held on the record
date.
Smart & Final is sending a subscription warrant to each record holder along
with this prospectus and related instructions to evidence the rights. In order
to exercise rights, you must fill out and sign the appropriate subscription
warrant and timely deliver it with full payment for the shares to be purchased.
A depository bank, trust company or securities broker or dealer which is a
record holder for more than one beneficial owner of shares may divide or
consolidate subscription warrants to represent shares held on the record date
by their beneficial owners, upon proper showing to ChaseMellon Shareholder
Services, L.L.C.
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Basic and Oversubscription Privileges
Basic Subscription Privilege. You are entitled to purchase one share of
common stock at the subscription price for every 3.4884 rights exercised. Smart
& Final has reserved a total of 6,486,406 shares of common stock for the
exercise of the rights.
Oversubscription Privilege. If you exercise your basic subscription
privilege in full, you may also subscribe for additional shares that other
stockholders may not purchase under their basic subscription privilege. If
there are not enough shares available to fill all subscriptions for additional
shares, the available shares will be allocated pro rata based on the number of
shares each subscriber for additional shares has purchased under the basic
subscription privilege. Smart & Final will not allocate to you more than the
number of shares you have actually subscribed and paid for.
You are not entitled to exercise the oversubscription privilege unless you
have fully exercised your basic subscription privilege. For this purpose, you
would only count the shares you own in your own name, and not other shares that
might, for example, be jointly held with a spouse, held as a custodian for
someone else, or held in an individual retirement account.
You may elect to exercise the oversubscription privilege only at the same
time you exercise your basic subscription privilege in full.
If Smart & Final does not allocate to you all shares you have subscribed for
under the oversubscription privilege, Smart & Final will refund by mail to you
any payment you have made for shares which are not available to issue to you,
as soon as practicable after completion of the rights offering.
Banks, brokers and other nominees who exercise the oversubscription
privilege on behalf of beneficial owners of shares must report certain
information to ChaseMellon Shareholder Services, L.L.C. and Smart & Final and
record certain other information received from each beneficial owner exercising
rights. Generally, banks, brokers and other nominees must report (1) the number
of shares held on the record date on behalf of each beneficial owner, (2) the
number of rights as to which the basic subscription privilege has been
exercised on behalf of each beneficial owner, (3) that each beneficial owner's
basic subscription privilege held in the same capacity has been exercised in
full, and (4) the number of shares subscribed for under the oversubscription
privilege by each beneficial owner.
If you complete the portion of the subscription warrant to exercise the
oversubscription privilege, Smart & Final will rely on this as your
certification that you have fully exercised your basic subscription privilege
as described above.
Subscription Price
The subscription price is $9.25 per share subscribed for, payable in cash.
This price applies to the exercise of the basic subscription privilege and the
oversubscription privilege.
Smart & Final will accept any inadvertent subscription indicating a purchase
of fractional shares by rounding downward to the nearest whole share and
refunding without interest any payment received for a fractional share as soon
as practicable.
Expiration Time and Date
The basic subscription privilege and the oversubscription privilege both
expire at 5:00 p.m., New York City time, on June 3, 1999. After the expiration
date, rights will no longer be exercisable by anyone.
In order to exercise rights in a timely manner, you must assure that
ChaseMellon Shareholder Services, L.L.C. actually receives, prior to expiration
of the rights, the properly executed and completed subscription warrant (or
form of "Notice of Guaranteed Delivery"), together with full payment for all
shares you wish to purchase.
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Casino USA Standby Purchase and Debt Reduction Agreement
Casino USA holds 12,415,925 shares, or approximately 55%, of Smart & Final's
outstanding common stock. Casino USA therefore has the same percentage of
rights and shares available under the basic subscription privilege and
oversubscription privilege.
Pursuant to a Standby Purchase and Debt Reduction Agreement, Casino USA has
agreed to acquire all of the shares offered under the rights offering that are
not purchased by the other stockholders under the other stockholders' basic
subscription privilege and oversubscription privilege. As part of that
agreement, Casino USA has agreed to exercise its basic subscription privilege
in full, and has the right at its election to exercise all or part of its
oversubscription privilege. Depending on the number of shares purchased by
others, Casino USA will hold between approximately 55% and 65% of the
outstanding common stock after completion of the rights offering.
Casino USA will pay for the shares it purchases in the rights offering by
reducing a $55.4 million debt Smart & Final owes Casino USA by the total
subscription price due for those shares. If Casino USA's total subscription
price exceeds $55.4 million, Casino USA will pay the excess in cash.
See "Relationship Between Smart & Final and Casino USA" for additional
information concerning Casino USA and the standby agreement.
Conditions Relating to the Rights Offering
If the Standby Purchase and Debt Reduction Agreement with Casino USA is not
consummated in accordance with its terms for any reason, including the failure
to satisfy applicable conditions specified in the agreement, Smart & Final will
terminate the rights offering in its entirety. If the rights offering is
terminated for this or any other reason, Smart & Final will instruct
ChaseMellon Shareholder Services, L.L.C. to refund without interest to those
persons who subscribed for shares in the rights offering all payments received
by ChaseMellon Shareholder Services, L.L.C. from those subscribers.
The material conditions to the standby agreement include the following,
which must be satisfied or waived as of the date the rights expire:
. Smart & Final must not have experienced any material adverse change
affecting its business, prospects, financial position, stockholders'
equity or results of operations;
. the SEC must not have issued a stop order relating to the registration
statement filed with the SEC relating to this prospectus;
. representations made by the parties in the agreement must be true and
correct;
. Casino USA must have received an opinion of counsel and a letter from
Smart & Final's certified public accountants as described in the standby
agreement; and
. the rights offering must have been completed in the manner described in
this prospectus.
Expenses of the Rights Offering
Smart & Final will pay from cash proceeds of the rights offering or
available cash estimated expenses of approximately $1,500,000 relating to the
rights offering incurred by Smart & Final. Included within these expenses,
Smart & Final has agreed to pay up to $450,000 in expenses incurred by Casino
USA relating to the rights offering. Smart & Final will also issue to Casino
USA 10,000 shares of common stock as a standby purchaser fee.
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Exercise of Rights
Please do not send subscription warrants or related forms to Smart & Final.
Please send the properly completed and executed form of subscription warrant
with full payment to ChaseMellon Shareholder Services, L.L.C.
You should read carefully the forms of subscription warrant and related
instructions and forms which accompany this prospectus. You should call
ChaseMellon Shareholder Services, L.L.C. (1-888-224-2745) promptly with any
questions you may have.
You may exercise your rights by delivering to ChaseMellon Shareholder
Services, L.L.C., at the address specified in the instructions accompanying
this prospectus, at or prior to expiration of the rights:
. the properly completed and executed subscription warrant(s) which
evidence your rights, and
. payment in full of the subscription price for each share you wish to
purchase under the basic subscription privilege and the oversubscription
privilege.
If you are not a broker, bank or other eligible institution, you must obtain
a signature guarantee on the subscription warrant from a broker, bank or other
institution eligible to guarantee signatures in order to transfer the
subscription warrant in whole or to transfer a portion of your rights.
Required Forms of Payment
If you exercise any rights, you must deliver full payment in the form of:
. a check or bank draft drawn upon a U.S. bank, or U.S. postal money order,
payable to ChaseMellon Shareholder Services, L.L.C. Subscription Agent,
or
. by wire transfer of funds to the account maintained by ChaseMellon
Shareholder Services, L.L.C. for this rights offering at The Chase
Manhattan Bank, New York, NY, ABA No. 021 000 021, Attention: ChaseMellon
Shareholder Services Reorg. Account: 323-859577 (Smart & Final Inc.).
In order for you to timely exercise your rights, ChaseMellon Shareholder
Services, L.L.C. must actually receive the subscription price before expiration
of the rights in the form of:
. a personal check which must have timely cleared payment,
. a certified or cashier's check or bank draft drawn upon a U.S. bank or a
U.S. postal money order, or
. collected funds in ChaseMellon Shareholder Services, L.L.C.'s account
designated above.
Funds paid by uncertified personal check may take at least five business
days to clear. Accordingly, if you pay the subscription price by means of
uncertified personal check, you should make payment sufficiently in advance of
the expiration time to ensure that your check actually clears and the payment
is received before that time. Smart & Final is not responsible for any delay in
payment by you and suggests that you consider payment by means of certified or
cashier's check, money order or wire transfer of funds.
Special Procedure under "Notice of Guaranteed Delivery" Form
If you wish to exercise rights but cannot ensure that ChaseMellon
Shareholder Services, L.L.C. will actually receive the executed subscription
warrant before the expiration of the rights, you may alternatively exercise
rights by causing all of the following to occur within the time prescribed:
. Full payment must be received by ChaseMellon Shareholder Services, L.L.C.
prior to the expiration time for all shares you desire to purchase under
the basic and oversubscription privileges.
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. A properly executed "Notice of Guaranteed Delivery" substantially in the
form distributed by Smart & Final with your subscription warrant must be
received by ChaseMellon Shareholder Services, L.L.C. at or prior to the
expiration time.
. The "Notice of Guaranteed Delivery" must be executed by both you and one
of the following: a member firm of a registered national securities
exchange, an NASD member, a commercial bank or trust company having an
office or correspondent in the United States, or other eligible guarantor
institution qualified under a guarantee program acceptable to ChaseMellon
Shareholder Services, L.L.C. The cosigning institution must guarantee in
the Notice of Guaranteed Delivery that the subscription warrant will be
delivered to ChaseMellon Shareholder Services, L.L.C. within three NYSE
trading days after the date of the form. You must also provide in that
form other relevant details concerning the intended exercise of rights.
. The properly completed subscription warrant(s) with any required
signature guarantee must be received by ChaseMellon Shareholder Services,
L.L.C. within three NYSE trading days following the date of the related
Notice of Guaranteed Delivery.
. If you are a nominee holder of rights, the "Nominee Holder Certification"
must also accompany the Notice of Guaranteed Delivery.
A Notice of Guaranteed Delivery may be delivered to ChaseMellon Shareholder
Services, L.L.C. in the same manner as subscription warrants at the address set
forth above under "The Rights Offering--ChaseMellon Shareholder Services,
L.L.C.," or may be delivered by telegram or facsimile transmission (telecopier
no. (201) 296-4293). To confirm facsimile deliveries, please call (201) 296-
4860.
Additional copies of the form of Notice of Guaranteed Delivery are available
upon request from ChaseMellon Shareholder Services, L.L.C., whose address and
telephone numbers are set forth above.
Incomplete Forms; Insufficient or Excess Payment
If you do not indicate the number of rights being exercised, or do not
forward sufficient payment for the number of rights that you indicate are being
exercised, then Smart & Final is entitled to accept the subscription forms and
payment for the maximum number of rights that may be exercised based on the
actual payment delivered.
If your payment exceeds the amount required to pay for the shares you
indicate in your subscription warrant, then Smart & Final is entitled to accept
the excess payment as an exercise of the oversubscription privilege to the full
extent of your payment.
Smart & Final will return any payment not applied to the purchase of shares
under the rights offering procedures to those who made these payments as soon
as practicable by mail.
Exercise of Less Than All Rights
If you subscribe for fewer than all of the shares represented by your
subscription warrant, you may (1) direct ChaseMellon Shareholder Services,
L.L.C. to attempt to sell your remaining rights, or (2) receive from
ChaseMellon Shareholder Services, L.L.C. a new subscription warrant
representing the unused rights. See "The Rights Offering--How to Transfer
Rights" below.
Instructions to Nominee Holders
If you are a broker, trustee or depository for securities or other nominee
holder of common stock for beneficial owners of the stock, Smart & Final is
requesting you to contact the beneficial owners as soon as possible to obtain
instructions and related certifications concerning their rights. Our request to
you is further
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<PAGE>
explained in the suggested form of letter of instructions from nominee holders
to beneficial owners accompanying this prospectus.
To the extent so instructed, nominee holders should complete appropriate
subscription warrants on behalf of beneficial owners and, in the case of any
exercise of the oversubscription privilege, the related form of "Nominee Holder
Certification," and submit them on a timely basis to ChaseMellon Shareholder
Services, L.L.C. with the proper payment.
Risk of Loss on Delivery of Subscription Warrant Forms and Payments
Each holder of rights bears all risk of the method of delivery to
ChaseMellon Shareholder Services, L.L.C. of subscription warrants and payments
of the subscription price.
If subscription warrants and payments are sent by mail, you are urged to
send these by registered mail, properly insured, with return receipt requested,
and to allow a sufficient number of days to ensure delivery to ChaseMellon
Shareholder Services, L.L.C. and clearance of payment prior to the expiration
time.
Because uncertified personal checks may take at least five business days to
clear, you are strongly urged to pay, or arrange for payment, by means of
certified or cashier's check, money order or wire transfer of funds.
How Procedural and Other Questions Are Resolved
Smart & Final is entitled to determine all questions concerning the
timeliness, validity, form and eligibility of any exercise of rights. This
determination will be final and binding. Smart & Final, in its sole discretion,
may waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported
exercise or any right because of any defect or irregularity.
Subscription warrants will not be considered received or accepted until all
irregularities have been waived or cured within such time as Smart & Final
determines, in its sole discretion. Neither Smart & Final nor ChaseMellon
Shareholder Services, L.L.C. have any duty to give notification of any defect
or irregularity in connection with the submission of subscription warrants or
any other required document. They will not incur any liability for failure to
give such notification.
Smart & Final reserves the right to reject any exercise of rights if the
exercise does not comply with the terms of the rights offering or is not in
proper form or if the exercise of rights would be unlawful or materially
burdensome. See "The Rights Offering--Right to Block Exercise Due to Regulatory
Issues" below.
Questions and Assistance Concerning the Rights
You should direct any questions or requests for assistance concerning the
method of exercising rights or requests for additional copies of this
prospectus, forms of instructions or the Notice of Guaranteed Delivery to
ChaseMellon Shareholder Services, L.L.C., at 450 W. 33rd Street, 14th Floor,
New York, New York 10001 (telephone: banks and brokers (212) 273-8070, collect;
all others (888) 224-2745).
No Revocation
Once you have exercised the basic subscription privilege or the
oversubscription privilege, you may not revoke or change your exercise.
How to Transfer Rights
There has been no prior trading in the rights. Smart & Final provides no
assurance that a trading market will develop or, if a market develops, that the
market will remain available for a sufficient time to complete any transfer of
rights.
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You may transfer all of the rights evidenced by a single subscription
warrant by signing the subscription warrant for transfer in accordance with the
appropriate form printed on the subscription warrant.
You may transfer a portion of the rights evidenced by a single subscription
warrant by delivering to ChaseMellon Shareholder Services, L.L.C. the
subscription warrant properly signed for transfer, with separate written
instructions to register a portion of the rights in the name of your transferee
and to issue a new subscription warrant to the transferee covering the
transferred rights. In that event and by appropriate written instructions, you
may elect to receive a new subscription warrant covering the rights you did not
transfer, or may request ChaseMellon Shareholder Services, L.L.C. to sell your
retained rights in the manner described below.
Smart & Final anticipates that the rights will be eligible to trade on the
NYSE under the symbol "SMF Rt" until the close of business on the last trading
day prior to the expiration date. Smart & Final cannot ensure that there will
be a trading market for the rights, that any market that does develop will
continue through the rights offering, or that stockholders will be able to sell
rights.
You may elect to request ChaseMellon Shareholder Services, L.L.C. to sell
all or part of your rights by delivering to ChaseMellon Shareholder Services,
L.L.C. your subscription warrant properly executed for sale by ChaseMellon
Shareholder Services, L.L.C. If you request that only a portion of your rights
be sold, you should indicate in writing what action should be taken as to the
rights you are not selling.
If you request ChaseMellon Shareholder Services, L.L.C. to sell rights, your
subscription warrant signed as provided above must be received by ChaseMellon
Shareholder Services, L.L.C. at or prior to 11:00 a.m., New York City time, on
May 28, 1999.
Promptly following the expiration time, ChaseMellon Shareholder Services,
L.L.C. will send you a check for the net proceeds from the sale of any rights
sold on your behalf. To the extent rights have been sold, all of the sales for
those requesting this service shall be considered together and effected at the
weighted average sale price of all rights sold by the ChaseMellon Shareholder
Services, L.L.C. in this rights offering, less the pro rata portion of any
applicable brokerage commissions, taxes and other expenses.
Smart & Final cannot ensure that a market will develop for the rights or
that ChaseMellon Shareholder Services, L.L.C. will be able to sell any rights.
ChaseMellon Shareholder Services, L.L.C.'s obligation to execute orders is
subject to its ability to find buyers. If less than all sales orders received
by ChaseMellon Shareholder Services, L.L.C. can be filled, sales proceeds will
be prorated among those requesting the sales based upon the number of rights
each holder of rights has requested ChaseMellon Shareholder Services, L.L.C. to
sell. All sale orders properly received by the above deadline will be treated
on a pro rata basis without regard to the actual date of delivery.
If rights cannot be sold by ChaseMellon Shareholder Services, L.L.C. by 5:00
p.m. New York City time, on May 28, 1999, they will be returned promptly by
mail to the holders who delivered them.
If you wish to transfer all or a portion of your rights, you should allow a
sufficient amount of time prior to the expiration time for (1) the transfer
instructions to be received and processed by ChaseMellon Shareholder Services,
L.L.C., (2) new subscription warrants to be issued and transmitted and (3) the
rights evidenced by the new subscription warrants to be exercised or sold by
the intended recipients.
It may require from two to ten business days, or more, to complete transfers
of rights, depending upon how you deliver the subscription warrant and payment
and the number of transactions you request. Neither Smart & Final nor
ChaseMellon Shareholder Services, L.L.C. will be liable to you or any
transferee of rights if subscription warrants or any other required documents
are not received in time for exercise or sale prior to the expiration time.
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If you exercise or sell rights in part, a new subscription warrant for the
remaining rights will be issued to you only if ChaseMellon Shareholder
Services, L.L.C. receives a properly endorsed subscription warrant from you no
later than 5:00 p.m., New York City time, on the fifth business day prior to
the expiration date. It will not issue new subscription warrants for partially
exercised or sold warrants submitted after that time and date. If you do
submit a partial exercise or sale after that time and date, you will not be
able to exercise the unexercised or unsold rights.
Unless you make other arrangements with ChaseMellon Shareholder Services,
L.L.C., a new subscription warrant issued after 5:00 p.m., New York City time,
on the fifth business day before the expiration date will be held for pick-up
by you at the ChaseMellon Shareholder Services, L.L.C.'s hand delivery address
provided above.
If you request a reissuance of a subscription warrant, the delivery of that
document will be at your risk.
You, and not Smart & Final or ChaseMellon Shareholder Services, L.L.C.,
will be responsible for paying any commissions, fees and other expenses
(including brokerage commissions and transfer taxes) you may incur for a
purchase, sale or exercise of rights.
If you do not exercise your rights prior to the expiration time, those
rights will expire and will no longer be exercisable.
Procedures for Nominees Who Are DTC Participants
Smart & Final anticipates that you may transfer rights, or exercise the
basic subscription privilege (but not the oversubscription privilege) through,
the facilities of the Depository Trust Company, generally known as "DTC." If
you exercise the basic subscription privilege through DTC, you may exercise
your oversubscription privilege by properly executing and delivering to
ChaseMellon Shareholder Services, L.L.C., at or prior to the time the rights
expire, a "DTC Participant Oversubscription Exercise Form" and a related
"Nominee Holder Certification," together with payment of the appropriate
subscription price for the number of shares for which the oversubscription
privilege is to be exercised. You may obtain copies of these forms from
ChaseMellon Shareholder Services, L.L.C. at the telephone numbers listed
above.
Foreign and Unknown Addresses
Smart & Final is not mailing subscription warrants to stockholders whose
addresses are outside the United States or who have an APO or FPO address. In
those cases, the subscription warrants will be held by ChaseMellon Shareholder
Services, L.L.C. for those stockholders. To exercise their rights, these
stockholders must notify ChaseMellon Shareholder Services, L.L.C. prior to
11:00 a.m., New York City time, on June 1, 1999. At that time, if a foreign
holder has not given any other instructions, these rights will be sold,
subject to availability of buyers. If the rights can be sold, a check for the
proceeds from the sale of these rights, less a pro rata portion of any
applicable brokerage commissions, taxes and other expenses, will be sent by
mail to the foreign holders. These sales for foreign holders will be
aggregated so that each foreign holder will receive a weighted average price
for the sales, if any.
If you have sold rights through ChaseMellon Shareholder Services, L.L.C.
but it does not know your address or cannot otherwise make delivery of sale
proceeds to you, your sale proceeds will be held in a special account. These
proceeds will be delivered to Smart & Final if you do not claim them within
two years after the expiration date of the rights offering.
Right to Block Exercise Due to Regulatory Issues
Smart & Final reserves the right to refuse the exercise of rights by any
holder of rights who would, in our opinion, be required to obtain prior
clearance or approval from any state, federal or foreign regulatory
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authorities for the exercise of rights or ownership of additional shares if, at
the expiration date, this clearance or approval has not been obtained. Smart &
Final is not undertaking to pay for any expenses incurred in seeking that
clearance or approval.
Smart & Final is not offering or selling, or soliciting any purchase of,
rights or underlying shares in any state or other jurisdiction in which this is
not permitted. Smart & Final reserves the right to delay the commencement of
the rights offering in certain states or other jurisdictions if necessary to
comply with local laws. However, Smart & Final may elect not to offer rights to
residents of any state or other jurisdiction whose law would require a change
in the rights offering in order to carry out the rights offering in that state
or jursidiction.
No Adjustment to Outstanding Stock Options or Other Stock Awards
Smart & Final will not, solely as a result of the rights offering, adjust
the number of shares of common stock reserved for issuance under its stock
award plans for employees and other eligible participants or the number of
shares subject to outstanding awards of stock options or awards of restricted
stock.
Amendment, Extension and Withdrawal
If the standby agreement with Casino USA is not consummated, Smart & Final
will terminate the rights offering in its entirety and refund all funds
received from the exercise of rights, as described under "The Rights Offering--
Conditions Relating to the Rights Offering." Smart & Final has agreed with
Casino USA not to withdraw the rights offering once the offering has commenced.
With the prior consent of Casino USA, Smart & Final may withdraw, amend or
extend this rights offering.
Subject to the foregoing, Smart & Final reserves the right to withdraw the
rights offering at any time prior to the expiration date and for any reason, in
which event all funds received in the rights offering will be returned to those
persons who subscribed for shares in the rights offering.
Issuance of Stock Certificates
Stock certificates for shares purchased in the rights offering will be
issued as soon as practicable after the expiration date. ChaseMellon
Shareholder Services, L.L.C. will deliver subscription payments to Smart &
Final only after consummation of the rights offering and the issuance of stock
certificates to those exercising rights. If you exercise the oversubscription
privilege but are not allocated all of the shares you asked to purchase, the
excess funds you paid will be returned to you as soon as practicable after the
expiration date.
If you exercise rights, you will have no rights as a stockholder until
certificates representing shares you purchased are issued. Unless otherwise
instructed in your subscription warrant form, shares purchased by the exercise
of rights will be registered in the name of the person exercising the rights.
Certain Federal Income Tax Consequences
General. This section discusses certain federal income tax consequences of
the rights offering to (1) beneficial owners of common stock upon distribution
of the rights, and (2) holders of rights upon the exercise and disposition of
the rights. The discussion is based on the Internal Revenue Code of 1986, as
amended, the Treasury regulations thereunder, judicial authority, and current
administrative rulings and practice, all of which are subject to change
prospectively or retroactively.
The discussion is limited to U.S. taxpayers who hold common stock, and will
hold the rights and any shares acquired upon the exercise of rights, as capital
assets (generally, property held for investment). The discussion does not
include any tax consequences under state, local and foreign law. Financial
institutions, broker-dealers, nominee holders of common stock or rights, life
insurance companies, tax-exempt organizations and possibly other types of
taxpayers may be subject to special provisions of the tax law or subject to
other tax considerations not discussed below.
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Holders should consult their own tax advisors concerning their own
respective tax situations or special tax considerations that may apply to them,
including without limitation foreign, state and local laws that may apply.
Distribution of Rights. Owners of common stock will not recognize taxable
income solely as a result of the distribution of the rights.
Exercise of the Rights and Basis and Holding Period of the Common
Stock. Holders of rights will not recognize any gain or loss upon the exercise
of rights. The basis of the shares acquired through exercise of the rights will
be equal to the sum of the subscription price for rights exercised and the
holder's basis in such rights (if any).
The holding period for the shares acquired through exercise of the rights
will begin on the date the rights are exercised.
Sale of Shares. An owner of shares will recognize gain or loss upon the sale
of shares acquired by exercise of rights in an amount equal to the difference
between the amount realized and the stockholder's basis in the shares. The gain
or loss so recognized will be long-term or short-term capital gain or loss,
depending on whether the shares have been held for more than one year, assuming
the stockholder holds the shares as a capital asset.
Basis and Holding Period of the Rights. The tax basis of the rights for an
owner of common stock who receives a distribution of rights will be zero,
assuming the following exceptions do not apply. If, however, either (1) the
fair market value of the rights on the date of distribution is 15% or more of
the fair market value (on the date of distribution) of the common stock held,
or (2) the stockholder elects to allocate the basis of common stock to the
rights in the holder's federal income tax return for the taxable year in which
the rights are received, then upon exercise or transfer of the rights, the
stockholder's basis in such common stock will be allocated between the common
stock and the rights in proportion to the fair market values of each on the
date of distribution.
The holding period of a stockholder with respect to the rights received as a
distribution on such stockholder's common stock will include the stockholder's
holding period for the common stock with respect to which the rights were
distributed.
In the case of a purchaser of rights, the tax basis of such rights will be
equal to the purchase price paid therefor, and the holding period for such
rights will commence on the day following the date of the purchase.
Transfer of the Rights. A holder or purchaser of rights who sells the rights
prior to exercise will recognize capital gain or loss equal to the difference
between the sale proceeds and the basis (if any) in the rights sold, if the
common stock would be a capital asset in the hands of such purchaser.
Lapse of the Rights. If rights expire prior to sale or other disposition of
the rights, the holders of those rights will not recognize any gain or loss,
and no adjustment will be made to the basis of the common stock, if any, owned
by such holders.
Purchasers of the rights will recognize a loss equal to their tax basis in
the rights, if such rights expire unexercised. Any loss recognized on the
expiration of the rights acquired by a purchaser will be a capital loss if the
common stock would be a capital asset in the hands of the purchaser.
Information Reporting and Backup Withholding. Holders who sell rights and
receive payments may be subject to backup withholding at the rate of 31% on the
payments unless the holder (1) is a corporation or is otherwise exempt and
demonstrates the basis for the exemption if so required, or (2) provides a
correct taxpayer identification number and certifies under penalties of perjury
that the taxpayer identification number is
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correct and that the holder is not subject to backup withholding. Any amount
withheld under these rules will be credited against such holder's federal
income tax liability. Smart & Final may require holders to establish their
exemptions from backup withholding or to arrange for payment of backup
withholding.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for Smart & Final by Donald G. Alvarado, Esq., Senior Vice President,
Law/Development of Smart & Final.
EXPERTS
The financial statements and schedules incorporated by reference in this
prospectus and elsewhere in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
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