-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VOAczCzkD5jiCuLA/Syxqj646qndyFVoJoeMUgXxRYKdkk96dn9fdmN08JTiNI6U 5G0J8ifQEYcgMaXr/LvOuw== 0000898430-96-002216.txt : 19960524 0000898430-96-002216.hdr.sgml : 19960524 ACCESSION NUMBER: 0000898430-96-002216 CONFORMED SUBMISSION TYPE: SC 13E4/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19960523 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SMITHS FOOD & DRUG CENTERS INC CENTRAL INDEX KEY: 0000850309 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 870258768 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: SC 13E4/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-40785 FILM NUMBER: 96571283 BUSINESS ADDRESS: STREET 1: 1550 S REDWOOD RD CITY: SALT LAKE CITY STATE: UT ZIP: 84104 BUSINESS PHONE: 8019741400 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SMITHS FOOD & DRUG CENTERS INC CENTRAL INDEX KEY: 0000850309 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 870258768 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: SC 13E4/A BUSINESS ADDRESS: STREET 1: 1550 S REDWOOD RD CITY: SALT LAKE CITY STATE: UT ZIP: 84104 BUSINESS PHONE: 8019741400 SC 13E4/A 1 SCHEDULE 13E-4 - AMENDMENT #5 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 5 TO SCHEDULE 13E-4 ISSUER TENDER OFFER STATEMENT (PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934) ---------------- SMITH'S FOOD & DRUG CENTERS, INC. (NAME OF ISSUER AND PERSON FILING STATEMENT) CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE (TITLES OF CLASSES OF SECURITIES) ---------------- N/A (CUSIP NUMBER FOR CLASS A COMMON STOCK) 832388-10-2 (CUSIP NUMBER FOR CLASS B COMMON STOCK) MICHAEL C. FREI SENIOR VICE PRESIDENT AND GENERAL COUNSEL SMITH'S FOOD & DRUG CENTERS, INC. 1550 SOUTH REDWOOD ROAD SALT LAKE CITY, UTAH 84104 (801) 974-1400 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT) ---------------- COPIES TO: ROBERT L. FRIEDMAN JOHN W. CARR SIMPSON THACHER & BARTLETT 425 LEXINGTON AVENUE NEW YORK, NY 10017 (212) 455-2000 ---------------- APRIL 25, 1996 (DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS) ---------------- CALCULATION OF FILING FEE - -------------------------------------------------------------------------------
TRANSACTION VALUATION* AMOUNT OF FILING FEE - ------------------------------------------------------------------------------ $451,291,032 $90,259**
- ------------------------------------------------------------------------------- * Assumes purchase of 50% of its outstanding shares of Common Stock (12,535,862 shares based on Common Stock outstanding as of April 15, 1996) at $36 per share. ** Fee paid with initial filing on April 25, 1996. ---------------- [_]CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE 0-11(A)(2) AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING. AMOUNT PREVIOUSLY PAID: N/A FILING PARTY: N/A FORM OR REGISTRATION NO.: N/A DATE FILED: N/A - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- This Amendment No. 5 amends and supplements the Issuer Tender Offer Statement on Schedule 13E-4, dated April 25, 1996, of Smith's Food & Drug Centers, Inc. (the "Company") filed in connection with the offer by the Company to purchase, in the aggregate, 50% of its outstanding shares of Class A Common Stock, par value $.01 per share, and Class B Common Stock, par value $.01 per share, of the Company (collectively, the "Shares") (or 12,535,862 Shares based on Shares outstanding as of April 15, 1996) at a price of $36 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated April 25, 1996 (the "Offer to Purchase"), and related Letter of Transmittal. Capitalized terms used without definition in this Amendment No. 5 shall have the meanings given to them in the Offer to Purchase. On May 22, 1996, a purported class action complaint (the "Shareholder's Complaint") entitled Larry F. Klang v. Smith's Food & Drug Centers, Inc., et ------------------------------------------------------- al., Case no. 15012, was filed against the Company, its current directors, - --- Yucaipa, Ronald Burkle and Goldman Sachs in the Chancery Court in and for New Castle County, Delaware. The Shareholder's Complaint alleges, among other things, that (i) the Company's purchase of Common Stock in the Offer will impair the Company's capital in violation of Delaware law, (ii) the Company and the director defendants have violated their fiduciary duties by entering into the Recapitalization Agreement and by making allegedly inaccurate and incomplete disclosure in the Company's Offer to Purchase and Proxy Statement, and (iii) Yucaipa, Mr. Burkle and Goldman Sachs have aided and abetted the Company and its directors in carrying out such allegedly illegal actions. The Shareholder's Complaint seeks, among other things, injunctive relief to prevent the holding of the Stockholders' Meeting and the consummation of the transactions contemplated by the Recapitalization Agreement, rescission of such transactions (if completed), certification of the action as a class action and the award of costs and damages. Based on a preliminary review of the Shareholder's Complaint by the Company and its counsel, the Company believes that the allegations made therein are without merit and the Company intends to vigorously defend itself and the other defendants against such allegations. A copy of the Shareholder's Complaint is filed as Exhibit 1 to this Schedule 13E-4 and is incorporated herein by reference. The foregoing descriptions of the Shareholder's Complaint are qualified in their entirety by reference to the Shareholder's Complaint. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1 -- Complaint in Larry F. Klang v. Smith's Food & Drug Centers, ---------------------------------------------- Inc., et al. (Delaware Chancery Court, New Castle County, May 22, 1996). - ------------ 1 SIGNATURE AFTER DUE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND CORRECT. Smith's Food & Drug Centers, Inc. /s/ Michael C. Frei By: _________________________________ Michael C. Frei Senior Vice President, General Counsel and Secretary Dated: May 23, 1996 2 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE ------- ----------- ------------ Exhibit 1 Larry F. Klang v. Smith's Food & Drug Centers, ---------------------------------------------- Inc., et al., (Delaware Chancery Court, New Castle ------------ County, May 22, 1996).
EX-1 2 LARRY F. KLANG V. SMITH'S FOOD & DRUG CENTERS, INC. EXHIBIT 1 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY LARRY F. KLANG, on behalf of himself ) and all others similarly situated, ) ) Plaintiff, ) v. ) No. 15012 ) ----- SMITH'S FOOD & DRUG CENTERS, INC., JEFFREY ) P. SMITH, RICHARD D. SMITH, FRED L. ) SMITH, SEAN D. SMITH, ROBERT D. BOLINDER, ) KENNETH A. WHITE, DOUGLAS JOHN TIGERT, ) STUART ROSENTHAL, RAY V. ROSE, DUANE ) PETERS, NICOLE MILLER, ALLEN P. ) MARTINDALE, DELONNE ANDERSON, THE ) YUCAIPA COMPANIES, RONALD BURKLE, ) and GOLDMAN SACHS & CO., INC., ) ) Defendants. ) CLASS ACTION COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF ------------------------------------------------------ Larry F. Klang, Plaintiff, complaining of Smith's Food & Drug Centers, Inc. ("SFD"), Jeffrey P. Smith, Richard D. Smith, Fred L. Smith, Sean D. Smith, Robert D. Bolinder ("Bolinder"), Kenneth A. White ("White"), Douglas John Tigert ("Tigert"), Stuart Rosenthal ("Rosenthal"), Ray V. Rose ("Rose"), Duane Peters ("Peters"), Nicole Miller ("Miller"), Allen P. Martindale ("Martindale"), Delonne Anderson ("Anderson"), The Yucaipa Companies ("Yucaipa"), Ronald Burkle ("Burkle"), and Goldman Sachs & Co., Inc., Defendants, shows: PARTIES ------- 1. Larry F. Klang ("Klang" or "the plaintiff") is a holder of Class B common shares of SFD and is a resident of Irving, Texas. 2. SFD is a Delaware corporation having its principal place of business at 1550 South Redwood Road, Salt Lake City, Utah 84104. 3. Jeffrey P. Smith is the Chairman of the Board and Chief Executive Officer of SFD and is the brother of Fred L. Smith and Richard D. Smith and the son of the founder of SFD. 4. Richard D. Smith is the Vice Chairman of the Board and Chief Operating Officer of SFD. 5. Fred L. Smith is a Director of SFD and resides at 74285 Quail Lake Dr., Indian Wells, California 92210. 6. Bolinder is Executive Vice President of SFD, a Director of SFD. 7. White is Senior Vice President of SFD, a Director of SFD. 8. Sean D. Smith, Tigert, Rosenthal, Rose, Peters, Miller, Martindale, and Anderson are Directors of SFD. 9. Yucaipa is a California limited partnership having its principal place of business at 10000 Santa Monica Boulevard, Fifth Floor, Los Angeles, California 90067. 10. Burkle is the Managing General Partner of Yucaipa and may be served at the Yucaipa office shown above. 11. Goldman Sachs & Co., Inc. is a Delaware corporation. BACKGROUND FACTS ---------------- 12. SFD is a supermarket company operating 120 stores in Utah, Arizona, Nevada, New Mexico, Idaho, Texas, and Wyoming. It has outstanding 11,366,562 shares of Class A Common Stock and 13,705,191 shares of Class B Common Stock. The Class A is neither registered nor traded and is believed to be owned primarily by members of the Smith family and insiders. The Class B is publicly 2 held and traded on the NYSE. There is also outstanding Series I Preferred Stock, the amount and ownership of which is presently unknown to Plaintiff, except that the Smith Group, defined below, owns 64.5% of it. 13. Members of the Smith family, including the Defendants named Smith, and related trusts ("the Smith Group") own approximately 30.4% of the SFD common stock (primarily Class A) and other officers and directors own 7.6% of that stock. Because of disparities in voting power between the two classes of common stock, the Smith Group has approximately 62.1% of the aggregate number of votes eligible to be cast at the meeting described below. 14. Yucaipa is a private investment group specializing in the supermarket industry. It owns or controls supermarket companies in southern California, the Chicago area, and Arizona, including Smitty's Supermarkets, Inc. ("Smitty's"), a Delaware corporation based in Phoenix, Arizona. 15. SFD issued to its shareholders a Proxy Statement and a separate Offer to Purchase dated April 25, 1996. The Proxy Statement and Offer were actually mailed to the plaintiff and other Class B shareholders in "waves" with Tampa, Florida postmarks bearing dates days and even weeks after April 25, 1996. The Proxy Statement is for a shareholders meeting to be held on May 23, 1996, to vote on a certain Recapitalization Agreement and Plan of Merger ("the Agreement") among SFD, Cactus Acquisition, Inc. (a wholly-owned subsidiary of SFD), Smitty's, and Yucaipa. The Offer to Purchase ("the Offer") is a self-tender by SFD for 50% of its 3 common stock (both classes) at $36 per share, pursuant to the Agreement. The Offer states that it will expire on May 22, 1996. Both the Agreement and the Offer are very long and complex documents which the shareholders have been given less than 30 days to digest and to respond. The Proxy Statement and Offer are incorporated as part of this complaint. 16. The Agreement and the actions it contemplates are grossly unfair and are the result of breaches of fiduciary duties owed to the Class B stockholders by the directors of SFD and the controlling shareholders, aided and abetted by Yucaipa, Berkle and Goldman Sachs & Co., Inc. CLASS ALLEGATIONS ----------------- 17. Plaintiff brings this action individually and as a class action pursuant to Rule 23, on behalf of himself and all persons or entities who owned Class B Common Stock in SFD on the record date for the May 23 shareholders meeting, excluding present and former directors, officers and employees of SFD and members of their families. 18. Plaintiff's claims are typical of the claims of members of the Class. This action is based on Defendants' conduct toward and damage to all Class Members and not on conduct or damage unique to Plaintiff. 19. The Class is so numerous that joinder of all members is impracticable. While the exact number in the Class is unknown, it is ascertainable through records maintained by SFD, its affiliates or agents. The Class is believed to include approximately 1300 people, firms, or institutions. 4 20. Common questions of law and fact exist as to all members of the Class and predominate over questions affecting individual members thereof, including: (a) Whether Defendants breached their fiduciary duties to the Class members or aided and abetted others in doing so; (b) Whether standardized written materials disseminated to the Class members omitted or misrepresented material facts; and (c) Whether class members will sustain or have sustained damages as a result of Defendants' wrongdoing and, if so, the measure of damages. 21. No difficulties are likely to be encountered in the management of this litigation as a class action. Plaintiff has no interests antagonistic to those of other Class members and will fairly and adequately represent the interests of the Class; he has sustained damages because of the conduct alleged and has retained counsel competent and experienced in class and securities litigation and will prosecute this action vigorously. 22. A class action is superior to other methods for the fair and efficient adjudication of this controversy. The damages suffered by individual Class members are small in comparison to the expense of this litigation, making it difficult or impossible to redress the wrongs on an individual basis. THE PROPOSED TRANSACTION ------------------------ 23. The transaction reflected in the Proxy Statement and Offer involves (a) the merger of Smitty's into a wholly-owned subsidiary of SFD, (b) the issuance of Class B Common Stock to the owners of Smitty's (entities controlled by Yucaipa), (c) the self 5 tender by SFD for 50% of its common stock of both classes for $36 per share, (d) the repayment of certain SFD and Smitty's debt, (e) the purchase of up to 50% of outstanding management stock options, (f) the purchase of part of the Series I Preferred Stock, and (g) the payment by SFD of certain fees and other amounts. The transaction also entails SFD entering a Management Services Agreement with Yucaipa. 24. In order to finance all of the transaction, SFD will incur $1,318.2 million dollars in new debt, assume $43.6 million of Smitty's debt, and issue new cumulative redeemable exchangeable preferred stock for gross proceeds of $75 million. A. WHAT SFD GETS OUT OF THE TRANSACTION. ----------------------------------------- 25. SFD gets Smitty's, a company which had lost nearly $2 million dollars during the last six month period for which financials were available, the addition of which gives SFD a negative net worth of $121.6 million, under generally accepted accounting principles ("GAAP"), compared to a positive shareholders equity of $416.7 million without the transaction. 26. SFD's management estimates that it can achieve approximately $25 million annualized cost savings over a 3-year period by integrating its Arizona operations with Smitty's, but only after spending an additional $32 million in capital and other costs over the next two years. B. WHAT THE CLASS B SHAREHOLDERS GET OUT OF THE TRANSACTION. ------------------------------------------------------------- 27. The Class B shareholders get a premium over market price (currently approximately $28 per share) for half of their stock while 6 the value of the other half will plummet. This, admitted by SFD, will occur due to the undercapitalized and extraordinarily leveraged position of the company as a result of these transactions, coupled with the thinness of the trading market post-tender. C. WHAT THE SMITH GROUP AND OTHER INSIDERS GET OUT OF THE TRANSACTION. ------------------------------------------ 28. The Smith Group and other insiders will receive over $170,000,000, the vast bulk of which is attributable to their ownership of the otherwise unmarketable, untradeable Class A Stock. 29. On information and belief, for the reasons set out below, the Smith Group either have already agreed, or will agree, to a sale of the balance of their Class A Stock at a substantial price. D. WHAT YUCAIPA GETS OUT OF THE TRANSACTION. --------------------------------------------- 30. Yucaipa receives: (a) 3,038,888 shares of SFD Class B Stock (30.72% of the Class B after merger); (b) a fee of $15,000,000 for using "reasonable efforts to consult with" SFD and "as appropriate, assist [SFD] in arranging for [SFD] to enter into" financing agreements; (c) a Management Services Agreement having a five-year term for $1,000,000 per year, not terminable by SFD without the payment of the greater of $5,000,000 or twice the total fees which would have been due for the remaining term of the contract; (d) warrants to purchase a new class of SFD stock; (e) installation of its managing general partner as Chief Executive Officer of SFD (though he is not required "to spend any specified amount of time on [SFD's] affairs"), one of its employees as Senior Vice President, Administration of the Company, and two of its nominees on a downsized and reconstituted SFD board of directors. 7 31. Moreover, Yucaipa, which had earlier expressed a desire to purchase SFD, has gotten SFD to purchase half of its own stock, as well as a losing venture of Yucaipa's, using SFD's credit and assets. With its management contract, its executive and board positions and its warrants, Yucaipa has "locked up" SFD for a five-year period, without cost, investment, or liability to itself, while it can explore acquisition of the balance of the company less expensively if SFD survives. COUNT ONE VIOLATION OF (S)160, DEL. GEN. CORP. L. --------------------------------------- 32. SFD is purchasing its stock which will cause impairment of its capital, in violation of (S)160, Del. Gen. Corp. L. 33. SFD states in its offer that it "believes" that the fair value of its assets will exceed its liabilities and that SDF will have sufficient capital after the proposed transaction. However, it admits having no valuation of its assets as of the date of the Offer. The directors made their decision concerning the proposed transaction without any valuation of the assets. 34. The stockholders are being solicited to sell in the Offer and to vote in the Proxy Statement without any valuation of the assets of SFD. 35. Moreover, even if the fair value of the assets exceeded liabilities, as a public company SFD is required to prepare its financial statements in accordance with GAAP, SEC Reg. S-X, Rule 4-01, which will reflect a large negative net worth. Thus, the company will continue to display impaired capital to the investing public, thereby devaluing the Class B Stock. 8 COUNT TWO BREACH OF FIDUCIARY DUTY -- ILLEGAL LOCK-UP ------------------------------------------- 36. Over the past two years, SFD has been sharing non-public information with various potential suitors, in connection with possible offers to acquire it. Among these potential offerors was Yucaipa which, in late 1995, stated it would make an offer of cash and securities subject to satisfactory completion of due diligence and making satisfactory arrangements for financing. However, after completion of its due diligence, Yucaipa offered less cash and more equity than was acceptable to the management of SFD. Yucaipa then made a proposal essentially the same as that ultimately reflected in the Agreement. However, in January, 1996, SFD's board decided to contact other potential bidders and provide non-public information to any who appeared seriously interested, whereupon Yucaipa purported to withdraw from further negotiations. 37. Five companies were thereafter provided non-public information, and at least two submitted proposals, at least one of which was markedly superior to the one ultimately incorporated in the Agreement insofar as SFD generally and the Class B shareholders were concerned. These offers were rejected and the Agreement with Yucaipa was entered into. 38. Notwithstanding the fact that the directors of SFD had put the company up for auction and were charged with the duty of maximizing the company's value, particularly for its public shareholders, the directors favored the interests of the controlling shareholders to the detriment of the Class B 9 shareholders, thereby minimizing the company's value insofar as they were concerned. 39. In order to prevent any competing offers which might interfere with the deal being made with Yucaipa for the benefit of the Class A and Preferred shareholders, the directors entered into the Agreement and the Management Services Agreement, which essentially establishes a five-year lockup and transfer of managerial control to Yucaipa, which, on information and belief, will obtain full control within a period of years, all in violation of their fiduciary duties. COUNT THREE BREACH OF FIDUCIARY DUTY -- INADEQUATE DISCLOSURES -------------------------------------------------- 40. The directors breached their fiduciary duties of loyalty and candor by inadequately making the disclosures described in the following paragraphs. 41. While stating that the Class A Stock is not registered or traded, SFD does not disclose that this self-tender is the only way (other than a negotiated sale to a third party) that the holders of that stock, primarily the Smith Group, can realize cash value for it, much less a premium over the market established by the Class B Stock. 42. While stating that the management of SFD "believes" that its asset values exceed the liabilities it is taking on, SFD does not disclose on what that belief is based or what the asset value is believed to be. 43. While stating that the offering price is $36 per share, SFD does not disclose what the basis for the price was or whether 10 other offering prices were considered and whether such offer would have been more advantageous to SFD and the Class B Stockholders. 44. While stating that the Class B stock may trade "substantially below" the offering price, SFD does not disclose in what range that trading may be expected or the expected effect on the trading public of reporting a negative net worth and taking 50% of the previously traded stock off the market. 45. While stating that its financial advisor, Goldman, Sachs & Co., would render a complex fairness opinion, SFD did not disclose that Goldman, Sachs would not provide the directors or stockholders with an opinion that the transactions are fair to the company and the Class B shareholders. The Goldman, Sachs opinion is confined solely to the fairness of the number of securities issued to the sellers of Smitty's Supermarkets, Inc. 46. While acknowledging that "[c]ertain directors and officers of [SFD], Yucaipa and certain of their affiliates and certain nominees have interests described herein that may present them with potential conflicts of interest," neither the identities of the persons, nor the nature of the conflicts, are identified, delineated or described. Neither does SFD acknowledge or describe the actual conflicts of interest which exist. 47. While revealing that Yucaipa is in the supermarket business and what chains it owns or controls and while stating that the directors have relied on the experience and expertise of Yucaipa and its managing general partner, Burkle, in recommending approval of the Agreement, SFD does not provide information to the 11 stockholders on the nature and depth of the experience and/or expertise in question. 48. While revealing raw numbers regarding voting power and ownership percentages, SFD does not disclose that the Class B shareholders can defeat the Agreement, if they so desire, by withholding their proxies altogether and thereby prevent the required quorum for the vote. COUNT FOUR ---------- BREACH OF FIDUCIARY DUTY - NONDISCLOSURES ----------------------------------------- 49. On information and belief, the following facts were not disclosed. (a) The loss suffered by SFD in California was and will be the result of permitting certain of the officers and directors, to profit illegally at the company's expense by "flipping" land to the company (i.e., buying the land secretly at one price and selling it to the company at another, much higher, price) or by causing SFD to pay above market rent on properties owned in whole or in part by those officers or directors. This usurpation of corporate opportunities caused SFD to pay higher than market prices for the land acquired or rented. If SFD pursued the officers engaged in this practice and the directors who condoned or ignored it, recoveries made could have a material beneficial effect on the values of the Class B stock and the net worth of the company. (b) The Offer and Proxy Statement understate the losses in California and overstate the values of the remaining California properties. 12 (c) There is a second stage to the transaction with Yucaipa which, on information and belief, if Yucaipa has succeeded in resurrecting Smitty's with SFD's money, Yucaipa will buy the remainder of the Class B stock at the much lower price to which it will have fallen, as well as the remainder of the Class A stock at a price to be negotiated or already agreed upon with the controlling shareholders (the Smith Group and other officers and directors). COUNT FIVE BREACH OF FIDUCIARY DUTY -- AIDING AND ABETTING ----------------------------------------------- 50. With knowledge that the directors of SFD were breaching their fiduciary duties of care, candor, and loyalty to the Class B shareholders, Yucaipa and its managing general partner, Burkle, encouraged, aided, abetted and participated in those breaches and in the illegal lockup transaction. COUNT SIX --------- 51. Goldman Sachs & Co., Inc., a Delaware corporation ("Goldman Sachs"), was retained by SFD to provide financial guidance and investment banking service to SFD and to its stockholders. Goldman Sachs has fiduciary obligations to the shareholders of SFD and has breached these duties by: (a) Aiding and abetting the other defendants in putting together transactions that are beneficial to the other defendants and detrimental to the stockholders of SFD, (b) Failing to disclose significant financial information in connection with the transactions to the stockholders, 13 (c) Failing to issue an opinion or advise the stockholders as to the unfairness of the transactions to the stockholders. Goldman Sachs has limited its opinion to the fairness of the ratio in the transaction with Smitty's Supermarkets, Inc. (d) Goldman Sachs has charged and received excessive fees in connection with the transactions and has wrongfully obtained indemnification for breaches of fiduciary obligation of its own and its participation in breaches of fiduciary obligations of the other defendants. COUNT SEVEN ----------- 52. All the defendants have violated their fiduciary obligation to the Class B Stockholders, in terms of the timing aspect of the transaction by unfairly and deliberately providing them with a complicated, incomplete and lengthy Offer (104 pages) and the equally complicated, incomplete and lengthy Proxy Statement (252 pages) with inadequate time to review, understand, investigate, consult with legal and financial advisors and take appropriate action including, inter alia, bringing on an injunctive motion or other legal ---------- remedies. The plaintiff's copy of the Proxy Statement was postmarked May 2, 1996, and the Offer was postmarked April 30, 1996. On information and belief, other Class B shareholders received Proxy Statements and Offers with later postmarks. 14 53. The plaintiff will suffer irreparable harm if the transactions referred to herein are not enjoined or rescinded by order of this Court. 54. The plaintiff and the class will suffer irreparable harm if injunctive relief and/or recision or recessionary damages are not granted. 55. The plaintiff and the class are without a remedy at law. DAMAGES ------- 56. Because of the negative net worth of SFD, continued net losses (both SFD and Smitty's having reported substantial losses for the last reporting periods shown in the Proxy Statement), and the thinness of the market post-merger and tender, the Class B Stock remaining (at least 50% of the pre-merger number of shares) will be essentially worthless. The Class B shareholders will have lost, giving due credit for the tender offer price obtained, approximately $8 to $10 per share, or an aggregate loss of approximately $109,641,528 to $137,051,910. WHEREFORE, the plaintiff moves for the following relief: A. Preliminary, temporary and permanent injunctive relief against the holding of the stockholders' meeting and the consummation of any or all of the transactions referred to in these pleadings or in the proxy statement or in the offer. B. Rescission or rescissory damages or restitution. C. Certification of this action as a class action and certification of the plaintiff as a class action representative. 15 D. The imposition of a constructive trust over the proceeds of the transactions referred to in the complaint, the proxy statement or the offer. E. Appointment of a receiver of the corporate defendant, Smith's Food & Drug Centers, Inc., in view of the violation of a Del.C. (S)160. ------ F. The award of costs, interest and attorney's fees to the plaintiff. G. Such other equitable and legal relief as is appropriate under the circumstances. PRICKETT, JONES, ELLIOTT, KRISTOL & SCHNEE By /s/ WILLIAM PRICKETT ------------------------------------- William Prickett Ronald A. Brown, Jr. 1310 King Street Wilmington, Delaware 19899 302 888-6500 Attorneys for Plaintiff Of Counsel: A. B. Conant, Jr. CONANT, WHITTENBURG, FRENCH & SCHACHTER 2300 Plaza of the Americas 600 North Pearl, LB 133 Dallas, Texas 75201 214 999-5700 May 22, 1996 16 -----END PRIVACY-ENHANCED MESSAGE-----