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Smart & Final Inc/DE – ‘DEFM14A’ on 4/27/07

On:  Friday, 4/27/07, at 5:23pm ET   ·   Effective:  4/27/07   ·   Private-to-Public:  Document/Exhibit ¶  –  Release Delayed   ·   Accession #:  1193125-7-93885   ·   File #:  1-10811

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/27/07  Smart & Final Inc/DE              DEFM14A¶    4/27/07    2:1.1M                                   Donnelley … Solutions/FA

Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14A     Definitive Proxy Statement                          HTML   1.20M 
 2: COVER     ¶ Comment-Response or Cover Letter to the SEC         HTML     17K 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant x    Filed by a Party other than the Registrant ¨

Check the appropriate box:

SMART & FINAL INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

Common Stock, par value $0.01, of Smart & Final Inc. (“Company common stock”)

34,996,631 shares of Company common stock (includes 3,252,266 shares of Company common stock reserved for issuance upon exercise of outstanding stock options and stock underlying stock appreciation rights and restricted stock of the Company).

In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was calculated by multiplying .00003070 by the sum of: (a) the product of 31,744,365 shares of Company common stock and the per share merger consideration of $22.00 in cash per share of Company common stock, (b) the product of 2,748,986 shares of Company common stock underlying options and $11.8026 (the difference between $22.00 and $10.1974, the weighted average exercise price per share of Company common stock underlying the options), (c) the product of 239,000 shares of Company common stock subject to stock appreciation rights and $6.9280 (the difference between $22.00 and $15.0720, the weighted average grant price per share and (d) the product of 264,280 shares of Company restricted stock and the per share amount of $22.00 in cash per share of Company restricted stock.

$738,291,164

$22,666

$22,666

Proxy Statement on Schedule 14A

Smart & Final Inc.

April 27, 2007

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Dear Stockholder:

You are cordially invited to attend a special meeting of stockholders of Smart & Final Inc. to be held on May 29, 2007, at 1:00 p.m., local time, at the Company’s corporate headquarters, 600 Citadel Drive, Commerce, California 90040.

At the special meeting, you will be asked to approve and adopt an agreement and plan of merger that the Company entered into on February 20, 2007, as amended on April 27, 2007, providing for the merger of an affiliate of Apollo Management, L.P. with and into the Company. Apollo is a recognized leader in private equity, debt and capital markets investing, which, since its inception, has successfully invested over $16 billion in companies representing a wide variety of industries, both in the U.S. and internationally. If the merger is consummated, the Company’s stockholders, other than Casino USA, Inc., the Company’s majority stockholder, will be entitled to receive $22.00 in cash for each share of Company common stock they own. Immediately prior to the effective time of the merger, Casino Guichard-Perrachon, S.A., which is referred to as Groupe Casino, Casino USA’s parent company, is expected to sell all of the issued and outstanding stock of Casino USA to an Apollo affiliate for an aggregate price based on the number of shares of Company common stock owned by Casino USA at the same $22.00 cash price per share to be paid pursuant to the merger, subject to certain adjustments. If the Apollo affiliate does not acquire Casino USA, the shares of Company common stock owned by Casino USA will be canceled and Casino USA will be entitled to receive in the transaction the same $22.00 in cash for each share of Company common stock that it holds. Following these transactions, the Company will become 100% owned by the Apollo affiliate.

The Company’s board of directors has determined that the merger agreement and the merger are fair to and in the best interests of the Company and its stockholders, and has unanimously approved the merger agreement and the transactions contemplated by the merger agreement. The Company’s board of directors unanimously recommends that the Company’s stockholders vote “FOR” the proposal to approve and adopt the merger agreement.

On April 2, 2006, the Company announced that it would review the Company’s strategic alternatives following an announcement by Groupe Casino on March 16, 2006 that it would seek to sell its non-strategic assets. The $22.00 per share being paid pursuant to the merger represents a premium of approximately 44.8% over the closing price of $15.19 per share on March 15, 2006, the last trading day prior to the Groupe Casino announcement, a premium of approximately 35.1% over the closing price of $16.39 per share on March 31, 2006, the last trading day prior to the Company’s announcement that it would review its strategic alternatives, and a premium of approximately 15.4% over the closing price of $19.06 per share on February 16, 2007, the last trading day prior to the announcement of the merger.

The Company cannot consummate the merger unless the Company’s stockholders approve and adopt the merger agreement. Such approval and adoption requires the affirmative vote of the holders of at least a majority of the outstanding shares of Company common stock outstanding on the record date. Groupe Casino and Casino USA, holders of approximately 54.9% of the outstanding Company common stock, have agreed, among other things, to vote their shares in favor of the proposal to approve and adopt the merger agreement, unless the Company’s board of directors changes, qualifies, withholds or withdraws its recommendation with respect to the merger, in which case Groupe Casino and Casino USA will only be required to vote 30% of the outstanding shares of Company common stock in favor of the proposal.

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The attached notice of special meeting and proxy statement explain the proposed merger and provide specific information concerning the special meeting. Please read these materials (including the annexes) carefully.

Your vote is important. Whether or not you plan to attend the special meeting, you should read the proxy statement and follow the instructions on your proxy card to submit a proxy by mail, telephone or Internet to ensure that your shares will be represented at the special meeting. If you decide to attend the special meeting and vote in person, your vote at the special meeting will revoke any previously submitted proxy.

Sincerely,

Etienne Snollaerts

President and Chief Executive Officer

This transaction has not been approved or disapproved by the Securities and Exchange Commission, nor has the Securities and Exchange Commission passed upon the fairness or merits of this transaction or the accuracy or adequacy of the information contained in this proxy statement. Any representation to the contrary is unlawful.

This proxy statement is dated April 27, 2007, and is first being mailed to stockholders of the Company on or about April 30, 2007.

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600 Citadel Drive

Commerce, California 90040

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held on May 29, 2007

To the Stockholders:

A special meeting of stockholders of Smart & Final Inc. will be held on May 29, 2007, at 1:00 p.m., local time, at the Company’s corporate headquarters, 600 Citadel Drive, Commerce, California 90040, for the following purposes:

1. to consider and vote on the proposal to approve and adopt the Agreement and Plan of Merger, dated as of February 20, 2007, as amended on April 27, 2007, by and among Sharp Holdings Corp., Sharp Acquisition Corp. and Smart & Final Inc.; and

2. to transact any other business as may properly come before the special meeting or at any adjournment or postponement of the special meeting.

The Company’s board of directors has fixed the close of business on April 19, 2007, as the record date for the determination of stockholders entitled to notice of and to vote at the special meeting. Accordingly, only stockholders of record on that date are entitled to vote at the special meeting or any adjournments thereof.

The Company’s board of directors has determined that the merger agreement and the merger are fair to and in the best interests of the Company and its stockholders, and has unanimously approved the merger agreement and the transactions contemplated by the merger agreement. The Company’s board of directors unanimously recommends that the Company’s stockholders vote “FOR” the proposal to approve and adopt the merger agreement.

Company stockholders who do not vote in favor of approval and adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares if the merger is consummated, but only if they perfect their appraisal rights by complying with all of the required procedures under Delaware law. See “The Merger—Appraisal Rights” beginning on page 41 of the accompanying proxy statement and Annex D to the proxy statement.

YOUR VOTE IS IMPORTANT

All stockholders are invited to attend the special meeting in person. Whether or not you plan to attend the special meeting, you should read the proxy statement and follow the instructions on your proxy card to submit a proxy by mail, telephone or Internet to ensure that your shares will be represented at the special meeting. If you decide to attend the special meeting and vote in person, your vote at the special meeting will revoke any previously submitted proxy.

By Order of the Board of Directors,

Donald G. Alvarado

Secretary

Commerce, California

April 27, 2007

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Annexes:

Annex A—Agreement and Plan of Merger, dated as of February 20, 2007, and Amendment No. 1 to the Agreement and Plan of Merger, dated as of April 27, 2007

Annex B—Stock Purchase Agreement, dated as of February 20, 2007

Annex C—Opinion of Goldman, Sachs & Co., dated February 20, 2007

Annex D—Section 262 of the General Corporation Law of the State of Delaware

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

The following are some questions that you may have regarding the proposed merger and the other matters being considered at the special meeting and brief answers to those questions. The Company urges you to carefully read the remainder of this proxy statement because the information in this section does not provide all the information that might be important to you with respect to the proposed merger. Additional important information is also contained in the annexes to, and the documents incorporated by reference in, this proxy statement. Unless stated otherwise, all references in this proxy statement to the Company are to Smart & Final Inc., a Delaware corporation, all references to Apollo are to Apollo Management, L.P., a Delaware limited partnership, all references to Buyer are to Sharp Holdings Corp., a Delaware corporation and a wholly owned subsidiary of an affiliate of Apollo, all references to Acquisition Sub are to Sharp Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Buyer, all references to Casino USA are to Casino USA, Inc., a California corporation and the Company’s majority stockholder, all references to Groupe Casino are to Casino Guichard-Perrachon, S.A., a société anonyme organized under the laws of the Republic of France and Casino USA’s parent, all references to the merger agreement are to the Agreement and Plan of Merger, dated as of February 20, 2007 and amended as of April 27, 2007, by and among the Buyer, Acquisition Sub and the Company, copies of which are attached in Annex A to this proxy statement, and all references to the stock purchase agreement are to the Stock Purchase Agreement, dated as of February 20, 2007, by and among Buyer, Groupe Casino and Casino USA, a copy of which is attached as Annex B to this proxy statement.

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If you hold your shares in “street name,” please refer to your proxy card, voting instruction card, or the information forwarded by your bank, broker or other nominee to see which options are available to you.

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600 Citadel Drive

Commerce, California 90040

SUMMARY TERM SHEET

This summary term sheet highlights material information contained in this proxy statement, but does not contain all of the information in this proxy statement that is important to your voting decision. To understand the merger agreement and the stock purchase agreement fully and for a more complete description of the terms of the merger, the stock purchase and related transactions, you should carefully read this entire proxy statement, including the attached annexes. In addition, the Company encourages you to read the information incorporated by reference into this proxy statement, which includes important business and financial information about the Company that has been filed with the Securities and Exchange Commission, which is referred to as the SEC. See “Where You Can Find More Information.”

Page references are included in parentheses to direct you to more complete descriptions of the topics presented in this summary term sheet. The merger agreement and stock purchase agreement are attached as Annex A and Annex B to this proxy statement, respectively. You are encouraged to read the merger agreement and the stock purchase agreement, because they are the legal documents that contain the terms and conditions of the merger and the sale of the stock of Casino USA, respectively.

The Companies (page 15)

Smart & Final Inc.

600 Citadel Drive

Commerce, California 90040

Tel: 323-869-7500

Founded in 1871 in downtown Los Angeles, Smart & Final Inc., a Delaware corporation, operates non-membership warehouse stores for food and foodservice supplies in California, Oregon, Washington, Arizona, Nevada, Idaho and northern Mexico.

Apollo Management, L.P.

The MGM Tower

10205 Constellation Boulevard, Suite 2900

Los Angeles, California 90067

Tel: 310-843-1900

Apollo Management, L.P., founded in 1990, is a recognized leader in private equity, debt and capital markets investing. Since its inception, Apollo has invested over $16 billion in companies representing a wide variety of industries, both in the U.S. and internationally.

Sharp Holdings Corp.

c/o Apollo Management, L.P.

The MGM Tower

10205 Constellation Boulevard, Suite 2900

Los Angeles, California 90067

Tel: 310-843-1900

Sharp Holdings Corp., a Delaware corporation, is a subsidiary of an affiliate of Apollo formed for the sole purpose of effecting the merger. Sharp Holdings Corp. has not conducted any business operations other than in connection with the transactions contemplated by the merger agreement.

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Sharp Acquisition Corp.

c/o Apollo Management, L.P.

The MGM Tower

10205 Constellation Boulevard, Suite 2900

Los Angeles, California 90067

Tel: 310-843-1900

Sharp Acquisition Corp., a Delaware corporation, is a wholly owned subsidiary of Sharp Holdings Corp. formed for the sole purpose of effecting the merger. Sharp Acquisition Corp. has not conducted any business operations other than in connection with the transactions contemplated by the merger agreement.

Casino Guichard-Perrachon, S.A.

58-60, avenue Kleber

75116 Paris

France

Tel: +33-1-53-65-64-00

Casino Guichard-Perrachon, S.A., a société anonyme organized under the laws of the French Republic, is one of France’s leading food retailers. Casino Guichard-Perrachon, S.A. is the parent entity of the Company’s majority stockholder, Casino USA.

Casino USA, Inc.

c/o Casino Guichard-Perrachon, S.A.

58-60, avenue Kleber

75116 Paris

France

Tel: +33-1-53-65-64-00

Casino USA, Inc., a California corporation, is a wholly owned subsidiary of Groupe Casino, and is the Company’s majority stockholder.

Special Meeting of the Company’s Stockholders (page 12)

Date, Time and Place. A special meeting of stockholders of the Company will be held on May 29, 2007, at 1:00 p.m., local time, at the Company’s corporate headquarters, 600 Citadel Drive, Commerce, California 90040, for the following purposes:

Record Date and Shares Entitled to Vote. Only holders of record of the Company’s common stock at the close of business on April 19, 2007, the record date, are entitled to vote at the special meeting. Each record holder will have one vote at the special meeting for each share of Company common stock they held as of the close of business on the record date. On the record date, 31,744,365 shares of Company common stock were issued and outstanding and held by approximately 225 holders of record.

Required Vote. Under the DGCL, in order for the merger agreement to be approved and adopted, a majority of the outstanding shares of the Company’s common stock must be voted in favor of approval and adoption of the merger agreement at a meeting of the Company’s stockholders. A quorum is necessary to hold the special meeting. A quorum exists if at least a majority of the votes entitled to be cast at the special meeting are present in person or by proxy.

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Votes will be counted by the inspector of election appointed for the special meeting, who will separately count “For” and “Against” votes, abstentions and broker non-votes. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not receive instructions with respect to the merger proposal from the beneficial owner. Because under Delaware law approval and adoption of the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of Company common stock, withheld votes, broker non-votes and abstentions will have exactly the same effect as a vote “Against” the approval and adoption of the merger agreement. Withheld votes, broker non-votes and abstentions are counted, however, as present for the purpose of determining whether a quorum is present.

Voting Agreement and Voting by the Company’s Directors and Executive Officers. Pursuant to the stock purchase agreement, Groupe Casino and Casino USA have agreed to vote all shares of Company common stock owned by each of them, respectively, in favor of the merger, unless the Company’s board of directors changes, qualifies, withholds or withdraws its recommendation with respect to the merger, in which case Groupe Casino and Casino USA will only be required to vote 30% of the outstanding shares of Company common stock in favor of the proposal. As of April 19, 2007, the record date for stockholders entitled to vote at the special meeting, Groupe Casino’s wholly owned subsidiary, Cuersup S.A., owned 896,200 shares of Company common stock, and Casino USA owned 16,687,860 shares of Company common stock. Collectively, these shares represent approximately 54.9% of the Company’s outstanding common stock and would therefore represent, absent a change in the recommendation of the Company’s board of directors, an amount of shares that would ensure approval of the proposal to approve and adopt the merger agreement.

Purposes and Effects of the Merger (page 24)

The principal purposes of the merger are to enable an affiliate of Apollo to acquire all of the outstanding shares of Company common stock and to provide the Company’s stockholders with the opportunity to receive a cash payment for their shares at a significant premium. See “The Merger—Background of the Merger.” The acquisition will be accomplished by a merger of Acquisition Sub with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Buyer. If the merger is consummated, each outstanding share of Company common stock, other than shares of Company common stock held by Casino USA, will be converted into the right to receive $22.00 in cash. Immediately prior to the effective time of the merger, Groupe Casino will sell all of the issued and outstanding common stock of Casino USA to Buyer for an aggregate price based on the number of shares of Company common stock owned by Casino USA at the same $22.00 price per share, subject to certain adjustments, all pursuant to the terms of the stock purchase agreement.

Following consummation of the merger and stock purchase, the surviving corporation will be a wholly owned subsidiary of Buyer. Company common stock will be delisted from the New York Stock Exchange, or NYSE, will no longer be publicly traded and will be deregistered under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Effects of the Merger Not Being Consummated (page 25)

If the merger is not consummated for any reason, the Company’s stockholders and holders of stock options, SARs, restricted stock and RSUs will not receive the merger consideration. Instead, the Company will remain a public company and shares of Company common stock will continue to be listed on the NYSE. If the merger is not consummated, the Company expects to continue to conduct its business in a manner similar to the manner in which it is presently conducted. In such event, the value of shares of Company common stock would continue to be subject to the risks and opportunities described in the Company’s filings with the SEC. If the merger is not consummated, adverse market reaction may cause Company common stock to trade below the levels at which it traded prior to Groupe Casino’s announcement that it would seek to sell its non-strategic assets.

What You Will Receive in the Merger (page 50)

If the merger is consummated, each outstanding share of Company common stock, other than shares of Company common stock held by Casino USA, will be converted into the right to receive $22.00 in cash. You

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will receive the per share merger consideration of $22.00 in cash in respect of your shares of Company common stock after you remit your stock certificate(s) evidencing your shares of Company common stock or exchange your book-entry shares in accordance with the instructions contained in a letter of transmittal to be sent to you as soon as reasonably practicable after consummation of the merger, together with a properly completed and signed letter of transmittal and any other documentation required to be completed pursuant to the written instructions. If your shares of Company common stock are held in “street name” by your bank, broker or other nominee, you will receive instructions from your bank, broker or nominee as to how to surrender your “street name” shares and receive cash for those shares.

Company Stock Options, SARs, Restricted Stock and RSUs (page 50)

Each outstanding option and SAR will become fully vested and exercisable prior to the effective time of the merger. Except with respect to options or SARs held by employees who have reached a separate written agreement with Buyer, at the effective time of the merger, each share of Company common stock issuable pursuant to each option or SAR will be converted into the right to receive $22.00 in cash. Subject to receipt of necessary consents, if any, each such option and SAR will be canceled at the effective time of the merger in exchange for the right to receive an amount of cash per share subject to such option or SAR (as applicable) that is equal to the excess, if any, of $22.00 over the exercise price of such option or SAR (as applicable), less any required withholding taxes. Where the necessary consent to cancel an option or SAR at the effective time of the merger is not received, such option or SAR will represent the right to receive, upon exercise on or after the effective time of the merger, $22.00 in cash for each share subject to such option or SAR.

At the effective time of the merger, each share of restricted stock and each RSU will become fully vested and be converted into the right to receive $22.00 in cash in exchange for the cancellation of each share of restricted stock or RSU (as applicable), less any required withholding taxes.

Recommendation of the Company’s Board of Directors (page 22)

The Company’s board of directors has determined that the merger agreement and the merger are fair to and in the best interests of the Company and its stockholders, and has unanimously approved the merger agreement and the transactions contemplated by the merger agreement. The Company’s board of directors unanimously recommends that the Company’s stockholders vote “FOR” the proposal to approve and adopt the merger agreement.

Opinion of Financial Advisor (page 25)

Goldman, Sachs & Co., which is referred to as Goldman Sachs, delivered its written opinion to the Company’s board of directors that, as of February 20, 2007 and based upon and subject to the factors and assumptions set forth in its written opinion, the $22.00 per share in cash to be received by the holders of Company common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated February 20, 2007, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this proxy statement as Annex C. Goldman Sachs provided its opinion for the information and assistance of the Company’s board of directors in connection with its consideration of the transactions contemplated by the merger agreement. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of Company common stock should vote with respect to the proposal to approve and adopt the merger agreement.

Appraisal Rights (page 41)

Holders of Company common stock who do not vote in favor of approval and adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is consummated, but only if they submit a written demand for appraisal to the

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Company before the vote is taken on the merger agreement and they comply with all requirements of Delaware law, which are summarized in this proxy statement. This appraisal amount could be more than, the same as or less than the amount a stockholder would be entitled to receive under the terms of the merger agreement. Any holder of Company common stock intending to exercise his appraisal rights, among other things, must submit a written demand for an appraisal to the Company prior to the vote on the approval and adoption of the merger agreement and must not vote or otherwise submit a proxy in favor of approval and adoption of the merger agreement.

Merger Agreement (page 49)

A copy of the merger agreement is attached to this proxy statement as Annex A and a summary of the merger agreement is provided beginning on page 49 of this proxy statement. You are encouraged to carefully read the merger agreement as it is the legal document that contains the terms and conditions of the merger.

Special Meeting of Stockholders (page 12)

The merger agreement requires the Company, as promptly as reasonably practicable, to establish a record date for, duly call, give notice of, convene and hold the special meeting for the purpose of voting on the approval and adoption of the merger agreement, regardless of whether the Company’s board of directors has determined that the merger is no longer advisable or recommends that the Company’s stockholders reject the merger.

The Company’s board of directors is required to recommend approval and adoption of the merger agreement to the Company’s stockholders, unless the Company’s board of directors has concluded in good faith after consultation with the Company’s outside legal and financial advisors that failure to change, qualify, withhold or withdraw its recommendation would be inconsistent with the directors’ fiduciary duties under applicable law. In the event that the Company’s board of directors changes, qualifies, withholds or withdraws its recommendation with respect to the merger, Groupe Casino and Casino USA will only be required to vote 30% of the outstanding shares of Company common stock in favor of the proposal.

No-Solicitation (page 56)

The merger agreement contains restrictions on the Company’s ability to solicit or engage in discussions or negotiations with a third party regarding a competing proposal as described in “The Merger Agreement—No Solicitation.” Notwithstanding these restrictions, under certain limited circumstances, the Company may furnish non-public information to a third party making a competing proposal (after entering into a confidentiality agreement with such third party) and engage in discussions or negotiations with a third party with respect to a superior proposal, in each case after furnishing prior written notice of such proposal to Buyer.

Conditions to the Consummation of the Merger (page 58)

The respective obligations of the Company, on the one hand, and Buyer and Acquisition Sub, on the other hand, to effect the merger are subject to the satisfaction or waiver of the following conditions:

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The obligations of Buyer and Acquisition Sub to effect the merger are further subject to the satisfaction or waiver of the following additional conditions:

Termination of the Merger Agreement (page 59)

The merger agreement may be terminated at any time prior to the effective time of the merger by mutual written consent of the Company and Buyer.

The merger agreement may be terminated by either the Company or Buyer at any time prior to the effective time of the merger:

The merger agreement may be terminated by Buyer at any time prior to the effective time of the merger if the Company’s board of directors changes, qualifies, withholds or withdraws its recommendation with respect to the merger, or a tender offer or other transaction constituting a competing proposal is commenced and the Company does not send to its stockholders within 10 days a statement recommending rejection of such tender offer or competing proposal.

The Company may terminate the merger agreement at any time prior to the effective time of the merger if all of the conditions to Buyer’s obligations to close have been satisfied, a specified marketing period with respect to Buyer’s debt financing has occurred and Buyer fails to deposit with the paying agent for the benefit of the Company’s stockholders, cash in the amount necessary for the payment of the merger consideration.

Termination Fees (page 59)

Termination Fee Payable by the Company. The merger agreement provides that the Company will be obligated to pay Buyer a termination fee of $25.0 million if a competing proposal is proposed or publicly disclosed and not withdrawn prior to the special meeting and (1) the merger agreement is terminated by either party because the merger is not consummated on or before July 31, 2007, the merger agreement is terminated by either party because stockholder approval is not obtained, or Buyer terminates because the Company is in material breach of the merger agreement, and (2) within nine months after such termination a Qualifying

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Transaction is entered into or consummated. The merger agreement defines a “Qualifying Transaction” as any (1) acquisition of the Company by merger or business combination transaction; (2) acquisition by any person of 40% or more the Company’s assets and the assets of the Company’s subsidiaries, taken as a whole; or (3) acquisition by any person of 40% or more of the Company’s outstanding common stock. The Company will also be obligated to pay Buyer a termination fee of $25.0 million if the merger agreement is terminated by Buyer because the Company’s board of directors changes, qualifies, withholds or withdraws its recommendation with respect to the merger, or a tender offer or other transaction constituting a competing proposal is commenced and the Company does not send to its stockholders within 10 days a statement recommending rejection of such tender offer or competing proposal.

Termination Fee Payable by Buyer. The merger agreement also provides that Buyer will pay a reverse termination fee equal to $25.0 million to the Company if the Company terminates the merger agreement because all of the conditions to Buyer’s obligations to close have been satisfied, a specified marketing period with respect to Buyer’s debt financing has occurred and Buyer fails to deposit with the paying agent for the benefit of the Company’s stockholders, cash in the amount necessary for the payment of the merger consideration. In the alternative, the Company may choose to pursue its legal remedies under the terms of the merger agreement and the equity commitment letter provided by Apollo in connection with the execution of the merger agreement, which provides that the Company is a third-party beneficiary subject to a limitation on damages of $97.74 million.

Stock Purchase Agreement (page 61)

A copy of the stock purchase agreement is attached to this proxy statement as Annex B and a summary of the stock purchase agreement is provided on page 61 of this proxy statement. You are encouraged to carefully read the stock purchase agreement, because it is the legal document that provides for the purchase of Casino USA by Buyer. Groupe Casino requested that the acquisition be effected in part through the sale of Casino USA in order to accomplish certain tax planning objectives, and neither Buyer nor the Company had any objections to this structure. Buyer’s obligation to consummate the merger is conditioned upon the consummation of the stock purchase agreement. Buyer, however, may not assert the failure to satisfy this condition if the stock purchase agreement is terminated upon the occurrence of certain events set forth in the stock purchase agreement. In that case, the merger will go forward as planned and the Company common stock held by Casino USA will be treated in the same manner as all other shares in the merger.

Sale and Purchase of Shares. The stock purchase agreement provides that, concurrently with the closing of the transactions provided for in the merger agreement and immediately prior to the effective time of the merger, Groupe Casino will sell to Buyer, and Buyer will purchase from Groupe Casino, all of the issued and outstanding shares of Casino USA. The aggregate consideration to be paid for such shares of Casino USA shall be the sum of (1) the aggregate number of shares of the Company’s common stock held by Casino USA multiplied by the $22.00 per share merger consideration, plus (2) the aggregate amount of Casino USA’s debt and equity investments in a certain real estate lease facility held by the Company at the closing (equal to $20.1 million as of February 20, 2007), plus (3) the aggregate amount of cash held by Casino USA as of the closing. Casino USA invested in the real estate lease facility in 2001, along with other lenders, to facilitate the Company’s debt financing needs.

Agreement to Vote. Pursuant to the stock purchase agreement, Groupe Casino and Casino USA have agreed, among other things, to vote all shares of Company common stock held by either such entity in favor of approval and adoption of the merger agreement and against any competing proposal, unless the Company’s board of directors changes, qualifies, withholds or withdraws its recommendation with respect to the merger, in which case Groupe Casino and Casino USA will only be required to vote 30% of the outstanding shares of Company common stock in favor of approval and adoption of the merger agreement and against any competing proposal. Groupe Casino’s and Casino USA’s voting agreement will terminate as a result of any termination of the merger agreement.

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Profit Sharing Agreement. In the event that the merger agreement is terminated for any reason in which Buyer is entitled, or could become entitled, to a termination fee, and Groupe Casino or Casino USA transfer any of the shares of Company common stock held by them in connection with, or as a result of, any competing proposal that is in existence on, or that has been otherwise made prior to, the first anniversary of the date of such termination, Buyer will have the right to 50% of the profit above $22.00 per share on any sale of the shares of the Company’s common stock held by Groupe Casino or Casino USA. If Buyer increases the merger consideration, then Groupe Casino and Casino USA shall be required to either (a) waive the right to receive 50% of any profit from such increase or (b) return to Buyer 50% of the profit above $22.00 per share realized by Groupe Casino and Casino USA as a result of such increase.

Audited Financial Statements. No later than the later of 60 days after the date of the stock purchase agreement and ten days prior to the special meeting, Groupe Casino is required to deliver to Buyer either (1) certain audited financial statements of Casino USA or (2) a notice that it will be unable to deliver the audited financial statements by such deadline. The required audited financial statements of Casino USA were delivered to Buyer on April 17, 2007.

Interests of the Company’s Directors and Executive Officers in the Merger (page 33)

When considering the recommendation by the Company’s board of directors, you should be aware that a number of the Company’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of the Company’s other stockholders. The Company’s board of directors was aware of these interests and considered them, among other matters, in unanimously approving the merger agreement and the transactions contemplated by the merger agreement. Each of these additional interests is described in this proxy statement, to the extent material, and, except as described in the proxy statement, such persons have, to the knowledge of the Company, no material interest in the merger apart from those of the Company’s common stockholders generally. See “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger.”

Merger Financing (page 43)

Financing of the Merger and Related Transactions. Buyer and Acquisition Sub estimate that the total amount of funds necessary to consummate the merger and related transactions will be approximately $890.9 million, including fees, expenses and accrued and unpaid interest under the Company’s existing credit facilities, which will be funded by equity financing, a new first lien term loan facility, a new second lien term facility, a new revolving credit facility, and a new real estate term loan facility. Funding of the equity and debt financing is subject to the satisfaction of the conditions set forth in the commitment letters pursuant to which the financing will be provided. See “The Merger—Merger Financing; Source of Funds.” The following arrangements are in place to provide the necessary financing for the merger, including the payment of related transaction costs, charges, fees and expenses and the repayment in full of all amounts owing under, and the termination of, all existing credit facilities:

Equity Financing. Buyer and Acquisition Sub have received an equity commitment from Apollo Management VI, L.P., the Apollo affiliate through which the transaction is being conducted, on behalf of affiliated co-investment partnerships, pursuant to which, subject to the conditions contained therein, the Apollo affiliate, on behalf of affiliated co-investment partnerships, has agreed to make aggregate cash capital contributions to Buyer of up to $269.35 million.

Debt Financing. Buyer and Acquisition Sub and their subsidiaries have received debt financing commitments from Bank of America, N.A., Bank of America Bridge LLC, Banc of America Securities LLC, Bear Stearns Corporate Lending Inc., Bear, Stearns & Co. Inc., Bear Stearns Commercial Mortgage, Inc., Credit Suisse and Credit Suisse Securities (USA) LLC, which are referred to collectively as the debt commitment parties, pursuant to which those debt commitment parties further specified in the commitment letters will provide in the aggregate:

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The availability of such debt financing is subject to the satisfaction of various conditions, many of which are customary conditions for leveraged acquisition financings. There can be no assurance that all of the conditions to the debt financing will be met. If any of the material conditions to any of the facilities comprising the debt financing are not satisfied, the Company would not expect the debt commitment parties to waive the conditions and provide the debt financing under such facilities. In the event that any portion of the debt financing under the debt financing commitments becomes unavailable, Buyer and Acquisition Sub will be required to use their reasonable best efforts to obtain alternative financing, on terms that are no more adverse to Buyer, as promptly as practicable following the occurrence of such event.

Regulatory Matters (page 47)

The merger is subject to U.S. antitrust laws. Groupe Casino and Apollo have separately filed the required notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the HSR Act, with both the Antitrust Division of the Department of Justice and the Federal Trade Commission, which are referred to as the Antitrust Division and the FTC, respectively. On March 28, 2007, Groupe Casino and Apollo were notified that they had received early termination of the waiting period required under the HSR Act. The Antitrust Division or the FTC, as well as any state attorney general or private person, may challenge the merger at any time before or after its consummation.

Market Price and Dividend Information (page 11)

Shares of Company common stock are listed on the NYSE. The Company does not currently pay dividends on Company common stock. See “Market Price Data and Dividend Information.”

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FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This proxy statement includes information that could constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, which include words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” and similar and related expressions. Such forward-looking statements involve risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company’s actual results could differ materially from those described in the forward-looking statements. The following factors might cause such a difference:

Additional information regarding these and other risk factors and uncertainties are set forth from time to time in the Company’s filings with the SEC, available for viewing on the Company’s website at www.smartandfinal.com. All forward-looking statements are based on information available to the Company on the date of this proxy statement. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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MARKET PRICE DATA AND DIVIDEND INFORMATION

Company common stock is listed and traded on the NYSE under the symbol “SMF.” The following table sets forth, for the quarterly periods indicated, the high and low per share closing price of Company common stock as quoted on the NYSE:

The closing sale price per share of Company common stock as quoted on the NYSE was (1) $15.19 on March 15, 2006, the last trading day before Groupe Casino publicly announced that it would seek to sell its non-strategic assets; (2) $16.39 on March 31, 2006, the last trading day before the Company announced it was reviewing its strategic alternatives; (3) $19.06 on February 16, 2007, the last trading day before the Company announced that it had entered into the merger agreement; and (4) $21.73 on April 26, 2007, the latest practicable trading day before the date of this proxy statement. The per share merger consideration of $22.00 is higher than the highest closing price per share for the Company common stock during the five-year period preceding the date of the merger agreement.

If the merger is consummated, Company common stock will be delisted from the NYSE and Company common stock will be deregistered under the Exchange Act.

The declaration and payment of dividends on Company common stock is subject to the discretion of the Company’s board of directors. The Company has not paid dividends since January 1999 as the declaration and payment of dividends were subject to restrictions under the terms of its bank credit facility and lease facility. The restriction under the credit facility was amended effective November 2004 to permit the Company to pay up to $10 million in annual dividends commencing with fiscal year 2005; however, the dividend restrictions under the lease facility remain in place. The Company did not pay dividends during 2005 or 2006. The Company’s board of directors periodically reviews the Company’s dividend policy and there can be no assurance whether or when dividends will be paid in the future. In addition, the merger agreement provides that until the effective time of the merger or the termination of the merger agreement, the Company shall not declare or pay any dividends on any of its capital stock.

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THE SPECIAL MEETING OF STOCKHOLDERS

The Company is furnishing this proxy statement to holders of Company common stock as part of the solicitation of proxies by the Company’s board of directors for use at the special meeting of stockholders.

Date, Time and Place

The Company will hold the special meeting on May 29, 2007, at 1:00 p.m., local time, at the Company’s corporate headquarters, 600 Citadel Drive, Commerce, California 90040.

Purpose of Special Meeting

The special meeting will be held for the following purposes:

After careful consideration, the Company’s board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement are fair to and in the best interests of the Company and its stockholders. Accordingly, the Company’s board of directors has unanimously approved the merger agreement and the transactions contemplated by the merger agreement. The Company’s board of directors unanimously recommends that you vote “FOR” the proposal to approve and adopt the merger agreement.

Record Date; Shares Entitled to Vote; Quorum

Only holders of record of shares of Company common stock at the close of business on April 19, 2007, the record date for the special meeting, are entitled to vote at the special meeting. Each record holder will have one vote at the special meeting for each share of Company common stock as of the close of business on the record date. On the record date, 31,744,365 shares of Company common stock were issued and outstanding and held by approximately 225 holders of record. A quorum exists if at least a majority of the votes entitled to be cast at the special meeting are present in person or by proxy. In the event that a quorum is not present at the special meeting, it is expected that the special meeting will be adjourned or postponed to solicit additional proxies. Pursuant to the stock purchase agreement, Groupe Casino and Casino USA have agreed to cause their respective shares of Company common stock to be present and voted, in person or by proxy, at the special meeting or at any adjournment or postponement thereof.

Required Vote

Under Delaware law, the approval and adoption of the merger agreement requires the affirmative vote of holders representing at least a majority of the outstanding shares of the Company’s common stock as of April 19, 2007, the record date for the special meeting. The holders of a majority of the outstanding shares of the Company’s common stock on the record date, represented in person or by proxy, will constitute a quorum for purposes of the special meeting. A quorum is necessary to hold the special meeting. In the event that a quorum is not present at the special meeting, it is expected that the special meeting will be adjourned or postponed to solicit additional proxies. Any shares of the Company’s common stock held in treasury by the Company or held by any of the Company’s subsidiaries are not considered to be outstanding for purposes of determining a quorum. Abstentions and broker non-votes will be counted as shares present and entitled to vote for the purposes of determining a quorum. “Broker non-votes” result when brokers are precluded from exercising their voting discretion with respect to the approval of non-routine matters such as the merger proposal, and, thus, absent specific instructions from the beneficial owner of those shares, brokers are not empowered to vote the shares with respect to the approval of those proposals.

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The approval of any proposal to postpone or adjourn the special meeting if there are not sufficient votes to approve and adopt the merger agreement requires the affirmative vote of a majority of those shares represented in person or by proxy at the special meeting. The persons named as proxies may propose and vote for one or more postponements or adjournments of the special meeting, including postponements or adjournments to permit further solicitations of proxies. No proxy voted against approval and adoption of the merger agreement will be voted in favor of any postponement or adjournment of the special meeting.

Under Delaware law, holders of shares of the Company’s common stock are entitled to appraisal rights in connection with the merger. In order to exercise appraisal rights, you must comply with all applicable requirements of Delaware law. See “The Merger—Appraisal Rights” and Annex D for information on the requirements of Delaware law regarding appraisal rights.

Voting Agreement and Voting by the Company’s Directors and Executive Officers

Pursuant to the stock purchase agreement, Groupe Casino and Casino USA have agreed to vote all shares of Company common stock owned by each of them, respectively, in favor of the merger, unless the Company’s board of directors changes, qualifies, withholds or withdraws its recommendation with respect to the merger, in which case Groupe Casino and Casino USA will only be required to vote 30% of the outstanding shares of Company common stock in favor of the proposal. As of April 19, 2007, the record date for stockholders entitled to vote at the special meeting, Groupe Casino’s wholly owned subsidiary, Cuersup S.A., owned 896,200 shares of Company common stock, and Casino USA owned 16,687,980 shares of Company common stock. Collectively, these shares represent approximately 54.9% of the Company’s outstanding common stock and would therefore represent, absent a change in the recommendation of the Company’s board of directors, an amount of shares that would ensure approval of the proposal to approve and adopt the merger agreement.

Voting of Proxies

Stockholders of record may vote their shares by attending the special meeting and voting their shares of Company common stock in person, or by marking, signing and dating the enclosed proxy card and mailing it in the enclosed postage-prepaid envelope or by submitting the proxy by telephone or the Internet by following the instructions printed on the proxy card. Stockholders who hold such shares through a broker, bank or other nominee must follow the instructions on the proxy form supplied by their broker, bank or other nominee, which may provide for voting by telephone or via the Internet.

All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the holders of such shares. Properly executed proxies that do not contain voting instructions will be voted “FOR” the proposal to approve and adopt the merger agreement.

Shares of Company common stock represented at the special meeting but not voted, including broker non-votes, and shares of Company common stock for which proxies have been received but for which stockholders have abstained, will be treated as present at the special meeting for purposes of determining the presence of a quorum for the transaction of all business.

Only shares affirmatively voted “FOR” the approval of the merger agreement and properly executed proxies that do not contain voting instructions will be counted as favorable votes for the proposal.

The Company does not expect that any matter other than those described in this proxy statement will come before the special meeting. If any other matters are properly brought before the special meeting for action, however, the Company intends that the persons named as proxies on the enclosed proxy card will vote in accordance with their best judgment. These matters may include an adjournment or postponement of the special meeting from time to time if the Company’s board of directors so determines, except that proxies that are voted against the merger proposal may not be voted by the persons named on the enclosed proxy card for an

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adjournment or postponement of the special meeting. If any adjournment or postponement is made, the Company may solicit additional proxies during the adjournment or postponement period.

Your vote is important. Please return your signed proxy card or submit your proxy by telephone or Internet so your shares can be represented, even if you plan to attend the special meeting in person.

Revocability of Proxies

The grant of a proxy on the enclosed proxy card or by telephone or Internet does not preclude a stockholder from voting in person at the special meeting. A stockholder may revoke a proxy at any time prior to its exercise by (1) filing a written notice with the Secretary of the Company or the acting Secretary of the special meeting stating that the stockholder would like to revoke his proxy, (2) submitting a duly executed proxy to the Secretary of the Company bearing a later date or (3) voting in person at the special meeting. Attendance at the special meeting will not in and of itself constitute a revocation of the proxy. If you have instructed your broker, bank or other nominee to vote your shares, you must follow the procedures provided by your broker, bank or other nominee to change those instructions.

Solicitation of Proxies

The Company and its proxy solicitation firm, Innisfree M&A Incorporated, may solicit proxies in person or by telephone, fax or other means. The Company will pay Innisfree a fee of $10,000, plus reasonable expenses, for its services. The Company will also pay all other reasonable expenses for solicitation. In addition, proxies may be solicited by officers and directors and other employees of the Company, without additional remuneration, in person or by telephone, fax or other means.

Please send in your proxy by mail or submit your proxy by telephone or the Internet without delay. If you hold shares of Company common stock through a broker, bank or other nominee, please follow the instructions on the proxy form supplied by your broker, bank or other nominee, which may provide for voting by telephone or through the Internet. The Company will also reimburse brokers, banks and other nominees for their expenses in sending these materials to you and obtaining your voting instructions.

Please do not send your stock certificate(s) evidencing your shares of Company common stock with your proxy. As soon as reasonably practicable after the merger is consummated, you will receive written instructions from the paying agent to be appointed by Buyer, which is referred to as the paying agent, on how to exchange your Company common stock certificates or book-entry shares for the per share merger consideration of $22.00 in cash. You will receive cash for your shares from the paying agent after you comply with these instructions. If your shares of Company common stock are held in “street name” by your broker, you will receive instructions from your broker as to how to surrender your “street name” shares and receive cash for those shares.

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THE COMPANIES

Smart & Final Inc.

Founded in 1871 in downtown Los Angeles, Smart & Final Inc., a Delaware corporation, operates non-membership warehouse stores for food and foodservice supplies in California, Oregon, Washington, Arizona, Nevada, Idaho and northern Mexico. The Company’s principal executive offices are located at 600 Citadel Drive, Commerce, California 90040, and its telephone number is 323-869-7500.

Apollo Management, L.P.

Apollo Management, L.P., founded in 1990, is a recognized leader in private equity, debt and capital markets investing. Since its inception, Apollo has invested over $16 billion in companies representing a wide variety of industries, both in the U.S. and internationally. Apollo’s principal executive officers are located at The MGM Tower, 10205 Constellation Boulevard, Suite 2900, Los Angeles, California 90067, and its telephone number is 310-843-1900.

Sharp Holdings Corp.

Sharp Holdings Corp., a Delaware corporation, is a subsidiary of an affiliate of Apollo formed for the sole purpose of effecting the merger. Sharp Holdings Corp. has not conducted any business operations other than in connection with the transactions contemplated by the merger agreement. Sharp Holdings Corp.’s principal executive offices are located at The MGM Tower, 10205 Constellation Boulevard, Suite 2900, Los Angeles, California 90067, and its telephone number is 310-843-1900.

Sharp Acquisition Corp.

Sharp Acquisition Corp., a Delaware corporation, is a wholly owned subsidiary of Sharp Holdings Corp. formed for the sole purpose of effecting the merger. Sharp Acquisition Corp. has not conducted any business operations other than in connection with the transactions contemplated by the merger agreement. Sharp Acquisition Corp.’s principal executive offices are located at The MGM Tower, 10205 Constellation Boulevard, Suite 2900, Los Angeles, California 90067, and its telephone number is 310-843-1900.

Casino Guichard-Perrachon, S.A.

Casino Guichard-Perrachon, S.A., a société anonyme organized under the laws of the French Republic, is one of France’s leading food retailers. Casino Guichard-Perrachon, S.A. is the parent entity of the Company’s majority stockholder, Casino USA. Casino Guichard-Perrachon, S.A.’s principal executive offices are located at 58-60, avenue Kleber, 75116 Paris, France, and its telephone number is +33-1-53-65-64-00.

Casino USA, Inc.

Casino USA, Inc., a California corporation, is a wholly owned subsidiary of Groupe Casino, and is the Company’s majority stockholder. Casino USA, Inc.’s principal executive offices are located at 58-60, avenue Kleber, 75116 Paris, France, and its telephone number is +33-1-53-65-64-00.

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THE MERGER

The following is a description of the material aspects of the merger. While the Company believes that the following description covers the material terms of the merger, the description may not contain all of the information that is important to you. The Company encourages you to carefully read this entire proxy statement, including the merger agreement and stock purchase agreement, which are attached to this proxy statement as Annex A and Annex B, respectively, for a more complete understanding of the merger.

Background of the Merger

On March 16, 2006, Groupe Casino announced that it would seek to sell non-strategic assets in an effort to raise approximately €2.0 billion for debt-reduction purposes. Although the Groupe Casino announcement did not indicate whether the Company was considered a “non-strategic” asset, the market price of Company common stock rose in value by $1.47, or approximately 9.7%, over the previous trading day’s closing price on the day of Groupe Casino’s announcement.

At a special meeting of the Company’s board of directors on March 16, 2006, the potential implications to the Company of the Groupe Casino announcement were discussed. The Company’s board of directors determined to evaluate the strategic alternatives for the Company in light of the Groupe Casino announcement, including, but not limited to, a recapitalization, the sale or merger of the Company with another entity, or simply continuing with the Company’s established business plan. As an initial matter, the Company’s board of directors appointed a Selection Committee of four directors for the purpose of interviewing and selecting advisors. The members of the Selection Committee included Etienne Snollaerts, the Company’s president and chief executive officer, Stephen E. Watson, an independent director, Ross E. Roeder, the chairman and former chief executive officer of the Company, and L. Hakim Aouani, a director of the Company who is the senior vice president of corporate development and holdings of Groupe Casino.

In its announcement on April 2, 2006 of its decision to explore strategic alternatives, the Company indicated that it expected to engage legal and financial advisors to assist in its review of strategic alternatives. The Company also indicated that there could be no assurance as to the timing of the Company’s process or that any specific transaction would result from this process. In the two days subsequent to the Company’s April 2, 2006 announcement, the market price of Company common stock rose in value by $1.73, or approximately 10.6%, over the closing price on the trading day prior to the announcement. This represented an increase of $2.93, or approximately 19.3%, over the closing price on March 15, 2006.

Following the Company’s announcement, the Selection Committee held meetings with several investment banking firms, each of which presented preliminary thoughts on various strategic alternatives available to the Company. The Company’s board of directors approved the selection of Goldman Sachs and signed an engagement letter with Goldman Sachs dated April 11, 2006. The Company’s board of directors also determined to establish a Transaction Committee for the purpose of facilitating the exploration of alternatives. The Transaction Committee consisted of Messrs. Roeder and Aouani, together with Mr. Watson and David L. Meyers, both of whom are considered independent directors (Mr. Meyers attended a number of Selection and Transaction Committee meetings as an observer until his election as a director on May 17, 2006). Mr. Watson was designated chairman of the Transaction Committee. Each member of the Transaction Committee was to receive the customary director fee of $1,500 per meeting, plus reasonable expenses. On April 20, 2006, the Company announced that it had engaged Goldman Sachs to work with the Company to review strategic alternatives, including a possible sale of the Company or remaining an independent company. Goldman Sachs is a leading investment banking firm that provides a broad range of services to its clients and was selected, in part, for its expertise in mergers and acquisitions. The Transaction Committee also retained Skadden, Arps, Slate, Meagher & Flom LLP, which is referred to as Skadden Arps, to represent the Company in connection with its

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process for exploring strategic alternatives. Skadden Arps had previously provided services to the Company and was selected because of its prior relationship with the Company and its expertise in mergers and acquisitions. Following the Company’s announcement of the engagement of Goldman Sachs as its financial advisor, representatives of Apollo contacted Goldman Sachs and the chairman of the Company to express their interest in the Company.

From May 2006 through September 2006, a confidential information memorandum describing the Company and its operations, financial performance and prospects was prepared for distribution to interested parties. The Transaction Committee directed Goldman Sachs to note unsolicited expressions of interest received during this time from outside parties that had learned of the Company’s exploration of strategic interests through the Company’s public announcements. At the same time, Goldman Sachs was identifying potential acquirors of the Company, including both strategic and financial acquirors, that would be contacted in connection with a suggested auction process. As indicated above, Apollo was one of the financial acquirors that had expressed interest.

During the period of September 21-29, 2006, at the direction of the Company’s board of directors, Goldman Sachs contacted 75 potential acquirors, including Apollo, to ascertain their level of interest in pursuing a transaction with the Company. The group of prospective acquirors included 11 strategic acquirors and 64 financial acquirors. These parties were selected primarily on the basis of their expected financial resources and level of interest in a transaction with the Company, including any previous expressions of interest in the Company. Follow-up phone calls were placed with prospective acquirors by Goldman Sachs to solicit interest in a potential transaction and to answer questions that prospective acquirors might have. After these initial discussions, 51 prospective acquirors expressed an interest in exploring a transaction with the Company. The remaining parties decided not to pursue a transaction for a variety of reasons, including the size of the Company, the pursuit of alternative transactions and a lack of interest in investing in the food-retail industry. The Company entered into confidentiality agreements with parties that had expressed interest in a transaction and provided each of them with a copy of the confidential information memorandum. The confidentiality agreements generally included customary non-solicit and standstill provisions that limited the prospective acquirors’ ability to make acquisition proposals with respect to the Company or to acquire securities of the Company without the prior written consent of the Company, and also prohibited each prospective acquiror from discussing the proposed transaction with any co-investor or equity financing source without the prior consent of the Company. Apollo entered into a confidentiality agreement on September 28, 2006 and was provided with the confidential information memorandum on September 29, 2006.

With a view towards facilitating the auction process, the Transaction Committee and Goldman Sachs subsequently discussed the possibility of offering a financing package whereby prospective acquirors would have the option of using such financing package to fund, in part, the purchase price for the Company. The Transaction Committee discussed the potential benefits of making such financing available to prospective acquirors, including the ways in which such financing could enhance speed and certainty in exploring and consummating a potential transaction. The Company held meetings with two financing sources and ultimately retained affiliates of Deutsche Bank AG to provide such so-called “staple” financing. Goldman Sachs notified the potential bidders of the existence and material terms of the staple financing during the months of October and November 2006.

During early October 2006, Goldman Sachs identified seven potential acquirors to attend initial management presentations in advance of the submission of preliminary indications of interest in the first phase of the auction process. These potential acquirors were selected based on a number of factors, including, in certain cases, the interest such potential acquirors expressed in a transaction through direct contact with the Company, the Board of Directors or Goldman Sachs, the potential acquirors’ expected ability to consummate a transaction and Goldman Sachs’ professional judgment and experience. Such a presentation was made to Apollo on October 17, 2006. On October 19, 2006, Goldman Sachs sent an initial bid process letter to all potential acquirors who had received a confidential information memorandum. The letter set forth a two-phase process involving, first, the submission of written preliminary indications of interest based on the potential acquirors’ review of the

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confidential information memorandum. It was contemplated that the preliminary indications of interest would then be reviewed by the Transaction Committee and selected potential acquirors would be provided with more extensive due diligence in the second phase of the process, including being provided access to an online data room, more detailed, full-day management presentations and facility tours.

Goldman Sachs requested the submission of written preliminary indications of interest on or about October 31, 2006. In response to Goldman Sachs’ request, 13 parties (including two strategic parties) submitted preliminary indications of interest, each of which included a preliminary per share bid price (or range of per share bid prices) ranging from $16.00 to $22.00. Included in these proposals was a proposal from Apollo to acquire the Company, which included a preliminary per share bid price range of $19.00 to $21.00.

On November 2, 2006, a meeting of the Transaction Committee was held to discuss and evaluate the preliminary indications of interest received. Representatives from Goldman Sachs gave a report on the status of the auction process to date and led a review of the 13 preliminary indications of interest received and of each of the potential bidders. After a review and discussion of the preliminary indications of interest, the perceived level of interest of each potential bidder and the work done to date by the potential bidders, the views of Goldman Sachs and the Transaction Committee, as well as other pertinent factors, the Transaction Committee decided to proceed with six of the 13 potential bidders to the next phase of the auction process, including extending to those parties an invitation to attend more detailed management presentations and to obtain access to the online data room. Based on subsequent discussions with prospective acquirors that were not invited into the second phase of the process, two additional parties were invited to continue with their participation in the process with the approval of the Transaction Committee, after such parties indicated that they would increase their preliminary per share bid prices. Two additional strategic bidders were also later invited to participate in the process, having submitted preliminary indications of interest several weeks after the other participants.

From November 13, 2006 through February 16, 2007, management and Goldman Sachs engaged in numerous discussions with the potential acquirors. Extensive discussions and due diligence materials were provided through the online data room in order to allow each party to perform financial and legal due diligence. In addition, more detailed management presentations were made during November and December 2006 and January 2007 to nine potential acquirors. On several occasions, the Transaction Committee inquired of senior management as to whether any prospective bidder was being favored in the auction process and as to the existence of any discussions with prospective bidders concerning the potential post-transaction role of members of management, and in each case the Transaction Committee received satisfactory assurances with respect to its inquiries.

On November 21, 2006, the Transaction Committee considered the request of Groupe Casino to be permitted to participate in the sale of the Company in part through the sale of its subsidiary Casino USA in order to assist with its own tax planning. Casino USA is an affiliate of Groupe Casino that holds 16,687,860 shares of the Company’s common stock, representing approximately 52.1% of the Company’s outstanding shares. The Transaction Committee discussed the proposal with its financial and legal advisors and determined that there was no objection to the request, although the issue would be revisited following the submission of final proposals. It was noted that Groupe Casino was not seeking to receive a different amount of consideration for its shares of Company common stock than would be received by all other stockholders and that Groupe Casino was offering to indemnify the prospective acquiror for liabilities of Casino USA.

On January 10, 2007, Goldman Sachs submitted to each of the potential acquirors a memorandum outlining the process for submitting written acquisition proposals to the Company, indicating a deadline for such submission of January 31, 2007. Submissions were required to include a mark-up of a merger agreement to be provided by Skadden Arps indicating the form of agreement that each would be prepared to execute and were also required to include detailed information regarding the prospective acquiror’s plan to finance the acquisition. The memorandum also expressed a preference for a structure to permit Groupe Casino to sell to the acquiror, in conjunction with the merger, its holdings in Casino USA. A form of agreement to effect this structure was prepared by counsel to Groupe Casino and was subsequently provided to prospective acquirors.

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At a meeting of the Transaction Committee on January 24, 2007, Goldman Sachs informed the Committee that it appeared that two prospective bidders, both financial acquirors, had continuing interest and planned to submit final proposals. Goldman Sachs also indicated that a strategic bidder that had started its diligence several weeks after the other bidders had expressed interest in the Company and was engaged in due diligence. Although this party would not be in a position to submit a final proposal until several days after the bid deadline, the Transaction Committee determined that it would be appropriate to permit the bidder to continue its due diligence, and the Transaction Committee would monitor its level of interest.

On January 27, 2007, Messrs. Roeder, Crull, Meyers and Watson, as members of the Company’s board of directors who were unaffiliated with Groupe Casino, held a meeting with representatives from Skadden Arps and Goldman Sachs to discuss situations that might arise and could cause a divergence of the interests of the public stockholders of the Company and the interests of Groupe Casino and Casino USA. At this meeting, representatives of Skadden Arps and Goldman Sachs discussed several scenarios that could occur in the process and representatives of Skadden Arps advised the unaffiliated directors’ as to their fiduciary duties to the stockholders of the Company.

During the week of January 28, 2007, each of the three remaining bidders submitted mark-ups of the merger agreement and, while only two submitted mark-ups of the stock purchase agreement, each of the three bidders indicated a willingness to proceed with the structural preference requested by Groupe Casino. During that same week, in advance of the receipt of the bid proposals, representatives from Skadden Arps contacted counsel to each of the three bidders in order to discuss and negotiate material issues raised by their mark-ups of the transaction documents in an attempt to narrow the legal issues. Similar conversations occurred over the stock purchase agreement involving counsel for Groupe Casino and counsel for each of the prospective acquirors. As there were a number of differences in the bidders’ mark-ups, including with respect to conditions, termination grounds and termination fees, the Transaction Committee instructed Skadden Arps to attempt to limit the material differences so that when prices were submitted by the prospective bidders, the Transaction Committee would be in a better position to compare and evaluate the final proposals.

On January 31, 2007, Apollo and one of the other prospective acquirors, which is referred to as Bidder X, submitted their binding proposals, including certain financing commitments. The proposals received from Apollo and Bidder X also highlighted additional due diligence required before execution of definitive agreements. As previously stated, the third prospective bidder which is referred to as Bidder Y continued to indicate that it would not be in a position to submit a proposal until several days after the bid deadline. Bidder X provided a per share bid price of $18.75 per share to purchase all of the equity interest in the Company and Apollo provided a per share bid price of $20.00 per share. Discussions continued with each of Apollo and Bidder X over the terms of their merger agreement mark-ups and suggested revisions to the mark-ups were provided to counsel for each of Apollo and Bidder X. Each of Bidder X and Apollo orally indicated some flexibility in its price in discussions with Goldman Sachs.

On February 7, 2007, Bidder Y provided a per share bid price of $20.79 per share to purchase all of the equity interest in the Company and also orally indicated some flexibility with respect to its price.

On February 9, 2007, the Transaction Committee met to consider the three proposals. The Transaction Committee reviewed in detail the prices, terms, conditions of and remaining due diligence required with respect to each proposal. The Transaction Committee also evaluated the financing proposals associated with each bid and although none was conditioned on the obtaining of financing, each bid placed limits on their damages in the event financing was not obtained. The members of the Transaction Committee believed that certainty and timing with respect to the transaction were of paramount importance and that these factors would be taken into serious consideration in the evaluation of each bid. Based on discussions with Goldman Sachs, it was determined that each prospective acquiror would be asked to submit a “best and final” bid by the close of business on February 15, 2007. In addition, in light of the fact that Bidder X had suggested to the chairman of the Company that it might be in a position to increase its proposed price in the absence of the structure preferred by Groupe

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Casino, the Transaction Committee directed Goldman Sachs to confirm whether each bidder’s proposed price would change if the Groupe Casino structure was not being utilized. After the meeting of the Transaction Committee had concluded, Goldman Sachs and Skadden Arps communicated the Transaction Committee’s concerns with respect to certainty and timing to each of the bidders and their counsel. In particular, Apollo was informed that a number of the conditions in its merger agreement and financing commitments were negatively affecting its proposal and both Bidder X and Bidder Y were informed that certain specified provisions in their respective agreements were similarly affecting their proposals. Goldman Sachs also sought and obtained confirmation from each of Bidder X, Bidder Y and Apollo that its price would not change if the preferred Groupe Casino structure was not being utilized.

Also on February 9, 2007, Bidder X, which had previously not submitted a mark-up of the proposed stock purchase agreement, submitted a summary term sheet of a proposed stock purchase agreement and voting agreement to be entered into with Groupe Casino and Casino USA. Bidder X submitted full mark-ups of these documents on February 12, 2007.

On the afternoon of February 15, 2007, Goldman Sachs received a revised proposal from Bidder Y of $21.18 per share and on the morning of February 16 received a revised proposal from Apollo of $21.75 per share. Bidder X declined to submit a new proposal or increase its $18.75 per share bid but indicated it had some flexibility if the Company chose to proceed with it. Both Bidder Y and Apollo made several changes in an effort to address the Transaction Committee’s concerns with certainty and timing, though the changes in this regard from Apollo were viewed as substantial. Each of Bidder Y and Apollo also demanded exclusivity during the process involving the finalization of the agreements. Additionally, Apollo’s proposal specified that it would expire within several hours and sought a one-week period of exclusivity to negotiate definitive documentation.

On February 16, 2007, the Transaction Committee met to consider the current status of the three bidders. Goldman Sachs advised the Transaction Committee that based on their discussions with Bidder X, although Bidder X did have some flexibility in its $18.75 per share bid, Bidder X did not have sufficient flexibility for its bid to be competitive with Bidder Y’s and Apollo’s bid. While in the process of its meeting, at the Transaction Committee’s instruction, Goldman Sachs called Bidder Y to determine if they would increase their price. Goldman Sachs returned to the meeting and reported that Bidder Y indicated that its last and final price was $21.50 per share. The Transaction Committee continued to weigh the certainty and conditions associated with the bids of each of Bidder Y and Apollo and determined to convey to Apollo that if Apollo increased its bid to $22.25 per share and if its requested exclusivity period ended on the opening of trading on February 20, 2007, the Transaction Committee would be prepared to move forward to a transaction with Apollo. At the Transaction Committee’s instruction, Goldman Sachs contacted Apollo to convey the Transaction Committee’s message. Goldman Sachs returned to the meeting and reported that Apollo indicated that its final price was $22.00 per share and agreed to shorten the exclusivity period to the opening of trading on February 20, 2007. After discussion of Apollo’s proposal, the Transaction Committee determined that it was prepared to recommend moving forward at $22.00 per share (which was the highest price any potential acquiror indicated that it would be prepared to pay at any time during the auction process) and the shortened exclusivity period. The Transaction Committee instructed Goldman Sachs to communicate this message to Apollo, and shortly thereafter, an exclusivity letter was executed by the Company and Apollo.

Throughout the weekend of February 17-18, 2007, the Company, Groupe Casino, Apollo and their respective counsel and financial advisors continued to negotiate and finalize the terms and conditions of mutually acceptable agreements that satisfied the general terms outlined by the Transaction Committee. On February 18, 2007, in advance of the special meeting of the Company’s board of directors, drafts of the merger agreement, stock purchase agreement and certain financing documents, together with a summary prepared by Skadden Arps, were distributed to the members of the Company’s board of directors.

A meeting of the Company’s board of directors was held on February 19, 2007. Representatives of Goldman Sachs and Skadden Arps and certain members of management also participated in the meeting. The Transaction

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Committee reported on the proposals submitted by Bidder Y and Apollo, the bidding and negotiation process, and its evaluation of the bids. The Transaction Committee noted and discussed, among other things, that both Bidder Y and Apollo had been asked to submit their best and final proposals, Apollo’s proposal and commitment letters represented reasonable certainty of closing, Apollo had prior experience in consummating both deals of a similar size and deals in the food-retail industry, and there was a risk of withdrawal of the Apollo proposal if the Company further extended the bidding process and delayed proceeding to sign a definitive agreement with Apollo. The Transaction Committee then recommended that the Company’s board of directors accept the Apollo proposal. Next, on behalf of management, Mr. Snollaerts confirmed that there were no agreements or arrangements between management and Apollo but that the Company’s management was comfortable working with Apollo going forward. It was also noted that the Transaction Committee purposefully excluded Company management from all discussions and deliberations concerning prices received from prospective acquirors and the strategy concerning the timing and receipt of bids and revised bids. The Company’s board of directors believed this exclusion to be appropriate and helpful to the process.

Representatives from Goldman Sachs then provided the Company’s board of directors with an overview of the auction process, noting that the auction process had been comprehensive and thorough, and had included several strategic and numerous financial acquirors. Goldman Sachs then presented its financial analysis of the Apollo proposal and delivered to the Company’s board of directors its oral opinion, which was subsequently confirmed by delivery of a written opinion dated February 20, 2007 that, as of such date and based upon and subject to the factors and assumptions set forth in its written opinion, the $22.00 per share in cash to be received by the holders of Company common stock was fair from a financial point of view to such holders. The full text of the written opinion of Goldman Sachs, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is attached as Annex C to this proxy statement.

Representatives from Skadden Arps then made a presentation outlining the fiduciary duties owed by the members of the Company’s board of directors to the Company’s stockholders in connection with their consideration of a transaction resulting from the auction process. Representatives from Skadden Arps presented a summary of the legal terms of the proposed merger agreement with Apollo. The Company’s board of directors considered and discussed the transaction and asked questions of Goldman Sachs and Skadden Arps. After a careful review of the terms and conditions of the proposed merger agreement including, among other things, the certainty and timing of closing, Apollo’s prior experience and reputation in consummating deals, the execution risks relating to the Apollo proposal and the other material changes made by Apollo to the draft merger agreement, the Company’s board of directors unanimously determined that the merger was advisable and in the best interests of the Company and its stockholders, authorized and approved the merger agreement and the transactions contemplated thereby, including the merger and the stock purchase agreement, and all agreements and documents related thereto and contemplated thereby, and recommended that the Company’s stockholders approve and adopt the merger agreement.

During the course of this process, the Selection and Transaction Committees held an aggregate of 31 meetings while overseeing the review of strategic alternatives and the auction process. The Company’s full board of directors was invited to attend the last several Transaction Committee meetings. In addition, the Transaction Committee provided status reports to the Company’s full board of directors at its regularly scheduled meetings occurring during the auction process. Following approval of the merger by the Company’s board of directors and based on the time and commitment of the members of the Transaction Committee, the Company’s board of directors authorized additional payments of $25,000 to each of the four Transaction Committee members, such amounts to be paid immediately prior to closing.

Thereafter, the Company and Apollo executed the merger agreement. The Company issued a press release prior to the opening of trading on the NYSE on February 20, 2007, announcing the merger and the Company’s fourth quarter and full year 2006 financial results.

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Recommendation of the Company’s Board of Directors and Its Reasons for the Merger

After careful consideration, the Company’s board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement are fair to and in the best interests of the Company and its stockholders. Accordingly, the Company’s board of directors has unanimously approved the merger agreement and the transactions contemplated by the merger agreement. The Company’s board of directors unanimously recommends that you vote “FOR” the proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement. In making this determination, the Company’s board of directors considered a number of factors which supported its decision to approve the merger agreement and the transactions contemplated by the merger agreement, including the following:

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The Company’s board of directors considered, among other things, the following potentially favorable terms of the merger agreement and stock purchase agreement, including that:

The Company’s board of directors also considered and balanced against the potential benefits of the merger, the following potentially adverse factors concerning the merger:

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During its consideration of the transaction with Apollo, the Company’s board of directors was also aware that the Company’s directors and officers have interests that are, or may be, different from, or in addition to, those of the Company’s stockholders generally, as described under “—Interests of the Company’s Directors and Executive Officers in the Merger.”

After taking into account all of the factors set forth above, among others, the Company’s board of directors determined that the potentially favorable factors outweighed the potentially adverse factors. Furthermore, the Company’s board of directors determined that the merger is advisable and in the best interests of the Company and its stockholders.

The foregoing discussion of the information and factors considered by the Company’s board of directors is not exhaustive. Moreover, the Company’s board of directors did not assign relative weights to the above factors or the other factors considered by it. In addition, the Company’s board of directors did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the Company’s board of directors may have considered different factors.

Purposes and Effects of the Merger; Consideration

The principal purposes of the merger are to enable an affiliate of Apollo to acquire all of the outstanding shares of Company common stock and to provide the Company’s stockholders with the opportunity to receive a cash payment for their shares at a premium. The acquisition will be accomplished by a merger of Acquisition Sub with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Buyer.

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If the merger is consummated, each outstanding share of Company common stock, other than shares of Company common stock held by Casino USA, will be converted into the right to receive $22.00 in cash. Immediately prior to the effective time of the merger, Groupe Casino will sell all of the issued and outstanding common stock of Casino USA to Buyer for an aggregate price based on the number of shares of Company common stock owned by Casino USA at the same $22.00 price per share, subject to certain adjustments, all pursuant to the terms of the stock purchase agreement. See “The Stock Purchase Agreement.” You will receive the per share merger consideration of $22.00 in cash after you remit your certificate(s) evidencing your shares of Company common stock or exchange your book-entry shares in accordance with the instructions contained in a letter of transmittal to be sent to you as soon as reasonably practicable after consummation of the merger, together with a properly completed and signed letter of transmittal and any other documentation required to be completed pursuant to the written instructions. If your shares of Company common stock are held in “street name” by your broker, you will receive instructions from your broker as to how to surrender your “street name” shares and receive cash for those shares.

Each outstanding option and SAR will become fully vested and exercisable prior to the effective time of the merger. Except with respect to options or SARs held by employees who have reached a separate written agreement with Buyer, at the effective time of the merger, each share of Company common stock issuable pursuant to each option or SAR will be converted into the right to receive $22.00 in cash. Subject to receipt of necessary consents, if any, each such option and SAR will be canceled at the effective time of the merger in exchange for the right to receive an amount of cash per share subject to such option or SAR (as applicable) that is equal to the excess, if any, of $22.00 over the exercise price of such option or SAR (as applicable), less any required withholding taxes. Where the necessary consent to cancel an option or SAR at the effective time of the merger is not received, such option or SAR will represent the right to receive, upon exercise on or after the effective time of the merger, $22.00 in cash for each share subject to such option or SAR.

At the effective time of the merger, each share of restricted stock and each RSU will become fully vested and be converted into the right to receive $22.00 in cash in exchange for the cancellation of each share of restricted stock or RSU (as applicable), less any required withholding taxes.

Upon consummation of the merger, Company common stock will be delisted from the NYSE, will no longer be publicly traded and will be deregistered under the Exchange Act.

Effects of the Merger Not Being Consummated

If the merger is not consummated for any reason, the Company’s stockholders and holders of stock options, SARs, restricted stock and RSUs will not receive the merger consideration. Instead, the Company will remain a public company and shares of Company common stock will continue to be listed on the NYSE. If the merger is not consummated, the Company expects to continue to conduct its business in a manner similar to the manner in which it is presently conducted. In such event, the value of shares of Company common stock would continue to be subject to risks and opportunities described in the Company’s past filings with the SEC and prevailing economic and market conditions. If the merger is not consummated, adverse market reaction may cause Company common stock to trade below the levels at which it traded prior to Groupe Casino’s announcement that it would seek to sell its non-strategic assets. If the merger is not consummated, there can be no assurance that any other transaction similar to the merger would be available to the Company. Even if such a transaction were available, there can be no assurance that such transaction would be acceptable to the Company’s board of directors and would offer the Company’s stockholders the opportunity to receive at least the same price as is payable pursuant to the merger.

Opinion of Financial Advisor

Goldman Sachs delivered its written opinion to the Company’s board of directors that, as of February 20, 2007 and based upon and subject to the factors and assumptions set forth in the written opinion, the $22.00 per share in cash to be received by the holders of Company common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

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The full text of the written opinion of Goldman Sachs, dated February 20, 2007, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this proxy statement as Annex C. Goldman Sachs provided its opinion for the information and assistance of the Company’s board of directors in connection with its consideration of the transaction contemplated by the merger agreement. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of the Company’s common stock should vote with respect to the proposal to approve and adopt the merger agreement.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

Goldman Sachs also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition, and future prospects of the Company. In addition, Goldman Sachs reviewed the reported price and trading activity for Company common stock, compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the food retail, discount retail and foodservice industries specifically and in other industries generally and performed such other studies and analyses, and considered such other factors, as it considered appropriate.

Goldman Sachs relied upon the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with or reviewed by it and assumed such accuracy and completeness for purposes of rendering the opinion described above. In that regard, Goldman Sachs assumed, with the consent of the Company’s board of directors, that the internal financial forecasts prepared by the management of the Company have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the Company. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries, and except for the appraisals by Cushman & Wakefield, Inc. of certain real property of the Company (which appraisals were not material to Goldman Sachs’ analysis), Goldman Sachs has not been furnished with any such evaluation or appraisal.

Goldman Sachs’ opinion does not address the underlying business decision of the Company to engage in the transaction contemplated by the merger agreement. The Goldman Sachs opinion also does not address the stock purchase agreement to which Groupe Casino is a party, and for purposes of the opinion, Goldman Sachs assumed that Groupe Casino would receive, indirectly, in respect of the shares of common stock that are owned by its subsidiary Casino USA, the same $22.00 per share as the other stockholders of the Company. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, the date of the opinion.

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Company’s board of directors in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent the relative importance or weight given to

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those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February 16, 2007 and is not necessarily indicative of current market conditions.

Historical Stock Trading. Goldman Sachs reviewed the historical trading prices and volumes for Company common stock for the five-year period ended February 16, 2007. In addition, Goldman Sachs compared the consideration to be received by holders of Company common stock pursuant to the merger agreement in relation to the closing prices of Company common stock for the two-year period ended February 16, 2007.

This analysis indicated that the $22.00 per share in cash to be received by holders of shares of Company common stock pursuant to the merger agreement represented:

In addition, Goldman Sachs reviewed the consideration paid in selected public, all cash transactions in the last five years involving aggregate consideration between $500.0 million and $1.5 billion and calculated the premium that the consideration in each such transaction represented over the closing price one month prior to the announcement of each such transaction. Goldman Sachs calculated an average premium of 27.7% for such transactions, as compared to, with respect to the transaction contemplated by the merger agreement, a premium of 21.1% based on the closing price of the Company’s common stock one month prior to February 16, 2007 of $18.16 per share and a premium of 57.8% based on the closing price of the Company’s common stock one month prior to March 15, 2006 of $13.94 per share.

Selected Companies Analysis. Goldman Sachs reviewed and compared certain financial information for the Company to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the discount retail, food distributor and food retail industries:

In the discount retail industry:

In the food distributor industry:

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In the food retail industry:

Although none of the selected companies is directly comparable to the Company, the companies included were chosen because they are publicly traded retailers or food distributors that offer a somewhat comparable selection of products to household and, in some cases, business customers. Based on Goldman Sachs’ professional judgment and experience, the companies selected for this analysis may be considered similar to certain operations of the Company.

Goldman Sachs calculated and compared various financial multiples and ratios based on recent financial data it obtained from SEC filings and IBES estimates. Institutional Brokers’ Estimate System, or IBES, compiles forward-looking financial estimates made by equity research analysts for U.S. publicly traded companies. The multiples and ratios of the Company were calculated using the $22.00 per share in cash to be received by the holders of Company common stock pursuant to the merger agreement and information provided by the Company’s management (both adjusted and unadjusted for certain non-recurring expenses and one-time items and including joint venture income) and IBES estimates. The multiples and ratios for each of the selected companies were based on the most recent publicly available information, including IBES estimates. With respect to the selected companies, Goldman Sachs calculated the following and compared them to the results for the Company:

The results of these analyses are summarized as follows:

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Goldman Sachs also calculated the selected companies’ estimated calendar year 2007 and 2008 price to earnings ratios and compared them to the results for the Company. The following table presents the results of this analysis:

Present Value of Future Stock Price Analysis. Goldman Sachs performed an illustrative analysis of the implied present value of the future stock price of the Company, which is designed to provide an indication of the present value of a theoretical future value of a company’s equity as a function of such company’s estimated future earnings per share and its assumed price to future earnings multiple. For this analysis, Goldman Sachs used the financial forecasts for the Company prepared by its management for each of the years in fiscal 2007 to 2010. Goldman Sachs first calculated implied per share values for the Company common stock for each of the fiscal years 2007 to 2010 by applying price to forward earnings multiples of 14.0x to 18.0x to estimates prepared by the Company’s management of fiscal years 2007 to 2010 earnings per share. Goldman Sachs then discounted those values using an equity discount rate of 10.5%. The equity discount rate was derived by Goldman Sachs utilizing its professional judgment and experience and considering a range of factors, including (i) the historical and predicted betas for the Company and its peers, (ii) the approximate risk free rate and (iii) an estimate of the market risk premium. This analysis resulted in a range of implied present values per share of Company common stock of $14.26 to $23.98.

The projections referred to in the immediately preceding paragraph included projected sales growth from existing stores and new store developments and related operating and administrative expenses. The projected growth rates for sales in existing stores averaged between 5.3% and 7.7% annually between 2007 and 2010 and the projected number of new stores to be developed ranged from 13 to 16 per year from 2007 to 2010. Operating and administrative expenses in 2007 to 2010 varied in relation to projected sales and new store developments. Projected EBITDA margins in 2007 to 2010 ranged from 4.4% to 5.1%. In February 2007, Goldman Sachs requested that the Company update its projections to incorporate more recent information. Goldman Sachs used the updated projections, which had not materially changed from the prior version, in its analysis.

Discounted Cash Flow Analysis. Goldman Sachs performed an illustrative discounted cash flow analysis to determine a range of implied present values per share of Company common stock. All cash flows were

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discounted to December 31, 2006, and terminal values were based upon EBITDA multiples of 2010 estimated EBITDA. Forecasted financial information used in this analysis was based on the Company’s projections provided by management. In performing this analysis, Goldman Sachs applied discount rates ranging from 8.5% to 10.5%, reflecting estimates of the weighted average cost of capital of the Company and terminal EBITDA multiples ranging from 6.0x to 8.0x. In the case of the weighted average cost of capital, Goldman Sachs utilized its professional judgment and experience and considered a range of factors, including (i) the historical and predicted betas for the Company and its peers, (ii) the approximate risk free rate, (iii) an estimate of the market risk premium, and (iv) Smart & Final’s capitalization. In the case of the terminal EBITDA multiples, Goldman Sachs utilized its professional judgment and experience and considered a range of factors, including the current and historical trading multiples of the Company and its peers as well as the multiples observed in selected comparable transactions. This analysis resulted in a range of implied present values per share of Company common stock of $19.83 to $27.67.

Using the same projections provided by the Company’s management, Goldman Sachs also performed a sensitivity analysis to analyze the effect of increases or decreases in annual sales growth and EBITDA margins from 2006 to 2010. The analysis utilized (1) a range of EBITDA margin compounded annual growth rates of 0.0% to 7.2% from 2006 to 2010, (2) a range of compounded annual sales growth rates of 6.1% to 10.6% from 2006 to 2010 and (3) a terminal EBITDA multiple of 7.0x and a discount rate of 9.5% discounted to December 31, 2006. The EBITDA margin compounded annual growth rates of 0.0% to 7.2% from 2006 to 2010 imply a range of estimated EBITDA margin in 2010 of 4.1%, which is equal to the EBITDA margin in 2006 assumed to remain constant in the projection period provided by the Company management, up to 5.5% through the projection period provided by the Company management, which is 0.4% higher than the estimated EBITDA margin in 2010 assumed in the projections provided by the Company’s management. The sales growth rates of 6.1% to 10.6% from 2006 to 2010 represent a range of -3.0% to 1.5% change in the annual sales growth assumption reflected in the projections provided by the Company’s management. This analysis resulted in a range of implied present values per share of Company common stock of $16.29 to $26.86.

Selected Transactions Analysis. Goldman Sachs analyzed certain information relating to the following selected transactions in the food retail industry:

Although none of the selected transactions are directly comparable to the Smart & Final transaction, such transactions were deemed relevant based on Goldman Sachs’ professional judgment and experience and considering the Company’s growth, industry and competitive dynamics relative to the dynamics facing the targets in recent retail transactions.

For each of the selected transactions, Goldman Sachs calculated the implied enterprise value as a multiple of latest twelve months, or LTM, EBITDA prior to the announcement of the applicable transaction and compared these multiples to the enterprise value implied in the contemplated merger as a multiple of the Company’s (1) adjusted EBITDA for the twelve months ended September 30, 2006 (adjusted for certain non-recurring expenses and one-time items and including joint venture income), (2) unadjusted and adjusted EBITDA for fiscal 2006 (unadjusted and adjusted for certain non-recurring expenses and one-time items and joint venture income), and (3) IBES estimates of 2006 EBITDA.

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The following table presents the results of this analysis:

Recapitalization Analysis. Goldman Sachs analyzed certain illustrative recapitalization transactions involving the Company and the theoretical value the Company’s stockholders could receive in such transactions. In the illustrative recapitalization analysis, Goldman Sachs assumed that the Company used net proceeds from new debt financings of $100 million, $200 million and $300 million, to fund a cash tender for shares at a price of $22.00 per share of Company common stock. The theoretical post-recapitalization trading value of shares of Company common stock not purchased in a tender offer was based upon price to 2007 estimated earnings multiples of 14.0x to 18.0x and projected earnings per share for the Company as provided by management after giving effect to the incremental interest expense and fully diluted share count in each scenario. This analysis resulted in a range of implied per share values, inclusive of the cash tender amount paid to stockholders, of $15.40 to $19.90 per share of Company common stock.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or the contemplated transaction.

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Company’s board of directors as to the fairness from a financial point of view of the $22.00 per share in cash to be received by the holders of Company common stock pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Buyer, Acquisition Sub, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

The merger consideration was determined through arms’-length negotiations between the Company and Buyer and was approved by the Company’s board of directors. Goldman Sachs provided advice to the Company during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to the Company or its board of directors or that any specific amount of consideration constituted the only appropriate consideration for the transaction contemplated by the merger agreement.

As described above Goldman Sachs’ opinion to the Company’s board of directors was one of many factors taken into consideration by the Company’s board of directors in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by

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Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached to this proxy statement as Annex C.

Goldman Sachs and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. Goldman Sachs has acted as financial advisor to the Company in connection with, and has participated in certain of the negotiations leading to, the transaction contemplated by the merger agreement. Goldman Sachs has provided certain investment banking services to Groupe Casino from time to time, including having acted as financial advisor to Groupe Casino in connection with its pending acquisition of Almacenes SA, an owner and operator of grocery stores in Columbia, announced in January 2007. In addition, Goldman Sachs has provided and is currently providing certain investment banking services to Apollo and its affiliates and portfolio companies, including having acted as a co-manager in connection with the issuance of preferred shares of Hexion Specialty Chemicals, Inc., a portfolio company of Apollo (aggregate principal amount $346,500,000) in May 2005; as joint book runner with respect to the public offering of 23,529,411 shares of common stock of Goodman Global, Inc., a portfolio company of Apollo, in February 2006; as joint global coordinator and joint book runner for the initial public offering of AP Alternative Assets L.P., an affiliate of Apollo (aggregate principal amount $1,500,000,000) in June 2006; as lead arranger on a senior and senior subordinated notes offering (aggregate principal amount €530,000,000) in connection with Apollo’s acquisition of the logistics division of TNT NV, an Amsterdam-based provider of postal and logistics services in August 2006; as joint book runner with respect to the holding company senior unsecured note offering by General Nutrition Centers, Inc., or GNC, a portfolio company of Apollo (aggregate principal amount $425,000,000) in November 2006; and as financial advisor to GNC in connection with its sale in February 2007. Goldman Sachs also may provide investment banking services to the Company, Groupe Casino, Apollo and their respective affiliates and portfolio companies in the future. In connection with the above-described investment banking services Goldman Sachs has received, and may receive in the future, compensation.

Goldman Sachs is a full-service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, financial planning and benefits counseling, risk management, hedging, financing and brokerage activities for both companies and individuals. In the ordinary course of these activities, Goldman Sachs and its affiliates may provide such services to the Company, Groupe Casino, Apollo and their respective affiliates, may actively trade the debt and equity securities (or related derivative securities) of the Company, Groupe Casino, Apollo and their respective affiliates for their own account and for the accounts of their customers and may at any time hold long and short positions of such securities. Affiliates of Goldman Sachs have also co-invested with Apollo and its affiliates from time to time and may do so in the future. Affiliates of Goldman Sachs have invested in limited partnership units of Apollo and its affiliates and may do so in the future.

The Company’s board of directors selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transaction contemplated by the merger agreement. Pursuant to a letter agreement dated April 11, 2006, the Company engaged Goldman Sachs to act as its financial advisor in connection with the contemplated transaction. Pursuant to the terms of this engagement letter, the Company has agreed to pay Goldman Sachs a transaction fee equal to a percentage of the “aggregate consideration” to be paid in a transaction; such percentage may increase based on the per share consideration to be paid. The Company has previously paid $450,000 to Goldman Sachs under the terms of the engagement letter, which will be credited against the transaction fee payable upon the consummation of a transaction. Based on the per share cash consideration of $22.00 in the merger agreement, the transaction fee equals 0.85% of the “aggregate consideration” to be paid in the transaction contemplated by the merger agreement. The “aggregate consideration” for purposes of determining the fee will be the total consideration paid for the Company’s equity securities (including amounts paid to holders of Company stock options, SARs, restricted stock and RSUs), and will be increased by the principal amount of all indebtedness for borrowed money and decreased by the amount of cash and cash equivalents, in each case as set forth on the

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Company’s most recent consolidated balance sheet prior to the consummation of the transaction contemplated by the merger agreement. While the exact amount of “aggregate consideration” cannot be determined prior to the consummation of the transaction contemplated by the merger agreement, it can be estimated to equal approximately $812.9 million using, as provided by the Company, the number of outstanding shares of Company common stock, stock options, SARs, restricted stock and RSUs and balances of indebtedness and cash and cash equivalents as of a recent date, resulting in an estimated transaction fee of approximately $6.9 million. The transaction fee is subject to change depending on the actual number of outstanding shares of Company common stock, stock options, SARs, restricted stock and RSUs as of the consummation of a transaction and balances of indebtedness and cash and cash equivalents set forth on the Company’s most recent consolidated balance sheet prior to the consummation of a transaction. In addition, the Company has agreed to reimburse Goldman Sachs for its reasonable expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

Interests of the Company’s Directors and Executive Officers in the Merger

When considering the recommendation by the Company’s board of directors, you should be aware that a number of the Company’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of the Company’s other stockholders. The Company’s board of directors was aware of these interests and considered them, among other matters, in unanimously approving and adopting the merger agreement and the transactions contemplated by the merger agreement. Such interests relate to, or arise from, among other things, the following:

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All these additional interests are described below, to the extent material, and, except as described below, such persons have, to the knowledge of the Company, no material interest in the merger apart from those of the Company’s common stockholders generally.

Executive Severance Plan

The Company’s executive officers participate in the Company’s 2004 Amended and Restated Executive Severance Plan, which is referred to as the Executive Severance Plan, as either Tier I or Tier II participants. As of the date of this proxy statement, Etienne Snollaerts and Norah Morley are Tier I participants, and Donald G. Alvarado, Anthony V. Bernardini, Jan P. Berger, James J. Burge, Zeke Duge, John J. Kosinski, Richard A. Link, Suzanne Mullins, Richard N. Phegley, C. Marie Robinson, Timothy M. Snee, Martin J. Trtek, Jeff D. Whynot and John M. Willis are Tier II participants.

Stockholder approval of the merger would generally constitute a “change in control” under the Executive Severance Plan. However, under the terms of the Executive Severance Plan, a “change in control” will not be deemed to occur with respect to any participant who is “part of a purchasing group” (as defined in the Executive Severance Plan, and which excludes passive ownership of less than 3% of the voting equity securities of such purchasing group or any insignificant ownership of equity in such group as determined by a majority of continuing non-employee directors prior to the change in control) that consummates the change in control transaction.

The plan provides that if within six months prior to or 24 months following the effective date of a “change in control” (as defined in the Executive Severance Plan), a participant’s employment is terminated by the Company for other than “cause,” death, “disability” or “retirement” or by the participant for “good reason” (each as defined in the Executive Severance Plan), such participant will be entitled to: (1) a cash payment equal to two times the annual base salary (for Tier I) or one month of annual base salary for each year of service subject to a 12 month minimum and a 18 month maximum (24 months for Mr. Bernardini) (for Tier II), (2) a cash payment equal to two times the participant’s average annual bonus earned in the prior three fiscal years (for Tier I) or one times such average annual bonus (Tier II), (3) a cash payment equal to unpaid base salary and accrued vacation pay through the date of termination, (4) a cash payment equal to the prorated target annual bonus for the plan

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year in which the termination occurs as adjusted for performance, (5) continued medical, dental and life insurance through the earlier of the end of the “general severance period” (i.e., the period equal to one month for each year of service, subject to a 24 month maximum for Tier I participants and 18 month maximum (24 months for Mr. Bernardini) for Tier II participants) or until the participant becomes eligible for welfare benefits from a subsequent employer, (6) continued financial planning and tax services provided by the Company through the end of the year in which the termination occurs and (7) a lump-sum cash payment of the entire balance of the participant’s compensation deferred under the Company’s nonqualified deferred compensation plan(s) together with all interest that has been credited with respect to such deferred compensation balance. A participant is not entitled to receive the payments and benefits described above if his or her employment is terminated by the Company for “cause” or by such participant without “good reason” (each as defined in the Executive Severance Plan). Moreover, a participant waives his or her right to benefits under that plan if such participant actively works on behalf of the Buyer to effect a “change in control,” or if such participant voluntarily leaves the employ of the Company prior to the time the Buyer has abandoned or consummated its efforts to effect a “change in control.”

In addition to the above, if any payments or benefits under that Executive Severance Plan or otherwise subject a participant to a parachute excise tax, such participant will also be entitled to receive a gross-up payment intended to make him or her whole with respect to the imposition of any such tax.

Assuming that executives were to be terminated by the Company for other than “cause,” death, “disability” or “retirement” or by executives for “good reason” (each as defined in the Executive Severance Plan) in connection with the merger and within the applicable time frames discussed above, the approximate amount which would be payable to each executive under the Executive Severance Plan is as follows: Donald G. Alvarado $576,903, Jan P. Berger $257,272, Anthony V. Bernardini $562,495, James J. Burge $263,568, Zeke Duge $383,165, John J. Kosinski $322,130, Richard A. Link $296,309, Norah Morley $870,500, Suzanne Mullins $452,367, Richard N. Phegley $446,420, C. Marie Robinson $273,594, Timothy M. Snee $394,707, Martin J. Trtek $283,095, Jeff D. Whynot $378,244, and John M. Willis $403,029. For a discussion of the approximate amount payable to Etienne Snollaerts, see “—Snollaerts Employment Agreement” immediately below.

Pre-existing Employment Agreements and Other Arrangements

Snollaerts Employment Agreement. The Company entered into an employment agreement with Etienne Snollaerts effective as of May 17, 2006. Mr. Snollaerts’ employment agreement provides that all of his equity awards shall immediately vest and all restrictions shall immediately lapse to the fullest extent possible upon a “change in control” (as defined in the Executive Severance Plan) and that the Company will reimburse him for reasonable relocation expenses (including an additional gross-up payment to make him whole with respect to any taxes on such reimbursement) if he agrees to relocate following a “change in control” or if he is terminated without “cause” or resigns for “good reason” (each as defined in the agreement). Stockholder approval of the merger would constitute a “change in control” under this agreement.

Moreover, the agreement provides that if within six months prior to or 24 months following the effective date of a “change in control” (as defined in the Executive Severance Plan) Mr. Snollaerts’ employment is terminated by the Company without “cause” or by Mr. Snollaerts for “good reason” (each as defined in the agreement), in lieu of all other benefits provided under the agreement, he will be entitled to receive severance benefits payable to a Tier I participant pursuant to the Executive Severance Plan, subject to the following additions and modifications: Mr. Snollaerts will also be entitled to (1) any accrued but unpaid bonus for the year preceding the year of termination, (2) additional service and compensation credit under the Company’s supplemental executive retirement plan, which is referred to as the SERP, for 24 months following such termination, (3) continued participation in all Company fringe and other benefit plans on the same after-tax basis as during his active employment, except certain benefits, including life and accidental insurance, employee assistance, long-term disability, paid time off, equity award, 401(k) and pension, may be excluded to the extent not permitted by applicable law or the plan terms and (4) continued medical, dental and life insurance through the earlier of the end of the 24-month period following his termination or until he becomes eligible for welfare

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benefits from a subsequent employer. The agreement provides that if any payments or benefits under the agreement or otherwise subject Mr. Snollaerts to a parachute excise tax, he will also be entitled to receive a gross-up payment intended to make him whole with respect to the imposition of any such tax.

However, the agreement provides that Mr. Snollaerts will not be eligible to receive any of the severance benefits under the agreement if he accepts a position with Groupe Casino within six months following any change in control event.

The approximate value of the payments and benefits that would be payable to Mr. Snollaerts under this agreement if his employment were to be terminated by the Company without “cause” or by him for “good reason” (each as defined in the agreement) in connection with the merger would be $2,546,059, excluding any tax gross-up payment.

Snollaerts Expatriate Compensation Agreement. The Company and Casino USA entered into an expatriate compensation agreement with Etienne Snollaerts effective as of August 4, 2003. Under this agreement, the Company pays Mr. Snollaerts up to $10,000 per month for housing expenses, $15,000 per year per child for school expenses and up to $40,000 per year for personal travel to and from France. The Company also pays Mr. Snollaerts a tax “gross up” on all the payments he receives under this agreement. Under the terms of such agreement, Casino USA reimburses the Company on a monthly basis for such payments to Mr. Snollaerts. In 2006, the Company paid Mr. Snollaerts a total of $546,553 under this agreement and Casino USA reimbursed the Company for a total of $546,553.

Roeder Consulting Agreement. Mr. Ross E. Roeder was chairman and chief executive officer of the Company from 1999 to May 2004 and from May 2004 through May 2005 was the Company’s non-executive chairman and senior advisor. Mr. Roeder currently serves as a non-executive chairman of the Company’s board of directors, chairman of the Corporate Governance Committee, member of the Compensation Committee and consultant to the Company and Mr. Snollaerts, the current chief executive officer of the Company. The Company entered into a consulting agreement with Mr. Roeder dated May 19, 2005 and subsequently amended January 30, 2007, which provides for up to 50 days of consulting services during the term of the agreement (June 1, 2006 to the later of the conclusion of the merger or June 1, 2007) for a per diem of $2,500 per day, reimbursement of reasonable expenses on a per diem basis upon approval, including “extended stay lodging” at the California Club but excluding the monthly dues, and a $700 per month auto stipend.

New Employment Arrangements

Apollo has informed the Company that it is its intention to retain certain members of the Company’s existing management team with the surviving corporation or its affiliates after the merger is completed. As of the date of this proxy statement no agreements have been entered into in connection with such employment, however, members of management may in the future engage in discussions with representatives of Apollo or its affiliates, and enter into agreements, regarding employment with, and equity participation in, the surviving corporation or its affiliates. In addition, Apollo has informed the Company that following the merger, Etienne Snollaerts will cease to be the Company’s President and Chief Executive Officer and will not remain with the surviving corporation.

SERP and Trust

The Company maintains the SERP for a select group of current and former executive officers, which provides retirement benefits in excess of the compensation limit and maximum benefit accrual imposed on tax-qualified plans. Benefits under this plan are provided by the Company on a non-contributory basis.

Upon a “change in control” (as defined in the SERP), participants will be entitled to the maximum benefit under the SERP and will become 100% vested in such fully accrued SERP benefits which, subject to the

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provisions of the next sentence, would be payable in accordance with the normal payment provisions of the SERP. Upon a termination of employment (other than due to retirement, death or disability) following a “change in control” (as defined in the SERP), a participant will be entitled to receive benefits under the SERP as soon as administratively practicable after the later of the termination of employment or the date such participant reaches age 55, subject to a reduction if such benefits are payable prior to normal retirement (generally age 65). Stockholder approval of the merger would constitute a “change in control” under the SERP.

Under the SERP Master Trust Agreement, upon a “potential change in control” (as defined in the trust agreement) of the Company, the Company must within thirty (30) days fully fund the trust as necessary (1) to pay reasonable expenses of the trust and (2) to pay each participant or beneficiary the benefits to which he or she would be entitled pursuant to the terms of SERP as of such “potential change in control.” Moreover, upon a “change in control” (as defined in the trust agreement), the Company must fully fund the SERP trust within 30 days as necessary (1) to pay reasonable expenses of the trust and (2) to pay each participant or beneficiary the benefits to which he or she would be entitled pursuant to the terms of the SERP as of such “change in control,” and the Company must also fund a $100,000 expense reserve for the trustee. Thus, in connection with the merger, it will be necessary to make the funding described above.

Deferred Compensation Plans and Trust

The Company maintains a Supplemental Deferred Compensation Plan and a Directors Deferred Compensation Plan, which are collectively referred to as the Deferred Compensation Plans, in which the Company’s current and certain former executive officers, highly compensated employees, and directors are eligible to participate. Eligible participants may defer certain covered compensation under the Deferred Compensation Plans, which are credited to a special bookkeeping account. In the event of a termination of employment or status as a director for any reason prior to “retirement” (as defined in the Deferred Compensation Plans), the participant is eligible to receive the value of his account generally in one lump-sum payment.

Moreover, under the Deferred Compensation Plans Master Trust Agreement, upon a “potential change in control” (as defined in the trust agreement) of the Company, the Company must within thirty (30) days fully fund the trust as necessary (1) to pay the reasonable expenses of the trust and (2) to pay each participant or beneficiary the benefits to which he or she would be entitled pursuant to the terms of Deferred Compensation Plans as of such “potential change in control.” Upon a “change in control” (as defined in the trust agreement), the Company must fully fund the deferred compensation trust within 30 days as necessary (1) to pay reasonable expenses of the trust and (2) to pay each participant or beneficiary the benefits to which he or she would be entitled pursuant to the terms of the Deferred Compensation Plans as of such “change in control,” and the Company must also fund a $50,000 expense reserve for the trustee. Thus, in connection with the merger, it will be necessary to make the funding described above.

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Stock Options and SARs

The Company’s directors and executive officers hold options and SARs granted under the Company’s equity compensation plans. Each outstanding option and SAR will become fully vested and exercisable prior to the effective time of the merger. Except as agreed by a holder and the Buyer, at the effective time of the merger, each share of Company common stock issuable pursuant to each such option or SAR will be converted into the right to receive $22.00 in cash, and, subject to receipt of necessary consents, if any, each such option and SAR will be canceled in exchange for the right to receive an amount of cash per share subject to such option or SAR (as applicable) that is equal to the excess, if any, of $22.00 over the exercise price of such option or SAR (as applicable), less any required withholding taxes. The following table sets forth the number of shares subject to options and SARs held by the Company’s directors and executive officers as of the date of this proxy statement and an estimate of the total cash amount to be paid with respect to such options and SARs in the merger.