EXHIBIT 99.2
SMART & FINAL
PROGRAM DESCRIPTION
VOLUNTARY EXCHANGE PROGRAM OF
STOCK OPTIONS - FOR - RESTRICTED STOCK
SMART & FINAL INC.
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THE EXCHANGE PRIVILEGE UNDER THIS PROGRAM EXPIRES AT 5:00 P.M.
LOCAL TIME IN LOS ANGELES, CALIFORNIA, ON MARCH 9, 2001,
UNLESS EXTENDED BY SMART & FINAL INC.
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Smart & Final Inc., a Delaware corporation, is offering a voluntary program
of exchange of certain outstanding stock options for restricted stock. This
document provides a description of the Exchange Program in a question-and-answer
format. In the text, Smart & Final is referred to as "we" or "us". Option
holders eligible for participation in the Exchange Program are referred to as
"you". Before making any decision regarding participation in the Exchange
Program, please read and understand all of the materials which you have been
given that describes the Exchange Program.
WHAT IS THE STOCK OPTIONS - FOR - RESTRICTED STOCK
EXCHANGE PROGRAM?
We are offering a voluntary Exchange Program, where you can exchange
certain stock options previously granted to you, into shares of Restricted Stock
of Smart & Final Inc. The exchange offered to you is at less than a one-for-one
ratio - if you participate you will receive fewer shares of Restricted Stock
than the number of stock options which you now have.
The stock options eligible under the Exchange Program were originally
issued pursuant to our Stock Incentive Plan (the "1994 Plan"), our Non-Employee
Director Stock Plan (the "1996 Plan"), or our Long-Term Equity Compensation Plan
(the "1997 Plan"). Collectively, these three plans are later referred to as the
"Plans").
WHO IS ELIGIBLE TO PARTICIPATE IN THE EXCHANGE PROGRAM?
Participation in the Exchange Program is limited to holders of stock
options with exercise prices of $14.00 or greater per share, and who meet all of
the other participation criteria: (1) actively employed by the Company on
November 27, 2000, (2) actively employed by the Company on the date of their
election under the Exchange Program, and (3) selected for participation by our
Compensation Committee of the Board of Directors. Non-employee members of the
Board of Directors as of November 27, 2000 may also participate on the same
basis as other stock option holders.
Description of Exchange Program Page 1 of 6
WHY ARE WE OFFERING THE EXCHANGE PROGRAM?
We believe that some of our outstanding stock options are not achieving the
purpose for which they were originally intended, because their exercise prices
are significantly above the current market price for our common stock. These
"underwater" options have limited effectiveness in providing meaningful
performance incentives and employment retention to many option holders. By
exchanging the options for shares of Restricted Stock, we believe that the
performance incentive and employee retention factors will be improved, and
thereby increase overall stockholder value.
HOW MANY SHARES OF RESTRICTED STOCK WILL I BE ISSUED
IN EXCHANGE FOR SURRENDER OF MY OPTIONS?
You will be entitled to receive for each eligible option the number of
shares set forth on your Participant Acknowledgement and Election Form. The
number of restricted shares is based on a "fair value" exchange in which the
value of the Restricted Stock received is intended to approximately equal the
value of the surrendered options. The value of the options was determined in
November 2000 using the "Black-Scholes" method. This method utilizes several
valuation factors, including (a) the exercise price of the options; (b) the
remaining term of the options; (c) a risk-free interest rate; and (d) the
trading volatility of our common stock. The value of the Restricted Stock was
determined based on the average of the closing price of our stock for each of
the last five trading days ended November 17, 2000.
WHAT HAS BEEN THE MARKET PRICE FOR
SMART & FINAL INC. COMMON STOCK?
During the first quarter of 2001, the New York Stock Exchange closing price
for Smart & Final Inc. common stock has ranged from a low of $8.125 per share to
a high of $10.55 per share, in trading through February 23, 2001. During 2000
the price ranged from a low of $5.75 to a high of $8.563 and during 1999 the
price ranged from a low of $6.125 to a high of $12.375.
You are urged to obtain a current market quotation for the stock before
making an election under the Exchange Program.
DO YOU HAVE TO EXCHANGE ALL OF YOUR STOCK OPTIONS?
No, you may elect to exchange some of your eligible stock option grants and
not exchange other grants. However, all stock options granted on the same date
must either be exchanged or retained together. You must clearly indicate which
stock option grants that you wish to exchange on the "Participant
Acknowledgement and Election Form". If you do not clearly indicate that you
want to participate in the Exchange Program, we will assume that you do not wish
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to exchange any of your eligible stock option grants.
WHEN WILL YOU RECEIVE THE SHARES FOR YOUR SURRENDERED OPTIONS?
If you elect to participate in the Exchange Program, following receipt of
your properly completed election form, we will send you a Restricted Stock
Agreement. You must sign this Agreement and return it to us, and your account
will be credited for the number of shares of Restricted Stock. You will receive
an actual stock certificate for your Restricted Stock once the vesting period
has expired.
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WHAT IS THE VESTING SCHEDULE FOR THE RESTRICTED STOCK
THAT YOU WILL RECEIVE UNDER THE EXCHANGE PROGRAM?
All option holders who elect to participate in the Exchange Program will
receive Restricted Stock. Restricted Stock grants to participants who hold
eligible options covering, in the aggregate, less than 1,000 shares, will vest
one year from the date of election to participate in the Exchange Program.
Restricted Stock grants issued to participants who hold eligible options
covering, in the aggregate, 1,000 shares or more, will vest three years from the
date of election to participate in the Exchange Program. These vesting
schedules apply to the Restricted Stock received under the Exchange Program,
even if your exchanged stock options are currently vested.
UNDER WHAT CIRCUMSTANCES WILL YOU FORFEIT THE
RESTRICTED STOCK YOU RECEIVE UNDER THE EXCHANGE PROGRAM?
In general, you will forfeit the Restricted Stock issued to you under the
Exchange Program if you cease to be employed by us before the date your
Restricted Stock grant vests. You will not forfeit your Restricted Stock, and
all of your Restricted Stock will vest, if you leave our employment because of
Retirement, death, or a "change in control" (all as defined in the 1997 Plan).
ARE THERE OTHER RESTRICTIONS ON THE RESTRICTED STOCK?
The restrictions on the Restricted Stock you will receive if you elect to
participate in the Exchange Program are contained in the Restricted Stock
Agreement. Restricted Stock generally may not be sold, transferred, assigned,
pledged, or otherwise encumbered or disposed until the stock vests.
ARE YOU ENTITLED TO EXERCISE THE RIGHTS OF OWNERSHIP
OF RESTRICTED STOCK BEFORE THE VESTING PERIOD IS COMPLETE?
If you participate in the Exchange Program and receive Restricted Stock,
you will have dividend, voting and other stockholder rights with respect to any
Restricted Stock you receive in the offer as of the date we credit the
Restricted Stock to your account.
WHAT IS THE SOURCE OF THE COMMON STOCK THAT WILL
BE ISSUED IN EXCHANGE FOR YOUR OPTIONS?
Restricted Stock grants made under the Exchange Program will be drawn from
the pool of common stock currently authorized for issuance under the 1997 Plan.
WHAT HAPPENS TO STOCK OPTIONS SURRENDERED
UNDER THE EXCHANGE PROGRAM?
All options exchanged in the Exchange Program will be cancelled and
returned to the plan under which the cancelled options were originally granted.
All option agreements representing options to be exchanged will be cancelled and
deemed to be terminated on exchange and of no further force or effect.
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WHEN DOES THE VOLUNTARY ELECTION PERIOD
FOR THE EXCHANGE PROGRAM EXPIRE?
The voluntary election period for the Exchange Program expires Friday,
March 9, 2001, at 5:00 p.m., local time in Los Angeles, California, unless
further extended by us. We may extend the election period at any time but we do
not currently have any intention to do so. If the election period is extended,
we will promptly inform the individuals that are eligible to participate in the
Exchange Program of the extension.
Although we don't expect to do so, we also retain the right to suspend or
terminate the Exchange Program at any time if required to do so by orders of
judicial courts, governmental agencies, the New York Stock Exchange, or other
circumstances which in our view make the continuing acceptance of participant
elections impossible or impractical.
HOW DO YOU PARTICIPATE IN THE EXCHANGE PROGRAM?
If you decide to participate in the Exchange Program, you must deliver to
us a properly completed and signed "Participant Acknowledgment and Election
Form" according to the instructions on the form. You also must agree to sign a
"Restricted Stock Agreement" which contains the terms of your Restricted Stock
grant under the Exchange Program.
CAN YOU WITHDRAW YOUR ELECTION UNDER THE EXCHANGE PROGRAM?
No. Participant elections are irrevocable after submission to us.
WHAT DO WE AND OUR BOARD OF DIRECTORS
THINK OF THE EXCHANGE PROGRAM?
Neither we nor our board of directors makes any recommendation as to
whether you should participate in the Exchange Program. You must make your own
decision regarding participation. Although, certain members of executive
management and members of the board of directors eligible to participate in the
Exchange Program have elected to participate in the Exchange Program, you should
not consider this as a recommendation by them regarding your potential
participation.
We have not authorized anyone to make any recommendation on our behalf as
to whether you should participate in the Exchange Program. If anyone makes any
recommendation or gives any information or representation, you must not rely
upon that recommendation, information or authorization as having been authorized
by us.
WILL YOU HAVE TO PAY TAXES IF YOU EXCHANGE
YOUR OPTIONS UNDER THE EXCHANGE PROGRAM?
You are urged to consult your own tax, financial and legal advisers
regarding any financial or non-financial impacts that would arise from your
participation in the Exchange Program.
Although we cannot give individual tax advice, in general there are no
immediate federal income tax consequences of receiving Restricted Stock in
exchange for your stock options unless you make an election under Section 83(b)
of the Internal Revenue Code. That election, should you choose to make it, must
be made and filed with the Internal Revenue Service within thirty (30) days of
your exchange. If you make a Section 83(b) election, you will be required to
recognize
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taxable income at the time of the exchange in an amount equal to the fair market
value of the Restricted Stock on such date. If the Restricted Stock is
subsequently forfeited, you are not entitled to a deduction for the loss.
However, having made the filings, if you hold the Restricted Stock until after
the shares vest and subsequently sell the shares of common stock issued upon
vesting, the gain will be taxes as capital gain as opposed to ordinary income.
In the event you do not make an Section 83(b), when the Restricted Stock that
you receive under the Exchange Program vests (in one year or three years), you
will be required to recognize additional income in an amount equal to its fair
market value on the vesting date.
HOW MANY STOCK OPTIONS OR RESTRICTED SHARES
ARE INVOLVED IN THE EXCHANGE PROGRAM?
The exact number of stock options or restricted shares will be determined
by the extent of voluntary participation by the eligible option holders. At the
time of approval in November 2000, there were 991,379 eligible stock options.
If the holders of all of these stock options continued to be eligible for the
Exchange Program and elected to participate, we would issue 202,578 restricted
shares.
WHAT IS THE COST TO US OF OFFERING THE EXCHANGE PROGRAM?
We do not expect to pay any fees or commissions to any broker, dealer, or
other person for offering participation in the Exchange Program to current
options holders. We will incur some fees for legal, accounting, auditing,
taxation, and other services but the total amount is not expected to be material
to us.
For those options holders who elect to participate in the Exchange Program,
we expect to record compensation expense in an amount based on the number of
Restricted Shares granted under the Exchange Program, with this expense
amortized over the vesting period. The total expense cannot be accurately
estimated prior to determining the extent of participation in the Exchange
Program.
WHO SHOULD YOU CONTACT IF YOU HAVE ADDITIONAL
QUESTIONS ABOUT THE EXCHANGE PROGRAM?
For additional information or assistance, you may contact Laurie Mead,
Director of Human Resources at (323) 869-7640 or at
laurie.mead@smartandfinal.com.
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WHO SHOULD YOU CONTACT IF YOU WISH TO HAVE ADDITIONAL
INFORMATION ABOUT SMART & FINAL INC.?
Smart & Final Inc. makes periodic reports to the Securities and Exchange
Commission and these reports are available for a fee from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. The SEC also maintains a Web site at http://www.sec.gov that contains
reports, proxy statements and other information regarding registrants that file
electronically with the SEC. The SEC file number for our documents is 001-10811.
These reports, proxy statements and other information concerning us also
can be inspected at the offices of The New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
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ARE THERE OTHER FACTORS TO CONSIDER?
We are not aware of any jurisdiction where the terms of the Exchange
Program are not in compliance with applicable law. If we become aware of any
jurisdiction where the Exchange Program is not in compliance with any valid
applicable law, we will make a good faith effort to comply with such law. If,
after such good faith effort, we cannot comply with such law, the Exchange
Program will not be made to (nor will participant elections be accepted from or
on behalf of) the holders of options residing in such jurisdiction.
Some of the information contained in the Exchange Program or other
documents referenced by the Exchange Program may contain "forward-looking
statements" that involve risks and uncertainties that could cause actual results
to differ materially from those in the forward-looking statements. When the
words "anticipate," "believe," "estimate," "intend" and "expect" and similar
expressions are used they are intended to identify such forward-looking
statements. The forward-looking statements are based on our current views and
assumptions and involve risks and uncertainties that include, among other
things, general economic, business, and regulatory conditions, competition,
federal and state regulations, availability, and terms and use of capital. Some
or all of these factors are beyond our control.
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