Exhibit 99.4
Stock Option Exchange
Voluntary Exchange
of "Stock Options"
for "Restricted Shares"
Why a Voluntary Exchange?
. Many Smart & Final stock option grants have exercise prices at $14+ per share
. Some option holders perceive little value in their option grants
. "Valuable" stock options and restricted shares encourage associate retention
. Smart & Final wants to increase associate stock ownership to encourage
shareholder perspective
What is being Offered?
. A "Fair Trade"
- Surrender stock options granted at $14+ exercise prices
- Receive equal value in shares of Smart & Final restricted common stock
. Exchange ratio depends on the "fair value" of outstanding stock options
What is a Stock Option?
. An "option" is the right to purchase a common share of Smart & Final stock
. The "exercise price" is the price the option holder pays to buy a share of
stock
. The "term" is how long the option holder has to exercise the option before it
expires - typically 10 years from the date of grant
. The "value" of the option is the difference between the market value of the
stock and the exercise price
What is Restricted Stock?
. "Restricted" stock is a "real" common share of Smart & Final stock
. The "restriction" is that the holder doesn't own the share until the "vesting
period" is complete
. The "value" of the restricted share is the market value of Smart & Final
stock
How Do I Realize Value?
Stock Options
- -------------
. Vesting period must be complete
. Market price of stock must be greater than exercise price
. You buy the stock by paying the exercise price
Restricted Stock
- ----------------
. Vesting period must be complete
Personal Income Taxation
Stock Options
-------------
. Taxable on the amount of the gain upon exercise (market price vs. exercise
price)
Restricted Stock
----------------
. Taxable on the full market value of the share at the time you are 100% vested
What's the Exchange Ratio?
The Exchange Ratio for converting Stock Options to
Restricted Shares is not 1-to-1.
---
1 (not equal to) 1
The Exchange Ratio represents a "fair value"
exchange under the "Black-Scholes" method.
The 3 key valuation factors are:
Key "Fair Value" Factors
. The "exercise price" of the stock option -- how far away is it from the
current market price of Smart & Final stock
. The remaining stock option "term" -- how long does the option holder have for
the market price to exceed the exercise price
. The "value" of the restricted share -- the current market price of Smart &
Final stock
A "Fair Trade" Example
Original Stock Option Restricted Stock Exchange
- --------------------- -------------------------
Date Granted: 9/20/95 Date Granted: 2/1/01
Vesting: 4 year step Vesting: 3 year cliff
Option Price: $ 17.50 / share Share Value: $ 8.50 / share
Options Granted: 1,500 Shares Granted: 275
FUTURE VALUE: FUTURE VALUE:
. How much more than $17.50 / . What will the market value of
share will S&F common stock S&F common stock be after
be worth by 9/20/2005? 2/1/04
. Times 1,500 . Times 275
"Fair Trade" Ratio for 9/25/95 Options is 5.4-to-1
What are my choices?
. This is a voluntary program -- Smart & Final cannot make a decision for you.
. If you participate, your stock options will be exchanged for restricted
shares.
. You may elect to exchange some options grants and retain others. However, all
stock options granted together must either be exchanged or retained together.
. If you receive restricted stock, those shares will be subject to a vesting
period.
What about vesting?
. The amount of stock options you have determines the vesting requirement on
your restricted stock.
Number of Stock Options Vesting
----------------------- -------
*= 1,000 1 year
1,000+ 3 years
. Vesting on restricted stock is "cliff" vesting.
. Vesting is accelerated in the event of retirement or death.
* less than
What do I do?
. Every eligible associate will receive a statement that itemizes each eligible
stock option grant.
. The statement will also include the number of restricted shares available for
exchange.
. You will need to indicate your intention to swap or retain stock options for
each grant.
When do I have to decide?
. You must complete and return your election form by March 9, 2001.
. Each option grant must be separately elected (exchange or retain).
. The exchange program is "positive enrollment" -- if no form is received, the
current stock option grant will remain in effect.