<PAGE>
 
                         1997 EXECUTIVE SEVERANCE PLAN

                         Smart & Final Inc.

                         September 1997

 
<PAGE>
 
CONTENTS
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                                                      PAGE
<S>                                                   <C>
 
Article 1. Establishment, Term, and Purpose              1
 
Article 2. Definitions                                   1
 
Article 3. Participation                                 5
 
Article 4. General Severance Benefits                    6
 
Article 5. Change-in-Control Severance Benefits          8
 
Article 6. Excise Tax Equalization Payment              10
 
Article 7. Form and Timing of Severance Benefits        12
 
Article 8. Legal Remedies                               12
 
Article 9. Outplacement Assistance                      13
 
Article 10. Noncompetition                              13
 
Article 11. Successors and Assignment                   13
 
Article 12. Miscellaneous                               14

Appendix
</TABLE> 
<PAGE>
 
SMART & FINAL INC.
1997 EXECUTIVE SEVERANCE PLAN

ARTICLE 1. ESTABLISHMENT, TERM, AND PURPOSE

     1.1.  ESTABLISHMENT OF THE PLAN. Smart & Final Inc. (hereinafter referred
to as the "Company") hereby establishes an executive severance plan to be known
as the "Smart & Final Inc. 1997 Executive Severance Plan" (the "Plan"). The Plan
shall become effective immediately upon September 12, 1997 (the "Effective
Date").

     1.2.  TERM OF THE PLAN. This Plan will commence on the Effective Date and
shall continue in effect for three (3) full calendar years. However, at the end
of such three-year (3) period and, if extended, at the end of each additional
year thereafter, the term of this Plan shall be extended automatically for one
(1) additional year, unless the Committee delivers written notice six (6) months
prior to the end of such term, or extended term, to each Participant, that the
Plan will not be extended. In such case, the Plan will terminate at the end of
the term, or extended term, then in progress.

     However, in the event a Change in Control occurs during the original or any
extended term, this Plan will remain in effect for the longer of: (i) twenty-
four (24) months beyond the month in which such Change in Control occurred; (ii)
until all obligations of the Company hereunder have been fulfilled, and until
all benefits required hereunder have been paid to Participants.

     1.3.  PURPOSE OF THE PLAN. The purpose of the Plan is to provide certain
key employees of the Company employment protection and financial security in the
event of an involuntary termination ("General Severance"). The Plan also is
intended to provide certain key employees of the Company who have a qualifying
termination in connection with a change in control of the Company and who are
otherwise eligible under the Plan with enhanced severance benefits ("Change-in-
Control Severance") in lieu of General Severance.

ARTICLE 2. DEFINITIONS

  Whenever used in this Plan, the following terms shall have the meanings set
forth below and, when the meaning is intended, the initial letter of the word is
capitalized:

     2.1.  "BASE SALARY" means the salary of record paid to a Participant as
annual salary, excluding amounts received under incentive or other bonus plans,
whether or not deferred.

     2.2.  "BENEFICIAL OWNER" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
<PAGE>
 
     2.3.  "BENEFICIARY" means the persons or entities designated or deemed
designated by a Participant pursuant to Section 10.2 herein.

     2.4.  "BOARD" means the Board of Directors of the Company.

     2.5.  "CAUSE" shall be defined as conduct of a Participant which is finally
adjudged to be knowingly fraudulent, deliberately dishonest or willful
misconduct. The Committee shall make the determination of whether Cause exists,
and after giving the Participant the opportunity to respond to the allegation
that Cause exists.

     2.6.  "CHANGE IN CONTROL" of the Company shall be deemed to have occurred
(as of a particular day, as specified by the Board) upon the occurrence of any
event described in this Section 2.7 as constituting a Change in Control.

     A Change in Control will be deemed to have occurred as of the first day any
one (1) or more of the following paragraphs shall have been satisfied:

     (a) Any Person (other than a trustee or other fiduciary holding securities
         under an employee benefit plan of the Company, or a corporation owned
         directly or indirectly by the stockholders of the Company in
         substantially the same proportions as their ownership of stock of the
         Company), becomes the Beneficial Owner, directly or indirectly, of
         securities of the Company, representing more than [TWENTY-FIVE] percent
         ([25]%) of the combined voting power of the Company's then outstanding
         securities; or

     (b) During any period of two (2) consecutive years (not including any
         period prior to the Effective Date), individuals who at the beginning
         of such period constitute the Board (and any new Director, whose
         election by the Company's stockholders was approved by a vote of at
         least two-thirds (2/3) of the Directors then still in office who either
         were Directors at the beginning of the period or whose election or
         nomination for election was so approved), cease for any reason to
         constitute a majority thereof; or
<PAGE>
 
     (c) The stockholders of the Company approve: (i) a plan of complete
         liquidation of the Company; or (ii) an agreement for the sale or
         disposition of all or substantially all the Company's assets; or (iii)
         a merger, consolidation, or reorganization of the Company with or
         involving any other corporation, other than a merger, consolidation, or
         reorganization that would result in the voting securities of the
         Company outstanding immediately prior thereto continuing to represent
         (either by remaining outstanding or by being converted into voting
         securities of the surviving entity) at least eighty percent (80%) of
         the combined voting power of the voting securities of the Company (or
         such surviving entity) outstanding immediately after such merger,
         consolidation, or reorganization.

However, in no event shall a Change in Control be deemed to have occurred, with
respect to a Participant, if that Participant is part of a purchasing group
which consummates the Change-in-Control transaction. The Participant shall be
deemed "part of a purchasing group" for purposes of the preceding sentence if
the Participant is an equity participant or has agreed to become an equity
participant in the purchasing company or group (except for (i) passive ownership
of less than three percent (3%) of the voting equity securities of the
purchasing company; or (ii) ownership of equity participation in the purchasing
company or group which is otherwise deemed not to be significant, as determined
prior to the Change in Control by a majority of the continuing Nonemployee
Directors).

     2.7.  "CHANGE-IN-CONTROL SEVERANCE BENEFITS" means the payment of change-
in-control severance compensation as provided in Section 5.4 herein.

     2.8.  "CODE" means the United States Internal Revenue Code of 1986, as
amended.

     2.9.  "COMMITTEE" means the Compensation Committee of the Board, or any
other committee appointed by the Board to perform the functions of the
Compensation Committee.

     2.10.  "COMPANY" means Smart & Final Inc., a Delaware corporation
(including any and all subsidiaries), or any successor thereto as provided in
Article 9 herein.

     2.11.  "DISABILITY" shall mean, for all purposes of this Plan, the
incapacity of a Participant, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company, such Disability to be determined by the
Committee upon receipt and in reliance on competent medical advice from one (1)
or more 
<PAGE>
 
individuals, selected by the Committee, who are qualified to give such
professional medical advice.

     2.12.  "EFFECTIVE DATE" means the date this Plan set forth above,
contingent upon approval of the Board, or such other date as the Board shall
designate in its resolution approving this Plan.

     2.13.  "EFFECTIVE DATE OF TERMINATION" means the date on which a Qualifying
Termination occurs which triggers the payment of Severance Benefits hereunder.

     2.14.  "EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended.

     2.15.  "GENERAL SEVERANCE BENEFITS" means the payment of general severance
compensation as provided in Section 4.3 herein.

     2.16.  "GENERAL SEVERANCE PERIOD" shall mean, for a particular Participant,
the period commencing on the Participant's Effective Date of Termination and
continuing for one month for every year of service with the Company, subject to
a minimum General Severance Period of 12 months.

     2.17.  "GOOD REASON" shall mean, without the Participant's express written
consent, the occurrence of any one or more of the following:

     (a) The assignment of the Participant to duties materially inconsistent
         with the Participants authorities, duties, responsibilities, and status
         (including offices, titles, and reporting requirements) as an employee
         of the Company, or a reduction or alteration in the nature or status of
         the Participants authorities, duties, or responsibilities from those
         in effect during the immediately preceding fiscal year;

     (b) Without the Participan consent, the Companys requiring the Participant
         to be based at a location which is at least fifty (50) miles further
         from the Participants current primary residence than is such residence
         from the Companys current headquarters, except for required travel on
         the Companys business to an extent substantially consistent with the
         Participant s business obligations as of the Effective Date;

     (c) A reduction by the Company in the Participants Base Salary as in effect
         on the Effective Date or as the same shall be increased from time to
         time;
<PAGE>
 
     (d) A material reduction in the Participants level of participation in any
         of the Companys short- and/or long-term incentive compensation plans,
         or employee benefit or retirement plans, policies, practices, or
         arrangements in which the Participant participates as of the Effective
         Date; provided, however, that reductions in the levels of participation
         in any such plans shall not be deemed to be "Good Reason" if the
         Participants reduced level of participation in each such program
         remains substantially consistent with the average level of
         participation of other executives who have positions commensurate with
         the Participants position; or

     (e) The failure of the Company to obtain a satisfactory agreement from any
         successor to the Company to assume and agree to perform this Agreement,
         as contemplated in Article 11 herein.

     2.18.  "PARTICIPANT" means an officer of the Company who fulfills the
eligibility and participation requirements, as provided in Article 3 herein.

     2.19.  "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).

     2.20.  "PLAN" means this 1997 Executive Severance Plan.

     2.21.  "QUALIFYING CHANGE-IN-CONTROL TERMINATION" means any of the events
described in Section 5.3 herein, the occurrence of which triggers the payments
of Change-in-Control Severance Benefits hereunder.

     2.22.  "QUALIFYING GENERAL TERMINATION" means any of the events described
in Section 4.2 herein, the occurrence of which triggers the payment of General
Severance Benefits hereunder.

     2.23.  "QUALIFYING TERMINATION" means either a Qualifying Change-in-Control
Termination or a Qualifying General Termination.

     2.24.  "RETIREMENT" shall have the meaning ascribed to such term in the
Company's tax-qualified retirement plan.

     2.25.  "SEVERANCE BENEFITS" means either General Severance Benefits or
Change-in-Control Severance Benefits.

     2.26.  "TIER I EXECUTIVE" means an officer who has been selected to
participate in the Plan and designated as Tier I Executive pursuant to Section
3.2.
<PAGE>
 
     2.27.  "TIER II EXECUTIVE" means an officer who has been selected to
participate in the Plan and designated as a Tier II Executive pursuant to
Section 3.2.

ARTICLE 3. PARTICIPATION

     3.1.  ELIGIBLE EMPLOYEES. Individuals eligible to participate in the Plan
shall include all officers of the Company, as determined by the Committee in its
sole discretion.

     3.2.  PARTICIPATION. Subject to the terms of the Plan, the Committee may,
from time to time select from all officers those who shall participate in the
Plan. Officers selected to participate in the Plan shall be designated as either
a Tier I Executive or a Tier II Executive and identified in the attached
Appendix to the Plan, as may be amended from time to time to reflect new
officers participating in the Plan or officers who have terminated Employment
with the Company.

ARTICLE 4. GENERAL SEVERANCE BENEFITS

     4.1.  RIGHT TO GENERAL SEVERANCE BENEFITS. A Participant shall be entitled
to receive from the Company General Severance Benefits, as described in Section
4.3 herein, a Participant's employment with the Company shall end for any reason
specified in Section 4.2 herein. Participants shall not be entitled to receive
General Severance Benefits if they are terminated for Cause, or if their
employment with the Company ends due to death, Disability, or Retirement.

     4.2.  QUALIFYING GENERAL TERMINATION. The occurrence of any one or more of
the following events shall trigger the payment of General Severance Benefits to
a Participant under this Plan:

     (a) An involuntary termination of the Participant's employment by the
         Company for reasons other than Cause, death, or Disability;

     (b) A successor company fails or refuses to assume the Company's
         obligations under this Plan, as required by Article 11 herein.

     4.3.  DESCRIPTION OF GENERAL SEVERANCE BENEFITS. In the event that a
Participant becomes entitled to receive General Severance Benefits, as provided
in Sections 4.1 and 4.2 herein, the Company shall pay to the Participant and
provide him or her with the following:

     (a) Continued regular payments of the Participant's Base Salary, at the
         highest annual rate in effect at any time up to and including the
         Effective Date of Termination, through the end of the General Severance
         Period;
<PAGE>
 
     In the event a Participant obtains subsequent employment during the General
         Severance Period, payments under this Section 4.3(a) shall be offset by
         Base Salary payments received by the Participant from his or her
         subsequent employer.

     (b) An amount equal to the Participant's unpaid Base Salary and accrued
         vacation pay through the Effective Date of Termination;

     (c) An amount equal to the Participant's unpaid targeted annual bonus,
         established for the plan year in which the Participant's Effective Date
         of Termination occurs, adjusted for actual performance through the
         Effective Date of Termination and multiplied by a fraction, the
         numerator of which is the number of days completed in the then-existing
         fiscal year through the Effective Date of Termination, and the
         denominator of which is three hundred sixty-five (365);
<PAGE>
 
     (d) A continuation of the welfare benefits of medical insurance, dental
         insurance, and group term life insurance through the end of the General
         Severance Period.

     Benefits provided under this Section 4.3(d) shall be provided to
         Participants at the same premium cost, and at the same coverage level,
         as in effect as of the Participant's Effective Date of Termination.

     However, in the event the premium cost and/or level of coverage shall
         change for all employees of the Company, the cost and/or coverage
         level, likewise, shall change for each Participant in a corresponding
         manner.

     In the event the Participant has available substantially similar benefits
         from a subsequent employer those welfare benefits shall provide
         secondary coverage for the remainder of the General Severance Period;
         and

     (E) A LUMP-SUM CASH PAYMENT OF THE ENTIRE BALANCE OF THE PARTICIPANT'S
         COMPENSATION WHICH HAS BEEN 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.

     4.4.  TERMINATION FOR DISABILITY. If a Participant's employment is
terminated due to Disability, the Participant shall receive his or her Base
Salary through the Effective Date of Termination, at which point in time the
Participant's benefits shall be determined in accordance with the Company's
disability, retirement, insurance, and other applicable plans and programs then
in effect.

     4.5.  TERMINATION FOR RETIREMENT OR DEATH. If a Participant's employment is
terminated by reason of his or her Retirement or death, the Participant's
benefits shall be determined in accordance with the Company's retirement,
survivor's benefits, insurance, and other applicable programs of the Company
then in effect.

     4.6.  TERMINATION FOR CAUSE. If a Participant's employment is terminated
either: (i) by the Company for Cause; or (ii) by the Participant (other than for
Retirement), the Company shall pay the Participant his or her full Base Salary
and accrued vacation through the Effective Date of Termination, at the rate then
in effect, plus all other amounts to which the Participant is entitled under any
compensation plans of the Company, at the time such payments are due, and the
Company shall have no further obligations to the Participant under this Plan.
<PAGE>
 
ARTICLE 5. CHANGE-IN-CONTROL SEVERANCE BENEFITS

     5.1.  RIGHT TO CHANGE-IN-CONTROL SEVERANCE BENEFITS. A Participant shall be
entitled to receive from the Company Change-in-Control Severance Benefits, as
described in Section 5.4 herein, in lieu of General Severance Benefits, as
described in Section 4.3 herein, if there has been a Change in Control of the
Company and if, within the six (6) full calendar month period prior to the
effective date of a Change in Control, or within twenty-four (24) calendar
months following the effective date of a Change in Control, the Participant's
employment with the Company shall end for any reason specified in Section 5.3
herein.

     Participants shall not be entitled to receive Change-in-Control Severance
Benefits if they are terminated for Cause, or if their employment with the
Company ends due to death or Disability, or due to a voluntary termination of
employment by the Participant without Good Reason.

     5.2.  SERVICES DURING CERTAIN EVENTS. IN THE EVENT A PERSON BEGINS A
TENDER OR EXCHANGE OFFER, CIRCULATES A PROXY TO SHAREHOLDERS OF THE COMPANY, OR
TAKES OTHER STEPS SEEKING TO EFFECT A CHANGE IN CONTROL, EACH PARTICIPANT AGREES
THAT HE OR SHE WILL NOT VOLUNTARILY LEAVE THE EMPLOY OF THE COMPANY AND WILL
RENDER SERVICES UNTIL SUCH PERSON HAS ABANDONED OR TERMINATED HIS OR ITS EFFORTS
TO EFFECT A CHANGE IN CONTROL, OR UNTIL SIX (6) MONTHS AFTER A CHANGE IN CONTROL
HAS OCCURRED; PROVIDED, HOWEVER, THAT THE COMPANY MAY TERMINATE THE
PARTICIPANT'S EMPLOYMENT FOR CAUSE AT ANY TIME, AND THE PARTICIPANT MAY
TERMINATE HIS OR HER EMPLOYMENT ANY TIME AFTER THE CHANGE IN CONTROL FOR GOOD
REASON.

     5.3.  QUALIFYING CHANGE-IN-CONTROL TERMINATION. The occurrence of any one
or more of the following events within twenty-four (24) calendar months
following the effective date of Change in Control of the Company shall trigger
the payment of Change-in-Control Severance Benefits to a Participant under this
Plan:

     (a) An involuntary termination of the Participant's employment by the
         Company for reasons other than Cause, death, Disability, Retirement, or
         a voluntary termination by the Participant for Good Reason;

     (b) A voluntary termination of the Participant's employment by a Tier I
         Executive during the thirty (30) day period commencing on the one (1)
         year anniversary of the Change in Control;

     (c) A successor company fails or refuses to assume the Company's
         obligations under this Plan, as required by Article 11 herein; or
<PAGE>
 
     (d) The Company or any successor company breaches any of the provisions of
         this Plan.

     5.4.  DESCRIPTION OF CHANGE-IN-CONTROL SEVERANCE BENEFITS. In the event
that a Participant becomes entitled to receive Change-in-Control Severance
Benefits, as provided in Sections 5.1 and 5.3 herein, the Company shall pay to
the Participant and provide him or her with the following:

     (a) FOR TIER I EXECUTIVES: An amount equal to two (2) times the highest
         rate of the Participant's annualized Base Salary rate in effect at any
         time up to and including the Effective Date of Termination; or

     FOR TIER II EXECUTIVES: An amount equal to the highest rate of the
         Participant's annualized Base Salary rate in effect at any time up to
         and including the Effective Date of Termination;

     (b) FOR TIER I EXECUTIVES: An amount equal to two (2) times the
         Participant's average annual bonus earned over the three (3) full
         fiscal years prior to the Effective Date of Termination; or

     FOR TIER II EXECUTIVES: An amount equal to the Participant's average annual
         bonus earned over the three (3) full fiscal years prior to the
         Effective Date of Termination;

     (c) An amount equal to the Participant's unpaid Base Salary and accrued
         vacation pay through the Effective Date of Termination;

     (d) An amount equal to the Participant's unpaid targeted annual bonus,
         established for the plan year in which the Participant's Effective Date
         of Termination occurs, adjust to reflect actual performance through the
         Effective Date of Termination and multiplied by a fraction, the
         numerator of which is the number of days completed in the then-existing
         fiscal year through the Effective Date of Termination, and the
         denominator of which is three hundred sixty-five (365);

     (e) FOR TIER I EXECUTIVES: A continuation of the welfare benefits of
         medical insurance, dental insurance, and group term life insurance for
         two (2) full years after the Effective Date of Termination; or

     FOR TIER II EXECUTIVES: A continuation of the welfare benefits of medical
         insurance, dental insurance, and group term life insurance for one (1)
         full year after the Effective Date of Termination; or

     Benefits provided under this Section 5.4(e) shall be provided to
         Participants at the same premium cost, and at the same coverage level,
         as in effect as of the Participant's Effective Date of Termination.
         However, in the event 
<PAGE>
 
         the premium cost and/or level of coverage shall change for all
         employees of the Company, the cost and/or coverage level, likewise,
         shall change for each Participant in a corresponding manner;

     (f) A continuation of the financial planning and tax services provided by
         the Company to the Participant through the end of the calendar year in
         which the Effective Date of Termination occurs; and

     (g) A lump-sum cash payment of the entire balance of the Participant's
         compensation which has been 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.

     5.5.  TERMINATION FOR DISABILITY. Following a Change in Control of the
Company, if a Participant's employment is terminated due to Disability, the
Participant shall receive his or her Base Salary through the Effective Date of
Termination, at which point in time the Participant's benefits shall be
determined in accordance with the Company's disability, retirement, insurance,
and other applicable plans and programs then in effect.

     5.6.  TERMINATION FOR RETIREMENT OR DEATH. Following a Change in Control of
the Company, if a Participant's employment is terminated by reason of his or her
Retirement or death, the Participant's benefits shall be determined in
accordance with the Company's retirement, survivor's benefits, insurance, and
other applicable programs of the Company then in effect.

     5.7.  TERMINATION FOR CAUSE OR BY A PARTICIPANT OTHER THAN FOR GOOD REASON
OR RETIREMENT. Following a Change in Control of the Company, if a Participant's
employment is terminated either: (i) by the Company for Cause; or (ii) by the
Participant (other than for Retirement) and other than for Good Reason, the
Company shall pay the Participant his or her full Base Salary and accrued
vacation through the Effective Date of Termination, at the rate then in effect,
plus all other amounts to which the Participant is entitled under any
compensation plans of the Company, at the time such payments are due, and the
Company shall have no further obligations to the Participant under this Plan.

ARTICLE 6. EXCISE TAX EQUALIZATION PAYMENT

     6.1. EXCISE TAX EQUALIZATION PAYMENT. In the event that a Participant
becomes entitled to Severance Benefits or any other payment or benefit under
this Plan, or under any other agreement with or plan of the Company (in the
aggregate, the "Total Payments"), if any of the Total Payments will be subject
to 
<PAGE>
 
the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar
tax that may hereafter be imposed), the Company shall pay to the Participant in
cash an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Participant after deduction of any Excise Tax upon the Total
Payments and any Federal, state and local income tax and Excise Tax upon the
Gross-Up Payment provided for by this Section 6.1 (including FICA and FUTA),
shall be equal to the Total Payments. Such payment shall be made by the Company
to the Participant as soon as practical following the effective date of
termination, but in no event beyond thirty (30) days from such date.

     6.2. TAX COMPUTATION. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:

     (a) Any other payments or benefits received or to be received by the
         Participant in connection with a Change in Control of the Company or
         the Participant's termination of employment (whether pursuant to the
         terms of this Plan or any other plan, arrangement, or agreement with
         the Company, or with any Person whose actions result in a Change in
         Control of the Company or any Person affiliated with the Company or
         such Persons) shall be treated as "parachute payments" within the
         meaning of Section 280G(b)(2) of the Code, and all "excess parachute
         payments" within the meaning of Section 280G(b)(1) shall be treated as
         subject to the Excise Tax, unless in the opinion of tax counsel as
         supported by the Company's independent auditors and acceptable to the
         Participant, such other payments or benefits (in whole or in part) do
         not constitute parachute payments, or unless such excess parachute
         payments (in whole or in part) represent reasonable compensation for
         services actually rendered within the meaning of Section 280G(b)(4) of
         the Code in excess of the base amount within the meaning of Section
         280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;

     (b) The amount of the Total Payments which shall be treated as subject to
         the Excise Tax shall be equal to the lesser of: (i) the total amount of
         the Total Payments; or (ii) the amount of excess parachute payments
         within the meaning of Section 280G(b)(1) (after applying clause (a)
         above); and

     (c) The value of any noncash benefits or any deferred payment or benefit
         shall be determined by the Company's independent auditors in accordance
         with the principles of Sections 280G(d)(3) and (4) of the Code.

     For purposes of determining the amount of the Gross-Up Payment, the
Participant shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and state and local income taxes at the highest marginal
<PAGE>
 
rate of taxation in the state and locality of the Participant's residence on the
Effective Date of Termination, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.
<PAGE>
 
     6.3.  SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service
adjusts the computation of the Company under Section 6.2 herein so that the
Participant did not receive the greatest net benefit, the Company shall
reimburse the Participant for the full amount necessary to make the Participant
whole, plus a market rate of interest, as determined by the Committee.

ARTICLE 7. FORM AND TIMING OF SEVERANCE BENEFITS

     7.1.  FORM AND TIMING OF SEVERANCE BENEFITS. The Severance Benefits
described in Sections 4.3(b), 4.3(c), 4.3(e), 5.4(a), 5.4(b), 5.4(c), 5.4 (d),
and 5.4(g) herein shall be paid in cash to the Participant in a single lump sum
as soon as practicable following the Effective Date of Termination, but in no
event beyond thirty (30) days from such date.

     7.2.  WITHHOLDING OF TAXES. The Company shall be entitled to withhold from
any amounts payable under this Plan all taxes as legally shall be required
(including, without limitation, any United States federal taxes, and any other
state, city, or local taxes).

ARTICLE 8. LEGAL REMEDIES

     8.1.  PAYMENT OF LEGAL FEES. To the extent permitted by law, the Company
shall pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Participant as a result of the Company's
refusal to provide the Change-in-Control Severance Benefits to which the
Participant becomes entitled under this Plan, or as a result of the Company's
contesting the validity, enforceability, or interpretation of this Plan, or as a
result of any conflict between the parties pertaining to this Plan; provided,
however, that the Company shall be reimbursed by the Participant for all such
fees and expenses in the event the Participant fails to prevail with respect to
any one (1) material issue of dispute in connection with such legal action.

     8.2.  ARBITRATION. Participants shall have the right and option to elect
(in lieu of litigation) to have any dispute or controversy arising under or in
connection with this Plan settled by arbitration, conducted before a panel of
three (3) arbitrators sitting in a location selected by the Participant within
fifty (50) miles from the location of his job with the Company, in accordance
with the rules of the American Arbitration Association then in effect.

     Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Participant, shall be borne by the Company;
provided, however, that the Company shall be reimbursed by the Participant for
all such fees and expenses in the event the Participant fails to prevail with
respect to any one (1) material issue of dispute in connection with such legal
action.
<PAGE>
 
ARTICLE 9. OUTPLACEMENT ASSISTANCE

    Following a Qualifying General Termination (as described in Section 4.2
herein) the Participant shall be reimbursed by the Company for the costs of all
outplacement services obtained by the Participant within the two (2) year period
after the effective date of termination; provided, however, that the total
reimbursement shall be limited to an amount equal to fifteen percent (15%) of
the Participant's Base Salary as of the effective date of termination.

ARTICLE 10. NONCOMPETITION

    10.1.  PROHIBITION ON COMPETITION. Without the prior written consent of the
Company, during the term of this Plan, and for the greater of twelve (12) months
following the expiration of this Plan, or any other period in which amounts are
paid hereunder, Participants shall not, as an employee or an officer, engage
directly or indirectly in any business or enterprise which is "in competition"
with the Company or its successors or assigns. For purposes of this Plan, a
business or enterprise will be deemed to be "in competition" if it is engaged in
any significant business activity of the Company or its subsidiaries within the
United States of America.

    However Participants shall be allowed to purchase and hold for investment
less than three percent (3%) of the shares of any corporation whose shares are
regularly traded on a national securities exchange or in the over-the-counter
market.

     10.2.  DISCLOSURE OF INFORMATION. Participants recognize that they have
access to and knowledge of certain confidential and proprietary information of
the Company which is essential to the performance of their duties as employees
of the Company. Participants will not, during or after the term of their
employment by the Company, in whole or in part, disclose such information to any
person, firm, corporation, association, or other entity for any reason or
purpose whatsoever, nor shall he make use of any such information for their own
purposes.

     10.3.  COVENANTS REGARDING OTHER EMPLOYEES. During the term of this Plan,
and for a period of twenty four (24) months following the termination of a
Participant's employment, each Participant agrees not to attempt to induce any
employee of the Company to terminate his or her employment with the Company,
accept employment with any competitor of the Company, or to interfere in a
similar manner with the business of the Company.

ARTICLE 11. SUCCESSORS AND ASSIGNMENT

     11.1.  SUCCESSORS TO THE COMPANY. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
of all or substantially all of the business and/or assets of the Company or of
any division or subsidiary thereof to expressly assume and agree to perform the
<PAGE>
 
Company's obligations under this Plan in the same manner and to the same extent
that the Company would be required to perform them if no such succession had
taken place. Failure of the Company to obtain such assumption and agreement
prior to the effective date of any such succession shall be a breach of this
Plan and shall entitle Participants to compensation from the Company in the same
amount and on the same terms as they would be entitled to hereunder if they had
terminated their employment with the Company voluntarily for Good Reason. Except
for the purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Effective Date of Termination.

     11.2.  ASSIGNMENT BY THE PARTICIPANT. This Plan shall inure to the benefit
of and be enforceable by each Participant's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If a Participant dies while any amount would still be payable to him
or her hereunder had he or she continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Plan, to the Participant's Beneficiary. If the Participant has not named a
Beneficiary, then such amounts shall be paid to the Participant's devisee,
legatee, or other designee, or if there is no such designee, to the
Participant's estate.

ARTICLE 12. MISCELLANEOUS

     12.1.  NOTICE OF TERMINATION. Any termination by the Company for Cause or
by a Participant for Good Reason shall be communicated by Notice of Termination.
For purposes of this Plan, a "Notice of Termination" shall mean a written notice
which shall indicate the specific termination provision in this Plan relied
upon, and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Participant's employment under
the provision so indicated.

     12.2.  EMPLOYMENT STATUS. Except as may be provided under any other
agreement between a Participant and the Company, the employment of the
Participant by the Company is "at will," and, prior to the effective date of a
Change in Control, may be terminated by either the Participant or the Company at
any time, subject to applicable law.

     12.3.  BENEFICIARIES. Each Participant may designate one or more persons or
entities as the primary and/or contingent Beneficiaries of any Severance
Benefits owing to the Participant under this Plan. Such designation must be in
the form of a signed writing acceptable to the Committee. Participants may make
or change such designations at any time.

     12.4.  GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular, and the singular shall include the plural.
<PAGE>
 
     12.5.  SEVERABILITY. In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included. Further, the captions
of this Plan are not part of the provisions hereof and shall have no force and
effect.

     12.6.  MODIFICATION. No provision of this Plan may be modified, waived, or
discharged unless such modification, waiver, or discharge is agreed to in
writing and signed by each affected Participant and by an authorized member of
the Committee, or by the respective parties' legal representatives and
successors.

     12.7.  APPLICABLE LAW. To the extent not preempted by the laws of the
United States, the laws of the state of California, shall be the controlling law
in all matters relating to this Plan.
<PAGE>
 
APPENDIX

TIER I EXECUTIVES

        TO BE PROVIDED.

TIER II EXECUTIVES

        TO BE PROVIDED.