10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K

(Mark one)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 2, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 001-10811

SMART & FINAL INC.

(Exact name of registrant as specified in its charter)

Delaware	95-4079584
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
600 Citadel Drive City of Commerce, California	90040
(Address of principal executive offices)	(zip code)

Registrant’s telephone number, including area code: (323) 869-7500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.01 per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)    Yes  x    No  ¨.

As of June 13, 2004, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of Common Stock held by non-affiliates of the registrant based on the closing price of the Common Stock on the New York Stock Exchange composite tape was $169,760,000 (“non-affiliates” excludes for this purpose executive officers, directors and the registrant’s majority shareholder).

As of March 4, 2005, the registrant had outstanding 30,844,551 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Smart & Final Inc.’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held May 20, 2005 are incorporated by reference into Parts II & III of this Form 10-K.

SMART & FINAL INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended January 2, 2005

Caption		Page
Forward-Looking Statements		2
PART I
Item 1.	Business	3
Item 2.	Properties	13
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	14
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
Item 6.	Selected Financial Data	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	83
Item 9A.	Controls and Procedures	83
Item 9B.	Other Information	83
PART III
Item 10.	Directors and Executive Officers of the Registrant	84
Item 11.	Executive Compensation	84
Item 12.	Security Ownership of Certain Beneficial Owners and Management	84
Item 13.	Certain Relationships and Related Transactions	84
Item 14.	Principal Accounting Fees and Services	84
PART IV
Item 15.	Exhibits, Financial Statement Schedules	84
Signatures		90

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Forward-Looking Statements

When used in this Annual Report, the words “believe,” “expect,” “anticipate” and similar expressions, together with other discussion of future trends or results, are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are subject to certain risks and uncertainties, including known and unknown factors as included in the periodic filings by Smart & Final Inc. with the Securities and Exchange Commission and those discussed below that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date hereof. All of these forward-looking statements are based on estimates and assumptions made by our management which, although believed to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such statements. Actual results may differ materially and adversely from such statements due to known and unknown factors. The following important factors, among others, could cause our results of operations to be materially and adversely affected in future periods:

• increased competitive pressures;

• deterioration in national or regional economic conditions;

• interruption and/or inability to obtain adequate supplies of products; and

• adverse state or federal legislation or regulation that increases the costs of compliance or adverse findings by a regulator with respect to existing operations.

Many of these factors are beyond our control. Comparability of current and future operating trends and results may be also impacted by other important factors, most notably the effect of the labor action against the three largest southern California retail supermarket chains which commenced early in the 2003 fourth quarter and which was settled in February 2004. There can be no assurance that we will not incur new or additional unforeseen costs in connection with the ongoing conduct of our business. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. Additional information regarding these factors and other risks is included in “Item 1. Business - Risk Factors.”

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PART I

Item 1. Business

General

Smart & Final Inc. is a Delaware corporation incorporated in 1991 and headquartered in Commerce, California that conducts its business through various subsidiaries. References in this Annual Report to “we”, “our” and “us” are to Smart & Final Inc. and its subsidiaries, collectively.

Our predecessors began operations in 1871 in Southern California and pioneered the “cash-and-carry” concept in the wholesale grocery business. We sell food, foodservice products and professional-quality culinary equipment through non-membership warehouse stores and wholesale stores. In 2004, we had total sales of $2.0 billion from continuing operations and at the end of 2004, we had approximately 5,370 employees.

The following table shows the approximate percentage of our sales from continuing operations, accounted for by each major category of items sold during fiscal years 2004, 2003 and 2002:

	2004		2003		2002
Grocery (including institutionally packaged and dry food items)	21.4	%	21.4	%	21.3	%
Dairy, produce, meat and bakery	21.4		20.4		20.3
Beverage	15.1		15.1		14.7
Paper and packaging	12.5		13.0		13.4
Frozen food	11.7		11.3		10.8
Equipment and janitorial supplies	9.2		9.7		10.2
Sundries and other	8.7		9.1		9.3
Total	100.0	%	100.0	%	100.0	%

Stores

We operated 223 non-membership warehouse grocery stores at fiscal year end 2004 through our principal subsidiary, Smart & Final Stores Corporation, a California corporation and other related entities. These stores operate under the banners “Smart & Final” and “United Grocers Cash & Carry” (“Cash & Carry”).

Our 100 percent-owned subsidiary, Smart & Final de Mexico S.A. de C.V. (“Smart & Final Mexico”), is a Mexican holding company that owns 50 percent of a joint venture with the operators of the Calimax store chain. The joint venture operates 11 stores in Mexico as a Mexican domestic corporation under the name Smart & Final del Noroeste, S.A. de C.V. (“SFDN”) and the average selling square feet of these stores as of the end of 2004 was 17,700. The Mexico joint venture operations are not consolidated and are reported on the equity basis of accounting.

Our stores offer a consistent selection of assorted food, and related supplies, equipment and other items, primarily in institutional sizes and quantities, targeted at small foodservice businesses and other business customer groups. Our Smart & Final stores also attract value-oriented

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retail customers who prefer to purchase items in larger sizes or quantities. We strategically position our stores in a substantial niche market between membership warehouse clubs and traditional foodservice operators. With an average size of approximately 17,700 square feet, our stores’ smaller footprint enables us to locate a greater number of stores in urban neighborhoods than warehouse club operators, which we believe in turn provides a faster, more convenient shopping experience for our customer.

We have experienced significant sales growth despite the expansion of the warehouse club industry in the same geographic markets. We attribute such sales growth to our commitment as a key supplier for the needs of small and mid-sized independent foodservice operators and to our appeal to value-oriented retail customers. Our stores are competitive by offering convenience, attractive pricing, a wide and consistent assortment including high quality signature brand items, and a high level of customer service. Our specific focus on both foodservice operators and retail customers, enables us to react quickly to changing market requirements and customer needs. We believe these strategies, together with our unique retail/wholesale concept, provide greater overall value than the competition.

Stores under the Smart & Final banner include 176 stores primarily located in California with others in Arizona and Nevada. Our Cash & Carry stores operate 47 stores in Washington, Oregon, northern California and Idaho.

The following is a summary of stores included in our continuing operations, by state as of the end of the fiscal years indicated:

	2004	2003	2002	2001	2000
California	168	167	167	165	160
Washington	19	18	18	18	16
Oregon	17	17	16	16	16
Arizona, Idaho and Nevada	19	17	16	13	12
Total	223	219	217	212	204

We continually evaluate the strategic potential and performance of each store and overall market outlook, including consideration of planned new stores within the same market areas to determine if any store should be closed or relocated. During 2004 in the Western United States, we opened four new stores and relocated two stores within their same market area. Additionally, we had six major remodels at existing stores. We plan to continue expansion through relocations and remodels of existing stores and new store openings in the Western United States.

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Merchandising

Customers and market

Smart & Final stores serve two primary customer bases: businesses and household consumers. Many restaurants, caterers, businesses, clubs and organizations shop at Smart & Final stores for their primary and fill-in foodservice product needs. Household consumers shop at Smart & Final stores for the same features that foodservice professionals enjoy: everyday low warehouse prices, smaller warehouse format to facilitate quick and easy shopping, and professional-quality products. Our Cash & Carry stores are targeted to serve only business customers, primarily restaurants, caterers and small businesses. The Cash & Carry stores feature low prices, convenient locations and broad product assortment for both primary and fill-in needs.

Product assortment and quality

Each of our stores typically carries a selection of approximately 7,000 to 9,000 assorted food and related items in bulk sizes and quantities. The stores offer customers a wide product selection in a hybrid, retail/wholesale format for our Smart & Final stores and a wholesale only format for our Cash & Carry stores. Our product selection includes grocery, frozen and refrigerated foods, delicatessen products, fresh produce and meat, paper products, janitorial supplies, restaurant equipment, candy, snacks, beverages and party supplies. We evaluate our products regularly based on formalized profitability reviews and identify items that should be added or removed. We believe the size, consistency and depth of our product assortment satisfies our customers’ needs.

Product quality is important for our stores’ product assortment. Our quality assurance department strives to ensure that our high standards are maintained for all signature brands and national brand products.

Signature brand positioning

Our stores sell our signature private label brands within most merchandise categories, providing a competitive alternative to national brands. We position our signature brands to create brand loyalty and establish an ongoing customer relationship. Furthermore, we believe our customers, both foodservice and household, purchase based on a quality/value/price perception. Our signature brands target leading competitive brands with attention to quality and value. In addition, the margin contribution from signature brands is generally higher than the comparable national brand product.

We continued to expand and enhance our signature brand positioning during 2004. A wide variety of new items and sizes were introduced within a number of our existing signature brands in order to capture additional sales within our growing customer base. For example, we introduced a new signature brand of spring water and drinking water, Sequana^®, in the second quarter of 2004.

At the core of our signature brands program are Chef’s Review^™ and ProPride^®. Chef’s Review is our three-tiered brand comprised of both food and food preparation items, such as equipment and supplies and packaging. Chef’s Review 5 Star products provide premium quality. Chef’s Review 4 Star products are equivalent to leading national brands. Chef’s Review 3 Star products are value-priced standard grade products. ProPride is our professional quality janitorial and cleaning supplies brand with ProValue^® as the standard grade tier for these products.

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In addition to ProPride and Chef’s Review, we also actively market our complete selection of signature brands. The Montecito^® line of Hispanic products and the La Romanella^® line of Italian products represent signature brands designed to reach niche ethnic markets while enhancing our core product lines. Other key signature brands include First Street Deli^™, a full line of delicatessen products, First Street Butcher Shop^™ meats and First Street Dairy^™, which includes milk and other dairy products. Snack’rs^® is a full line of salty snacks while Tradewinds^™ is our brand of spices and specialty seasonings. Bay Harbor^® features a wide variety of frozen fish and seafood products while Ambiance^® offers a complete coffee and hot beverage program. Davis Lay^® features produce and Signature Bakeries is a full line of baked goods. We have other private label brands and plan to develop additional signature brand enhancements in 2005.

Pricing

We attempt to identify and establish competitive pricing on key items in local markets including competitive pricing against warehouse club stores. Our pricing strategy is carefully coordinated with our overall assortment strategy and with other marketing programs. Incentives encourage customers to purchase the largest sizes and case quantities, which helps maximize operating efficiencies within the distribution system. In addition, our corporate signature brand items offer distinct price and value advantages over comparable national brands.

Customer satisfaction

Our stores focus on customer service and convenience to encourage more frequent store visits and greater average purchase size. For example, stores offer convenient locations, operating hours and front door parking lots, along with logical layouts and easy to read signage. Our stores also maintain a high in-stock service rate; high product quality; high level of cleanliness; friendly, responsible and knowledgeable personnel; and point-of-sale support. In addition, we take customers’ special orders for a wide variety of products not regularly carried in our product assortment.

We utilize customer service representatives, provide informative customer materials, and emphasize employee training that builds customer loyalty. We have an employee training program designed to increase store employees’ retailing expertise and product knowledge. Our in-house training center provides employees with the opportunity to build their knowledge and acquire additional skills.

Marketing

Our marketing efforts for Smart & Final stores are focused on building brand awareness to encourage trial and retrial and on strengthening customer relationships to build repeat visits and to increase average purchase dollars. We build brand awareness with broad-reach advertising, public relations efforts and strong, market-entry promotional programs. We enhance our customer relationships with loyalty card programs, targeted marketing and local store events. Our strong advertising and direct mail program focuses on our key strengths: value, convenience and restaurant-quality products. These attributes make our Smart & Final stores the smaller, faster

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warehouse stores where customers save time and money. Our Cash & Carry stores primarily utilize direct mail advertising to reach our business customers and targeted new customers. We encourage our suppliers to participate in our marketing programs, thereby reducing our net marketing costs.

Store design and size

Our stores are designed as convenient warehouse stores dedicated to easing the shopping experience. For the last three years, new and relocated stores have ranged from 18,000 to 28,000 square feet. Our stores are organized into dry grocery, beverages, frozen foods, dairy/deli, fresh produce and meat, janitorial, equipment and supplies, candy, snacks, party supplies and other departments. In addition, prototype designs are improved continually to enhance traffic flow, space utilization, departmentalization, location of related merchandise, and overall visual appeal without diluting the convenient warehouse image.

Operations

Procurement

We believe our purchasing policies and procedures result in costs that are comparable to other companies purchasing similar quantities and types of merchandise. Service level goals and investment buying strategies are integrated to the purchasing program.

Our Smart & Final stores continually utilize the efficiencies provided by cooperative buying organizations to facilitate low cost purchasing. These buying alliances supplement the normal buying activities of our distribution center. We strive to maintain close working relationships with our major suppliers to reduce product and distribution costs. During 2004, we purchased from approximately 1,800 different suppliers. In 2004, we negotiated several national procurement agreements with suppliers, which reduced costs and increased merchandise margins.

Our Cash & Carry stores buy the majority of their products through a service agreement with Unified Western Grocers, Inc. (“UWG”), a grocery cooperative with a distribution center located in Portland, Oregon. During 2003, we entered into a new service agreement with UWG. Cash & Carry stores purchased approximately 76 percent of their product requirements in 2004 from UWG under the new agreement. This service agreement with UWG expires in November 2005.

We have not had any significant difficulties in the past, and do not expect any difficulties in the future, in obtaining products from suppliers or distributors.

Distribution

We support 176 Smart & Final stores in California, Arizona and Nevada and 11 Smart & Final Mexico stores from a 445,000 square foot distribution center in Commerce, California. Our Commerce distribution center operates a fleet of tractors and trailers that are either owned or leased. Other methods of distribution to our stores include service agreements with outside facilities for distribution of frozen, deli products and selected dry grocery products, service agreements with third party carriers for deliveries to northern California Smart & Final stores, and direct shipments from suppliers to the stores that include mostly soda, dairy and produce.

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The 47 Cash & Carry stores in the Pacific Northwest are primarily served through a service agreement with UWG. Our Cash & Carry stores also receive direct shipments from certain suppliers to the stores that include mostly restaurant equipment and paper/packaging supplies.

We utilize computerized inventory management systems, radio frequency technology, and integrated labor management systems in our Commerce distribution center.

Competition

We participate in the dynamic and highly competitive domestic food distribution industry. Our competitors include:

• membership and non-membership warehouse stores;

• wholesale distributors; and

• supermarkets, supercenters and other retailers.

Many of our competitors have greater geographical diversity and financial, distribution, marketing and other resources.

Our two major warehouse store competitors are Costco Wholesale Corporation and the SAM’S CLUB division of Wal-Mart Stores, Inc., both of which require membership. The warehouse stores industry has experienced price competition, product innovation and store growth over the past several years. We believe that we compete effectively with membership warehouse stores by offering a broader and more consistent foodservice assortment, more convenient shopping facilities and locations, a high level of customer service and competitive pricing.

The traditional wholesale foodservice distribution market, in which our Smart & Final and Cash & Carry stores operate and sell to commercial customers, is very competitive and highly fragmented. Competition in this sector may come from national wholesale distributors such as Sysco Corporation, Performance Food Group, the U.S. Foodservice division of Ahold USA and many smaller, regional distributors and independent wholesalers and from Restaurant Depot, a store-based wholesaler.

Competition from supermarket chains continues to increase as such chains emphasize price, service and convenient locations, while widening their assortment of goods, lowering prices and increasing promotions to more effectively compete with warehouse stores and supercenters.

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Management Information Systems

We have made substantial investments in new systems during the past several years, and expect to continue to invest in business technology as a means to enhance our competitive position.

Our investment focus is on operational systems, specifically supply chain and pricing systems, in addition to reporting systems across all lines of the business. We expect these new systems will help increase profitability, better position our pricing strategy and focus on the most important needs of customers while enabling us to be more efficient and responsive to current business trends.

Our purchasing system enables category managers to manage turnover, buy inventory efficiently, achieve targeted gross margin objectives, track rebates and allowances by vendor, and maintain targeted service levels. The merchandising system enables store assortment to be customized to the needs and characteristics of individual market areas, maximizes gross margin return on investment by item and product category and increases inventory turn. The pricing systems allow the assortment to be managed in accordance with the marketplace. The distribution system manages warehouse inventories and store order selection and measures enterprise labor productivity. We believe our efforts that focused on the point of sale systems and the timely availability of detailed transactional data have established us as a leader in the customer information management arena. These systems will allow us to address individual customer’s needs, improve margin and react to both cost and market changes.

Human Resources

We strongly emphasize career development and retention of our employees. We strive to maintain the culture of a focused and innovative organization that maximizes employee productivity and contributions. We actively recruit and offer training opportunities to employees in order to develop qualified candidates for managerial positions as vacancies occur.

Employee training and development programs through our own training facilities encompass all levels of store operations, from entry through management, and emphasize merchandising techniques, management and leadership skills, and customer service goals to ensure top employee quality and productivity. We reward superior performance and motivate employees with incentive pay and stock compensation programs. Stores managers and many employees receive periodic or annual bonuses based on the achievement of specific operating goals and employees at the distribution center receive productivity incentives.

Approximately 130 hourly employees working at 18 Cash & Carry stores are covered by labor contracts with the International Brotherhood of Teamsters.

At the end of fiscal year 2004, we employed approximately 5,370 employees, including 4,930 at Smart & Final stores and 440 at Cash & Carry stores. About two-thirds of our employees are part-time employees. We consider our relations with our employees to be good.

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Government Regulation

We are subject to regulations enacted by federal, state and local regulatory agencies, including the U.S. Food and Drug Administration and U.S. Department of Agriculture. These regulations include, but are not limited to, trade practices, labor, health, safety, transportation, environmental protection and regulations related to the sale and distribution of alcoholic beverages, tobacco products, milk, agricultural products, meat products and other food products. Compliance with these regulations has not had a material effect on our financial position or results of operations.

Discontinued Operations

During the third quarter of 2003 we completed the sale and divestiture of our broadline foodservice operations in Florida and northern California and our Florida stores businesses.

Risk Factors

Competition

We operate in the highly competitive warehouse grocery stores industry. If we fail to successfully respond to competitive pressures in this industry, or to effectively implement our strategies to respond to these pressures, our operating results may be negatively affected. Many of our competitors have greater financial, distribution, marketing and other resources. Heightened competition among our suppliers, increased shopping alternatives and trends toward vertical integration could create additional competitive pressures. These factors could result in price reductions, reduced sales and margins, loss of market share or greater operating costs, any of which could negatively impact our results of operations.

Susceptibility to changes in business and economic conditions

We operate in an industry characterized by high sales volume and low profit margin which is sensitive to national and regional business and economic conditions. We cannot fully foresee the changes in business and economic conditions which may result from domestic reasons or foreign unrest. Our profitability is dependent on sales growth and control over merchandise, distribution and occupancy costs and operating and administrative expenses. Our operating results are also subject to seasonal fluctuations and the impact of weather conditions. Adverse weather conditions of unusually cold temperatures or above-average rainfall tends to adversely impact sales in affected markets.

Changes in legislation or regulation

Changes in legislation and regulations related to the sale and distribution of food products, sale of alcoholic beverages, labor laws, environmental laws, health and safety laws, land use, accounting standards and taxation laws may have a material impact on our financial condition or results of operations.

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Operational inefficiencies

Our efforts to maintain and improve our operational efficiencies are largely dependent on the expertise and experience of our senior management, various key employees and our underlying management information systems. The failure to attract and retain qualified employees in the future could have a material adverse effect on our business.

We believe our information systems are a key element of enhancing our competitive position and achieving operational efficiency. We continually evaluate and upgrade our management information systems. Although we do not anticipate any disruption in our operations as a result of system upgrades, integrations or other activity, there can be no assurance that such disruption will not occur or that the desired benefits from system upgrades will be realized.

We depend on our distribution system, including third-party distribution, to distribute goods, products and supplies to our store locations. A disruption in our distribution system could have a material adverse effect on our results of operations.

Inability to execute our stores expansion plan

An element of our growth strategy is to continue expansion through new store openings and relocations and remodels of existing stores. Our success in executing this expansion plan is dependent on our ability to locate and obtain favorable store sites, enter into acceptable lease or purchase agreements for these store sites, open new or relocated stores in a timely manner and adapt distribution, management information and other operating systems sufficiently to support store expansion in an efficient and profitable manner. Executing this expansion plan will further require that we hire, train and retain the skilled management and other associate resources necessary to meet staffing needs of new store operations in a timely and cost-effective manner.

Unforeseen claims and litigation matters

We currently face and in the future may face various claims and litigation which could adversely impact our operating results and if proven, the impact may be serious. These claims could arise from 1) our employees, including wage disputes, discrimination, working condition and work-related injuries; 2) our customers, including problems with the quality, safety or integrity of the food products we sell; 3) governments for non-compliance with legislation and regulations; and 4) our suppliers for non-compliance with any purchase agreement. Any of these events could result in significant costs, loss of customers and/or could harm our ability to market and sell our food and related products.

Debt and capital resources

Our bank credit facility and lease facility contain financial covenants and other restrictions that may limit our operating flexibility. Our bank credit facility expires on November 18, 2009 and our lease facility expires on November 30, 2006. If we are unable to comply with these covenants and restrictions, we may be required to seek alternative means of financing such obligations. If we are unable to generate sufficient cash flows to service our debt and lease obligations, or if future borrowings or equity financing are not available to us for the payment or refinancing of our debt, our operating results may be adversely impacted.

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Available Information

Website

Our website on the World Wide Web, http://www.smartandfinal.com, provides company information, menus, recipes and general tips on cooking and entertaining. Customers can locate their nearest store; view our signature brand products and current product specials; apply for our free SmartAdvantage^SM loyalty card, sample menus and recipes for entertaining; and review our history, financial/governance information and job opportunities. Our website also features a catalog of professional-quality kitchen equipment and supply items; janitorial, maintenance and safety supplies; and a broad assortment of Tradewinds^™ spices for sale online.

Reports, proxy statements and other documentation filed with the SEC

We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (“Exchange Act”). The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the hours of operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov. We also make available free of charge upon request, or through our Internet website http://www.smartandfinal.com, these reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC:

• Annual Report on Form 10-K,

• Quarterly Reports on Form 10-Q,

• Current Reports on Form 8-K, and

• If applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act.

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Item 2. Properties

As of fiscal yearend 2004, we leased 149 store properties directly from third party lessors and had nine stores on real property that is ground leased from third party lessors. These leases had an average remaining lease term of eight years as of fiscal yearend 2004. At yearend, we leased 20 store properties under a lease facility described below. The remaining 45 store properties are owned.

We occupy a 445,000 square foot distribution facility in Commerce, California that is leased under the lease agreement described below. We maintain our principal headquarters in an 81,000 square foot leased facility in Commerce, California.

We plan to continue to lease properties, but also may elect to own some of the new stores on an interim or permanent basis. We have a lease facility that covers the lease of 20 store locations, the central distribution facility in Commerce, California and another distribution facility in northern California that is currently inoperative. The total value under this lease facility aggregates $86.7 million. See “Liquidity and Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for a further discussion of this lease facility.

Item 3. Legal Proceedings

In May 2001, we were named as a defendant in a suit filed in the Orange County Superior Court of the State of California. This suit, Olivas vs. Smart & Final Inc., was filed by the plaintiff and another former hourly store employee, on their behalf and on behalf of all hourly store employees in California, alleging that we failed to pay proper overtime and other compensation. The action seeks to be classified as a “class action” and seeks unspecified monetary damages. On August 9, 2001, we filed a general denial to these claims and asserted numerous defenses. A hearing on plaintiff’s motion for class certification was heard and certification as to nine sub-classes was granted on January 22, 2004. We continue to believe the merits of this action do not warrant class action status and we believe we have certain defenses to the claim. Discovery is now underway in the case. In February 2005, the court ordered the parties to commence mediation by May 1, 2005. No trial date has been set by the court.

We were also named as a defendant in suits filed on September 13, 2001 (Camacho vs. Smart & Final Inc.) and April 7, 2003 (Perea vs. Smart & Final Inc.) regarding compensation matters of our store associates. In February 2004, a settlement agreement for the resolution of the Camacho and Perea actions was approved by the court. Under the terms of the settlement, we paid cash into the settlement fund and agreed to issue scrip redeemable at our Smart & Final stores. In the third quarter of 2004, distributions were made to satisfy the claims of the members of the actions and the plaintiff’s attorney fees, costs and administrative expenses of the settlement.

In the second quarter of 2003, we recorded a litigation charge associated with our assessment of the ultimate resolution of the above-named actions. This charge was adjusted in the fourth quarter of 2003 to reflect our updated assessment of the ultimate resolution of the above-named actions. We have not recorded any further charges in 2004 associated with these actions. Litigation matters are subject to inherent uncertainties; accordingly, we cannot provide assurance regarding the ultimate resolution of the Olivas action or provide a range of additional possible loss. See Note 4 to “Notes to Consolidated Financial Statements - Litigation and Other Charges” for further discussion.

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We are named as a defendant in a number of other lawsuits or are otherwise a party to certain litigation arising in the ordinary course from our operations. We do not believe that the ultimate determination of these other cases will either individually or in the aggregate have a material adverse effect on our results of operations or financial position.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to our security holders for a vote during the quarter ended January 2, 2005.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Holders

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol SMF. As of March 4, 2005, there were approximately 252 registered holders of the common stock and the closing price per share of the common stock as listed on the NYSE composite tape was $13.65. The following table sets forth the high and low sales prices of the common stock as reported on the NYSE composite tape for the periods indicated.

	High		Low
First Quarter of 2003	$	5.43	$	3.66
Second Quarter of 2003		5.16		3.30
Third Quarter of 2003		7.20		4.45
Fourth Quarter of 2003		10.15		5.75
First Quarter of 2004		13.13		10.00
Second Quarter of 2004		15.95		11.05
Third Quarter of 2004		17.49		11.70
Fourth Quarter of 2004		17.72		12.78

Dividends

The declaration and payment of dividends on our common stock is subject to the discretion of our Board of Directors. We have not paid dividends since January 1999 as the declaration and payment of dividends were subject to restrictions under the terms of our bank credit facility and lease facility (see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”). The restriction under the credit facility was amended effective November 2004 such that we may pay up to $10 million in annual dividends commencing with fiscal year 2005 under our Amended and Restated Senior Credit Facility; however, the dividend restrictions under the lease facility remain in place. Currently, our Board of Directors is reviewing our dividend policy and there can be no assurance whether or when dividends will be paid in the future.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by Part II, Item 5 of Form 10-K is incorporated herein by reference to the definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A for our Annual Meeting of Stockholders to be held on May 20, 2005. We intend to file the Proxy Statement not later than 120 days after our last fiscal yearend. If the Proxy Statement is not filed with the SEC within such 120-day period, the items comprising the Part II, Item 5 information will be filed as an amendment to this Form 10-K not later than the end of the 120-day period.

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Item 6. Selected Financial Data

The information below is only a summary and should be read in conjunction with our consolidated financial statements and related notes to consolidated financial statements contained elsewhere in this Annual Report. Amounts may not aggregate due to rounding.

(In thousands, except per share and other operational data)

	Fiscal Year (A)
	2004			2003			2002			2001			2000
Income Statement Data:
Sales	$	1,955,579		$	1,730,114		$	1,572,320		$	1,493,986		$	1,420,740
Gross margin		339,089			297,008			248,627			241,698			221,915
Income from operations		62,434			37,590			46,745			49,369			41,340
Interest expense, net		13,178			15,508			12,240			12,426			13,324
Income from continuing operations before income taxes and cumulative effect of accounting change		49,256			22,082			34,505			36,943			28,016
Discontinued operations, net of tax		(1,337	)		(68,535	)		(14,925	)		(11,906	)		(10,839	)
Net income (loss)		30,194			(60,239	)		6,849			12,029			9,557
Earnings per common share, assuming dilution, from continuing operations		0.99			0.46			0.74			0.81			0.62
Loss per common share, assuming dilution, from discontinued operations		(0.04	)		(2.30	)		(0.51	)		(0.40	)		(0.29	)
Cumulative effect of accounting change per common share, assuming dilution		—			(0.18	)		—			—			—
Earnings (loss) per common share, assuming dilution		0.95			(2.02	)		0.23			0.41			0.33
Weighted average diluted common shares outstanding		31,869			29,777			29,527			29,660			29,244
Financial Data (at fiscal yearend):
Total assets	$	587,431		$	597,232		$	621,646		$	631,713		$	580,940
Long-term debt and capital leases, excluding current maturities (B)		114,167			91,180			5,314			139,373			35,086
Stockholders’ equity		252,413			216,157			272,704			272,068			261,604
Other Operational Data (B):
Comparable store sales growth (C)		11.0	%		8.8	%		3.4	%		3.8	%		5.4	%
Stores at fiscal yearend		223			219			217			212			204
Total retail square footage of operating stores at fiscal yearend (thousands) (D)		3,961			3,870			3,771			3,632			3,422
Sales per selling square foot (E)	$	501		$	452		$	423		$	420		$	419
Store customer transactions (thousands)		47,006			43,941			40,747			38,360			36,818
Employees at fiscal yearend		5,370			5,060			4,590			4,450			4,210

(A) For all years, 52 weeks except fiscal year 2004, which had 53 weeks. Certain amounts have been reclassified to conform to the 2004 current-year presentation. Such reclassification had no effect on the net income (loss) as previously reported.

(B) Amounts reflect continuing operations data only. Other Operational Data does not include data related to the Mexico joint venture.

(C) Comparable stores are those that have been in operation for 52 full weeks, including stores that have been remodeled or stores that have been relocated within their same market area during the full 52 weeks. Stores that have been closed during the period are excluded from the calculation. Comparable store sales growth for 2004 is calculated using 2004 sales for the 52 weeks ended December 26, 2004 compared to the 2003 sales for the 52 weeks ended December 28, 2003.

(D) Total retail square footage of operating stores includes the total square footage of store building excluding any sub-leased square footage if applicable.

(E) Sales per selling square foot is calculated by dividing total sales for the period by the weighted average total retail square footage of operating stores during the period.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) begins with a summary of our operating results to provide an overview of our financial performance for fiscal year 2004. This is followed by a discussion of the specific accounting changes in 2003 that impacted our results. Thereafter, we discuss our results of operations activities for fiscal year 2004 compared to fiscal year 2003, and for fiscal year 2003 compared to fiscal year 2002. We then provide an analysis of changes in our balance sheet and cash flows, and discuss our capital requirements and financing activities in the section entitled “Liquidity and Capital Resources.” Beginning on page 29, we discuss the impact of inflation on our business, new accounting pronouncements, and the assumptions and judgments incorporated in our reported financial statements.

MD&A should be read in conjunction with the other sections of this Annual Report, including “Item 1. Business”; “Item 6. Selected Financial Data”; and “Item 8. Financial Statements and Supplementary Data.” The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be materially affected by the uncertainties and risk factors described throughout this Annual Report and particularly in the Risk Factors section of “Item 1. Business.”

Each of our fiscal years consists of twelve-week periods in the first, second and fourth quarters of the fiscal year and a sixteen-week period in the third quarter. Our fiscal year 2004 consists of 53 weeks, with thirteen weeks in the fourth quarter.

Overview

During fiscal years 2004, 2003 and 2002, the major factors that impacted our results of operations and financial position are as follows:

• The labor dispute between the United Food and Commercial Workers Union and three major grocery chains in southern California had a significant positive effect on our sales volume, results of operations and financial position. This labor dispute commenced early in the 2003 fourth quarter and was settled in February 2004.

• The sale and divestiture of our Florida broadline foodservice operations and our Florida stores businesses (collectively, the “Florida Operations”) and our broadline foodservice operations in northern California (the “Northern California Foodservice Operations”), completed during the third quarter of 2003, allowed us to divest our loss producing operations, concentrate our management focus on our core store operations and concentrate our resources to strengthen our balance sheet and on continued development of our two store formats. See further discussion under “Discontinued Operations” below.

• The litigation and other charges of $13.8 million in 2003 related to legal actions regarding compensation matters of our stores associates and financing fees associated with our revolving bank credit facility and real estate synthetic lease facility.

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• The adoption of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities,” as of June 15, 2003 resulted in a one-time, net-of-tax charge related to the cumulative effect of an accounting change and the consolidation of the assets, liabilities and results of operations of our real estate synthetic lease facility not previously consolidated.

The impact of the labor dispute was unprecedented and is not expected to repeat in the foreseeable future. We have been able to retain a significant percentage of the sales volume and customers gained during the labor dispute through price promotions, increased direct mailing and other advertising campaigning. We anticipate that some of the retained sales volume and customers may be lost as the three major retail supermarket chains undergo intensive sales promotion to rebuild their sales after the labor action. The retail grocery market in southern California has become increasingly competitive; consequently, there is no assurance that our sales growth will maintain at the current level.

We believe that our future growth depends on our ability to expand by opening new and relocated stores and undergoing remodels in the current stores to better serve our customers and that our profitability depends on sales growth from such expansion, improving gross margins and implementing effective cost controls.

Summary

Income from continuing operations was $31.5 million, or $0.99 per diluted share, for fiscal year 2004, compared to $13.6 million, or $0.46 per diluted share, for fiscal year 2003 and $21.8 million, or $0.74 per diluted share for fiscal year 2002. Included in income from continuing operations for 2003 was a $13.8 million pre-tax charge ($8.3 million net of tax, or $0.28 per diluted share) related to reserves for litigation and financing fees and costs.

We reported net income of $30.2 million, or $0.95 per diluted share, for 2004, compared to net loss of $60.2 million, or $2.02 per diluted share, for 2003 and net income of $6.8 million, or $0.23 per diluted share for 2002. Contributing to the net loss for 2003 was the loss from discontinued operations of $68.5 million, net of tax, the $5.3 million charge, net of tax, related to the cumulative effect of a change in accounting principle to adopt FIN No. 46, and the aforementioned $8.3 million, net of tax, charge related to reserves for litigation and financing fees and costs.

Accounting Changes

The consolidated statement of operations for 2003 included a $5.3 million, net of tax, or $0.18 per diluted share, cumulative effect of a change in accounting principle, representing the cumulative amount of depreciation and interest expense, in excess of the rental income of the variable interest entity, as a result of adopting FIN No. 46 as of June 15, 2003.

Beginning in 2003, we adopted Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor.” As a result of the implementation of EITF Issue No. 02-16, cooperative advertising allowances not representing reimbursement of direct, specific and incremental advertising costs have been recorded as a reduction of the cost of merchandise purchased. Prior to 2003, these allowances were recorded as a reduction of operating and administrative expenses.

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Change in Management

We announced in February 2004 that Etienne Snollaerts, then president and Chief Operating Officer, would succeed Ross Roeder as Chief Executive Officer. The transition was effective following our 2004 annual meeting, which was held on May 19, 2004 at our corporate office in Commerce. Ross Roeder remained chairman of our Board of Directors.

Results of Operations

The following table shows, for the fiscal years indicated, certain condensed consolidated statements of operations data, expressed as a percentage of sales. Totals may not aggregate due to rounding.

	Fiscal Year
	2004		2003		2002
Sales	100.0	%	100.0	%	100.0	%
Cost of sales, buying and occupancy	82.7		82.8		84.2
Gross margin	17.3		17.2		15.8
Operating and administrative expenses	14.1		14.2		12.8
Litigation and other charges	—		0.8		—
Income from operations	3.2		2.2		3.0
Interest expense, net	0.7		0.9		0.8
Income from continuing operations before income tax provision	2.5		1.3		2.2
Income tax provision	(1.0	)	(0.5	)	(0.9	)
Equity earnings of joint venture	0.1		—		0.1
Income from continuing operations	1.6		0.8		1.4
Discontinued operations, net of tax	(0.1	)	(4.0	)	(0.9	)
Income (loss) before cumulative effect of accounting change	1.5		(3.2	)	0.4
Cumulative effect of accounting change (variable interest entity), net of tax	—		(0.3	)	—
Net income (loss)	1.5	%	(3.5	)%	0.4	%

Sales

Sales from continuing operations were $1,955.6 million in 2004, $1,730.1 million in 2003 and $1,572.3 million in 2002. Historically, sales have followed a seasonal pattern in which first quarter sales tend to be the lowest. Third quarter sales are comparatively high because the third quarter includes 16 weeks, whereas the other quarters include 12 weeks. Our 2004 fiscal year consisted of 53 weeks with 13 weeks in the fourth quarter of 2004.

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The following table sets forth the growth in sales and transaction sizes from continuing operations for fiscal years 2004, 2003 and 2002. We define comparable stores as those that have been in operation for 52 full weeks, including stores that have been remodeled or relocated within their same market area. Stores that have been closed during the period are excluded from the calculation. Comparable store sales growth for 2004 is calculated using 2004 sales for the 52 weeks ended December 26, 2004 compared to the 2003 sales for the 52 weeks ended December 28, 2003.

	2004			2003			2002
Total sales growth		13.0	%		10.0	%		5.2	%
Comparable store sales growth		11.0	%		8.8	%		3.4	%
Comparable store transaction size	$	41.65		$	39.40		$	38.75

Sales for 2004 benefited from increased levels of customer visits and average transaction size, favorable summer weather, aggressive campaigning for market share, the effect of the labor action, and the customers retained after the labor action. Our comparable store sales growth for 2004 as compared to 2003 increased significantly during the first three quarters and was negative during the fourth quarter of 2004, reflecting the impact of the labor action that commenced early in our 2003 fourth quarter and ended in our 2004 first quarter.

Sales increased in 2003 primarily due to strong comparable sales growth attributable to the favorable impact of the labor action. We estimated that approximately $50.0 million in incremental sales resulted from the labor action in 2003 fourth quarter, based upon the sales performance for our stores that we believed were impacted by the labor action due to their proximity to store locations of the three major retail supermarket chains that were involved in the labor action. Excluding the estimated impact of the strike-related incremental sales, we estimated that our 2003 comparable store sales would have increased by 5.5 percent, which represents a significant increase over the 3.4 percent same store sales increase realized in 2002 primarily due to several store relocations and remodels during 2002 and 2003. The estimated 5.5 percent increase is consistent with the comparable store sales growth rate of 5.1 percent for the forty weeks ended October 5, 2003 and 6.8 percent for the sixteen weeks ended October 5, 2003, immediately prior to the labor action and as reported in our Form 10-Q for the quarterly period ended October 5, 2003. We estimated that sales at approximately 105 of our 219 stores operating in 2003 fourth quarter were positively impacted by the labor actions.

Comparable sales increases for all the reporting years are also attributable to store relocations and store remodeling. Total sales growth was also attributable to new stores opened during the reporting years. Stores opened, relocated and closed in our continuing operations during 2004, 2003 and 2002 are as follows:

	2004		2003		2002
Beginning store count	219		217		212
New stores	4		4		7
Stores relocated	2		5		2
Stores closed or relocated	(2	)	(7	)	(4	)
Ending store count	223		219		217

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Gross margin

Gross margin represents sales less cost of sales, buying and occupancy. The major categories of costs included in cost of sales, buying and occupancy are cost of goods, distribution costs, costs of our buying department and store occupancy costs, net of earned vendor rebates and other allowances. Distribution costs consist of all warehouse receiving and inspection costs, warehousing costs, all transportation costs associated with shipping goods from our warehouses to our stores, and other costs of our distribution network. We do not exclude any portion of these costs from cost of sales. Included in earned vendor rebates and other allowances and as a reduction from cost of sales, buying and occupancy were cooperative advertising allowances of $14.9 million for 2004 and $13.7 million for 2003 as a result of adopting EITF Issue No. 02-16. Prior to adoption, cooperative advertising allowances were $13.0 million for 2002 and were recorded as a reduction from operating and administrative expenses.

Gross margin from continuing operations increased $42.1 million to $339.1 million, and as a percentage of sales, increased from 17.2 percent in 2003 to 17.3 percent in 2004. The $42.1 million increase was primarily due to the significant increase in sales as compared to 2003. The increase in gross margin as a percentage of sales was primarily attributable to the decrease of 0.32 percent in occupancy costs as a percentage of sales due to the relatively fixed nature of these costs and the effect of adopting FIN No. 46 as of June 15, 2003. As a result of the adoption of FIN No. 46 as of June 15, 2003, we recorded approximately $7.9 million of costs as interest expense in 2004 and $4.2 million in 2003 that, prior to adoption, were recorded in cost of sales as rental expense. In addition, pursuant to FIN No. 46, we recorded in 2004 approximately $1.2 million of depreciation expense in cost of sales and $0.7 million in 2003 that previously was not recorded. When compared to 2003, the net effect of FIN No. 46 increased the gross margin from continuing operations as a percentage of sales by approximately 0.13 percent in 2004.

These gross margin rate increases were partially offset by a 0.13 percent increase in distribution costs and a 0.18 percent increase due to changes in sales mix. Distribution costs increased as a result of higher labor and fuel costs. The change in sales mix was the result of strong sales growth at the Cash & Carry stores that serve only business customers and generate lower gross margins, as well as, the increased sales in national brands, a result of the labor action. National brands generate lower gross margins compared to our corporate signature brands.

Gross margin from continuing operations increased $48.4 million to $297.0 million, and as a percentage of sales, increased from 15.8 percent in 2002 to 17.2 percent in 2003. The $48.4 million increase in gross margin in 2003 was primarily the result of the significant increase in sales and the effects of adopting two new accounting pronouncements. As a result of adopting EITF Issue No. 02-16, the recording of cooperative advertising allowances for 2003 as a reduction of cost of sales contributed approximately 0.79 percent of increase in gross margin as a percentage of sales. The net effect of FIN No. 46 to 2003, when compared to 2002, was to increase the gross margin as a percentage of sales by 0.21 percent. Additionally, other increases primarily included 0.37 percent in decreased inventory loss adjustment and 0.16 percent in improved merchandise margins, partially offset by 0.23 percent in increased distribution costs related to labor, insurance and the effect of transferring distribution for our northern California stores to our warehouse in Commerce, California.

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Operating and administrative expenses

The major categories of operating and administrative expenses include store direct expenses associated with displaying and selling at the store level (primarily labor and related fringe benefit costs) advertising and marketing costs, overhead costs and corporate office costs. Cooperative advertising allowances were recorded as a reduction in operating and administrative expenses for 2002. Similar allowances were recorded as a reduction of cost of sales, buying and occupancy for 2003 and 2004 subsequent to adoption of EITF 02-16.

Operating and administrative expenses from continuing operations for 2004 were $276.7 million, up $31.1 million, or 12.7 percent, over 2003. Over half of the $31.1 million increase was attributable to increased costs driven by the higher sales volume, such as labor, fringe benefits and other store costs. Other increases in 2004 included a $2.5 million non-cash impairment charge associated with certain capitalized software development costs and increases in marketing expenses, reserves for sales and use tax audits and incentive compensation costs. Operating and administrative expenses as a percentage of sales decreased from 14.2 percent in 2003 to 14.1 percent in 2004. The major factors of this percentage of sales decrease included 0.20 percent attributable to reductions in overhead, general and administrative costs primarily associated with store operations and decreased utility costs and 0.07 percent in positive effect of sales mix change as a result of increased sales volume at Cash & Carry stores that require less direct store operation expenses. These decreases were partially offset by increases of 0.12 percent in reserves for sales and use tax audits and 0.09 percent in asset impairment charges.

Operating and administrative expenses from continuing operations for 2003 were $245.6 million, up $43.7 million, or 21.6 percent, over 2002. These expenses as a percentage of sales increased from 12.8 percent in 2002 to 14.2 percent in 2003. The major factor of this percentage of sales increase were the 0.82 percent from the effect of adopting EITF Issue No. 02-16 and the 0.55 percent in increased incentive compensation, severance and an accelerated vesting in restricted stock compensation.

Litigation and Other Charges

For 2003, we recorded a $13.8 million pre-tax charge related to litigation reserves, as well as, financing fees associated with the amendments and waivers of the financial covenants contained in the revolving bank of credit facility and lease facility.

Interest expense, net

Interest expense, net decreased $2.3 million, or 15.0 percent, from $15.5 million recorded in 2003 to $13.2 million in 2004. The decrease was primarily due to the reduced debt outstanding and decreases in amortization of loan fees and payment under the interest rate hedging arrangement, attributable to the partial early termination of one agreement during 2003. At 2004 yearend, the balance outstanding of our bank credit facility was $25.0 million as compared to $60.0 million at 2003 yearend. The decrease in interest expense was partially offset by $3.7 million increase in interest expense under the real estate lease facility that was previously recorded as cost of sales before the adoption of FIN No. 46 as discussed above under “Gross margin”. The interest expense under the real estate lease facility reported under “Interest expense, net” was $7.9 million for the entire year of 2004 and $4.2 million for the second half of 2003, after the adoption of FIN No. 46 as of June 15, 2003.

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Interest expense, net increased $3.3 million, or 26.7 percent, from $12.2 million recorded in 2002 to $15.5 million in 2003 primarily due to the adoption of FIN No. 46 as discussed above and increased amortization of loan fees, partially offset by lower interest expense on bank debt. At 2003 yearend, the outstanding balance of our bank credit facility was $60.0 million as compared to $130.0 million at 2002 yearend.

Income tax provision

Income tax expense in 2004, 2003 and 2002 relating to continuing operations was $18.7 million, $9.2 million and $13.6 million, respectively. The effective tax rate was 38.0 percent for 2004, 41.8 percent for 2003 and 39.5 percent for 2002. The effective tax rate is lower in 2004 due to the utilization of capital loss carry-backs, additional permanent deductions and a reduction in the valuation allowance in 2004.

Equity earnings of joint venture

Smart & Final Mexico owns a 50 percent interest in a Mexico joint venture that operates 11 stores in Mexico and produced $1.0 million in equity earnings in 2004, $0.7 million in 2003 and $0.9 million in 2002. This Mexico joint venture opened three new stores during the last three years.

Discontinued Operations

During the second quarter of 2003, we announced the sale and divestiture of the Florida Operations after suffering several years of losses in these operations.

In the second quarter of 2003 we adopted a restructuring plan related to our Northern California Foodservice Operations in an effort to improve its profitability. We recorded $19.1 million of pre-tax charges associated with the restructuring of the Northern California Foodservice Operations in the second quarter of 2003. These charges were reflected in pre-tax loss from operations described below for 2003 and included $6.3 million of impairment loss on long-lived assets related to warehouse and facility closures, $5.8 million of early terminations of related warehouse service and lease agreements, $5.9 million of goodwill written off and a $1.1 million provision for work force reductions.

During the third quarter of 2003, we announced the sale and divestiture of our Northern California Foodservice Operations which, coupled with the sale and divestiture of our Florida Operations, allowed us to further concentrate our management focus on our core store operations and concentrate our resources to strengthen our balance sheet and on continued development of our two store formats.

The sale and divestiture of both our Florida Operations and Northern California Foodservice Operations were substantially completed during the third quarter of 2003. We retained certain residual assets, liabilities and contingencies in conjunction with the sale transactions and divestitures. In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the accompanying condensed consolidated financial statements reflect the results of operations and financial position of the Florida Operations and the Northern California Foodservice Operations separately as discontinued operations.

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The following is a summary of loss and other information of the discontinued operations for the fiscal years presented, in thousands except per diluted share values. Totals of per diluted share value may not aggregate due to rounding.

	2004			2003			2002
Sales	$	—		$	305,472		$	443,663
Pre-tax loss from operations	$	(2,158	)	$	(44,018	)	$	(24,801	)
Pre-tax loss on sale and divestiture		—			(57,375	)		—
Income tax benefit		821			32,858			9,876
Net loss from discontinued operations	$	(1,337	)	$	(68,535	)	$	(14,925	)
	2004			2003			2002
Per diluted share:
Pre-tax loss from operations	$	(0.07	)	$	(1.48	)	$	(0.84	)
Pre-tax loss on sale and divestiture		—			(1.93	)		—
Income tax benefit		0.03			1.10			0.33
Net loss from discontinued operations	$	(0.04	)	$	(2.30	)	$	(0.51	)

Pre-tax loss from discontinued operations for all periods presented does not include an allocation of corporate overhead or costs. The $19.1 million of pre-tax charges associated with the restructuring of the Northern California Foodservice Operations recorded in 2003 second quarter were reflected in pre-tax loss from operations in the above table for 2003.

The net pre-tax loss on sale and divestiture was determined based on the excess or shortfall of sale prices, net of related transaction expenses, over the carrying amounts of net assets sold and other divestiture charges. The following transactions and events are included in the net pre-tax loss on sale and divestiture for 2003, in thousands:

Pre-tax loss on the sale and divestiture of Florida Operations¹	$	(53,563	)
Pre-tax gain on sale of two Florida properties of the variable interest entity²		4,088
Pre-tax divestiture charges at Northern California Foodservice Operations³		(15,427	)
Pre-tax gain on sale of certain assets at Northern California Foodservice Operations4		7,527
Total pre-tax loss on sale and divestiture	$	(57,375	)

¹ During 2003 third quarter, we entered into definitive sales agreements with the buyer for the sale of Florida Operations and received net cash proceeds of $14.8 million with an additional $3.0 million placed in an escrow account for later settlement of closing valuation matters related to the sale agreements.

² Under separate sale agreements, two Florida properties of the variable interest entity were sold to the buyer of the Florida Operations for cash consideration of $14.3 million, which was deposited to a real estate trust account that was reported as “Cash held in real estate trust” on our consolidated balance sheets. The sale of these two properties resulted in a pre-tax gain of $4.1 million recorded in the 2003

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third quarter. The related cash proceeds were reported as a non-cash investing activity on the supplemental disclosure on our consolidated statement of cash flows for 2003. Included in “Bank credit facility, lease facility and other financing activities” below is a further discussion related to the real estate trust.

³ We recorded $14.5 million of pre-tax charges in 2003 third quarter and $0.9 million in 2003 fourth quarter. The $15.4 million of total charges is comprised of $8.2 million in asset impairment, $2.6 million in lease termination costs, $3.3 million in employee severance and related obligations and $1.3 million in vendor and other obligations.

⁴ We sold the Northern California Foodservice Operations for cash proceeds of $24.8 million.

The total cash consideration for the sale of the Northern California Foodservice Operations and the Florida Operations, net of transaction expenses of $1.7 million, was $37.9 million and was reported on our consolidated statement of cash flows as “Net proceeds from divestitures” under investing activities for 2003. We have fully received all the proceeds related to the sale of the Northern California Foodservice Operations; however, we have a sales proceed receivable of $3.4 million related to the sale of the Florida Operations of which $3.0 million is held in escrow pending final resolution of certain purchase price adjustment matters.

Adjustments in 2004 reflect a reduction in the Florida stores lease obligations and an increase in Foodservice severance and related obligations.

Liquidity and Capital Resources

Cash flows and financial position

Net cash provided by operating activities from continuing operations was $41.7 million in 2004 compared to $90.3 million in 2003 and $58.0 million in 2002. The increase or decrease in cash provided by operating activities from continuing operations reflects our operating performance before non-cash expenses and charges and the timing of receipts and disbursements. The decrease in cash from operating activities from 2003 to 2004 was due to cash utilized in 2004 to increase inventory levels to support the higher sales and achieve higher levels of store inventory “in-stock” conditions. We also utilized cash in 2004 to fund the payment of a litigation settlement, to make cash contributions of $15.0 million to our defined benefit pension plan, and to lower our accounts payable balance from 2003 which was atypically higher due to our increased inventory purchases in the fourth quarter of 2003 in response to the labor action in southern California. Additionally our cash flows were favorably impacted through the receipt in 2004 of an income tax refund of approximately $7.1 million. Net cash used in operating activities from discontinued operations was $4.3 million in 2004.

Net cash used in investing activities from continuing operations was $13.4 million in 2004 compared to $33.0 million in 2003 and $35.5 million in 2002. The decrease of $19.6 million in net cash used in 2004 as compared to 2003 was primarily due to the generation of $14.2 million of cash which was released from the real estate trust in payment for six owned store properties sold to the real estate synthetic lease facility. See further discussion in “Bank credit facility, lease facility and other financing activities” below. Additional cash of

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approximately $9.9 million was primarily generated from the redemption of a certificate of deposit and sale of certain municipal bonds and proceeds from disposal of closed or relocated store properties in 2004. These cash receipts were more than offset by the $25.5 million in capital expenditures for new and relocated stores and $12.1 million in expenditures for capitalized software. In 2004, such capital expenditures increased $4.6 million as compared to an $8.9 million decrease in 2003. Net proceeds from divestitures of $37.9 million in 2003 reflected net proceeds generated from sale and divestiture of the Florida Operations and the Northern California Foodservice Operations.

Net cash used for financing activities from continuing operations was $32.4 million in 2004 compared to $76.8 million in 2003 and $3.7 million in 2002. The net cash used in financing activities in 2004 and 2003 were primarily related to payments on our obligations outstanding under our revolving bank credit facility. Such net payments were $35.0 million in 2004 and $70.0 million in 2003. Additionally, we received $5.4 million of proceeds from stock issuance upon exercises by stock option holders in 2004. In 2003 we made a $5.0 million payoff on a note in connection with the acquisition of Cash & Carry in 1998 and other payments on bank debt and capital leases.

At January 2, 2005, we had cash and cash equivalents of $28.7 million, stockholders’ equity of $252.4 million and debt, excluding capital leases, of $111.7 million. At January 2, 2005 our working capital was $63.0 million, compared to a deficit in working capital of $2.6 million at December 28, 2003, primarily due to the inclusion in current liabilities at December 28, 2003, of a $60.0 million obligation under our revolving bank credit facility, which expired and was refinanced in November 2004 (see “Bank credit facility, lease facility and other financing activities” below.)

Capital expenditure and other capital requirements

Our primary requirement for capital is to finance store development costs for buildings, leasehold improvements, equipment and initial set-up expenditures for new, relocated and remodeled stores, investment in capitalized software and hardware, as well as general working capital requirements.

During 2004, we opened four new stores and relocated two stores. New store growth and store remodeling are planned for the future years. We plan to open or relocate 15 to 20 stores during 2005. We estimate that the capital expenditure requirement for improvements and equipment for a new store is approximately $1.2 million to $2.2 million. We typically enter into lease arrangements for our store properties. From time to time we may purchase the properties for an additional capital investment that depends on the property location and market value. Working capital investment related to a new store is approximately $0.2 million and primarily relates to inventory net of trade vendor accounts payable. We also plan to perform approximately ten major remodels to existing stores in 2005 which generally require capital expenditures in excess of $400,000 per major remodel. Total capital expenditures, including investment in capitalized software, for 2005 are currently estimated at $50 million to $60 million. However, we cannot assure that these estimates will be realized and our capital program plans are subject to change upon our further review.

We have various retirement plans, which subject us to various funding obligations. Our noncontributory pension plan covers substantially all of our full time employees. We fund this

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plan with contributions as required by the Employee Retirement Income Security Act of 1974 (“ERISA”). Changes in the benefit plan assumptions as well as the funded status of the plan impact the funding and expense levels for future periods. We made $15.0 million of contributions to the plan during 2004. We are not required to make any contributions for the 2005 plan year pursuant to the minimum funding requirements of ERISA; however, we may elect to contribute up to $10.0 million to this plan in 2005.

Bank credit facility, lease facility and other financing activities

In November 2001, we entered into a $175.0 million three-year senior secured revolving credit facility (“Credit Agreement”) with a syndicate of banks. The Credit Agreement expired on November 30, 2004. Effective November 18, 2004, we entered into a $150.0 million Amended and Restated Senior Credit Facility (“Amended Senior Credit Facility”). The Amended Senior Credit Facility replaces the Credit Agreement. The Amended Senior Credit Facility has a five-year term expiring on November 18, 2009. Interest for the Amended Senior Credit Facility is at the base rate or at the reserve adjusted Eurodollar rate plus, in each case, an applicable margin. Commitment fees are charged on the undrawn amount at rates ranging from 0.15 percent to 0.50 percent. At December 31, 2004, the six-month Eurodollar LIBOR rate was 2.21 percent.

At our option, the Amended Senior Credit Facility can be used to support up to $15.0 million of commercial letters of credit. Principal repayments may be required prior to the final maturity. Additionally, under certain conditions, pay-downs toward the facility are treated as permanent reductions to the amount committed. At January 2, 2005, $25.0 million of revolving loan and $5.6 million of letters of credit were outstanding. At January 2, 2005, we had $119.4 million available under our Amended Senior Credit Facility.

In November 2001, we entered into a five-year operating lease agreement (“Lease Agreement”) with a national banking association. Participants in the Lease Agreement structure include banks and financing institutions as well as Casino USA (“Casino USA”), which owned 54.4 percent of our common stock at January 2, 2005. The Lease Agreement expires on November 30, 2006. At the end of the term, the Lease Agreement requires us to elect to purchase all the properties by a final payment of $86.4 million or sell all the properties to a third party. If the properties are sold to a third party and the aggregate sales price is less than $69.2 million, we are obligated to pay the difference of the aggregate sales price and $69.2 million.

During the process of sale and divestiture of the Florida Operations in 2003, proceeds of $14.3 million were generated through the sale of a Florida distribution facility and a Florida store property originally covered by the Lease Agreement. The Lease Agreement was thereafter amended to allow these proceeds to be held by the real estate trust for future purchases of replacement properties. During second quarter 2004, we sold six owned store locations to the real estate trust for $14.2 million in cash, which was then used to pay down the balance outstanding under our Credit Agreement. No gain or loss was recognized on this inter-company transaction. The Lease Agreement as amended, with a value of $86.7 million and a composite interest rate of 9.07 percent, provides the financing for two distribution facilities and 20 store locations, including the six replacement store properties, as of January 2, 2005.

The Lease Agreement is considered a variable interest entity and subject to consolidation under FIN No. 46, “Consolidation of Variable Interest Entities,” issued by FASB. We adopted the provisions of FIN No. 46 as of June 15, 2003 and therefore the

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related properties and long-term portion of notes payable are included in our consolidated balance sheets under “Property, plant and equipment”, “Notes payable” and, for the Casino USA participation of $33.1 million at January 2, 2005 and $33.2 million at December 28, 2003, “Notes payable to affiliate”. The consolidated statement of operations for 2003 included a $5.3 million, net of tax, cumulative effect of a change in accounting principle, or $0.18 per diluted share, representing the cumulative amount of depreciation and interest expense, in excess of the rental income as of June 15, 2003.

Borrowings under both the Amended Senior Credit Facility and the Lease Agreement are collateralized by security interests in our receivables, inventory and owned properties. Principal collateral for our obligations under the Lease Agreement includes specific properties and their fixtures and equipment, and additionally a collateral position, subordinate to the Amended Senior Credit Facility, on receivables, inventory and owned properties not serving as principal collateral under the Lease Agreement. The Amended Senior Credit Facility has as principal collateral, our receivables, inventory and owned properties that are not part of the principal collateral of the Lease Agreement, and in addition has a subordinate collateral position on the properties and related assets that are the principal collateral of the Lease Agreement.

Both the Amended Senior Credit Facility and the Lease Agreement contain various customary and restrictive covenants, including restrictions on cash dividends declared or paid and additional debt and capital expenditures, and require us to maintain certain fixed charge coverage ratios and other financial ratios under each agreement. The covenants do not require us to maintain a public debt rating or a certain liquidity level. We are currently in compliance with the amended covenants.

The Amended Senior Credit Facility expires on November 18, 2009 and the Lease Agreement expires on November 30, 2006. Accordingly, our obligations under these agreements have been classified as long-term liabilities in our consolidated balance sheet as of January 2, 2005. We expect to remain in full compliance with the covenants through the expiration of the respective terms of the facilities. See “Item 1. Business – Risk Factors” for additional information regarding the risks associated with our debt and capital resources.

Historically, our primary source of liquidity has been cash flows from operations. Additionally, we have availability under our bank credit facility. We expect to be able to fund future acquisitions and other cash requirements by a combination of available cash, cash from operations and other borrowings and proceeds from the issuance of equity securities. We believe that our sources of funds are adequate to provide for working capital, capital expenditures and debt service requirements for the foreseeable future.

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Contractual obligations

The following table sets forth our future payments due by period of our contractual obligations, in thousands:

	Total		Less Than One Year		One to Three Years		Three to Five Years		More Than Five Years
Long-term debt obligations	$	111,668	$	140	$	86,528	$	25,000	$	—
Capital lease obligations		4,687		1,522		1,738		1,089		338
Operating lease obligations		323,737		34,802		65,109		57,814		166,012
Other long-term obligations		12,476		5,735		5,231		1,510		—
Total contractual obligations	$	452,568	$	42,199	$	158,606	$	85,413	$	166,350

Purchase orders or contracts for the purchase of goods for resale in our stores and other goods and services are not included in the table above. We are not able to reasonably determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. We do not have significant agreements for the purchase of goods for resale in our stores or other goods and services that exceed our expected requirements or that are not cancelable on short notice.

We have a contractual obligation under our service agreement with UWG to purchase a minimum amount of food and related items during any twelve-month period covered by the agreement. This contractual obligation does not exceed our expected requirements over any twelve-month period covered by the agreement. This agreement expires in November 2005. The related amounts are not included in the above table.

Inflation

Our primary costs, merchandise and labor, as well as utility and transportation costs are affected by a number of factors that are beyond our control. These factors include the price of merchandise and fuel, the competitive climate, and the general and regional economic conditions. As is common practice within the food industry, we have generally been able to maintain margins by adjusting selling prices and through procurement efficiencies. But competitive conditions may, from time to time, render us unable to do so while maintaining or increasing our market share.

New Accounting Pronouncements

SFAS No. 151

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overhead to inventory based on the normal capacity of the production facilities. The provisions of this statement will become effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material impact on our financial condition or results of operations.

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SFAS No. 123(R)

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123(R) supersedes APB No. 25, “Accounting for Stock Issued to Employees”, and amends SFAS No. 95, “Statement of Cash Flows.” Generally the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

SFAS No. 123(R) must be adopted in the first interim or annual period beginning after June 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt SFAS No. 123(R) effective June 20, 2005, which is the beginning of our third quarter 2005.

SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:

1. A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.

2. A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

We plan to adopt SFAS No. 123(R) using the modified prospective method.

As permitted by SFAS No. 123, we currently account for share-based payments to employees using APB Opinion 25’s intrinsic value method and as such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123(R)’s fair value method will have a significant impact on our reported results of operations. The impact of adopting SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS No. 123(R) in prior periods, the impact of that standard could reasonably be expected to have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to “Notes to Consolidated Financial Statements - Summary of Significant Accounting Policies – Stock options” in this Annual Report. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financial cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we can not estimate what those amounts will be in the future, the amount of operating cash flows recognized in prior periods for such excess tax deductions were $2.0 million in 2004, none in 2003 and an immaterial amount in 2002.

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We are currently evaluating our business practices regarding the magnitude or form of share-based compensation to employees and the choice of the option-pricing model in the future. We are also analyzing other potential impact of adopting SFAS No. 123(R) and presently, do not expect any other potential impact will be significant.

SFAS No. 109-2

On December 21, 2004, the FASB issued SFAS No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” The American Jobs Creation Act of 2004 (the “Job Creation Act”) allows a one-year incentive for U. S. corporations to reinvest the earnings of their controlled foreign corporation back into the United States, by applying a reduced maximum tax rate of 5.25 percent on dividends repatriating such earnings. SFAS No. 109-2 allows time beyond the financial reporting period of enactment to evaluate the effect of the Job Creation Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109, “Accounting for Income Taxes” due to the lack of clarification of certain provisions within the Job Creation Act and the timing of the enactment. SFAS No. 109-2 requires disclosure of certain information for companies that have not yet completed their evaluation of the repatriation provision for purposes of applying SFAS 109 for each period for which financial statements covering periods affected by the Job Creation Act are presented.

We are currently evaluating the effect of the Job Creation Act and its impact on our policy regarding repatriating or reinvesting our share of equity earnings in SFDN. We have not recorded U.S. income tax expense for the undistributed earnings of our foreign operations. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets and our expectations of the future cash needs of our U.S. and foreign entities. Our equity investment in SFDN was $6.3 million at January 2, 2005. We estimate the income tax effect to be immaterial should we repatriate the undistributed earnings of SFDN pursuant to the provisions of the Job Creation Act.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial statements. Critical accounting policies are those that require the most subjective and complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. These critical accounting policies, under different conditions or using different assumptions or estimates, could show materially different results on our financial condition and results of operations. The following are considered our most critical accounting policies that, under different conditions or using different assumptions or estimates, could show materially different results on our financial condition and results of operations.

Inventory

We record our inventories at the lower of FIFO (first-in, first-out) cost or market method. Approximately 71 percent of our inventories are held at the stores and the remaining 29 percent are held in our various warehouse locations. These inventories are subject to frequent periodic counting. Losses, including theft, damages and other casualties are written off when identified. Reserves for inventory losses are provided based on analysis of historical trends including the results from the most recent periodic counting. We evaluate the adequacy of these reserves every four-week period.

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Goodwill

SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that we test goodwill for impairment based on a comparison of fair values to the carrying values of our reporting units. The goodwill on our balance sheet of $34.8 million relates solely to our acquisition of Cash & Carry in 1998; accordingly, our Cash & Carry operation is the reporting unit for which the test of goodwill for impairment is performed. The determination of fair value for a reporting unit involves the use of assumptions and estimates such as the future performance of the operations of the reporting unit and discount rates used to determine the current value of expected future cash flows of the reporting unit. Any change in these assumptions and estimates, and other factors such as inflation rates, competition and general economic conditions, could cause the calculated fair value of the operating unit to decrease significantly.

Long-lived assets

Long-lived assets, including capitalized software costs, to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized to the extent the sum of the discounted estimated future cash flows from the use of the asset is less than the carrying value.

Self-insurance program

We maintain a self-insurance program covering our California workers’ compensation costs and deductibles. The amounts in excess of the self-insured levels are fully insured. We maintain insured deductible programs for other workers’ compensation and general liability exposures. Amounts in excess of deductibles are fully insured. Self-insurance accruals are calculated by outside actuaries and are based on claims filed and include estimates for claims incurred but not yet reported. Projections of future loss are inherently uncertain because of the random nature of insurance claims occurrences and could be substantially affected if future occurrences and claims differ significantly from these assumptions and historical trends.

Retirement benefit plans

We maintain defined benefit and defined contribution retirement plans for our employees. The defined benefit pension plan pays benefits to employees at retirement using formulas based on various estimates and assumptions. We account for the defined benefit pension plan in accordance with SFAS No. 87 “Employer’s Accounting for Pensions.” SFAS No. 87 requires that the amounts recognized in the financial statements be determined on an actuarial basis and include assumptions such as the expected rate of return on plan assets, a discount rate for determining the current value of plan benefits and the rate of increase in future compensation levels. Any change in these assumptions may cause the future pension expense to increase or decrease significantly and hence affect our results of operations or financial condition.

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Contingencies and litigation

In the ordinary course of our business, we are periodically named as a defendant in various lawsuits, claims and pending actions. The principal risks that we insure against are workers’ compensation, general liability, vehicle liability, property damage, employment practices, errors and omissions, fiduciary liability and fidelity losses. If a potential loss arising from these lawsuits, claims and actions is probable and reasonably estimable, we record the estimated liability based on circumstances and assumptions existing at the time. Whereas we believe the recorded liabilities are adequate, there are inherent limitations in the estimation process whereby future actual losses may exceed projected losses, which could materially adversely affect our results of operations or financial condition.

Leases

We lease a significant portion of our store property locations as well as certain other properties. In February 2005 the Securities and Exchange Commission (“SEC”) posted to its website a letter from the Chief Accountant of the SEC discussing the application of generally accepted accounting principles to certain lease accounting issues. We believe the accounting practices we have applied to the accounting for rent holidays, depreciable lives of leasehold improvements, and tenant improvement allowances do not result in a material difference as compared to the application of generally accepted accounting principles described in the letter.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks relating to fluctuations in interest rates and the foreign exchange rates between the U.S. dollar and other foreign currencies primarily the Mexican Peso. As of 2004 yearend, our exposure to foreign exchange rates was limited.

We may manage interest rate risk through the use of interest rate collar agreements to limit the effect of interest rate fluctuations from time to time. We presently have no program in place. An earlier agreement was terminated in November 2004. See Note 13 to “Notes to Consolidated Financial Statements - Derivatives” in this Annual Report for a more complete description of our interest rate collar.

Interest Rate Sensitivity Analysis

The following analysis presents our earnings sensitivity if a certain interest rate change occurred at January 2, 2005. The change chosen for this analysis reflects our view of a change that is reasonably possible over a one-year period. These forward-looking disclosures are selective in nature and only address the potential impact from financial instruments. They do not include other potential effects that could impact our business as a result of these changes in interest.

At January 2, 2005, we had debt, excluding capital leases totaling $111.7 million, of which $25.0 million was variable-rate debt and $86.7 million was fixed-rate debt. At December 31, 2004, the six-month Eurodollar LIBOR rate was 2.21 percent.

Holding other variables constant, such as debt levels, the earnings, net of taxes and cash flows impact of a one-percentage point change in interest rates would be approximately $0.2 million.

Credit Risk

We are exposed to credit risk on accounts receivable through the ordinary course of business and perform ongoing credit evaluations. Concentrations of credit risk with respect to accounts receivable are limited due to the number of customers comprising our customer base. We currently believe that our allowance for doubtful accounts is sufficient to cover customer credit risks.

Foreign Currency Risk

Our exposure to foreign currency risk is limited to the operations under Smart & Final Mexico and the equity earnings of its Mexico joint venture. At 2004 yearend, such exposure was the $6.6 million net investment in Smart & Final Mexico, which was comprised primarily of the Mexico joint venture. Our other transactions are conducted in U.S. dollars and are not exposed to fluctuation in foreign currency. We do not hedge our foreign currency exposure and therefore are not exposed to such hedging risk.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following information is included in this section:

	Page
Management’s Report on Internal Control over Financial Reporting	36
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting	37
Report of Independent Registered Public Accounting Firm	39
Consolidated Balance Sheets	40
Consolidated Statements of Operations	41
Consolidated Statements of Stockholders’ Equity	42
Consolidated Statements of Cash Flows	43
Notes to Consolidated Financial Statements	44
Supplementary Data - Summary of Quarterly Results of Operations	81

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SMART & FINAL INC.

MANAGEMENT’S REPORT

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Smart & Final Inc. is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f). Smart & Final Inc.’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Smart & Final Inc. management assessed the effectiveness of the Company’s internal control over financial reporting as of January 2, 2005. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on our assessment we believe that, as of January 2, 2005, the Company’s internal control over financial reporting is effective based on those criteria.

Management’s assessment of the effectiveness of our internal control over financial reporting as of January 2, 2005 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included elsewhere herein.

By:	/s/ Etienne Snollaerts	By:	/s/ Richard N. Phegley
	Etienne Snollaerts		Richard N. Phegley
	President and		Senior Vice President and
	Chief Executive Officer		Chief Financial Officer

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Stockholders and Board of Directors

Smart & Final Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Smart & Final Inc. maintained effective internal control over financial reporting as of January 2, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Smart & Final Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Smart & Final Inc. maintained effective internal control over financial reporting as of January 2, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Smart & Final Inc. maintained, in all material respects, effective internal control over financial reporting as of January 2, 2005, based on the COSO criteria.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Smart & Final Inc. as of January 2, 2005 and December 28, 2003, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three fiscal years in the period ended January 2, 2005 of Smart & Final Inc. and our report dated March 2, 2005 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Los Angeles, California

March 2, 2005

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

Smart & Final Inc.

We have audited the accompanying consolidated balance sheets of Smart & Final Inc., a Delaware corporation and a 54.4 percent owned subsidiary of Casino USA, Inc., (the “Company”) as of January 2, 2005 and December 28 2003, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three fiscal years in the period ended January 2, 2005. Our audits also included the financial schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Smart & Final Inc. at January 2, 2005 and December 28, 2003, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended January 2, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 5 to the consolidated financial statements, the Company changed the manner in which it accounts for a variable interest entity upon adoption of Financial Accounting Standards Board Financial Interpretation No. 46, “Consolidation of Variable Interest Entities” on June 15, 2003.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Smart & Final Inc.’s internal control over financial reporting as of January 2, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2005 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Los Angeles, California

March 2, 2005

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SMART & FINAL INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share amounts)

	January 2, 2005			December 28, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	28,672		$	36,592
Accounts receivable, less allowance for doubtful accounts of $254 in 2004 and $307 in 2003		16,717			15,524
Inventories		142,360			123,428
Prepaid expenses and other current assets		16,428			27,383
Deferred tax assets		11,646			16,660
Assets of discontinued operations		2,129			4,681
Total current assets		217,952			224,268
Property, plant and equipment:
Land		66,275			68,042
Buildings and improvements		62,583			64,237
Leasehold improvements		125,206			113,388
Fixtures and equipment		194,554			179,079
		448,618			424,746
Less – Accumulated depreciation and amortization		197,443			177,706
Net property, plant and equipment		251,175			247,040
Assets under capital leases, net of accumulated amortization of $7,669 in 2004 and $9,417 in 2003		2,085			3,926
Goodwill		34,775			34,775
Deferred tax assets		18,237			16,123
Equity investment in joint venture		6,258			5,398
Cash held in real estate trust		116			14,357
Other assets		56,833			51,345
Total assets	$	587,431		$	597,232
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and capital leases	$	1,353		$	61,964
Accounts payable		83,103			92,448
Accrued salaries and wages		20,166			17,220
Other accrued liabilities		47,863			47,914
Liabilities of discontinued operations		2,476			7,296
Total current liabilities		154,961			226,842
Long-term liabilities:
Obligations under capital leases		2,638			4,511
Bank debt		25,000			—
Notes payable		53,396			53,496
Notes payable to affiliate		33,133			33,173
Other long-term liabilities		30,324			25,185
Postretirement and postemployment benefits		35,566			37,868
Total long-term liabilities		180,057			154,233
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $1 par value (authorized 10,000,000 shares; no shares issued)		—			—
Common stock, $0.01 par value (authorized 100,000,000 shares; 30,752,118 shares issued and outstanding in 2004 and 29,922,821 in 2003)		308			299
Additional paid-in capital		219,768			209,876
Retained earnings		46,157			15,963
Accumulated other comprehensive loss		(12,361	)		(9,881	)
Notes receivable for common stock		(75	)		(100	)
Treasury stock, at cost, 86,475 shares in 2004		(1,384	)		—
Total stockholders’ equity		252,413			216,157
Total liabilities and stockholders’ equity	$	587,431		$	597,232

The accompanying notes are an integral part of these consolidated financial statements.

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SMART & FINAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share amounts)

	Fiscal Year
	2004			2003			2002
Sales	$	1,955,579		$	1,730,114		$	1,572,320
Cost of sales, buying and occupancy		1,616,490			1,433,106			1,323,693
Gross margin		339,089			297,008			248,627
Operating and administrative expenses		276,655			245,584			201,882
Litigation and other charges		—			13,834			—
Income from operations		62,434			37,590			46,745
Interest expense, net		13,178			15,508			12,240
Income from continuing operations before income tax provision		49,256			22,082			34,505
Income tax provision		(18,718	)		(9,229	)		(13,615	)
Equity earnings of joint venture		993			744			884
Income from continuing operations		31,531			13,597			21,774
Discontinued operations, net of tax		(1,337	)		(68,535	)		(14,925	)
Income (loss) before cumulative effect of accounting change		30,194			(54,938	)		6,849
Cumulative effect of accounting change (variable interest entity, net of tax of $3,534)		—			(5,301	)		—
Net income (loss)	$	30,194		$	(60,239	)	$	6,849
Earnings (loss) per common share
Earnings per common share from continuing operations	$	1.04		$	0.46		$	0.74
Loss per common share from discontinued operations		(0.04	)		(2.30	)		(0.51	)
Cumulative effect of accounting change per common share		—			(0.18	)		—
Earnings (loss) per common share	$	1.00		$	(2.02	)	$	0.23
Weighted average common shares		30,206,190			29,777,393			29,417,429
Earnings (loss) per common share, assuming dilution
Earnings per common share, assuming dilution, from continuing operations	$	0.99		$	0.46		$	0.74
Loss per common share, assuming dilution, from discontinued operations		(0.04	)		(2.30	)		(0.51	)
Cumulative effect of accounting change per common share, assuming dilution		—			(0.18	)		—
Earnings (loss) per common share, assuming dilution	$	0.95		$	(2.02	)	$	0.23
Weighted average common shares and common share equivalents		31,868,983			29,777,393			29,527,314

The accompanying notes are an integral part of these consolidated financial statements.

41

SMART & FINAL INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

	Common Stock			Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Notes Receivable for Common Stock			Treasury Stock			Total Stockholders’ Equity
	Number of Shares	Amount
Balance, fiscal yearend 2001	29,393,449	$	294	$	207,361	$	69,353		$	(4,840	)	$	(100	)	$	—		$	272,068
Issuance of common stock	49,749		—		146		—			—			—			—			146
Restricted stock accrual	—		—		587		—			—			—			—			587
Tax benefit on options exercised	—		—		1		—			—			—			—			1
Comprehensive income (loss):
Net income	—		—		—		6,849			—			—			—			6,849
Other comprehensive loss:
Derivative instruments:
Loss, net of tax of $1,637	—		—		—		—			(2,456	)		—			—			(2,456	)
Reclassification adjustments, net of tax of $1,292, included in net income	—		—		—		—			1,938			—			—			1,938
Foreign currency translation loss	—		—		—		—			(234	)		—			—			(234	)
Minimum pension liability, net of tax of $4,130	—		—		—		—			(6,195	)		—			—			(6,195	)
Other comprehensive loss	—		—		—		—			(6,947	)		—			—			(6,947	)
Comprehensive income (loss)	—		—		—		6,849			(6,947	)		—			—			(98	)
Balance, fiscal yearend 2002	29,443,198	$	294	$	208,095	$	76,202		$	(11,787	)	$	(100	)	$	—		$	272,704
Issuance of common stock	479,623		5		1,000		—			—			—			—			1,005
Restricted stock accrual	—		—		781		—			—			—			—			781
Comprehensive (loss) income:
Net loss	—		—		—		(60,239	)		—			—			—			(60,239	)
Other comprehensive income:
Derivative instruments:
Income, net of tax of $94	—		—		—		—			141			—			—			141
Reclassification adjustments, net of tax of $1,190, included in net loss	—		—		—		—			1,785			—			—			1,785
Foreign currency translation gain	—		—		—		—			608			—			—			608
Minimum pension liability, net of tax of $418	—		—		—		—			(628	)		—			—			(628	)
Other comprehensive income	—		—		—		—			1,906			—			—			1,906
Comprehensive (loss) income	—		—		—		(60,239	)		1,906			—			—			(58,333	)
Balance, fiscal yearend 2003	29,922,821	$	299	$	209,876	$	15,963		$	(9,881	)	$	(100	)	$	—		$	216,157
Issuance of common stock	829,297		9		7,656		—			—			—			—			7,665
Restricted stock accrual	—		—		205		—			—			—			—			205
Tax benefit on options exercised	—		—		2,031		—			—			—			—			2,031
Payment received	—		—		—		—			—			25			—			25
Purchase at cost, 86,475 shares	—		—		—		—			—			—			(1,384	)		(1,384	)
Comprehensive income (loss):
Net income	—		—		—		30,194			—			—			—			30,194
Other comprehensive income:
Derivative instruments:
Income, net of tax of $109	—		—		—		—			164			—			—			164
Reclassification adjustments, net of tax of $581, included in net income	—		—		—		—			872			—			—			872
Foreign currency translation loss	—		—		—		—			(115	)		—			—			(115	)
Minimum pension liability, net of tax of $2,084	—		—		—		—			(3,401	)		—			—			(3,401	)
Other comprehensive loss	—		—		—		—			(2,480	)		—			—			(2,480	)
Comprehensive income (loss)	—		—		—		30,194			(2,480	)		—			—			27,714
Balance, fiscal yearend 2004	30,752,118	$	308	$	219,768	$	46,157		$	(12,361	)	$	(75	)	$	(1,384	)	$	252,413

The accompanying notes are an integral part of these consolidated financial statements.

42

SMART & FINAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

	Fiscal Year
	2004			2003			2002
Cash Flows from Operating Activities:
Income from continuing operations before cumulative effect of accounting change	$	31,531		$	13,597		$	21,774
Adjustments to reconcile income from continuing operations before cumulative effect of accounting change to net cash provided by continuing activities:
Non-cash litigation and other charges, net of tax		—			8,300			—
Gain on disposal of property, plant and equipment		(390	)		(818	)		(2,065	)
Asset impairment		2,500			—			—
Depreciation		17,951			19,265			18,568
Amortization		12,716			13,189			11,199
Amortization of deferred financing costs		1,358			3,187			1,873
Deferred tax provision (benefit)		2,899			12,575			(217	)
Equity earnings of joint venture		(993	)		(744	)		(884	)
Decrease (increase) in:
Accounts receivable		(1,193	)		6,284			9,489
Inventories		(18,933	)		1,408			5,836
Prepaid expenses and other assets		9,731			(16,117	)		(4,083	)
Increase (decrease) in:
Accounts payable		(9,345	)		20,459			(6,201	)
Accrued salaries and wages		2,946			7,971			(3,724	)
Other accrued liabilities		(9,108	)		1,729			6,407
Net cash provided by continuing activities		41,670			90,285			57,972
Net cash used in discontinued activities		(4,340	)		(4,568	)		(3,278	)
Net cash provided by operating activities		37,330			85,717			54,694
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment		(25,487	)		(21,236	)		(39,340	)
Proceeds from disposal of property, plant and equipment		4,386			1,928			7,745
Investment in capitalized software		(12,080	)		(11,699	)		(2,519	)
Change in cash held in real estate trust		14,241			—			—
Other		5,518			(2,019	)		(1,375	)
Net cash used in continuing activities		(13,422	)		(33,026	)		(35,489	)
Net proceeds from divestitures		325			37,898			—
Net cash provided by (used in) discontinued activities		226			(105	)		(9,078	)
Net cash (used in) provided by investing activities		(12,871	)		4,767			(44,567	)
Cash Flows from Financing Activities:
Payments on bank line of credit		(40,000	)		(77,500	)		(17,000	)
Borrowings on bank line of credit		5,000			7,500			20,000
Payments on notes payable		(1,751	)		(6,792	)		(6,726	)
Fees paid in connection with debt refinancing		(1,070	)		—			—
Proceeds from issuance of common stock, net of costs		5,442			40			11
Net cash used in continuing activities		(32,379	)		(76,752	)		(3,715	)
Net cash used in discontinued activities		—			(142	)		(1,264	)
Net cash used in financing activities		(32,379	)		(76,894	)		(4,979	)
(Decrease) increase in cash and cash equivalents		(7,920	)		13,590			5,148
Cash and cash equivalents at beginning of year		36,592			23,002			17,854
Cash and cash equivalents at end of year	$	28,672		$	36,592		$	23,002
Non-cash Investing and Financing Activities:
Equipment acquired as capital lease	$	—		$	1,117		$	600
Sale of property for cash held in real estate		—			14,340			—
Software development costs incurred but not paid		1,316			—			—
Construction in progress costs incurred but not paid		10,432			1,954			2,282
Total non-cash transactions	$	11,748		$	17,411		$	2,882

The accompanying notes are an integral part of these consolidated financial statements.

43

SMART & FINAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of presentation

Smart & Final Inc. is a Delaware corporation and at fiscal yearend 2004 was a 54.4 percent owned subsidiary of Casino USA, Inc. (“Casino USA”), a California corporation. References in this report to “we”, “our” and “us” are to Smart & Final Inc. and its subsidiaries, collectively.

Casino Guichard-Perrachon, S.A. (“Groupe Casino”), a publicly traded French joint stock limited liability company, is the principal shareholder of Casino USA. Collectively, Groupe Casino and its subsidiaries own approximately 57.3 percent of our common stock as of January 2, 2005.

We operated 223 non-membership warehouse grocery stores at fiscal yearend 2004 through our principal subsidiary, Smart & Final Stores Corporation, a California corporation and related entities. We are engaged in the business of providing food and related non-food items in bulk sizes and quantities. Our stores operate under the banners “Smart & Final” and “United Grocers Cash & Carry” (“Cash & Carry”). Stores under the Smart & Final banner include 176 stores primarily located in California with others in Arizona and Nevada. Our Cash & Carry stores currently operate 47 stores in Washington, Oregon, northern California and Idaho. We also own 100 percent of Smart & Final de Mexico S.A. de C.V. (“Smart & Final Mexico”), a Mexican holding company through which we own 50 percent of a joint venture, Smart & Final del Noroeste S.A. de C.V. (“SFDN”), in Mexico.

Principles of consolidation

Our consolidated financial statements include our accounts and the accounts of our majority-owned subsidiaries. Our consolidated balance sheets as of January 2, 2005 and December 28, 2003 and consolidated statements of operations and consolidated statement of cash flows for 2004 and 2003 also include the balance sheets and the operating results since June 15, 2003 and the cumulative effect of accounting change as of June 15, 2003 of the variable interest entity described in Note 5 “Accounting Changes.” All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications, including those of the discontinued operations discussed in Note 3 “Discontinued Operations,” have been made to prior periods to conform to current presentations.

Our 50 percent-owned joint venture in Mexico is accounted for by the equity method of accounting. Investment in SFDN at each reporting fiscal yearend is reported in our consolidated balance sheets under the caption “Equity investment in joint venture.” The “Retained earnings” on our consolidated balance sheets included undistributed earnings of SFDN of $5.9 million at fiscal yearend 2004 and $4.9 million at fiscal yearend 2003. These earnings are considered retained indefinitely for reinvestment and, accordingly, no provision is provided for United States federal and state income taxes and foreign income taxes.

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Fiscal years

Our fiscal year ends on the Sunday closest to December 31. Fiscal years 2004, 2003 and 2002 ended on January 2, 2005, December 28, 2003 and December 29, 2002, respectively. Our fiscal 2004 included 53 weeks while 2003 and 2002 included 52 weeks. Each of our fiscal years consists of twelve-week periods in the first, second, and fourth quarters of the fiscal year and a sixteen-week period in the third quarter. The fourth quarter of a 53-week year consists of thirteen weeks.

Cash and cash equivalents

We consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The carrying amount of cash equivalents is approximately the same as their fair value because of the short maturity of these instruments.

Accounts receivable

Accounts receivable generally represent billings to customers, billings to vendors for earned rebates and allowances, receivables from Casino USA and SFDN, primarily related to income tax settlements, services provided and rent receivable as further discussed in Note 9 “Income Taxes” and Note 10 “Related Party Transactions,” and other items arising from common business practices. The following table sets forth these major components included in accounts receivable for each yearend, in thousands:

	January 2, 2005		December 28, 2003
Trade	$	5,369	$	5,184
Vendor		4,896		5,708
Affiliate		3,731		1,977
Other		2,721		2,655
Total	$	16,717	$	15,524

We evaluate the collectability of accounts receivable and determine the appropriate reserve for doubtful accounts based on analysis of historical trends of write-offs and recoveries on various levels of aged receivables. When we become aware of the deteriorated collectibility of a specific account, additional reserves are made to reduce the net recognized receivable to the amount reasonably expected to be collectible or zero. When the specific account is determined uncollectible, the net recognized receivable is written off in its entirety against such reserves.

We are exposed to credit risk on trade accounts receivable. We provide credit to trade customers in the ordinary course of business and perform ongoing credit evaluations. Concentrations of credit risk with respect to trade accounts receivable are limited due to the number of customers comprising our customer base. We currently believe our allowance for doubtful accounts is sufficient to cover customer credit risks.

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Inventories

Our inventories consist of merchandise purchased for resale which are stated at the lower of FIFO (first-in, first-out) cost or market. We provide for estimated inventory losses between physical inventory counts at our stores based upon historical inventory losses as a percentage of sales. The provision is adjusted periodically to reflect updated trends of actual physical inventory count results.

Prepaid expenses and other current assets

Prepaid expenses and other current assets primarily include income tax refunds receivable, prepaid rent, insurance, property taxes and other current assets. Prepaid expenses and other current assets include prepaid income taxes in the amount of $5.5 million of at January 2, 2005 and $17.0 million at December 28, 2003. Also included is the purchase price receivable related to the sale and divestiture of certain discontinued operations discussed in Note 3 “Discontinued Operations” below in the amount of $3.4 million at January 2, 2005 and $3.7 million at December 28, 2003.

Property, plant and equipment and assets under capital leases

Property, plant and equipment owned by us are stated at cost and are depreciated or amortized using the straight-line method. Leased property meeting certain criteria is capitalized and the amortization is based on the straight-line method over the term of the lease.

The estimated useful lives are as follows:

Buildings and improvements	20-25 years
Fixtures and equipment	3-10 years
Leasehold improvements	Lesser of lease term or useful life of improvement

Costs of normal maintenance and repairs and minor replacements are charged to expense when incurred. Major replacements, remodeling or betterments of properties are capitalized. When assets are sold or otherwise disposed of, the costs and related accumulated depreciation and amortization are removed from the accounts, and any resulting gain or loss is included in the consolidated statement of operations.

Also included in property, plant and equipment are costs associated with selection and procurement of real estate sites of $1.1 million as of 2004 yearend and $1.3 million as of 2003 yearend. These costs are amortized over the remaining lease term of the site with which they are associated.

According to provisions under Statement of Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the impairment or Disposal of Long-Lived Assets,” we review our long-lived assets, including property, plant and equipment and assets under capital leases for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized to the extent the sum of the discounted estimated future cash flows from the use of the asset is less than the carrying value.

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Goodwill

SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that we test goodwill for impairment based on a comparison of fair values to the carrying values of our reporting units. The goodwill on our balance sheet of $34.8 million, net of accumulated amortization of $3.5 million recorded prior to the adoption of SFAS No. 142 beginning in 2002, relates solely to our acquisition of Cash & Carry in 1998; accordingly, our Cash & Carry operation is the reporting unit for which the test of goodwill for impairment is performed. The determination of fair value for a reporting unit involves the use of assumptions and estimates such as the future performance of the operations of the reporting unit and discount rates used to determine the current value of expected future cash flows of the reporting unit. Any change in these assumptions and estimates, and other factors such as inflation rates, competition and general economic conditions, could cause the calculated fair value of the operating unit to decrease significantly. We performed the annual impairment tests in December 2003 and December 2004 and concluded that no impairment existed.

Cash held in real estate trust

Cash held in real estate trust represents cash funds restricted for the purchase of replacement properties under the lease facility described in Note 5 “Accounting Changes.”

Other assets

Other assets primarily consist of assets held in trusts for certain retirement plans (see Note 8 “Retirement Benefit Plans and Postretirement and Postemployment Benefit Obligations”), capitalized software costs, a certificate of deposit and municipal bonds that secure our workers’ compensation reserves, and financing issuance costs relating to fees paid in connection with refinancing and restructuring of the revolving bank credit facility and the real estate synthetic lease facility discussed in Note 6 “Debt” below.

Capitalized software costs comprise third party purchased software costs, capitalized costs associated with internally developed software including internal direct labor costs, and installation costs. Such capitalized costs are being amortized over the period that the benefits of the software are fully realizable and enhance the operations of the business, ranging from three to seven years, using the straight-line method. These capitalized costs, net of amortization, were $23.3 million at 2004 yearend and $15.2 million at 2003 yearend. Our capitalized software costs, like other long-lived assets as required by SFAS No. 144, are subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of the capitalized software may not be recoverable, whether in use or under development. Impairment is recognized to the extent the sum of the discounted estimated future cash flows from the use of the capitalized software is less than the carrying value.

In December 2004, as a result of a failed system functionality test, we conducted an impairment assessment of the capitalized software costs associated with a pricing and promotion system. This evaluation resulted in our recognition of $2.5 million pre-tax impairment charge associated with certain capitalized software costs related to the pricing and promotion system. This impairment loss is reported within “Operating and administrative expenses” on our consolidated statement of operations and under our “Store” segment in Note 14 “Segment Reporting” for 2004.

47

The other assets that secure our workers’ compensation reserves consist of a certificate of deposit of $1.6 million at 2003 yearend and municipal bonds with face values aggregating $5.4 million at 2004 yearend and $8.3 million at 2003 yearend. The municipal bonds are classified as held-to-maturity and have varying maturity dates ranging from 2006 through 2019. We redeemed the $1.6 million certificate of deposit and $2.9 million of municipal bonds in 2004 due to a reduced requirement by the state of California for securing our self-insured workers’ compensation program. Proceeds from the redemption were included under cash flows from investing activities on our consolidated statement of cash flows for 2004. We recognized an immaterial gain on these redemptions.

The following table sets forth the aggregate amortized cost basis, gross unrealized holding gain and fair market value of the municipal bonds, in thousands.

	January 2, 2005		December 28, 2003
Amortized cost basis	$	5,382	$	8,284
Gross unrealized holding gain		321		511
Fair market value	$	5,703	$	8,795

The financing issuance costs are being amortized using the straight-line method. These costs, net of amortization, were $1.0 million at 2004 yearend and $1.3 million at 2003 yearend.

Accounts payable

Our banking arrangements provide for the daily replenishment of vendor payable accounts as checks are presented. The checks outstanding in these bank accounts totaled $18.5 million at 2004 yearend and $21.4 million at 2003 yearend and are included in “Accounts payable” on the accompanying consolidated balance sheets.

Accumulated other comprehensive loss

The ending accumulated balances, in thousands, for each item in the “Accumulated other comprehensive loss” under “Stockholders’ equity” are as follows:

	January 2, 2005		December 28, 2003
Minimum pension liabilities	$	11,539	$	8,138
Foreign currency translation loss		822		707
Derivative instrument loss		—		1,036
Total	$	12,361	$	9,881

Deferred minimum rent and rent expense

Certain of our operating leases provide for minimum annual payments that increase over the life of the lease. The aggregate minimum annual payments are expensed on a straight-line basis over the term of the related lease without consideration of renewal option periods. The amount by which straight-line rent expense exceeds actual lease payment requirements in the early years of the leases is accrued as deferred minimum rent and reduced in later years when the actual cash payment requirements exceed the straight-line expense.

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Stock options

In 1996, we adopted SFAS No. 123 “Accounting for Stock-Based Compensation,” which encourages, but does not require, the recognition of compensation expense for employee stock-based compensation arrangements using the fair value method of accounting. In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment to FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for companies that change from the intrinsic value method to the fair value method of accounting for stock-based compensation and requires additional disclosure of pro forma information when a company uses the intrinsic value method effective for annual financial statements for fiscal years ending after December 15, 2002.

We account for stock-based compensation using the intrinsic value method as allowed under Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees.” Disclosures of pro forma information regarding net income and earnings per share are required under SFAS No. 123, which uses the fair value method. As of 2002 yearend, we adopted SFAS No. 148 regarding the additional disclosure requirements of pro forma information. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	2004		2003		2002
Dividend yield		0.0%		0.0%		0.0%
Expected volatility		39%		38%		37%
Risk-free interest rates		2.8%		4.9%		4.9%
Weighted average expected lives
Executives		5.08 years		4.90 years		4.90 years
Non executives		4.84 years		4.61 years		4.60 years
Weighted average fair value of options granted	$	4.99	$	2.02	$	3.50

49

The following is the pro forma information had the fair value method under SFAS No. 123, as amended by SFAS No. 148, been adopted, dollars in thousands except per share amounts:

	2004		2003			2002
Net income (loss) as reported	$	30,194	$	(60,239	)	$	6,849
Add: Stock-based employee Compensation expense included in reported net income or loss, net of related tax effects		164		143			—
Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects		1,720		1,401			1,377
Pro forma net income (loss)	$	28,638	$	(61,497	)	$	5,472
Earnings (loss) per share:
Basic, as reported	$	1.00	$	(2.02	)	$	0.23
Basic, pro forma	$	0.91	$	(2.07	)	$	0.19
Diluted, as reported	$	0.95	$	(2.02	)	$	0.23
Diluted, pro forma	$	0.86	$	(2.07	)	$	0.19

The impact of applying SFAS No. 123, as amended by SFAS No. 148, in this pro forma disclosure is not necessarily indicative of the effect on income in the future. SFAS No. 123, as amended by SFAS No. 148, does not apply to awards granted prior to 1995.

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment.” Generally the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Complete discussion regarding SFAS No. 123(R) is included in “New Accounting Pronouncements” below.

Significant accounting estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period.

Revenue recognition

Revenues from the sale of products are recognized at the point of sale. Discounts provided to customers by us at the time of sale are recognized as a reduction in sales as the products are sold.

50

Cost of sales, buying and occupancy

The major categories of costs included in cost of sales, buying and occupancy are cost of goods, distribution costs, costs of our buying department and store occupancy costs, net of earned vendor rebates and other allowances. Distribution costs consist of all warehouse receiving and inspection costs, warehousing costs, all transportation costs associated with shipping goods from our warehouses to our stores, and other costs of our distribution network. We do not exclude any portion of these costs from cost of sales.

Vendor rebates and other allowances

As a component of our consolidated procurement program, we often enter into contracts with our vendors that provide for payments of rebates or other allowances. As prescribed by Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor”, these vendor payments are reflected in the carrying value of the inventory when earned or as we progress toward earning the rebate or allowance and as a component of cost of sales as the inventory is sold. Certain of these vendor contracts provide for rebates and other allowances that are contingent upon our meeting specified performance measures such as a cumulative level of purchases over a specified period of time. Such contingent rebates and other allowances are given accounting recognition at the point in which achievement of the specified performance measures are deemed to be probable and reasonably estimable.

Included in earned vendor rebates and other allowances and as a reduction of cost of sales, buying and occupancy were realized and recorded cooperative advertising allowances of $14.9 million for 2004 and $13.7 million for 2003 as a result of adopting EITF Issue No. 02-16. Cooperative advertising allowances for 2002 were $13.0 million and were recorded as a reduction from operating and administrative expenses.

Operating and administrative expenses

The major categories of operating and administrative expenses include store direct expenses associated with displaying and selling at the store level, primarily labor and related fringe benefit costs, advertising and marketing costs, overhead costs and corporate office costs. Cooperative advertising allowances were recorded as a reduction from operating and administrative expenses for 2002. Similar allowances were recorded as a reduction of cost of sales, buying and occupancy for 2003 and 2004.

We expense the costs of advertising as incurred. Total advertising expense from continuing operations was $26.9 million in 2004, $23.4 million in 2003 and $21.5 million in 2002.

Income taxes

We recognize deferred tax assets and liabilities based on the liability method, which requires an adjustment to the deferred tax asset or liability to reflect income tax rates currently in effect. When income tax rates increase or decrease, a corresponding adjustment to income tax expense is recorded by applying the rate change to the cumulative temporary differences.

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Earnings per common share

Earnings per common share is calculated based on the weighted average common shares outstanding. Earnings per common share, assuming dilution is based on the weighted average common shares and common share equivalents outstanding. Common share equivalents relate to stock options for our common stock and restricted stock. We had 4,334,222 shares subject to stock options and restricted stock outstanding at January 2, 2005, 4,644,454 shares at December 28, 2003 and 3,439,571 shares at December 29, 2002.

In accordance with SFAS No. 128, “Earnings per Share,” the following table reconciles share amounts utilized to calculate earnings or loss per common share and earnings or loss per common share, assuming dilution:

	2004			2003			2002
Net income (loss), in thousands	$	30,194		$	(60,239	)	$	6,849
Earnings (loss) per common share	$	1.00		$	(2.02	)	$	0.23
Effect of dilutive stock options		(0.05	)		—			—
Earnings (loss) per common share, assuming dilution	$	0.95		$	(2.02	)	$	0.23
Weighted average common shares		30,206,190			29,777,393			29,417,429
Effect of dilutive stock options		1,662,793			—			109,885
Weighted average common shares and common share equivalents		31,868,983			29,777,393			29,527,314

Due to the net loss in 2003, the assumed net exercise of stock options was excluded from the calculation of fully diluted weighted average shares, as the effect would have been antidilutive. Options for 4,644,454 shares of common stock were therefore excluded from the calculation. For 2004 and 2002, certain outstanding options were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common stock. The number of options excluded from the dilution computation was 274,000 in 2004 and 3,412,971 in 2002.

Foreign currency translations

Assets and liabilities recorded in foreign currencies related to our investment in the Mexico joint venture are translated at the exchange rate on the balance sheet date. Revenues and expenses of Smart & Final Mexico are translated at average rates of exchange prevailing during the year. In accordance with accounting principles generally accepted in the United States, the functional currency for our Mexico operations is the Mexican Peso. As such, foreign currency translation gains and losses are included in “Other comprehensive income (loss)” (“OCI”) and reflected in “Accumulated other comprehensive loss” within “Stockholders’ equity.”

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Treasury stock

During the third quarter of 2004, our Chairman exercised options to purchase 151,250 shares of our common stock. The exercise price for the options was paid by our Chairman’s transfer to us of 66,475 shares of our common stock previously held by him. In connection with the stock option exercises, we also accepted from our Chairman 20,000 shares of our common stock resulting from the exercises, plus cash for a remainder amount, in payment of applicable payroll taxes due on the transaction. These shares were recorded as Treasury Stock using the cost method, at $16.01 per share, for a total of $1.4 million.

2. New Accounting Pronouncements

SFAS No. 151

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overhead to inventory based on the normal capacity of the production facilities. The provisions of this statement will become effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material impact on our financial condition or results of operations.

SFAS No. 123(R)

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123(R) supersedes APB No. 25, “Accounting for Stock Issued to Employees”, and amends SFAS No. 95, “Statement of Cash Flows.” Generally the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

SFAS No. 123(R) must be adopted in the first interim or annual period beginning after June 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt SFAS No. 123(R) effective June 20, 2005, which is the beginning of our third quarter 2005.

SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:

1. A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.

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2. A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

We plan to adopt SFAS No. 123(R) using the modified prospective method.

As permitted by SFAS No. 123, we currently account for share-based payments to employees using APB Opinion 25’s intrinsic value method and as such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123(R)’s fair value method will have a significant impact on our reported results of operations. The impact of adopting SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS No. 123(R) in prior periods, the impact of that standard could reasonably be expected to have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 “Summary of Significant Accounting Policies – Stock options” in this Annual Report. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financial cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we can not estimate what those amounts will be in the future, the amount of operating cash flows recognized in prior periods for such excess tax deductions were $2.0 million in 2004, none in 2003 and an immaterial amount in 2002.

We are currently evaluating our business practices regarding the magnitude or form of share-based compensation to employees and the choice of the option-pricing model in the future. We are also analyzing other potential impact of adopting SFAS No. 123(R) and presently, do not expect any other potential impact will be significant.

SFAS No. 109-2

On December 21, 2004, the FASB issued SFAS No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” The American Jobs Creation Act of 2004 (the “Job Creation Act”) allows a one-year incentive for U. S. corporations to reinvest the earnings of their controlled foreign corporation back into the United States, by applying a reduced maximum tax rate of 5.25 percent on dividends repatriating such earnings. SFAS No. 109-2 allows time beyond the financial reporting period of enactment to evaluate the effect of the Job Creation Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109, “Accounting for Income Taxes” due to the lack of clarification of certain provisions within the Job Creation Act and the timing of the enactment. SFAS No. 109-2 requires disclosure of certain information for companies that have not yet completed their evaluation of the repatriation provision for purposes of applying SFAS 109 for each period for which financial statements covering periods affected by the Job Creation Act are presented.

We are currently evaluating the effect of the Job Creation Act and its impact on our policy regarding repatriating or reinvesting our share of equity earnings in SFDN. We have not recorded U.S. income tax expense for the undistributed earnings of our foreign operations. The

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amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets and our expectations of the future cash needs of our U.S. and foreign entities. Our equity investment in SFDN was $6.3 million at January 2, 2005. We estimate the income tax effect to be immaterial should we repatriate the undistributed earnings of SFDN pursuant to the provisions of the Job Creation Act.

3. Discontinued Operations

During the second quarter of 2003, we announced the sale and divestiture of our Florida broadline foodservice operations and our Florida stores businesses (collectively, the “Florida Operations”) after suffering several years of losses in these operations.

In the second quarter of 2003 we adopted a restructuring plan related to our broadline foodservice operations in northern California (the “Northern California Foodservice Operations”) in an effort to improve its profitability. We recorded $19.1 million of pre-tax charges associated with the restructuring of the Northern California Foodservice Operations. These charges were reflected in pre-tax loss from operations for 2003 and included $6.3 million of impairment loss on long-lived assets related to warehouse and facility closures, $5.8 million of early terminations of related warehouse service and lease agreements, $5.9 million of goodwill written off and a $1.1 million provision for work force reductions.

During the third quarter of 2003, we announced the sale and divestiture of our Northern California Foodservice Operations which, coupled with the sale and divestiture of our Florida Operations, allowed us to further concentrate our management focus on our core store operations and concentrate our resources to strengthen our balance sheet and on continued development of our two store formats.

The sale and divestiture of both Florida Operations and Northern California Foodservice Operations were substantially completed during the third quarter of 2003. We retained certain residual assets, liabilities and contingencies in conjunction with the sale transactions and divestitures. In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the accompanying condensed consolidated financial statements reflect the results of operations and financial position of the Florida Operations and the Northern California Foodservice Operations separately as discontinued operations.

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The assets and liabilities of the discontinued operations are presented in the consolidated balance sheets under the captions “Assets of discontinued operations” and “Liabilities of discontinued operations.” The underlying assets and liabilities of the discontinued operations for each fiscal yearend presented are as follows, dollars in thousands:

	January 2, 2005		December 28, 2003
Cash and cash equivalents	$	—	$	233
Trade notes and accounts receivable, net		—		605
Prepaid expenses and other current assets		—		1,200
Property, plant and equipment, net		2,129		2,643
Assets of discontinued operations	$	2,129	$	4,681
Accounts payable	$	18	$	238
Accrued salaries and wages		—		95
Other accrued liabilities		2,458		6,963
Liabilities of discontinued operations	$	2,476	$	7,296

The following table sets forth the loss from the discontinued operations of each period presented by segment, as defined in Note 14 “Segment Reporting,” in thousands. Related interest expense and income tax benefit from the discontinued operations are included under Corporate.

	Stores			Foodservice			Corporate			Total
2004:
Pre-tax loss from operations	$	273		$	(2,431	)	$	—		$	(2,158	)
Income tax benefit		—			—			821			821
Net (loss) income		273			(2,431	)		821			(1,337	)
2003:
Sales	$	39,848		$	265,624		$	—		$	305,472
Pre-tax loss from operations		(5,623	)		(38,230	)		(165	)		(44,018	)
Pre-tax (loss) gain on sale and divestiture		(19,263	)		(42,201	)		4,089			(57,375	)
Income tax benefit		—			—			32,858			32,858
Net (loss) income		(24,886	)		(80,431	)		36,782			(68,535	)
2002:
Sales	$	58,297		$	385,366		$	—		$	443,663
Pre-tax loss from operations		(10,448	)		(12,612	)		(1,741	)		(24,801	)
Income tax benefit		—			—			9,876			9,876
Net (loss) income		(10,448	)		(12,612	)		8,135			(14,925	)

Pre-tax loss from discontinued operations for all periods presented does not include an allocation of corporate overhead or costs. The $19.1 million of pre-tax charges associated with the restructuring of the Northern California Foodservice Operations recorded in 2003 second quarter were reflected in pre-tax loss from operations in the above table for 2003.

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The net pre-tax loss on sale and divestiture was determined based on the excess or shortfall of sale prices, net of related transaction expenses, over the carrying amounts of net assets sold and other divestiture charges. The following transactions and events are included in the net pre-tax loss on sale and divestiture for 2003, in thousands:

Pre-tax loss on the sale and divestiture of Florida Operations¹	$	(53,563	)
Pre-tax gain on sale of two Florida properties of the variable interest entity²		4,088
Pre-tax divestiture charges at Northern California Foodservice Operations³		(15,427	)
Pre-tax gain on sale of certain assets at Northern California Foodservice Operations4		7,527
Total pre-tax loss on sale and divestiture	$	(57,375	)

¹ During 2003 third quarter, we entered into definitive sales agreements with the buyer for the sale of Florida Operations and received net cash proceeds of $14.8 million with an additional $3.0 million placed in an escrow account for later settlement of closing valuation matters related to the sale agreements.

² Under separate sale agreements, two Florida properties of the variable interest entity were sold to the buyer of the Florida Operations for cash consideration of $14.3 million, which was deposited to a real estate trust account that was reported as “Cash held in real estate trust” on our consolidated balance sheets. The sale of these two properties resulted in a pre-tax gain of $4.1 million recorded in the 2003 third quarter. The related cash proceeds were reported as a non-cash investing activity on the supplemental disclosure on our consolidated statement of cash flows for 2003. Included in “Bank credit facility, lease facility and other financing activities” below is a further discussion related to the real estate trust.

³ We recorded $14.5 million of pre-tax charges in 2003 third quarter and $0.9 million in 2003 fourth quarter. The $15.4 million of total charges is comprised of $8.2 million in asset impairment, $2.6 million in lease termination costs, $3.3 million in employee severance and related obligations and $1.3 million in vendor and other obligations.

⁴ We sold the Northern California Foodservice Operations for cash proceeds of $24.8 million.

The total cash consideration for the sale of the Northern California Foodservice Operations and the Florida Operations, net of transaction expenses of $1.7 million, was $37.9 million and was reported on our consolidated statement of cash flows as “Net proceeds from divestitures” under investing activities for 2003. The Northern California Foodservice Operations restructuring charge of $19.1 million plus the pre-tax loss on sale and divestiture of the Florida Operations and the Northern California Foodservice Operations, noted above, totaled $88.1 million. Of this amount, $68.7 million represented the shortfall of sales prices, net of related transaction expenses, over the carrying amounts of net assets sold. The remaining $19.4 million represented reserves recorded for lease termination costs, employee severance and related obligations and vendor and other obligations. We have fully received all the proceeds related to the sale of the Northern California Foodservice Operations; however, we have a sales proceed receivable of $3.4 million related to the sale of the Florida Operations of which $3.0 million is held in escrow pending final resolution of certain purchase price adjustment matters.

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The following table sets forth the charges and the activities and the remaining balances as of January 2, 2005, related to reserves for exiting the Florida Operations and the Northern California Foodservice Operations, in thousands.

	Charges		Payments			Balance at December 28, 2003		Adjustments			Payments			Balance at January 2, 2005
Lease termination costs	$	13,281	$	(7,804	)	$	5,477	$	(1,020	)	$	(1,666	)	$	2,791
Employee severance and related obligations		4,802		(2,514	)		2,288		721			(2,337	)		672
Vendor and other obligations		1,300		—			1,300		—			(1,300	)		—
	$	19,383	$	(10,318	)	$	9,065	$	(299	)	$	(5,303	)	$	3,463

Adjustments in 2004 reflect a reduction in the Florida stores lease obligations and an increase in Foodservice severance and related obligations.

4. Litigation and Other Charges

In the second quarter of 2003, we recorded $18.4 million of pre-tax charges related to litigation reserves (discussed in Note 15 “Legal Actions”) and financing fees associated with the amendments and waivers of the financial covenants contained in the revolving bank credit facility and real estate synthetic lease facility. In the third and fourth quarters of 2003, we recorded adjustments to the litigation reserves and financing-related reserves which resulted in a full year 2003 pre-tax charge of $13.8 million. Payments made and applied against the reserves were $9.5 million in 2004 and $2.8 million in 2003. The remaining balance of $1.5 million at January 2, 2005 is reflected in “Other accrued liabilities” on our consolidated balance sheets.

5. Accounting Changes

Variable Interest Entity

In January 2003, the FASB issued Financial Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” In December 2003, the FASB modified FIN No. 46 to make certain technical corrections and address certain implementation issues that had arisen. The objective of FIN No. 46 is to improve financial reporting by companies involved with variable interest entities. FIN No. 46 requires the assets, liabilities, noncontrolling interests and results of activities of a variable interest entity to be consolidated by the company that is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. We adopted the provisions of FIN No. 46 as of June 15, 2003.

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In November 2001, we entered into a five-year operating lease agreement (“Lease Agreement”) with a national banking association. Participants in the Lease Agreement structure include several banks and financing institutions as well as Casino USA, which owned 54.4 percent of our common stock at January 2, 2005. The Lease Agreement expires on November 30, 2006. At the end of the term, the Lease Agreement requires us to elect to purchase all the properties by a final payment of $86.4 million or sell all the properties to a third party. If the properties are sold to a third party and the aggregate sales price is less than $69.2 million, we are obligated to pay the difference of the aggregate sales price and $69.2 million.

During the process of sale and divestiture of the Florida Operations in 2003, proceeds of $14.3 million were generated through the sale of a Florida distribution facility and a Florida store property originally covered by the Lease Agreement. The Lease Agreement was thereafter amended to allow these proceeds to be held by the real estate trust for future purchases of replacement properties. These cash funds, which are restricted as to their use are reflected on our consolidated balance sheets as “Cash held in real estate trust.” During second quarter 2004, we sold six owned store locations to the real estate trust for $14.2 million in cash, which was then used to pay down the balance outstanding under our revolving bank credit facility. No gain or loss was recognized on this inter-company transaction. As of January 2, 2005, the Lease Agreement as amended, with a value of $86.7 million and a composite interest rate of 9.07 percent, provides for the financing of two distribution facilities and 20 store locations, including the six replacement store properties.

The Lease Agreement is considered a variable interest entity and subject to consolidation under FIN No. 46. We adopted the provisions of FIN No. 46 as of June 15, 2003 and therefore the related properties and long-term portion of notes payable are included in our consolidated balance sheets under “Property, plant and equipment”, “Notes payable” and, for the Casino USA participation, “Notes payable to affiliate”. The consolidated statement of operations for 2003 included a $5.3 million, net of tax, cumulative effect of a change in accounting principle, or $0.18 per diluted share, representing the cumulative amount of depreciation and interest expense, in excess of the rental income as of June 15, 2003.

The consolidated statements of operations also included $1.2 million for 2004 and $0.7 million for 2003 of depreciation and interest expenses in excess of the rental income in the results from continuing operations. The consolidated statement of operations for 2003 included a $2.4 million gain, net of tax, from the sale of the two Florida properties in the results from discontinued operations.

Had consolidation of this variable interest entity been effective for all years presented, the net-of-tax impact to the operating results, excluding the gain on sale of the Florida properties, would have been $0.4 million, or $0.02 per basic and diluted share for 2003 and $1.0 million, or $0.03 per basic and diluted share, for 2002.

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EITF Issue No. 02-16

Beginning in 2003, we adopted the provisions of EITF Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor.” EITF Issue No. 02-16 provides guidance on how a reseller should characterize the cash consideration received from a vendor and when and how the cash consideration should be recorded on its income statements. EITF Issue No. 02-16 requires that the cash consideration received from the vendor be considered as a reduction of cost of sales when recognized in the reseller’s income statement. If the cash consideration received from a vendor is the direct, specific and incremental reimbursement of costs incurred by the reseller to sell the vendor’s products, the cash consideration should be treated as a reduction of such selling costs.

As a result of the implementation of EITF Issue No. 02-16, we record the cooperative advertising allowances not representing reimbursement of direct, specific and incremental advertising costs as a reduction of the cost of merchandise purchased. Under the new rules, these allowances will be realized and recorded as a reduction of cost of sales in future periods as the goods are sold. We previously recorded these allowances as a reduction of operating and administrative expenses when received and earned. The net effect on the pre-tax operating results from adoption of EITF Issue No. 02-16 was immaterial.

6. Debt

Amended Senior Credit Facility

In November 2001, we entered into a $175.0 million three-year senior secured revolving credit facility (“Credit Agreement”) with a syndicate of banks. The Credit Agreement expired on November 30, 2004. Effective November 18, 2004, we entered into a $150.0 million Amended and Restated Senior Credit Facility (“Amended Senior Credit Facility”). The Amended Senior Credit Facility replaces the Credit Agreement. The Amended Senior Credit Facility has a five-year term expiring on November 18, 2009. Interest for the Amended Senior Credit Facility is at the base rate or at the reserve adjusted Eurodollar rate plus, in each case, an applicable margin. Commitment fees are charged on the undrawn amount at rates ranging from 0.15 percent to 0.50 percent. At December 31, 2004, the six-month Eurodollar LIBOR rate was 2.21 percent.

At our option, the Amended Senior Credit Facility can be used to support up to $15.0 million of commercial letters of credit. Principal repayments may be required prior to the final maturity. Additionally, under certain conditions, pay-downs toward the facility are treated as permanent reductions to the amount committed. At January 2, 2005, $25.0 million of revolving loan and $5.6 million of letters of credit were outstanding. At January 2, 2005, we had $119.4 million available under our Amended Senior Credit Facility.

Lease Agreement

As discussed in Note 5 “Accounting Changes,” we consolidated the Lease Agreement into our financial statements and the related $86.7 million long-term portion of notes payable was included in our consolidated balance sheets, under “Notes payable” and “Notes payable to affiliate”.

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Collateral

Borrowings under both the Amended Senior Credit Facility and the Lease Agreement are collateralized by security interests in our receivables, inventory and owned properties. Principal collateral for our obligations under the Lease Agreement includes specific properties and their fixtures and equipment, and additionally a collateral position, subordinate to the Amended Senior Credit Facility, on receivables, inventory and owned properties not serving as principal collateral under the Lease Agreement. The Amended Senior Credit Facility has as principal collateral, our receivables, inventory and owned properties that are not part of the principal collateral of the Lease Agreement, and in addition has a subordinate collateral position on the properties and related assets that are the principal collateral of the Lease Agreement.

Covenants

The Amended Senior Credit Facility and the Lease Agreement contain various customary and restrictive covenants, including restrictions on cash dividends declared or paid and additional debt and capital expenditures, and require us to maintain certain fixed charge coverage ratios and other financial ratios under each agreement. The covenants do not require us to maintain a public debt rating or a certain liquidity level. We are currently in compliance with the amended covenants.

The Amended Senior Credit Facility expires on November 18, 2009 and the Lease Agreement expires on November 30, 2006. Accordingly, our obligations under these agreements have been classified as long-term liabilities in our consolidated balance sheet as of January 2, 2005. Our outstanding obligation of $60.0 million under the Credit Agreement was classified as a current liability in our consolidated balance sheet as of December 28, 2003.

We expect to remain in full compliance with the covenants through the expiration of the respective terms of the facilities.

Interest

Interest paid on our long-term debt, including settlements on option collar agreements discussed in Note 13 “Derivatives”, aggregated $14.4 million for 2004, $15.2 million for 2003 and $12.6 million for 2002. The effective interest rate on our variable-rate debt at January 2, 2005 was 3.67 percent and at December 28, 2003 ranged between 4.16 percent and 4.23 percent.

Principal payments

Aggregate future principal payments of our debt are as follows, dollars in thousands:

Fiscal Year:
2005	$	140
2006		86,529
2009		25,000
Total	$	111,669

The fair value of our debt, estimated based upon current interest rates offered for debt instruments of the same remaining maturity, approximates the carrying amount.

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7. Lease Obligations

As of 2004 yearend, the principal real and personal properties that we leased included store, office and warehouse buildings and delivery and computer equipment. Of our operating stores, 149 store properties were leased directly from third party lessors and nine stores were on real property that is ground leased from third party lessors. These leases had an average remaining lease term of eight years as of 2004 yearend.

Lease expense for operating leases from continuing operations included in the accompanying financial statements was $29.1 million for 2004, $26.1 million for 2003 and $34.5 million for 2002. All lease expenses were paid to third party lessors.

Aggregate minimum future lease payments for real property, as well as equipment and other property at 2004 yearend are as follows, in thousands:

	Operating Leases		Capital Leases
Fiscal Year:
2005	$	34,802	$	1,522
2006		33,534		1,000
2007		31,575		738
2008		29,805		656
2009		28,009		433
Subsequent to 2009		166,012		338
Future minimum lease payments	$	323,737		4,687
Less amount representing interest				836
Present value of future lease payments			$	3,851

Capital lease obligations vary in amount with interest rates ranging from 7.50 percent to 12.00 percent. Interest paid in relation to capital leases aggregated $0.5 million for 2004, $0.7 million for 2003 and $0.7 million for 2002. Assets under capital leases consist of store locations and equipment. Amortization of assets under capital leases is included with amortization on owned assets.

8. Retirement Benefit Plans and Postretirement and Postemployment Benefit Obligations

In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” SFAS No. 132R revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition provision of FASB No. 87, “Employers’ Accounting for Pensions,” SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Plans,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” SFAS No. 132R retains the disclosure requirements contained in SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” and requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. SFAS No. 132R is effective for annual or interim reporting periods ending after December 15, 2003 with certain disclosure requirements effective for fiscal years ending after June 15, 2004.

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Defined benefit plans

We have a funded noncontributory defined benefit retirement plan covering substantially all full time employees following a vesting period of five years of service. The plan provides defined benefits based on years of service and final average salary. We fund this plan with annual contributions as required by the Employee Retirement Income Security Act of 1974 (“ERISA”). We use a measurement date of December 31 for this pension plan. As of January 2, 2005, the funded status of the accumulated benefit obligation was 89.2%. We are not required to make any contributions for the 2005 plan year pursuant to the minimum funding requirement of ERISA; however, we may elect to contribute up to $10.0 million to this plan in 2005.

The following tables set forth the changes in benefit obligation and plan assets of this plan for 2004 and 2003, in thousands:

	2004			2003
Change in Benefit Obligation
Benefit obligation at beginning of year	$	73,663		$	58,983
Service cost		3,077			2,663
Interest cost		4,853			4,273
Plan amendment		—			1,256
Actuarial loss		7,270			8,175
Benefits paid		(2,219	)		(1,687	)
Benefit obligation at end of year		86,644			73,663
Change in Plan Assets
Fair value of plan assets at beginning of year		47,286			30,766
Actual return on plan assets		5,102			7,207
Employer contribution		15,000			11,000
Benefits paid		(2,219	)		(1,687	)
Fair value of plan assets at end of year		65,169			47,286
Funded Status		(21,475	)		(26,377	)
Unrecognized net actuarial loss		30,018			25,488
Unrecognized prior service cost		1,359			1,735
Net amount recognized	$	9,902		$	846

Amounts, in thousands, recognized in the consolidated balance sheets consist of

	January 2, 2005			December 28, 2003
Accrued benefit cost	$	(7,900	)	$	(14,452	)
Intangible assets		1,359			1,735
Accumulated other comprehensive income		16,443			13,563
Net amount recognized	$	9,902		$	846

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The following table shows the projected benefit obligation, the accumulated benefit obligation and the plan assets, in dollar amounts and as a percentage of the projected benefit obligation and the accumulated benefit obligation, respectively, as of each fiscal yearend, dollar amounts in thousands:

	January 2, 2005			December 28, 2003
Projected benefit obligation	$	86,644		$	73,663
Accumulated benefit obligation		73,069			61,738
Fair value of plan assets		65,169			47,286
Fair value of plan assets as a percentage of the projected benefit obligation		75.2	%		64.2	%
Fair value of plan assets as a percentage of the accumulated benefit obligation		89.2	%		76.6	%

The components included in the net periodic benefit cost and the increase in minimum liability included in other comprehensive income for the fiscal years indicated are as follows, in thousands:

	2004			2003			2002
Service cost component	$	3,077		$	2,663		$	2,104
Interest cost component		4,853			4,273			3,730
Expected return on plan assets		(4,581	)		(3,035	)		(2,842	)
Amortization of transition obligation		—			97			98
Amortization of prior service cost		376			376			237
Amortization of net actuarial loss		2,219			2,078			879
Net periodic benefit cost	$	5,944		$	6,452		$	4,206
Increase in minimum liability included in other comprehensive income	$	2,880		$	1,046		$	10,325

The weighted-average assumptions used to determine benefit obligations for this plan at yearend were as follows:

	2004		2003		2002
Discount rate	6.00	%	6.25	%	6.75	%
Rate of compensation increase	4.00	%	4.00	%	4.50	%

We determine the discount rate assumption based on the internal rate of return for a portfolio of high quality bonds, with a minimum rate of Moody’s Aa Corporate and with maturities that are consistent with the projected future cash flow obligations.

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The weighted-average assumptions used to determine net periodic benefit cost for the fiscal years indicated were as follows:

	2004		2003		2002
Discount rate	6.25	%	6.75	%	7.25	%
Expected long-term return on plan assets	9.00	%	9.00	%	9.00	%
Rate of compensation increase	4.00	%	4.50	%	4.50	%

Our assumptions for the expected long-term rate of return on assets in our pension plan to determine the net periodic benefit cost is 9.00 percent for 2004 and 8.50 percent for 2005. We determine the expected long-term rate of return on plan assets based on an allocation approach that considers diversification and rebalancing for a portfolio of assets invested over a long term time horizon. The approach relies on the historical returns of our plan’s portfolio and relationships between equities and fixed income investments, consistent with the widely accepted capital market principle that a diversified portfolio with a larger allocation to equity investments can generate a greater return over the long run.

Plan assets are managed by outside investment managers and rebalanced among managers periodically at our direction to realign assets to our target allocation. The managers allocate assets to individual investments within guidelines specified by us. Our strategy with respect to the plan asset investments has been to allocate a larger proportion to equities to achieve returns that sufficiently grow assets to cover the benefit obligations within acceptable risk parameters. The plan asset allocation at the end of 2004 and 2003, and target allocation for 2005, in percentages, by asset category are as follows:

	Target Allocation 2005		January 2, 2005		December 28, 2003
Equity securities	65	%	55	%	66	%
Debt securities	32		41		21
Cash and cash equivalents	3		4		13
Total	100	%	100	%	100	%

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid, in thousands:

Fiscal Year:
2005	$	1,894
2006		2,140
2007		2,183
2008		2,591
2009		2,760
2010-2014		18,582

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Multi-employer pension plan

We contribute to a multi-employer pension plan administered by a trustee on behalf of our 130 union employees. Contributions to this plan are based upon negotiated labor contracts. Information relating to benefit obligations and fund assets, as they may be allocable to us, at January 2, 2005 is not available. Pension expense for this plan was $0.7 million for 2004 and $0.6 million for each of both 2003 and 2002.

Defined contribution plans

We offer all qualified full time employees participation in a defined contribution plan, which is qualified under the requirements of Section 401(k) of the Internal Revenue Code of 1986, as amended. The Smart & Final 401(k) Savings Plan (the “S&F Savings Plan”) covers all employees of Smart & Final Stores Corporation and related entities, which includes the Cash & Carry division employees. The S&F Savings Plan allowed participants to contribute for 2004 up to 15% of their eligible compensation or $13,000, whichever was lower. We automatically matched 33% of each dollar contributed up to 6% of the participant’s eligible compensation. Contributions made to the S&F Savings Plan were $1.5 million for 2004, $1.4 million for 2003 and $1.3 million for 2002. Additionally, we may at our discretion match up to an additional 75% of each dollar contributed up to 6% of participants’ eligible compensation if we exceed certain financial and profitability goals. We did not provide an additional match in 2004, 2003 or 2002.

Deferred compensation plan

We have in place a nonqualified deferred compensation program, which permits key employees and members of the Board of Directors to annually elect individually to defer up to 100% of their current year compensation until retirement. The retirement benefit to be provided is a function of the amount of compensation deferred. We have invested in corporate-owned life insurance policies which provide partial funding for the plan. The cash surrender value of these policies amounted to $11.6 million at 2004 yearend and $9.4 million at 2003 yearend and is included in “Other assets” in the accompanying consolidated balance sheets.

Supplemental Executive Retirement Plan

We have in place a noncontributory supplemental executive retirement plan (“SERP”), which provides supplemental income payments for certain officers in retirement. We have invested in corporate-owned life insurance policies, which provide partial funding for the SERP. The cash surrender value of these policies amounted to $8.5 million at 2004 yearend and $7.0 million at 2003 yearend and is included in “Other assets” in the accompanying consolidated balance sheets. We use a measurement date of December 31 for the SERP.

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The following tables set forth the changes in benefit obligation and plan assets for 2004 and 2003, in thousands:

	2004			2003
Change in Benefit Obligation
Benefit obligation at beginning of year	$	10,168		$	8,407
Service cost		383			302
Interest cost		629			588
Actuarial loss		1,850			871
Benefits paid		(187	)		—
Benefit obligation at end of year		12,843			10,168
Employer contribution		187			—
Benefits paid		(187	)		—
Fair value at yearend	$	—		$	—
Funded Status		(12,843	)		(10,168	)
Unrecognized net actuarial loss		4,058			2,311
Unrecognized prior service cost		1,298			1,429
Accrued benefit cost	$	(7,487	)	$	(6,428	)

Amounts, in thousands, recognized in the consolidated balance sheets consist of

	January 2, 2005			December 28, 2003
Accrued benefit cost	$	(7,487	)	$	(6,428	)
Additional minimum liability		(3,903	)		(1,287	)
Intangible assets		1,298			1,287
Accumulated other comprehensive income		2,605			—
Net amount recognized	$	(7,487	)	$	(6,428	)

The accumulated benefit obligation for this plan was $11.4 million at 2004 yearend and $7.7 million at 2003 yearend.

The components included in the net periodic benefit cost for each of the fiscal years indicated are as follows, in thousands:

	2004		2003		2002
Service cost component	$	383	$	302	$	700
Interest cost component		629		588		493
Amortization of prior service cost		131		131		131
Amortization of net actuarial loss		103		43		—
Net periodic benefit cost	$	1,246	$	1,064	$	1,324

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The weighted-average assumptions used to determine benefit obligations at yearend were as follows:

	2004		2003		2002
Discount rate	6.00	%	6.10	%	6.75	%
Rate of compensation increase	4.50	%	4.50	%	4.50	%

The weighted-average assumptions used to determine net periodic benefit cost for each of the fiscal years indicated were as follows:

	2004		2003		2002
Discount rate	6.10	%	6.75	%	7.25	%
Rate of compensation increase	4.50	%	4.50	%	4.50	%

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid, in thousands:

Fiscal Year:
2005	$	592
2006		832
2007		833
2008		908
2009		909
2010-2014		5,947

Postretirement and postemployment benefit obligations

We provide certain health care benefits for retired employees. Substantially all of our full time employees may become eligible for those benefits if they reach retirement age while still working for us. This postretirement health care plan is contributory with participants’ contributions adjusted annually. The plan limits benefits to the lesser of actual cost for the medical coverage selected or a defined dollar benefit based on years of service, applicable to current and future retirees. In addition, on a postemployment basis, we provide certain disability-related benefits to our employees. We use a measurement date of December 31 for this health care plan.

In December 2003, the Medical Prescription Drug Improvement and Modernization Act of 2003 (the “Act”) was enacted. The Act established a prescription drug benefit under Medicare, known as “Medicare Part D”, and a federal subsidy to sponsors of retiree health care benefit plan that provide a benefit that is at least actuarially equivalent to Medicare Part D. In January 2004, the FASB issued FSP 106-1, which permitted a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act. FSP 106-1 was effective for interim or annual financial statements of fiscal years ending after December 7, 2003. The election to defer accounting for the Act was a one-time election that must have been made before net periodic postretirement benefit costs for the period that includes the Act’s enactment date were first included in reported financial information pursuant to the requirements of SFAS No. 106. In accordance with FSP 106-1, we elected to defer accounting for the Act. FSP106-2 superseded FSP 106-1 when it became effective for our fourth quarter of 2004. We have not yet determined whether the current benefits provided to

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certain participants are actuarially equivalent to Medicare Part D. Accordingly, the measurement of the accumulated pension benefit obligation and net periodic postretirement benefit cost in our consolidated financial statements and accompanying notes do not reflect the effects of the Act.

The reconciliation of benefit obligation and plan assets for 2004 and 2003 are aggregated as follows:

	2004			2003
Change in Benefit Obligation
Benefit obligation at beginning of year	$	14,963		$	11,873
Service cost		551			438
Interest cost		960			882
Plan participants’ contributions		175			149
Plan amendment		—			216
Actuarial loss		1,408			2,331
Benefits paid		(1,017	)		(926	)
Benefit obligation at end of year		17,040			14,963
Change in Plan Assets
Employer contribution		842			777
Plan participants’ contributions		175			149
Benefits paid		(1,017	)		(926	)
Fair value of plan assets at end of year		—			—
Funded Status		(17,040	)		(14,963	)
Unrecognized net actuarial gain		(250	)		(1,658	)
Unrecognized prior service cost		189			205
Net amount recognized	$	(17,101	)	$	(16,416	)

The components included in the postretirement benefit cost for each of the fiscal years indicated are as follows, in thousands:

	2004		2003			2002
Service cost component	$	551	$	438		$	335
Interest cost component		960		882			787
Amortization of prior service cost		16		11			—
Amortization of net actuarial gain		—		(125	)		(260	)
Net periodic benefit cost	$	1,527	$	1,206		$	862

The accumulated postretirement benefit obligation for this plan was $17.1 million at January 2, 2005 and $16.4 million at December 28, 2003.

The weighted-average discount rate used to determine benefit obligations for this plan was 5.75% for 2004 yearend, 6.25% for 2003 yearend and 6.75% for 2002.

The weighted-average discount rate used to determine net periodic benefit cost was 6.25% for 2004, 6.75% for 2003 and 7.25% for 2002.

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For measurement purposes, we used the following assumptions in regard to health care cost trend at 2004 yearend and 2003 yearend:

	2004		2003
Health care cost trend rate assumed for next year	10.00	%	10.00	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)	6.00	%	6.00	%
Year that the rate reaches the ultimate trend rate	2009		2008

The annual rate of health care cost of covered claims is assumed to decrease by one percent per year until an ultimate trend rate of six percent is reached in 2009 and to remain at that level thereafter.

We offer a defined dollar benefit plan providing a maximum fixed dollar amount of coverage that does not increase with medical inflation. A one-percentage-point change in assumed health care cost trend rates above would have the following effects, in thousands:

	1-Percentage- Point Increase		1-Percentage- Point Decrease
Effect on total of service and interest cost components of net periodic expense	$	2	$	(3	)
Effect on accumulated postretirement benefit obligation		36		(46	)

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid, in thousands:

Fiscal Year:
2005	$	855
2006		894
2007		927
2008		981
2009		1,035
2010-2014		6,196

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9. Income Taxes

The effective tax rate from continuing operations was 38.0% for 2004, 41.8% for 2003 and 39.5% for 2002. Reconciliation between the federal statutory income tax rate of 35.0% and the effective tax rate from continuing operations for each year is as follows, in thousands:

	2004			2003			2002
Income tax at federal statutory rate	$	17,240		$	7,729		$	12,077
State income taxes, net of federal tax benefit		2,373			1,032			1,835
Tax credits		(254	)		(324	)		(586	)
Change in valuation allowance		(461	)		—			—
Other items, net		(180	)		792			289
Income taxes	$	18,718		$	9,229		$	13,615

The total tax credits available were $1.2 million at 2004 yearend and $0.8 million at 2003 yearend. These tax credits include federal tax incentive programs designed to encourage employers hiring from targeted groups, Alternative Minimum Tax credits and various other smaller tax credits.

Provision for income taxes for the years indicated consists of the following, in thousands:

	2004			2003			2002
Current
Federal	$	17,521		$	13,681		$	10,181
State		2,489			1,738			1,109
		20,010			15,419			11,290
Deferred
Federal		(1,133	)		(5,485	)		1,903
State		(159	)		(705	)		422
		(1,292	)		(6,190	)		2,325
Income taxes	$	18,718		$	9,229		$	13,615

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A deferred tax liability or asset is recognized for the tax consequences of temporary differences in the timing of the recognition of revenues and expenses for financial and tax reporting purposes. The components of the net deferred income tax asset, in thousands, consist of the following:

	January 2, 2005			December 28, 2003
Employee benefits including postretirement and postemployment reserves	$	25,324		$	22,506
Net operating loss carryforwards		8,657			9,118
Operating reserves and accruals		6,067			12,484
Property, plant and equipment depreciation differences		509			(301	)
Other		(2,017	)		(1,906	)
Subtotal		38,540			41,901
Valuation allowance		(8,657	)		(9,118	)
Net deferred tax asset	$	29,883		$	32,783

The deferred tax asset is reflected in our consolidated balance sheet at 2004 yearend as a current asset of $11.6 million and a long-term asset of $18.2 million. The valuation allowance of $8.7 million at January 2, 2005 relates to the capital loss and state net operating loss carryforwards for which we have concluded it is more likely than not that these carryforwards will not be fully utilized in the ordinary course of business.

At January 2, 2005, we had approximately $32.8 million of net operating loss carryforwards for state income tax purposes which begin to expire in 2012. The utilization of these net operating loss carryforwards may be limited in a given year.

In addition, we have not recorded U.S. income tax expense for the undistributed earnings of our Mexico operations. Our policy is to leave the income permanently reinvested offshore. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets and our expectations of the future cash needs of our U.S. and foreign entities. Income tax considerations are also a factor in determining the amount of foreign earnings to be repatriated. As discussed in Note 2 “New Accounting Pronouncements” under SFAS No. 109-2, we are currently evaluating the effect of the Job Creation Act and its impact on our current policy regarding repatriating or reinvestment our equity earnings from SFDN.

Smart & Final Inc. and Casino USA are parties to a tax sharing arrangement covering income tax obligations in the state of California. Under this arrangement, we have made tax sharing payments to, or received benefits from, Casino USA, based upon pre-tax income for financial reporting purposes adjusted for certain agreed upon items.

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Taxes paid, in thousands, for each of the fiscal years indicated are as follows:

	2004		2003			2002
Tax sharing payments made to (received from) Casino USA	$	2,772	$	(922	)	$	348
Taxes paid for states other than California		18		101			112
Taxes paid to federal government		5,700		650			1,570
Total tax paid (sharing received)	$	8,490	$	(171	)	$	2,030

10. Related Party Transactions

Services and transactions with Casino USA

We perform various services for Casino USA, primarily in administrative functions including accounting, human resources and systems development work. The costs of these services were charged to Casino USA. These charges were $0.3 million for each of 2004, 2003 and 2002. We expect to continue to provide these administrative services to Casino USA at the estimated costs. These administrative and service charges result from an undertaking to provide the respective service in the most cost-effective manner, taking advantage of each entity’s internal administrative structure. We believe that the allocation method is reasonable.

We have a five-year operating lease agreement with a national banking association as discussed in Note 5 “Accounting Changes”. Banks and financing institutions as well as Casino USA are participants in this transaction. Casino USA’s share of participation of $33.1 million at January 2, 2005 and $33.2 million at December 28, 2003 was presented as “Notes payable to affiliate” on our consolidated balance sheets. The interest expense related to those notes was $3.0 million for 2004, $1.8 million for 2003 and $1.4 million for 2002. The interest expense for the first two quarters of 2003, aggregating $0.7 million, and the interest expense for 2002 were reflected as rental expense in cost of sales before we adopted FIN No. 46 as of June 15, 2003. The interest expense for 2004 and the second half of 2003 were reported under “Interest expense, net” on our consolidated statement of operations. Interest expense related to intercompany advances from Casino USA was insignificant.

SFDN rental charges

We received $0.1 million for each of 2004, 2003 and 2002 in rental payments from SFDN for a store location under a ground lease from an unrelated third party.

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11. Employment/Consulting Agreements

We had agreements in effect during 2004 including employment agreements with our Chairman of the Board and Chief Executive Officer.

These agreements contain provisions for base salary and bonuses, and expire between 2005 and 2007. Annual payments under these agreements were approximately $3.0 million in 2004 and $2.6 million in 2003 and will total approximately $0.9 million in fiscal 2005. These agreements contain provisions in the event of a change in control whereby the employees are entitled to lump sum cash payments and bonuses and certain other benefits.

We have severance agreements with certain former employees. These severance agreements provide for cash payments and continuation of certain benefits, which may include health insurance and stock options. Annual cash payments, excluding those reserves for employee severance and related obligations discussed in Note 3 “Discontinued Operations,” under these agreements were approximately $1.0 million in 2004 and $0.4 million in 2003, and will total approximately $0.5 million in 2005.

12. Stock-Based Compensation

In 1997 we adopted and thereafter amended, a Long-Term Equity Compensation Plan (“Equity Compensation Plan”) expiring December 31, 2010, under which 5,100,000 shares of common stock are available for award as stock options, stock appreciation rights, restricted stock awards, and performance units or performance shares. Beginning in 2002, the number of shares available under the Equity Compensation Plan increases each year by the number of awards exercised.

Stock options

We also had a Stock Incentive Plan that allowed options to be granted. This plan expired in June 2001 and no future grants can be made under this plan. The compensation committee of the Board of Directors establishes option prices under both the Equity Compensation Plan and the Stock Incentive Plan at no less than 85% of the fair market value of the common stock at the time the option is granted. Options for officers and directors granted at the time of our initial public offering were granted at 85% of fair market value. Options for directors elected subsequent to the initial public offering and options for officers and management have been granted at fair market value at the time of grant. Options under these plans generally vest over a four-year period. Certain options granted in 1999 vest over a five-year period for management and a three-year period for directors. All options may be exercised for up to ten years from the date of grant. We anticipate making additional stock-based compensation awards in the future.

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A summary of changes in the shares under option follows:

	Shares		Weighted Average Price
Shares under option at 2001 yearend:	3,012,322		$	10.27
2002:
Options granted(a)	412,000			8.76
Options exercised	(1,392	)		8.22
Options canceled	(164,941	)		11.42
Shares under option at 2002 yearend	3,257,989			10.03
Shares exercisable at 2002 yearend	1,444,325			11.04
2003:
Options granted(a)	1,358,450			5.11
Options exercised	(7,650	)		5.25
Options canceled	(139,199	)		9.88
Shares under option at 2003 yearend	4,469,590			8.55
Shares exercisable at 2003 yearend	2,124,686			10.27
2004
Options granted(a)	616,650			13.04
Options exercised	(762,577	)		8.92
Options canceled	(49,441	)		6.35
Shares under option at 2004 yearend	4,274,222			9.15
Shares exercisable at 2004 yearend	1,995,743		$	10.27

^(a) All options were granted with exercise prices at fair market value at time of grant.

Stock options outstanding at January 2, 2005 are as follows:

Range of Exercise Prices	Number Outstanding as of 01/02/05	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
$ 3.4600  - $  3.5600	49,900	8.38	$	3.4879
$ 4.2800	580,000	8.13		4.2800
$ 4.4000  - $  6.3750	243,067	7.82		5.0594
$ 6.5000	491,600	8.70		6.5000
$ 6.8750  - $  8.8750	349,850	5.56		7.3895
$ 9.2500	523,842	4.33		9.2500
$ 9.3750  - $  9.8130	277,033	6.67		9.7965
$10.1320	657,933	6.73		10.1320
$10.1880 - $12.1250	173,017	3.74		10.9629
$12.8900 - $22.8750	927,980	7.23		14.3683
$ 3.4600  - $22.8750	4,274,222	6.82	$	9.1532

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Stock options exercisable as of January 2, 2005 are as follows:

Range of Exercise Prices	Number Exercisable	Weighted Average Exercise Price
$  3.4600 - $  3.5600	200	$	3.5600
$  4.2800	42,500		4.2800
$  4.4000 - $  6.3750	54,404		5.8651
$  6.5000	25,000		6.5000
$  6.8750 - $  8.8750	326,986		7.3119
$  9.2500	523,842		9.2500
$  9.3750 - $  9.8130	125,406		9.7946
$10.1320	426,813		10.1320
$10.1880 - $12.1250	157,962		11.0059
$12.8900 - $22.8750	312,630		16.9808
$  3.4600 - $22.8750	1,995,743	$	10.2722

Shares of common stock available for future award under the Equity Compensation Plan were 612,358 at 2004 yearend, 715,986 at 2003 yearend and 1,953,942 at 2002 yearend.

Exchange Program

In the fourth quarter of 2000, the Board of Directors approved a program for the voluntary exchange (the “Exchange Program”) of certain outstanding options with an exercise price of $14.00 or higher per share for shares of common stock issued as restricted stock under the terms of the Equity Compensation Plan. The related compensation expense recognized over the vesting period was an immaterial amount in 2004 and $0.5 million for each of 2003 and 2002.

Restricted stock

Other than the shares issued pursuant to the Exchange Program, we did not grant any shares of restricted stock during 2002. We granted 266,500 shares of restricted stock, with the weighted average grant date fair value of $4.28 per share and a total grant value of $1.1 million, under the Equity Compensation Plan during 2003. During 2004, we granted 60,000 shares of restricted stock, which remained unvested at January 2, 2005 with the weighted average grant date fair value of $12.89 per share and total grant value of $0.8 million.

Compensation expense as a result of restricted stock grants is computed based on the market price on the grant date and recognized on a straight-line basis over the vesting periods, except for certain grants that are subject to acceleration if certain performance targets are met. Vesting periods under the Equity Compensation Plan range from one to five years or until specified performance objectives are satisfied.

The 2003 grants attained the performance objective within the same year and accordingly, we recorded $1.0 million of compensation expense related to the accelerated vesting of the 2003 grants. Compensation expense associated with the restricted stock grants, including the 2003 accelerated vesting, other than the issuance associated with the Exchange Program, was $0.2 million for 2004, $1.2 million for 2003 and $0.1 million for 2002.

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13. Derivatives

We had in place an option rate collar agreement with a major bank to limit the impact of interest rate fluctuations on floating rate debt at the beginning of 2004. This agreement hedged principal amounts of an aggregate of $45 million. In June 2004, this agreement was modified to hedge principal amounts of an aggregate of $30 million and the agreement terminated in November 2004. This agreement limited the effect of LIBOR fluctuations to interest rate ranges from 5.48 percent to 8.00 percent. This option collar agreement was designed as a cash flow hedge and was considered fully effective. This agreement was marked to market every quarter, with the changes in fair value recorded under ‘Other accrued liabilities’ and ‘Other comprehensive income’ (“OCI”) on our consolidated balance sheet at December 28, 2003. Any ineffective portion and settlement for the discontinuance of hedges due to early partial termination were recorded to current earnings and included under “Interest expense, net” on our consolidated statements of operations.

The cumulative loss recorded to OCI as a result of net changes in the fair market value of this option collar agreement was $1.7 million at the beginning of 2004. The ineffective portion reclassified to current earnings aggregated $1.5 million for 2004, $3.0 million for 2003 and $3.2 million for 2002. The settlement paid for the discontinuance of hedges due to early partial termination and recorded to current earnings was $0.3 million for 2004. Additionally in 2003 we paid a $1.1 million settlement for discontinuance of hedges due to early partial termination which was included in “Litigation and other charges” in our consolidated statement of operations.

14. Segment Reporting

Our two reportable segments are Stores and Foodservice. The Stores segment provides food and related items in bulk sizes and quantities through non-membership grocery warehouse stores. The Foodservice distribution segment provided delivery of food, restaurant equipment and supplies to mainly restaurant customers. As described in Note 3 “Discontinued Operations”, we have completed the sale and divestiture of our broadline foodservice operations in Florida and northern California of the Foodservice segment and our Florida stores businesses of the Stores segment and have reported the operating results from these two units as discontinued operations. Corporate is comprised primarily of corporate expenses incidental to the activities of the reportable segments, the variable interest entity and rental income from Smart & Final stores and Smart & Final Mexico. Inter-company real estate charge or income is recorded based on the actual rent payments to the third party for leased properties and the estimated costs or fair values of similar properties for owned properties. Assets included under Corporate consist primarily of owned real estate, leasehold improvements and assets of the variable interest entity. Our 50 percent-owned joint venture in Mexico is reported on the equity basis of accounting. These reportable segments are strategic business units that offer different products and services. They have been managed separately because each segment requires different technology and marketing strategies. We evaluate performance based on profit or loss from operations before income taxes, not including nonrecurring gains and losses.

The accounting policies of the segments are consistent, except as described below, with those described in the summary of significant accounting policies included in our 2002 Annual

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Report. Beginning in fiscal 2003, the policy for intercompany real estate charges has changed to reflect only the depreciation and lease expense associated with the store location, and as a result, the segment data for 2002 was reclassified as if the current policy had been in effect during 2002. As a result, the Stores segment’s pre-tax income increased by $7.5 million, the Foodservice segment’s pre-tax loss decreased by $0.7 million and Corporate’s pre-tax loss increased by $8.2 million for 2002.

The sales, profit or loss and other information from our continuing operations, the loss, net of tax, from discontinued operations and total assets of each segment are as follows, in thousands:

2004:

	Stores		Foodservice			Corporate Expense			Total
Sales to external customers	$	1,955,579	$	—		$	—		$	1,955,579
Cost of sales, buying and occupancy		1,622,609		—			(6,119	)		1,616,490
Intercompany real estate charge (income)		13,115		—			(13,115	)		—
Interest income		—		—			664			664
Interest expense		—		—			13,842			13,842
Depreciation and amortization		26,943		—			3,724			30,667
Pre-tax income (loss)		66,362		—			(17,106	)		49,256
Income tax provision		—		—			18,718			18,718
Equity earnings of joint venture		—		—			993			993
Discontinued operations, net of tax		273		(2,431	)		821			(1,337	)
As of January 2, 2005:
Total assets		461,411		2,129			123,891			587,431

2003:

	Stores			Foodservice			Corporate Expense			Total
Sales to external customers	$	1,730,114		$	—		$	—		$	1,730,114
Cost of sales, buying and occupancy		1,437,065			—			(3,959	)		1,433,106
Intercompany real estate charge (income)		13,315			—			(13,315	)		—
Litigation and other charges		—			—			13,834			13,834
Interest income		—			—			630			630
Interest expense		—			—			16,138			16,138
Depreciation and amortization		27,844			—			4,610			32,454
Pre-tax income (loss)		58,025			—			(35,943	)		22,082
Income tax provision		—			—			(9,229	)		(9,229	)
Equity earnings of joint venture		—			—			744			744
Discontinued operations, net of tax		(24,886	)		(80,431	)		36,782			(68,535	)
As of December 28, 2003:
Total assets		429,166			4,681			163,385			597,232

78

2002:

	Stores			Foodservice			Corporate Expense			Total
Sales to external customers	$	1,572,320		$	—		$	—		$	1,572,320
Cost of sales, buying and occupancy		1,323,693			—			—			1,323,693
Intercompany real estate charge (income)		13,609			—			(13,609	)		—
Interest income		—			—			520			520
Interest expense		—			—			12,760			12,760
Depreciation and amortization		26,929			—			2,838			29,767
Pre-tax income (loss)		52,616			—			(18,111	)		34,505
Income tax provision		—			—			(13,615	)		(13,615	)
Equity earnings of joint venture		—			—			884			884
Discontinued operations, net of tax		(10,448	)		(12,612	)		8,135			(14,925	)
As of December 29, 2002:
Total assets		420,750			136,117			64,779			621,646

15. Legal Actions

In May 2001, we were named as a defendant in a suit filed in the Orange County Superior Court of the State of California. This suit, Olivas vs. Smart & Final Inc., was filed by the plaintiff and another former hourly store employee, on their behalf and on behalf of all hourly store employees in California, alleging that we failed to pay proper overtime and other compensation. The action seeks to be classified as a “class action” and seeks unspecified monetary damages. On August 9, 2001, we filed a general denial to these claims and asserted numerous defenses. A hearing on plaintiff’s motion for class certification was heard and certification as to nine sub-classes was granted on January 22, 2004. We continue to believe the merits of this action do not warrant class action status and we believe we have certain defenses to the claim. Discovery is now underway in the case. In February 2005, the court ordered the parties to commence mediation by May 1, 2005. No trial date has been set by the court.

We were also named as a defendant in suits filed on September 13, 2001 (Camacho vs. Smart & Final Inc.) and April 7, 2003 (Perea vs. Smart & Final Inc.) regarding compensation matters of our store associates. In February 2004, a settlement agreement for the resolution of the Camacho and Perea actions was approved by the court. Under the terms of the settlement, we paid cash into the settlement fund and agreed to issue scrip redeemable at our Smart & Final stores. In the third quarter of 2004, distributions were made to satisfy the claims of the members of the actions and the plaintiff’s attorney fees, costs and administrative expenses of the settlement.

In the second quarter of 2003, we recorded a litigation charge associated with our assessment of the ultimate resolution of the above-named actions. This charge was adjusted in the fourth quarter of 2003 to reflect our updated assessment of the ultimate resolution of the above-named actions. We have not recorded any further charges in 2004 associated with these actions. Litigation matters are subject to inherent uncertainties; accordingly, we cannot provide assurance regarding the ultimate resolutions of the Olivas action or provide a range of additional possible loss. See Note 4 “Litigation and Other Charges” for further discussion.

79

We are named as a defendant in a number of other lawsuits or are otherwise a party to certain litigation arising in the ordinary course from our operations. We do not believe that the ultimate determination of these other cases will either individually or in the aggregate have a material adverse effect on our results of operations or financial position.

80

SMART & FINAL INC.

SUMMARY OF QUARTERLY RESULTS OF OPERATIONS

(dollars in thousands, except per share amounts)

	Fiscal Year 2004 (A)
	First Quarter 12 Weeks (C)			Second Quarter 12 Weeks			Third Quarter 16 Weeks			Fourth Quarter 13 Weeks(D)			Total 53 Weeks
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Sales	$	423,473		$	457,794		$	603,161		$	471,151		$	1,955,579
Cost of sales, buying and occupancy		350,498			380,603			494,466			390,923			1,616,490
Gross margin		72,975			77,191			108,695			80,228			339,089
Operating and administrative expenses		58,110			60,352			85,470			72,723			276,655
Income from operations		14,865			16,839			23,225			7,505			62,434
Interest expense, net		3,689			3,722			3,448			2,319			13,178
Income from continuing operations before income tax provision		11,176			13,117			19,777			5,186			49,256
Income tax provision		(4,474	)		(5,247	)		(7,908	)		(1,089	)		(18,718	)
Equity (loss) earnings in joint venture		(106	)		460			131			508			993
Income from continuing operations		6,596			8,330			12,000			4,605			31,531
Discontinued operations, net of tax		(399	)		(221	)		(302	)		(415	)		(1,337	)
Net income	$	6,197		$	8,109		$	11,698		$	4,190		$	30,194
Earnings per common share:
Earnings per common share from continuing operations	$	0.22		$	0.28		$	0.40		$	0.15		$	1.04
Loss per common share from discontinued operations		(0.01	)		(0.01	)		(0.01	)		(0.01	)		(0.04	)
Earnings per common share	$	0.21		$	0.27		$	0.39		$	0.14		$	1.00
Weighted average common shares		29,870,909			30,051,810			30,248,982			30,605,517			30,206,190
Earnings per common share, assuming dilution:
Earnings per common share, assuming dilution, from continuing operations	$	0.21		$	0.26		$	0.37		$	0.14		$	0.99
Loss per common share, assuming dilution, from discontinued operations		(0.01	)		(0.01	)		(0.01	)		(0.01	)		(0.04	)
Earnings per common share, assuming dilution	$	0.20		$	0.26		$	0.36		$	0.13		$	0.95
Weighted average common shares and common share equivalents (B)		31,259,320			31,557,253			32,183,765			32,332,075			31,868,983

(A) Fiscal year 2004 consists of twelve-week periods in the first and second, one sixteen-week period in the third quarter and one thirteen-week period in the fourth quarter.

(B) The weighted average common shares and common share equivalents include the common stock equivalents related to stock options and restricted stocks not fully vested.

(C) Results of 2004 first quarter reflect the impact from the strike and lockout between the United Foods and Commercial Workers Union and three major grocery chains in Southern California which was settled at the end of February 2004.

(D) Results of 2004 fourth quarter included $2.5 million pre-tax impairment charge associated with capitalized software costs.

81

SMART & FINAL INC.

SUMMARY OF QUARTERLY RESULTS OF OPERATIONS

(dollars in thousands, except per share amounts)

	Fiscal Year 2003 (A)
	First Quarter 12 Weeks			Second Quarter 12 Weeks			Third Quarter 16 Weeks			Fourth Quarter 12 Weeks(C)			Total 52 Weeks
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Sales	$	354,637		$	392,664		$	538,392		$	444,421		$	1,730,114
Cost of sales, buying and occupancy		296,963			325,880			442,892			367,371			1,433,106
Gross margin		57,674			66,784			95,500			77,050			297,008
Operating and administrative expenses		50,399			55,847			77,042			62,296			245,584
Litigation and other charges		—			18,400			(400	)		(4,166	)		13,834
Income (loss) from operations		7,275			(7,463	)		18,858			18,920			37,590
Interest expense, net		2,754			2,694			5,976			4,084			15,508
Income (loss) from continuing operations before income tax provision		4,521			(10,157	)		12,882			14,836			22,082
Income tax provision		(1,797	)		3,480			(4,858	)		(6,054	)		(9,229	)
Equity earnings of joint venture		11			64			297			372			744
Income (loss) from continuing operations		2,735			(6,613	)		8,321			9,154			13,597
Discontinued operations, net of tax		(2,572	)		(57,318	)		(7,405	)		(1,240	)		(68,535	)
Income (loss) before cumulative effect of accounting change		163			(63,931	)		916			7,914			(54,938	)
Cumulative effect of accounting change (variable interest entity, net of tax of $3,534)		—			(5,301	)		—			—			(5,301	)
Net income (loss)	$	163		$	(69,232	)	$	916		$	7,914		$	(60,239	)
Earnings (loss) per common share:
Earnings (loss) per common share from continuing operations	$	0.09		$	(0.22	)	$	0.28		$	0.31		$	0.46
Loss per common share from discontinued operations		(0.09	)		(1.92	)		(0.25	)		(0.04	)		(2.30	)
Cumulative effect of accounting change per common share		—			(0.18	)		—			—			(0.18	)
Earnings (loss) per common share	$	0.01		$	(2.31	)	$	0.03		$	0.27		$	(2.02	)
Weighted average common shares		29,728,233			29,909,973			29,740,307			29,743,423			29,777,393
Earnings (loss) per common share, assuming dilution:
Earnings (loss) per common share, assuming dilution, from continuing operations	$	0.09		$	(0.22	)	$	0.28		$	0.30		$	0.46
Loss per common share, assuming dilution, from discontinued operations		(0.09	)		(1.92	)		(0.25	)		(0.04	)		(2.30	)
Cumulative effect of accounting change per common share, assuming dilution		—			(0.18	)		—			—			(0.18	)
Earnings (loss) per common share, assuming dilution	$	0.01		$	(2.31	)	$	0.03		$	0.26		$	(2.02	)
Weighted average common shares and common share equivalents (B)		29,734,260			29,909,973			29,924,408			30,460,140			29,777,393

(A) Fiscal year 2003 consists of twelve-week periods in the first, second and fourth quarters, and one sixteen-week period in the third quarter. Certain amounts have been reclassified to conform to the 2003 current-year presentation. Amounts may not aggregate due to rounding.

(B) The weighted average common shares and common share equivalents include the common stock equivalents related to stock options.

(C) Results of 2003 fourth quarter reflect the impact from the strike and lockout between the United Foods and Commercial Workers Union and three major grocery chains in Southern California which commenced early in the quarter and a $4.2 million pre-tax adjustment to reserves for litigation and other charges.

82

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

Item 9A. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) that is required to be included in our periodic Securities and Exchange Commission reports. There was no change in our internal control over financial reporting that occurred during the fourth fiscal quarter ended January 2, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we included a report of management’s assessment of the design and effectiveness of our internal controls as part of this Annual Report on Form 10-K for the fiscal year ended January 2, 2005. Our independent registered public accounting firm also audited, and reported on, management’s assessment of the effectiveness of internal control over financial reporting. Management’s report and the independent registered public accounting firm’s report are included in our 2004 Financial Statements under Item 8 “Financial Statements and Supplementary Information” with the captions entitled “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting” and are incorporated herein by reference.

Item 9B. OTHER INFORMATION

None

83

PART III

The information required by Part III of Form 10-K (items 10 through 14) is incorporated herein by reference to the definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A for our Annual Meeting of Stockholders to be held May 20, 2005. Such Proxy Statement involves the election of directors and we intend to file not later than 120 days after our last fiscal yearend. If the Proxy Statement is not filed with the SEC within such 120-day period, the items comprising the Part III information will be filed as an amendment to this Form 10-K not later than the end of the 120-day period.

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

	Page
(a)(1) Financial Statements:
Management’s Report on Internal Control over Financial Reporting	36
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting	37
Report of Independent Registered Public Accounting Firm	39
Consolidated Balance Sheets	40
Consolidated Statements of Operations	41
Consolidated Statements of Stockholders’ Equity	42
Consolidated Statements of Cash Flows	43
Notes to Consolidated Financial Statements	44
Supplementary Data - Summary of Quarterly Results of Operations	81
(a)(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts	91

All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

84

(a)(3) EXHIBITS

Exhibit Number	Description of Exhibit
3.1	Amended and Restated Certificate of Incorporation of Smart & Final Inc., incorporated by reference to Appendix A from our Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 14, 2004.
3.2	Amended and Restated Bylaws of Smart & Final Inc., incorporated by reference to Appendix B from our Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 14, 2004.
10.1	Tax Termination Agreement, dated as of August 6, 1991, by and between the Company and Casino USA, as amended (including as an exhibit thereto the Tax Sharing Agreement, dated as of November 5, 1984, by and between the Company and Casino USA, as amended), incorporated by reference to Exhibit Number 10.22 from our Annual Report on Form 10-K for the fiscal year ended January 2, 1994, filed with the SEC on April 4, 1994. (SEC File No. 001-10811)
10.2	Intercompany Agreement, dated August 6, 1991, by and among Casino USA, Casino Realty, Inc. and the Company, incorporated by reference to Exhibit Number 10.24 from our Annual Report on Form 10-K for the fiscal year ended December 29, 1991, filed with the SEC on March 24, 1992. (SEC File No. 001-10811)
10.4**	Smart & Final Inc. Supplemental Deferred Compensation Plan, as amended and restated through May 16, 2000, incorporated by reference from our Annual Report on Form 10-K for the fiscal year ended December 29, 2002, filed with the SEC on March 14, 2003.
10.5**	Smart & Final Inc. Directors Deferred Compensation Plan, as amended and restated through March 31, 1999, incorporated by reference from our Annual Report on Form 10-K for the fiscal year ended December 29, 2002, filed with the SEC on March 14, 2003.
10.7	Smart & Final Inc. Trust for Deferred Compensation Plans, incorporated by reference to Exhibit Number 10.68 from our Annual Report on Form 10-K for the fiscal year ended December 29, 1996, filed with the SEC on March 25, 1997. (SEC File No. 001-10811)
10.8**	Supplemental Executive Retirement Plan Master Plan Document, incorporated by reference to Exhibit Number 10.86 from our Annual Report on Form 10-K for the fiscal year ended January 4, 1998, filed with the SEC on April 1, 1998; as amended by the First Amendment to the Supplemental Executive Retirement Plan Master Plan Document, incorporated by reference to Exhibit Number 10.86 from our Quarterly Report on Form 10-Q for the quarter ended March 28, 1999, filed with the SEC on May 3, 1999. (SEC File No. 001-10811)

85

10.9**	Smart & Final Inc. Long-Term Equity Compensation Plan (amended and restated), incorporated by reference to Exhibit A from our Definitive Proxy Statement on Schedule 14A, filed with the SEC on June 13, 2002.
10.11**	Employment Agreement, dated May 11, 1999, between the Company and Ross E. Roeder, incorporated by reference to Exhibit Number 10.119 from our Quarterly Report on Form 10-Q for the quarter ended June 20, 1999, filed with the SEC on August 3, 1999; as amended by reference to Exhibit Number 10.53 from our Quarterly Report on Form 10-Q for the quarter ended June 17, 2001, filed with the SEC on July 26, 2001.
10.12	Smart & Final Non-Employee Director Stock Plan (amended and restated), incorporated by reference to Exhibit B from our Definitive Proxy Statement on Schedule 14A, filed with the SEC on June 13, 2002.
10.13**	First Amendment to Deferred Compensation Agreements, dated as of October 23, 2000, incorporated by reference to Exhibit Number 10.128 from our Quarterly Report on Form 10-Q for the quarter ended October 8, 2000, filed with the SEC on November 11, 2000.
10.15	Participation Agreement, dated as of November 30, 2001, by and among the Company, as Lessee, and various parties, as Guarantors, Holders and Lenders, and Wells Fargo Bank Northwest, National Association, as Owner Trustee, and Fleet Capital Corporation, as Administrative Agent and Arranger, and Natexis Banques Populaires, as Documentation Agent, incorporated by reference to Exhibit Number 10.18 from our Annual Report on Form 10-K for the fiscal year ended December 30, 2001, filed with the SEC on March 15, 2002.
10.16	Credit Agreement, dated as of November 30, 2001, among Wells Fargo Bank Northwest, National Association, as the Owner Trustee, various parties, as the Lenders, and Fleet Capital Corporation, as the Agent, incorporated by reference to Exhibit Number 10.19 from our Annual Report on Form 10-K for the fiscal year ended December 30, 2001, filed with the SEC on March 15, 2002.
10.17	Lease Agreement, dated as of November 30, 2001, between Wells Fargo Bank, Northwest, National Association, as Owner Trustee and Lessor, and the Company, as Lessee, incorporated by reference to Exhibit Number 10.20 from our Annual Report on Form 10-K for the fiscal year ended December 30, 2001, filed with the SEC on March 15, 2002.
10.20	Waiver and Amendment Agreement No. 1, dated June 4, 2002, among the Company, as Lessee, Wells Fargo Bank Northwest, National Association, as Owner Trustee and Lessor, and various parties, as Lenders and as Guarantors, incorporated by reference to Exhibit Number 99.1 from our Current Report on Form 8-K, dated June 4, 2002 and filed with the SEC on June 10, 2002.

86

10.24	Waiver and Amendment Agreement No. 2, dated February 14, 2003, among the Company, as Lessee, Wells Fargo Bank Northwest, National Association, as Owner Trustee and Lessor, and various parties, as Lenders and as Guarantors, incorporated by reference from our Annual Report on Form 10-K for the fiscal year ended December 29, 2002, filed with the SEC on March 14, 2003.
10.26	Supply Agreement made and entered into as of the 16th day of May, 2003 by and between Unified Western Grocers, Inc. and Smart & Final Oregon, Inc. (portions of this exhibit have been omitted pursuant to a request for confidential treatment being filed with the SEC), incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended June 15, 2003, filed with the SEC on July 25, 2003.
10.27	Amendment Agreement No. 3 effective as of June 1, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc., incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended June 15, 2003, filed with the SEC on July 25, 2003.
10.30	Waiver and Amendment Agreement No. 4 dated and effective as of July 11, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc., incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 5, 2003, filed with the SEC on November 18, 2003.
10.32	Share Purchase Agreement dated as of August 6, 2003 by and between Smart & Final Inc. and American Foodservice Distributors and GFS Holding, Inc. and related exhibits, incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 5, 2003, filed with the SEC on November 18, 2003.
10.33	Asset Purchase Agreement dated as of August 6, 2003 by and among Smart & Final Inc, Smart & Final Stores Corporation, American Foodservice Distributors and GFS Holding, Inc. and GFS Orlando, LLC, and GFS Stores, LLC and related exhibits, incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 5, 2003, filed with the SEC on November 18, 2003.
10.34	Asset Purchase Agreement dated as of August 18, 2003 by and among Port Stockton Food Distributors, Inc. and American Foodservice Distributors and Smart & Final Inc. and SYSCO corporation and related exhibits, incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 5, 2003, filed with the SEC on November 18, 2003.
10.35	Consent, Waiver, Collateral Release and Amendment Agreement No. 5A dated as of September 3, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc., incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 5, 2003, filed with the SEC on November 18, 2003.

87

10.37	First Supplement to Consent, Waiver, Collateral release and Amendment Agreement No. 5A dated as of September 5, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc., incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 5, 2003, filed with the SEC on November 18, 2003.
10.38	Asset Purchase Agreement dated as of September 11, 2003 by and between Port Stockton Food Distributors, Inc., Smart & Final Stores Corporation and Pacific Fresh Sea Food Company incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 5, 2003, filed with the SEC on November 18, 2003.
10.39	Sixth Amendment and Waiver to Lease Agreement dated as of September 12, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc., incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 5, 2003, filed with the SEC on November 18, 2003.
10.41	Consent, Waiver and Amendment Agreement No. 5B dated as of September 26, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc., incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 5, 2003, filed with the SEC on November 18, 2003.
10.44	Amendment Agreement No. 7 dated as of October 21, 2003 between Wells Fargo Bank Northwest, national Association and Smart & Final Inc., incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 5, 2003, filed with the SEC on November 18, 2003.
10.45**	Amended and Restated Employment Agreement between Smart & Final Inc. and Etienne Snollaerts dated as of May 17, 2004, incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended June 13, 2004, filed with the SEC on July 20, 2004.
10.46**	2004 Executive Severance Plan, Smart & Final Inc., effective January 1, 2004, incorporated by reference from our Annual Report on Form 10-K for the fiscal year ended December 28, 2003, filed with the SEC on March 10, 2004.
10.48**	Second Amendment dated February 25, 2004 to Employment Agreement, dated January 1, 1999 and its first amendment dated May 11, 2001, between Smart & Final Inc. and Ross E. Roeder, incorporated by reference from our Annual Report on Form 10-K for the fiscal year ended December 28, 2003, filed with the SEC on March 10, 2004.
10.49	First Amendment to Smart & Final Non-Employee Director Stock Plan (amended & restated), incorporated by referenced from our Quarterly Report on Form 10-Q for the quarter ended March 21, 2004, filed with the SEC on April 28, 2004.
10.50	Consent and dated as of March 8, 2004 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc., incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 3, 2004, filed with the SEC on November 10, 2004.
10.51	Eighth Amendment, Waiver and Collateral Release dated as of April 8, 2004 by and among BNP Paribas and Smart & Final Inc., incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended October 3, 2004, filed with the SEC on November 10, 2004.

88

10.52*	Amended and Restated Credit Agreement dated as of November 18, 2004, among the Company as Borrower, and various parties, as Lenders, BNP Paribas, as Administrative Agent and Lead Arranger, Union Bank of California, National Association, as Syndication Agent, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, as Documentation Agent.
10.53*	Reaffirmation Agreement dated as of November 18, 2004 among the Company and its affiliates as Grantors, Wells Fargo Bank Northwest, National Association, as Owner Trustee and BNP Paribas as Administrative Agent.
10.54*	Trademark Security Agreement dated as of November 18, 2004, among the Company and its affiliates as Grantors and BNP Paribas, as Administrative Agent.
21*	Subsidiaries of the registrant.
23.1*	Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP.
31.1*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer
31.2*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer
32.1*	Section 1350 Certification of Chief Executive Officer
32.2*	Section 1350 Certification of Chief Financial Officer

* Filed herewith

** Management contracts and compensatory plans, contracts and arrangements of the Company.

89

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on March 11, 2005.

Smart & Final Inc.
By:	/s/ Richard N. Phegley
	Richard N. Phegley
	Senior Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons, on behalf of the Registrant and in the capacities indicated on March 11, 2005.

/s/ Etienne Snollaerts	Director, President and Chief Executive Officer
Etienne Snollaerts
/s/ Richard N. Phegley	Senior Vice President and Chief Financial Officer (Principal Financial Officer)
Richard N. Phegley
/s/ Richard A. Link	Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)
Richard A. Link
/s/ Ross E. Roeder	Chairman of the Board
Ross E. Roeder
/s/ Pierre Bouchut	Director
Pierre Bouchut
	Director
Christian Couvreux
/s/ Timm F. Crull	Director
Timm F. Crull
/s/ James S. Gold	Director
James S. Gold
/s/ Jean-Brice Hernu	Director
Jean-Brice Hernu
	Director
David J. McLaughlin
/s/ Joël-André Ornstein	Director
Joël-André Ornstein
/s/ Thomas G. Plaskett	Director
Thomas G. Plaskett
/s/ Stephen E. Watson	Director
Stephen E. Watson

90

SMART & FINAL INC.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

For the Fiscal Years Ended January 2, 2005, December 28, 2003 and December 29, 2002

(in thousands)

	Balance at Beginning of Period		Additions and Adjustments			Deductions		Balance at End of Period
Fiscal year 2004:
Allowance for doubtful accounts	$	307	$	(17	)	$	36	$	254
Inventory realizable value allowance	$	1,564	$	982		$	1,298	$	1,248
Fiscal year 2003:
Allowance for doubtful accounts	$	305	$	68		$	66	$	307
Inventory realizable value allowance	$	1,394	$	785		$	615	$	1,564
Fiscal year 2002:
Allowance for doubtful accounts	$	520	$	216		$	431	$	305
Inventory realizable value allowance	$	1,762	$	430		$	798	$	1,394

91

EX-10.52

Exhibit 10.52

Execution Copy

$150,000,000

AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of November 18, 2004

Among

SMART & FINAL INC.,

as Borrower

THE FINANCIAL INSTITUTIONS NAMED HEREIN,

as Initial Lenders

BNP PARIBAS,

as Administrative Agent,

UNION BANK OF CALIFORNIA, N.A.,

as Syndication Agent

NATEXIS BANQUES POPULAIRES and COOPERATIVE CENTRALE RAIFFEISEN-

BOERENLEENBANK B.A., “RABOBANK NEDERLAND”, NEW YORK BRANCH,

as Documentation Agents

and

BNP PARIBAS SECURITIES CORPORATION,

as Lead Arranger and Book Manager

TABLE OF CONTENTS

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS		2
Section 1.01	Certain Defined Terms	2
Section 1.02	Computation of Time Periods	21
Section 1.03	Accounting Terms	22
Section 1.04	Other Definitional Provisions	22
Section 1.05	Exhibits and Schedules	22
Section 1.06	Ownership of Synthetic Lease Properties	22
Section 1.07	Interrelationship with the Restated Credit Agreement.	22
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES		23
Section 2.01	The Advances	23
Section 2.02	Making the Advances	24
Section 2.03	Repayment	27
Section 2.04	Reduction of the Revolving Commitments and Swing Line Commitments	27
Section 2.05	Prepayments	28
Section 2.06	Interest	30
Section 2.07	Fees	33
Section 2.08	Increased Costs, Etc.	34
Section 2.09	Payments and Computations	35
Section 2.10	Taxes	37
Section 2.11	Sharing of Payments, Etc.	41
Section 2.12	Use of Proceeds	42
Section 2.13	Evidence of Debt	42
Section 2.14	Conversion of Advances	42
ARTICLE III AMOUNTS AND TERMS OF LETTERS OF CREDIT		43
Section 3.01	The Letter of Credit Subfacility	43
Section 3.02	Issuance of Letters of Credit	43
Section 3.03	Drawing and Reimbursement	44
Section 3.04	Obligations Absolute	45
Section 3.05	Letter of Credit Compensation	46
Section 3.06	Use of Letters of Credit	46
ARTICLE IV CONDITIONS OF LENDING		46
Section 4.01	Conditions Precedent to Initial Borrowing	46
Section 4.02	Conditions Precedent to Each Borrowing and Issuance	51
Section 4.03	Determinations Under Section 4.01	51
ARTICLE V REPRESENTATIONS AND WARRANTIES		51
Section 5.01	Representations and Warranties of the Borrower	52
ARTICLE VI COVENANTS OF THE BORROWER		62
Section 6.01	Affirmative Covenants	62
Section 6.02	Negative Covenants	67
Section 6.03	Reporting Requirements	74
Section 6.04	Financial Covenants	78
ARTICLE VII EVENTS OF DEFAULT		79

Section 7.01	Events of Default	79
Section 7.02	Actions in Respect of the Letters of Credit Upon Default	81
ARTICLE VIII THE CREDIT AGENTS		82
Section 8.01	Authorization and Action	82
Section 8.02	Administrative Agent’s Reliance, Etc.	83
Section 8.03	Credit Agents and Affiliates	83
Section 8.04	Lender Party Credit Decision	83
Section 8.05	Indemnification	84
Section 8.06	Successor Administrative Agent	84
Section 8.07	Syndication Agent and Documentation Agent	85
Section 8.08	Secured Hedge Agreements.	85
ARTICLE IX MISCELLANEOUS		85
Section 9.01	Amendments, Etc.; Release of Collateral; Termination	85
Section 9.02	Notices, Etc.	87
Section 9.03	No Waiver; Remedies	87
Section 9.04	Costs and Expenses	88
Section 9.05	Right of Set-off	89
Section 9.06	Binding Effect	90
Section 9.07	Assignments and Participations	90
Section 9.08	Governing Law	93
Section 9.09	Execution in Counterparts	93
Section 9.10	No Liability of the L/C Bank	93
Section 9.11	Confidentiality	94
Section 9.12	Waiver of Jury Trial	94
Section 9.13	Marshalling; Payments Set Aside	94
Section 9.14	Agreement to Enter Into New Intercreditor Agreement	94
Section 9.15	Survival of Agreement	95
Section 9.16	Severability	95
Section 9.17	USA Patriot Act Notice	95
Section 9.19	Existing Agreement Superseded	95

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SCHEDULES AND EXHIBITS

Schedules
Schedule I	Commitments, Etc.
Schedule 4.01(h)(v)	Jurisdictions
Schedule 5.01(b)	Capital Stock of Loan Parties
Schedule 5.01(d)	Approvals and Consents
Schedule 5.01(h)	Litigation
Schedule 5.01(j)	Pension Plans
Schedule 5.01(l)(ii)	Superfund Site
Schedule 5.01(n)	Open Years
Schedule 5.01(q)(i)	Existing Debt
Schedule 5.01(r)(i)	Owned Real Property
Schedule 5.01(r)(ii)	Leased Real Property
Schedule 5.01(s)	Existing Investments
Schedule 5.01(t)	Intellectual Property
Schedule 5.01(u)	Certain Agreements, Etc.
Schedule 5.01(y)	Insurance
Schedule 6.02(a)	Existing Liens
Exhibits
Exhibit A	Form of Assignment and Acceptance
Exhibit B-1	Form of Notice of Borrowing
Exhibit B-2	Form of Notice of Swing Line Borrowing
Exhibit C	Form of Notice of Issuance
Exhibit D-1	Form of Revolving Note
Exhibit D-2	Form of Swing Line Note
Exhibit E-1	Form of Security Agreement
Exhibit E-2	Form of Pledge Agreement
Exhibit E-3	Form of Subordinate Security Agreement
Exhibit E-4	Form of Reaffirmation Agreement
Exhibit F	Form of Deed of Trust
Exhibit G	Form of Guaranty
Exhibit H	Form of Intercompany Note
Exhibit I	Form of Solvency Certificate
Exhibit J-1	Form of Opinion of Borrower’s Special California Counsel
Exhibit J-2	Form of Opinion of Borrower’s In-House Counsel
Exhibit K	Reserved
Exhibit L	Form of Amendment to Guaranty
Exhibit M-1	Form of Amendment to Security Agreement
Exhibit M-2	Form of Amendment to Pledge Agreement
Exhibit N-1	Form of Second Deed of Trust on Fee Interest in Synthetic Lease Properties
Exhibit N-2	Form of Second Deed of Trust on Leasehold Interest in Synthetic Lease Properties
Exhibit O	Form of Landlord’s Waiver and Consent Agreement
Exhibit P	Form of Environmental Indemnity Agreement
Exhibit Q-1	Form of Intercreditor Agreement (Owned Property)
Exhibit Q-2	Form of Intercreditor Agreement (Leased Property)

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AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November 18, 2004 among SMART & FINAL INC., a Delaware corporation (the “Borrower”), the financial institutions and other entities listed on the signature pages hereof as Lenders (the “Initial Lenders”), BNP PARIBAS, as Administrative Agent (in such capacity, together with any successor in such capacity appointed pursuant to Article VIII, the “Administrative Agent”), UNION BANK OF CALIFORNIA, N.A., as Syndication Agent, NATEXIS BANQUES POPULAIRES and COOPERATIVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., “RABOBANK NEDERLAND”, NEW YORK BRANCH, as Documentation Agents, and BNP PARIBAS SECURITIES CORPORATION, as Lead Arranger and Bookmanager (in such capacity, the “Lead Arranger”), and BNP PARIBAS, as L/C Bank (as hereinafter defined).

PRELIMINARY STATEMENTS

(1) The Borrower entered into that certain $175,000,000 Credit Agreement dated as of November 30, 2001 (as amended to date, the “Existing Credit Agreement”), among the Borrower, the financial institutions and other entities from time to time parties thereto, BNP Paribas, as administrative agent, Harris Trust & Savings Bank, as syndication agent, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as documentation agent.

(2) The Borrower has requested that the Required Lenders under the Existing Credit Agreement amend the Existing Credit Agreement to permit a new revolving credit facility thereunder in an aggregate principal amount of $150,000,000, the initial proceeds of which shall be used to repay the outstanding Advances (as defined in the Existing Credit Agreement), and the Required Lenders under the Existing Credit Agreement have agreed to amend the Existing Credit Agreement to that effect.

(3) The Borrower has also requested that the Lenders who provide the new revolving credit facilities under the Existing Credit Agreement amend and restate the Existing Credit Agreement, and the Lenders have agreed to amend and restate the Existing Credit Agreement and provide such facilities subject to the terms and conditions set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

Section 1.01 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“Accounts Receivable” means all “accounts” as defined in the Uniform Commercial Code in effect from time to time in the State of California.

“Additional Costs” means any amount payable by Borrower to any Lender Party pursuant to Section 2.08 hereof.

“Additional Trust Deeds” has the meaning set forth in Section 6.01(1).

“Adjusted Leverage Ratio” means, as of any date of determination, the ratio of (i) the sum of (A) Consolidated Total Debt as of the end of the most recently ended fiscal quarter of the Borrower plus (B) the product of (1) rent expense for the Borrower and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Borrower multiplied by (2) 8 to (ii) the sum of (A) EBITDA for the Borrower and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Borrower plus, (B) rent expense for the Borrower and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Borrower.

“Administrative Agent’s Account” means the account of the Administrative Agent as the Administrative Agent shall specify in writing to the Lender Parties.

“Advance”“ means a Revolving Advance, a Swing Line Advance or an L/C Advance.

“Affiliate” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For purposes of this definition, the term “control” (including the terms “controlling”, “controlled by” and “under common control with”) of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Interests of such Person or direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise.

“Agreement” means this Amended and Restated Credit Agreement, including the Schedules and Exhibits hereto, as it may be amended, restated, extended, supplemented or otherwise modified from time to time.

“Applicable Lending Office” means, with respect to each Lender, such Lender’s Domestic Lending Office in the case of a Base Rate Advance and such Lender’s Eurodollar Lending Office in the case of a Eurodollar Rate Advance.

“Applicable Margin” means, for any fiscal quarter for each Interest Type of Advance set forth below, the applicable rate per annum set forth in the table below opposite the Senior Leverage Ratio determined as of the last day of the immediately preceding fiscal quarter and beneath such Interest Type of Advance:

Tier	Senior Leverage Ratio	Applicable Margin for Eurodollar Rate Advances		Applicable Margin for Base Rate Advances
I	³2.50	2.250	%	1.250	%
II	³2.00 but <2.50	1.750	%	0.750	%
III	³1.50 but <2.00	1.500	%	0.500	%
IV	³1.25 but <1.50	1.250	%	0.250	%
V	³1.00 but <1.25	1.000	%	0.000	%
VI	³0.75 but <1.00	0.750	%	0.000	%
VII	< 0.75	0.625	%	0.000	%

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provided, however, that, notwithstanding the foregoing, the Senior Leverage Ratio shall be deemed to be greater than or equal to 2.50 to 1.0 at all times when a Default has occurred and is continuing based on the Borrower’s failure to deliver any financial statement or compliance certificate as and when required pursuant to Sections 6.03(c) or 6.03(d), as applicable. For purposes of this Agreement, any changes in the Applicable Margin based on a change in the Senior Leverage Ratio shall be effective three Business Days after the date of receipt by the Administrative Agent of the financial statements and compliance certificate required by Sections 6.03(c) and 6.03(d), as applicable, reflecting such change.

“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender Party and an Eligible Assignee, and accepted by the Borrower (if required hereunder) and the Administrative Agent, in accordance with Section 9.07 and in substantially the form of Exhibit A hereto.

“Available Amount” of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter of Credit at such time (assuming compliance at such time with all conditions to drawing).

“Bank Hedge Agreement” means a Hedge Agreement between the Borrower and a Hedge Bank (or Hedge Banks) or a Secured Hedge Bank (or Secured Hedge Banks).

“Base Rate” means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest established by BNP Paribas as its “base rate,” with each change in such rate to be effective for purposes of this Agreement and the transactions contemplated hereby without necessity of any action on the part of any Person, on the day on which such change is effective, it being understood that such rate does not and shall not necessarily reflect the best or lowest rate of interest available to BNP Paribas’ best or preferred commercial customers and (b) 1/2 of one percent per annum above the Federal Funds Rate.

“Base Rate Advance” means an Advance that bears interest as provided in Section 2.06(a).

“Borrower” has the meaning set forth in the recital of parties to this Agreement.

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“Borrower’s Account” means the account of the Borrower which the Borrower designates to the Administrative Agent in writing from time to time.

“Borrowing” means a Revolving Borrowing or a Swing Line Borrowing.

“Business Day” means a day of the year on which banks are not required or authorized by law to close in Los Angeles, California or New York, New York and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market.

“Capital Expenditures” means, for any period, the sum of (a) all expenditures during such period for equipment, fixed assets, real property or improvements, or for replacements or substitutions therefor or additions thereto, that have a useful life of more than one year plus (b) the aggregate principal amount of all Debt (including obligations under Capitalized Leases) assumed or incurred in connection with any such expenditures.

“Capitalized Leases” means leases that have been or should be, in accordance with GAAP, recorded as capital leases.

“Cash Equivalents” means any of the following, to the extent owned by the Borrower free and clear of all Liens and having a maturity of not greater than 180 days from the date of acquisition thereof: (a) readily marketable direct obligations of the Government of the United States or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the Government of the United States, (b) insured certificates of deposit of or time deposits with any commercial bank that (i) is a Lender or a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c), (iii) is organized under the laws of the United States or any State thereof and (iv) has combined capital and surplus of at least $1 billion or (c) commercial paper (other than commercial paper issued by or on behalf of the Borrower or any of its Affiliates) in an aggregate amount of no more than $500,000 per issuer outstanding at any time, issued by any corporation organized under the laws of any State of the United States and rated at least “Prime-1” (or the then equivalent grade) by Moody’s Investors Services or “A-1” (or the then equivalent grade) by Standard & Poor’s Ratings Group.

“Casino” means Casino USA, Inc. and its Affiliates.

“Casino Tax Sharing Documents” means the Tax Allocation Agreement by and between Smart & Final Iris Corporation and Casino, dated November 5, 1984, and the Tax Termination Agreement by and between the Borrower and Casino, dated August 6, 1991, both as amended January 3, 1993.

“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended or supplemented from time to time, and the regulations promulgated pursuant thereto.

“Closing Date” means the date on which each of the conditions in Section 4.01 is satisfied or waived.

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“Collateral” means all “Collateral” referred to in the Collateral Documents and all other property that is subject to any Lien in favor of the Administrative Agent, the Lenders or any L/C Bank.

“Collateral Documents” means the Security Agreement, the Pledge Agreement, the Subordinate Security Agreement, the Trust Deeds and any Additional Trust Deeds, and all exhibits and schedules to (and any documents executed in connection with) the foregoing, and any other agreement that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties.

“Commitment” means a Revolving Commitment or a Swing Line Commitment.

“Commitment Fee Percentage” means, for any fiscal quarter, a fee on the undrawn amount of the Facility equal to the applicable rate per annum set forth in the table below opposite the Senior Leverage Ratio determined as of the last day of the immediately preceding fiscal quarter, payable quarterly in arrears (and on the Commitment Termination Date) following the Closing Date:

Tier	Senior Leverage Ratio	Commitment Fee Percentage
I	³2.50	0.500	%
II	³2.00 but <2.50	0.375	%
III	³1.50 but <2.00	0.300	%
IV	³1.25 but <1.50	0.250	%
V	³1.00 but <1.25	0.250	%
VI	³0.75 but <1.00	0.200	%
VII	< 0.75	0.150	%

“Commitment Termination Date” means November 18, 2009, on which date the Facilities shall terminate and all amounts outstanding thereunder shall be due and payable, subject to early termination and acceleration upon the occurrence of an Event of Default.

“Confidential Information” means information that the Borrower furnishes to the Administrative Agent or any Lender in a writing designated as confidential but does not include any such information that is or becomes generally available to the public or that is or becomes available to the Administrative Agent or such Lender from a source other than the Borrower that is not, to the best of the Administrative Agent’s or such Lender’s knowledge, acting in violation of a confidentiality agreement with the Borrower.

“Consolidated” refers to the consolidation of accounts in accordance with GAAP.

“Consolidated Interest Expense” means, for any period, total interest expense (including the interest component of Capitalized Leases) of the Borrower and its Subsidiaries on a Consolidated basis for such period in conformity with GAAP, including, without limitation, all

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commissions, discounts and other fees and charges owed with respect to any financings or letters of credit, but excluding charges in such period for the amortization or write-off of capitalized (i) amounts payable pursuant to Section 2.07, (ii) other non-cash charges for amortization or write-off of debt issuance expenses incurred prior to the date hereof, and (iii) other expenses relating to the negotiation and preparation of this Agreement.

“Consolidated Net Income” means, for any period, the net earnings (or loss) after taxes of the Borrower and its Subsidiaries on a Consolidated basis determined for such period in conformity with GAAP.

“Consolidated Net Worth” means the excess of (i) the total assets of the Borrower and its Subsidiaries determined on a Consolidated basis in accordance with GAAP, over (ii) all liabilities of the Borrower and its Subsidiaries determined on a Consolidated basis in accordance with GAAP.

“Consolidated Total Debt” means, as of any time of determination, determined for the Borrower and its Subsidiaries on a consolidated basis, (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) non-contingent obligations to pay the deferred purchase price of property or services other than trade payables incurred in the ordinary course of business, (iv) Capitalized Leases and indebtedness under the Synthetic Lease Documents, (v) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities and (vi) all indebtedness of others referred to in clauses (i) through (v) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (w) to pay or purchase such indebtedness or to advance or supply funds for the payment or purchase of such indebtedness, (x) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such indebtedness or to assure the holder of such indebtedness against loss, (y) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (z) otherwise to assure a creditor against loss.

“Conversion,” “Convert” and “Converted” each refer to a conversion of Advances of one Interest Type into Advances of the other Interest Type pursuant to Section 2.06.

“Credit Agents” means, collectively, the Administrative Agent, the Syndication Agent, the Documentation Agents, and BNP Paribas in its capacity as Collateral Agent (as defined in each of the Collateral Documents) for each of the Secured Parties under the Collateral Documents.

“Debt” of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 60 days incurred in the ordinary course of such Person’s business), (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such

6

agreement in the event of default are limited to repossession or sale of such property), (e) all Capitalized Leases and all indebtedness under the Synthetic Lease Documents, (f) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock of or other ownership or profit interest in such Person or any other Person or any warrants, rights or options to acquire such capital stock, valued, in the case of Redeemable Preferred Stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Obligations of such Person in respect of Hedge Agreements, (i) all Debt of others referred to in clauses (a) through (h) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (j) all Debt referred to in clauses (a) through (h) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt.

“Default” means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both.

“Default Rate” has the meaning specified in Section 2.06(d).

“Disclosed Litigation” has the meaning specified in Section 5.01(h).

“Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.

“Domestic Subsidiary” means a direct or indirect Subsidiary of the Borrower that is not a Foreign Subsidiary.

“EBITDA” means, for any period, net income (or net loss) excluding all non-cash extraordinary items of gain or loss, plus, to the extent deducted in determining such net income (or net loss), the sum of (a) interest expense, (b) income tax expense, (c) depreciation expense, (d) amortization expense and (e) all other non-cash charges (including impairment charges with respect to assets and goodwill, but excluding any non-cash charge that results in an accrual of a reserve for cash charges in any future period).

“Eligible Assignee” means (a) any commercial bank, savings and loan association, savings bank, finance company, insurance company, mutual fund or other financial

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institution, fund or investor which has been approved in writing (or, in the case of the Borrower, deemed approved as provided below) by the Borrower and the Administrative Agent as an Eligible Assignee for purposes of this Agreement, provided that in each such case such approval shall not be unreasonably withheld, provided, further, that if the Borrower is requested at any time to approve any Person as an Eligible Assignee hereunder and the Administrative Agent has not received written notice from the Borrower, within ten Business Days of such request, that the Borrower does not approve such Person as an Eligible Assignee, the Borrower shall be deemed to have approved such Person as an Eligible Assignee, and provided, further, that approval of the Borrower shall not be required if an Event of Default has occurred and is continuing, and (b) any Lender Party and any Affiliate of any Lender Party, provided that, in the case of Affiliates of such Lender Party, written notice to the Administrative Agent shall have been provided.

“Employee Benefit Plan” means any “employee benefit plan” as defined in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to by, or required to be contributed to by, the Borrower or any of its Subsidiaries.

“Environmental Action” means any administrative, regulatory or judicial action, suit, demand, demand letter, directive, claim, lien, notice, investigation, proceeding, order or consent agreement relating in any way to any Environmental Law or any Environmental Permit including (a) any claim by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any Environmental Law and (b) any claim by any Person seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials, claiming non-compliance or violation of any Environmental Law, or arising from alleged injury or threat of injury to health, safety or the environment.

“Environmental Indemnity Agreement” means an environmental indemnity agreement in the form of Exhibit P duly executed by Borrower on the Original Closing Date.

“Environmental Law” means any federal, state or local law, rule, regulation, order, writ, judgment, injunction, decree, determination, ordinance, code, guideline, policy and any and all common law requirements, rules and bases of liability relating to the environment, health, safety or Hazardous Materials, now or hereafter in effect and any judicial or administrative interpretation thereof, including, without limitation, CERCLA, the Resource Conservation and Recovery Act, the Hazardous Materials Transportation Act, the Clean Water Act, the Toxic Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Occupational Safety and Health Act, the Oil Pollution Act, the Emergency Planning and the Community Right-to-Know Act, and any state and local or foreign counterparts or equivalents, in each case as amended from time to time.

“Environmental Permit” means any permit, approval, identification number, license or other authorization required under any Environmental Law.

“Equity Interests” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership

8

or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

“ERISA Affiliate” means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Sections 414(m) or 414(o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of the Borrower or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of the Borrower or any such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of the Borrower or such Subsidiary and with respect to liabilities arising after such period for which the Borrower or such Subsidiary could be liable under the Internal Revenue Code or ERISA.

“ERISA Event” means (i) a “reportable event” within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan or the termination of any such Pension Plan resulting in liability to Borrower, any of its Subsidiaries or any of their respective Affiliates pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which constitutes grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan resulting in liability therefor to Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates (regardless of when

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notice of such liability is received), or the receipt by the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which is reasonably likely to give rise to the imposition on the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the receipt by the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates of notice of the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates with respect to any Employee Benefit Plan; or (x) the receipt by the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates of notice of the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan.

“Escondido Property” means the property located in the City of Escondido, California and subject to a ground lease as identified on Schedule 5.01(r)(i).

“Eurocurrency Liabilities” has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Eurodollar Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Eurodollar Lending Office” opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.

“Eurodollar Rate” means, for any such Eurodollar Rate Advances for any such Interest Period therefor, an interest rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the rate per annum obtained by dividing (i) the rate per annum appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in U.S. dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period (provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates) by (ii) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. If for any reason the rate described in the foregoing clause (a) is not available at the time of determination of the Eurodollar Rate for any Eurodollar Rate Advances for any Interest Period, the term “Eurodollar Rate” shall mean, for any Eurodollar Rate Advance for any Interest Period therefor, an interest rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the rate per annum obtained by dividing (a) the rate per annum appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period.

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“Eurodollar Rate Advance” means an Advance that bears interest as provided in Section 2.06(c).

“Eurodollar Rate Reserve Percentage” means, for any Interest Period for any Eurodollar Rate Advance, the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period.

“Events of Default” has the meaning specified in Section 7.01.

“Excluded Taxes” has the meaning specified in Section 2.10(c).

“Existing Credit Agreement” has the meaning specified in the Recitals hereof.

“Existing Debt” has the meaning specified in Section 5.01(q)(i).

“Existing Debt Agreement” means any agreement or instrument setting forth the terms and conditions of any Existing Debt.

“Existing Liens” has the meaning specified in Section 5.01(q)(ii).

“Extraordinary Receipt” means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including tax refunds, pension plan reversions, proceeds of insurance (including any key man life insurance but excluding proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustment received in connection with any purchase agreement; provided that an Extraordinary Receipt shall not include cash receipts received from proceeds of insurance, condemnation awards (or payments in lieu thereof) or indemnity payments to the extent that such proceeds, awards or payments (A) in respect of loss or damage to equipment, fixed assets or real property are applied (or in respect of which expenditures were previously incurred) to replace or repair the equipment, fixed assets or real property in respect of which such proceeds were received in accordance with the terms of the Loan Documents, so long as such application is made within one year after the occurrence of such damage or loss or (B) are received by any Person in respect of any third party claim against such Person and applied to pay (or to reimburse such Person for its prior payment of) such claim and the costs and expenses of such Person with respect thereto.

“Facility” means the Revolving Facility or the Swing Line Facility.

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal

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funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“Fiscal Year” means the fiscal year of the Borrower and its Subsidiaries, which ends on the Sunday closest to December 31. In 52-week years, the first, second and fourth quarters are 12-week periods and the third quarter is a 16-week period. In 53-week years, the first and second quarters are 12-week periods, the third quarter is a 16-week period and the fourth quarter is a 13-week period.

“Fixed Charge Coverage Ratio” means, as of any date of determination, determined for the period of four consecutive fiscal quarters ending as of the last day of each fiscal quarter of the Borrower, the ratio of (a) the sum of (i) Consolidated EBITDA of the Borrower and its Subsidiaries and (ii) rent expense for the Borrower and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Borrower to (b) the sum of (i) Consolidated Interest Expense of the Borrower and its Subsidiaries, (ii) rent expense for the Borrower and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Borrower and (iii) dividends paid by the Borrower and its Subsidiaries that are permitted under Section 6.02(f).

“Foreign Subsidiary” means any “controlled foreign corporation” within the meaning of Section 957(a) of the Internal Revenue Code as to which the Borrower or any of its Subsidiaries is a “United States shareholder” as defined in Section 951(b) of the Internal Revenue Code.

“GAAP” has the meaning specified in Section 1.03.

“Guarantors” means each present and future direct or indirect Subsidiary of the Borrower that is a party to the Guaranty.

“Guaranty” means a guaranty in substantially the form of Exhibit G, duly executed by each of the Borrower’s direct and indirect Subsidiaries (other than any Foreign Subsidiary) on the Original Closing Date, as amended from time to time in accordance with its terms, and including any amendment to such Guaranty required to be delivered under Section 6.01(k).

“Hazardous Materials” means (a) petroleum or petroleum products, natural or synthetic gas, radioactive materials, asbestos in any form, urea formaldehyde foam insulation, polychlorinated biphenyls, lead or lead-based paint, and radon gas, (b) any substances defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “medical waste,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,” “contaminants” or “pollutants,” or words of similar import, under any Environmental Law and (c) any other substance the release of or exposure to which is injurious to human health or the environment or governed or regulated under any Environmental Law.

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“Hedge Agreements” means interest rate swap, cap or collar agreements, interest rate future or option contracts and other similar agreements.

“Hedge Bank” means any Lender Party or an Affiliate of a Lender Party in its capacity as a party to a Bank Hedge Agreement.

“Indemnified Party” has the meaning specified in Section 9.04(b).

“Indemnified Taxes” has the meaning specified in Section 2.10(a).

“Initial Lenders” has the meaning specified in the recital of parties to this Agreement.

“Insufficiency” means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.

“Intercompany Notes” means the Intercompany Notes in substantially the form of Exhibit H from each Guarantor in favor of the Borrower, executed on the Original Closing Date, accompanied by an endorsement by the Borrower in favor of the Administrative Agent.

“Intercreditor Agreements” means the Intercreditor Agreements in the form of Exhibit Q-1 and Q-2, duly executed by each party thereto on the Original Closing Date, as amended from time to time in accordance with their respective terms.

“Interest Period” has the meaning specified in Section 2.06(b).

“Interest Type” refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

“Inventory” means all Inventory referred to in Section 2(a)(i) of the Security Agreement.

“Investment” in any Person means any loan or advance to such Person, any purchase or other acquisition of any capital stock, warrants, rights, options, obligations or other securities of such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any arrangement pursuant to which the investor incurs Debt of the types referred to in clauses (i) and (j) of the definition of “Debt” in respect of such Person. For the avoidance of doubt, Investments shall not include Capital Expenditures.

“Issue” means, with respect to any Letter of Credit, either issue such Letter of Credit, extend the expiry of such Letter of Credit (other than any such extension occurring pursuant to the terms of such Letter of Credit), renew such Letter of Credit (other than any such renewal occurring pursuant to the terms of such Letter of Credit), or increase the amount of such Letter of Credit, and the terms “Issued,” “Issuing,” and “Issuance” shall have corresponding meanings.

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“Landlord’s Lien Rights” means any “landlord’s lien” rights or other rights, claims or demands of any of the lessors of the real property described in Section 5.01(r)(ii) with respect to the Collateral whether created by statute, contract or otherwise.

“L/C Advance” means a payment made by an L/C Bank under a Letter of Credit.

“L/C Bank” means BNP Paribas in its capacity as an issuer of a Letter of Credit or any assignee acting in such capacity.

“L/C Cash Collateral Account” has the meaning specified in Section 7.02.

“L/C Related Documents” has the meaning specified in Section 3.04(a).

“L/C Sublimit” means Fifteen Million Dollars ($15,000,000) as such amount may be reduced pursuant to Section 2.04.

“Lead Arranger” has the meaning set forth in the recital of parties to this Agreement

“Lender Party” means any Lender or any L/C Bank.

“Lenders” means the Initial Lenders and each Eligible Assignee that shall become a party hereto pursuant to Section 9.07.

“Letter of Credit” means any letter of credit issued hereunder.

“Letter of Credit Agreement” has the meaning specified in Section 3.02(a).

“Letter of Credit Obligations” means, as of any date of determination with respect to any Letter of Credit, the sum of (a) the then outstanding Available Amount of such Letter of Credit, and (b) the aggregate amount of the Unreimbursed Letter of Credit Liability thereunder.

“Letter of Credit Subfacility” has the meaning specified in Section 3.01.

“Lien” means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property.

“Loan Documents” means this Agreement, the Notes, the Guaranty, the Collateral Documents, the Reaffirmation Agreement, each Letter of Credit Agreement, each Secured Hedge Agreement, the Intercompany Notes and any other instrument or agreement executed by the Borrower and the Administrative Agent that states that it is a Loan Document.

“Loan Parties” means the Borrower and the Guarantors.

“Margin Stock” has the meaning specified in Regulation U.

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“Material Adverse Change” means any material adverse change in the performance, prospects, business, assets, nature of assets, condition (financial or otherwise) or properties of the Borrower, or of the Borrower and its Subsidiaries taken as a whole.

“Material Adverse Effect” means a material adverse effect on (a) the performance, prospects, business, assets, nature of assets, condition (financial or otherwise) or properties of the Borrower, or the Borrower and its Subsidiaries taken as a whole, (b) the rights and remedies of the Administrative Agent or any Lender Party under any Loan Document or (c) the ability of any Loan Party to perform its Obligations under any Loan Document to which it is or is to be a party.

“Maximum Expenditure Amount” has the meaning specified in Section 6.04(e).

“Multiemployer Plan” means any Employee Benefit Plan which is a “multiemployer plan” as defined in Section 3(37) of ERISA.

“Net Cash Proceeds” means, with respect to any sale, lease, transfer or other disposition of any asset or the sale or issuance of any Debt or capital stock, any securities convertible into or exchangeable for capital stock or any warrants, rights or options to acquire capital stock by any Person, the aggregate amount of cash received from time to time by or on behalf of such Person in connection with such transaction after deducting therefrom only (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder’s fees and other similar fees and commissions and (b) the amount of taxes payable in connection with or as a direct result of such transaction in the taxable year of such transaction or in the immediately succeeding taxable year, the computation of which shall take into account the reduction in tax liability resulting from any available operating losses and net operating loss carryovers, tax credits and tax credit carryforwards, and similar tax attributes, and (c) the amount of any Debt secured by a Lien on such asset that, by the terms of such transaction, is required to be repaid upon such disposition, in each case with respect to the foregoing clauses (a) and (c) to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate and are properly attributable to such transaction or to the asset that is the subject thereof.

“Note” means a Revolving Note or a Swing Line Note.

“Notice of Borrowing” means either (a) a notice in substantially the form of Exhibit B-1, or (b) telephonic notice (confirmed immediately in writing) of the information required by Exhibit B-1.

“Notice of Issuance” means a notice in substantially the form of Exhibit C.

“Notice of Swing Line Borrowing” means either (a) a notice substantially in the form of Exhibit B-2, or (b) telephonic notice (confirmed immediately in writing) of the information required by Exhibit B-2.

“Obligation” means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, post-petition interest

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in any proceeding under the United States Bankruptcy Code or other applicable bankruptcy laws and including any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 7.01(f). Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Loan Documents include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, attorneys’ fees and disbursements, indemnities and other amounts payable by any Loan Party under any Loan Document and (b) the obligation to reimburse any amount in respect of any of the foregoing that any Lender Party, in its sole discretion, may elect to pay or advance on behalf of such Loan Party.

“Offering Memorandum” means the offering memorandum dated October, 2004 used by the Lead Arranger in connection with the syndication of the Commitments.

“Open Year” has the meaning specified in Section 5.01(n)(ii).

“Original Closing Date” means November 30, 2001.

“Other Indemnified Taxes” has the meaning specified in Section 2.10(b).

“Owned Real Property” has the meaning specified in Section 5.01(r)(i).

“Owner Trustee” means Wells Fargo Bank Northwest, National Association (formerly known as First Security Bank, National Association) not individually, except as expressly stated in any applicable document to which it may be a party, but solely as the Owner Trustee under the S&F Trust 1998-1.

“Participation Agreement” means that certain Participation Agreement dated as of November 30, 2001 among Smart & Final Inc., as the Lessee, the various parties thereto from time to time, as the Guarantors, the Owner Trustee, the various banks and other lending institutions identified therein, as the Holders and Lenders, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch (as successor to Fleet Capital Corporation), as the Administrative Agent for the Lenders and respecting the Security Documents (as defined therein), as the Administrative Agent for the Lenders and the Holders, to the extent of their interests.

“PBGC” means the Pension Benefit Guaranty Corporation.

“Pension Plan” means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA.

“Permitted Encumbrances” means, with respect to any property subject to a Trust Deed or an Additional Trust Deed, the matters listed on Schedule B to the policy of title insurance in favor of the Administrative Agent with respect to such property.

“Permitted Liens” means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for

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taxes, assessments and governmental charges or levies not yet due and payable or being contested in good faith by Borrower by appropriate proceedings and for which adequate reserves have been established by Borrower as reflected in Borrower’s financial statements; (b) Liens imposed by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 30 days or being contested in good faith by Borrower by appropriate proceedings and for which adequate reserves have been established by Borrower as reflected in Borrower’s financial statements; (c) Liens (other than Liens imposed on any property of Borrower pursuant to ERISA or Section 412 of the Code) incurred or deposits or pledges made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security and other statutory obligations; (d) Liens incurred or deposits and pledges made in the ordinary course to secure performance of tenders, surety and appeal bonds, bids, leases (other than Capitalized Leases), performance bonds, sales contracts and other similar obligations, in each case, not incurred in connection with the obtaining of credit or the payment of a deferred purchase price and which do not, in the aggregate, exceed $5,000,000; and (e) Permitted Encumbrances.

“Person” means an individual, partnership, limited liability company, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

“Pledge Agreement” means a pledge agreement in substantially the form of Exhibit E-2, duly executed by the Borrower and each Subsidiary of the Borrower (other than any Foreign Subsidiary) on the Original Closing Date, as amended by the Reaffirmation Agreement and as amended from time to time in accordance with its terms, and including any amendment to such Pledge Agreement required to be delivered under Section 6.01(k).

“Preferred Stock” means, with respect to any corporation, capital stock issued by such corporation that is entitled to a preference or priority over any other capital stock issued by such corporation upon any distribution of such corporation’s assets, whether by dividend or upon liquidation.

“Pro Rata Share” of any amount means, with respect to any Lender at any time, the product of (a) a fraction the numerator of which is such Lender’s Revolving Commitment at such time and the denominator of which is the sum of the Revolving Facility (in each case without giving effect to any termination of Commitments pursuant to Section 2.04 or Section 7.01) at such time times (b) such amount.

“Reaffirmation Agreement” has the meaning specified in Section 4.01(h)(viii).

“Redeemable” means, with respect to any capital stock, Debt or other right or Obligation, any such right or Obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder.

“Register” has the meaning specified in Section 9.07(c).

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“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Required Lenders” means at any time Lender Parties owed or holding more than 50% of the sum of (a) the aggregate principal amount of the Advances outstanding at such time, (b) the aggregate Available Amount of all Letters of Credit outstanding at such time, and (c) the aggregate Unused Revolving Commitments at such time. For purposes of this definition, the Available Amount of each Letter of Credit and the aggregate principal amount of all outstanding Swing Line Advances shall be considered to be owed to the Lenders ratably in accordance with their respective Revolving Commitments.

“Responsible Officer” means the President, Chief Executive Officer, any Vice President, the Chief Financial Officer, the Controller, or the Treasurer of the Borrower.

“Revolving Advance” has the meaning specified in Section 2.01(a).

“Revolving Borrowing” means a borrowing consisting of simultaneous Revolving Advances of the same Interest Type made by the Lenders.

“Revolving Commitment” means, (i) with respect to any Lender listed on Schedule I, the amount set forth opposite such Lender’s name on Schedule I under the caption ““Revolving Commitment,” (ii) with respect to any Lender not listed on Schedule I hereto, the amount set forth in the Assignment and Acceptance pursuant to which such Person became a Lender hereunder, or (iii) if any of such Lenders has entered into one or more Assignments and Acceptances, the amount set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 9.07(c) as such Lender’s “Revolving Commitment,” in the case of each of the foregoing clauses (i), (ii) and (iii), as such amount may be reduced at or prior to such time pursuant to Section 2.04.

“Revolving Facility” means, at any time, the aggregate amount of the Lenders’ Revolving Commitments at such time.

“Revolving Note” means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit D-1 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Revolving Advances made by such Lender.

“Second Trust Deed Policies” means the American Land Title Association Lender’s Extended Coverage title insurance policies issued by Chicago Title Insurance Company, insuring the Second Trust Deeds to be valid second and subsisting Liens on the property described therein, free and clear of all defects (including, but not limited to, mechanics’ and materialmen’s Liens) and encumbrances, excepting only Permitted Encumbrances.

“Second Trust Deeds” means (A) the deeds of trust, trust deeds and mortgages in substantially the form of Exhibit N-1 and covering the Synthetic Lease Properties duly executed by the Owner Trustee and (B) the deeds of trust, trust deeds and mortgages in substantially the form of Exhibit N-2 and covering the Borrower’s leasehold interest in the Synthetic Lease Properties duly executed by the Borrower, in each case as amended from time to time in accordance with their terms, and including any Additional Trust Deeds required to be delivered under Section 6.01(k).

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“Secured Hedge Agreement” means a Hedge Agreement between the Borrower and a Secured Hedge Bank or Secured Hedge Banks.

“Secured Hedge Bank” means any Lender Party or an Affiliate of a Lender Party in its capacity as a party to a Secured Hedge Agreement.

“Secured Obligations” has the meaning specified in the Security Agreement.

“Secured Parties” means the Administrative Agent, the Lender Parties and the Secured Hedge Banks.

“Security Agreement” means a security agreement in substantially the form of Exhibit E-1, duly executed by each Loan Party on the Original Closing Date, as amended by the Reaffirmation Agreement and as amended from time to time in accordance with its terms, and including any amendment to such Security Agreement required to be delivered under Section 6.01(k).

“Senior Leverage Ratio” means, as of any date of determination, the ratio of (i) all Debt of the Borrower and its Subsidiaries under the Loan Documents, the Synthetic Lease Documents, Capitalized Leases and any other Debt secured by Liens permitted under Section 6.02(a) as of the end of the most recently ended fiscal quarter of the Borrower to (ii) Consolidated EBITDA for the period of four fiscal quarters ending as of the end of the most recently ended fiscal quarter of the Borrower.

“Solvent” and “Solvency” mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Subordinate Security Agreement” means a security agreement in substantially the form of Exhibit E-3, duly executed by the Owner Trustee and the Borrower on the Original Closing Date, as amended by the Reaffirmation Agreement and as amended from time to time in accordance with its terms.

“Subsidiary” of any Person means any corporation, partnership, limited liability company, joint venture, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of

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Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, limited liability company or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries; provided, however, that Smart & Final Scholarship Foundation, a California corporation, shall not be considered a “Subsidiary” of the Borrower or any other Loan Party for purposes of this Agreement and the other Loan Documents.

“Swing Line Advance” means an advance by the Swing Line Lender to the Borrower pursuant to Section 2.01(b).

“Swing Line Borrowing” means a borrowing consisting of a Swing Line Advance made by the Swing Line Lender.

“Swing Line Commitment” means, with respect to the Swing Line Lender, $10,000,000, or, if such Lender has entered into one or more Assignments and Acceptances with respect to the Swing Line Commitment, the amount set forth for the Swing Line Lender in the Register maintained by the Administrative Agent pursuant to Section 9.07(c) as such Lender’s “Swing Line Commitment,” in each case as such amount may be reduced at or prior to such time pursuant to Section 2.04.

“Swing Line Commitment Commencement Date” means the Closing Date.

“Swing Line Facility” means, at any time, the aggregate amount of the Swing Line Lender’s Swing Line Commitment at such time.

“Swing Line Lender” means BNP Paribas and any assignee of the Swing Line Commitment which assumes such Swing Line Commitment in accordance with the terms of Section 9.07.

“Swing Line Note” means a promissory note of the Borrower payable to the order of the Swing Line Lender, in substantially the form of Exhibit D-2 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Swing Line Advances made by such Lender.

“Synthetic Lease” means the Lease as defined in the Participation Agreement.

“Synthetic Lease Documents” means the Operative Agreements as defined in the Participation Agreement.

“Synthetic Lease Properties” means the real properties that are subject to the Synthetic Lease.

“Tax Indemnitee” has the meaning specified in Section 2.10(c).

“Taxes” has the meaning specified in Section 2.10(a).

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“Transfer Date” has the meaning specified in Section 2.08(e).

“Transferee” has the meaning specified in Section 2.08(e).

“Trust Deed Modifications” means the modifications to the Trust Deeds and the Second Trust Deeds dated as of the date hereof, as amended from time to time in accordance with their terms.

“Trust Deed Policies” means the American Land Title Association Lender’s Extended Coverage title insurance policies issued by Chicago Title Insurance Company, insuring the Trust Deeds to be valid first and subsisting Liens on the property described therein, free and clear of all defects (including, but not limited to, mechanics’ and materialmen’s Liens) and encumbrances, excepting only Permitted Encumbrances.

“Trust Deeds” means the deeds of trust, trust deeds and mortgages in substantially the form of Exhibit F and covering the properties listed on Schedule 5.01(r)(i) other than the Escondido Property and the properties located in Mexico, if any, duly executed by the applicable Loan Parties, as amended from time to time in accordance with their terms.

“Unreimbursed Letter of Credit Liability” means, as of any date of determination with respect to any Letter of Credit, the aggregate amount of all L/C Advances which have been made by, and not reimbursed to, the L/C Bank under such Letter of Credit.

“Unused Revolving Commitment” means, with respect to any Lender at any time, (a) such Lender’s Revolving Commitment at such time, minus (b) the sum of (i) the aggregate principal amount of all Revolving Advances of such Lender outstanding at such time, plus (ii) such Lender’s Pro Rata Share of the aggregate Letter of Credit Obligations outstanding at such time, plus (iii) such Lender’s Pro Rata Share of the Swing Line Advances then outstanding.

“Unused Swing Line Commitment” means, with respect to the Swing Line Lender at any time, the remainder of (a) such Lender’s Swing Line Commitment at such time, minus (b) the aggregate principal amount of all Swing Line Advances made by such Lender and outstanding at such time.

“Voting Interests” means, with respect to any Person, shares of capital stock issued by a corporation, or equivalent Equity Interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.

“Withdrawal Liability” has the meaning specified in Part I of Subtitle E of Title IV of ERISA.

Section 1.02 Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.

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Section 1.03 Accounting Terms. Except as otherwise expressly provided herein, all financial statements to be delivered pursuant to this Agreement shall be prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) as in effect from time to time, and the calculation of financial ratios (and the definitions used in connection therewith) shall be performed using GAAP as in effect at the time of preparation of the financial statements referred to in Section 4.01(g). If the Borrower elects to change its accounting practices during the term of this Agreement, or if at any time any change occurs in GAAP, which change, in either case, would affect the computation of any financial ratio or requirement set forth in any Loan Document, and the Borrower, the Administrative Agent or the Required Lenders shall so request, the Administrative Agent, the Required Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in accounting practices or GAAP, provided that, until so amended, such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein.

Section 1.04 Other Definitional Provisions. References to Sections and subsections shall be to Sections and subsections, respectively, of this Agreement unless otherwise specified. The term “including” means including without limitation. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference.

Section 1.05 Exhibits and Schedules. Each of the exhibits and schedules attached hereto is hereby incorporated into and shall constitute part of these Articles.

Section 1.06 Ownership of Synthetic Lease Properties. For all purposes under the Loan Documents other than the grant of the Liens by the Owner Trustee in the Collateral Documents, the Borrower shall be deemed to be the owner of the Synthetic Lease Properties.

Section 1.07 Interrelationship with the Restated Credit Agreement.

(a) This Agreement is intended to amend and restate the provisions of the Existing Credit Agreement and, except as expressly modified herein, all of the terms and provisions of the Existing Credit Agreement shall continue to apply for the period prior to the Closing Date, including any determinations of payment dates, interest rates, compliance with covenants and other obligations, accuracy of representations and warranties, Events of Default or any amount that may be payable to the Administrative Agent or the Lenders (or their assignees or replacements hereunder). All references in the Notes and the other Loan Documents to (i) the “Credit Agreement” shall be deemed to include references to this Agreement and (ii) the “Lenders” or a “Lender” or to the “Administrative Agent” shall mean such terms as defined in this Agreement. As to all periods occurring on or after the Closing Date, all of the covenants set forth in the Existing Credit Agreement shall be of no further force and effect (with respect to such periods), it being understood that all obligations of the Borrower under the Existing Credit Agreement shall be governed by this Agreement from and after the Closing Date.

(b) The Borrower, the Credit Agents and the Lenders acknowledge and agree that all principal, interest, fees, costs, reimbursable expenses and indemnification obligations accruing or arising under or in connection with the Existing Credit Agreement which remain unpaid and outstanding as of the Closing Date shall be and remain outstanding and payable as an obligation under this Agreement and the other Loan Documents.

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ARTICLE II

AMOUNTS AND TERMS OF THE ADVANCES

Section 2.01 The Advances.

(a) Revolving Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances (each a “Revolving Advance”) to the Borrower from time to time on any Business Day during the period from the Closing Date until the Commitment Termination Date in an amount for each such Advance not to exceed such Lender’s Unused Revolving Commitment on such Business Day (after giving effect to any repayment of Swing Line Advances made or to be made with the proceeds thereof pursuant to a designation therefor set forth by the Borrower in a Notice of Borrowing for such Borrowing or pursuant to a Notice of Borrowing given by the Administrative Agent in accordance with Section 2.02(f)). Each Revolving Borrowing shall be in an aggregate amount of Five Million Dollars ($5,000,000) or (except in the case of the initial Advance) an integral multiple of One Million Dollars ($1,000,000) in excess thereof and shall consist of Revolving Advances made by the Lenders ratably according to their respective Revolving Commitments. Within the foregoing limits, the Borrower may borrow under this Section 2.01(a), prepay pursuant to Section 2.05 and reborrow under this Section 2.01(a).

(b) Swing Line Advances. The Swing Line Lender agrees, on the terms and conditions hereinafter set forth, to make advances (each a “Swing Line Advance”) to the Borrower from time to time on any Business Day during the period from the Swing Line Commitment Commencement Date until the Commitment Termination Date in an amount not to exceed the Swing Line Lender’s Unused Swing Line Commitment on such Business Day. Each Swing Line Borrowing shall consist of Swing Line Advances made by the Swing Line Lender and shall be in an amount equal to $1,000,000 or an integral multiple of $100,000 in excess thereof. Immediately upon the making of each Swing Line Advance by the Swing Line Lender, the Swing Line Lender shall be deemed to have sold and transferred to each Lender, and each Lender shall be deemed to have purchased and received from the Swing Line Lender, in each case irrevocably and without any further action by any party, an undivided interest and participation in such Swing Line Advance and the Obligations of the Borrower under this Agreement in respect thereof in an amount equal to such Lender’s Pro Rata Share of such Swing Line Advance, provided, however, that (i) no Lender shall be required to fund its participation in any such Swing Line Advance until demand therefor is made by the Administrative Agent pursuant to Section 2.02(f)(ii) hereof, and (ii) no Lender shall be entitled to share in any payments of principal or interest in respect of its participation in any such Swing Line Advance except to the extent set forth in Section 2.02(f)(ii) hereof with respect to any such participation which has been funded by such Lender as provided therein. Within the limits of the Swing Line Lender’s Unused Swing Line Commitment in effect from time to time, the Borrower may borrow under this Section 2.01(b), prepay pursuant to Section 2.05 and reborrow under this Section 2.01(b).

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Section 2.02 Making the Advances.

(a) Initial Borrowings. The initial Borrowings hereunder shall be made on the Closing Date and shall be made on notice received by the Administrative Agent from the Borrower (pursuant to a Notice of Borrowing) not later than 9:00 a.m. (Los Angeles, California time) (or such later time as the Administrative Agent may agree) on the Business Day immediately preceding the Closing Date. Such Notice of Borrowing shall be irrevocable upon receipt by the Administrative Agent. Upon receipt of such notice, the Administrative Agent shall promptly give notice to each Lender (but in no event later than 10:30 a.m. Los Angeles, California time on the Closing Date). Each Lender shall, before 11:30 a.m. (Los Angeles, California time) on the Closing Date, make available for the account of its Applicable Lending Office to the Administrative Agent such Lender’s ratable share of such Borrowings by depositing same day funds in the Administrative Agent’s Account. Notwithstanding any contrary provision hereof, the initial Borrowings may consist only of Base Rate Advances.

(b) Subsequent Revolving Borrowings. Each Revolving Borrowing occurring after the Closing Date shall be made on notice received by the Administrative Agent from the Borrower (pursuant to a Notice of Borrowing) not later than 9:00 a.m. (Los Angeles, California time) (a) on the Business Day prior to the date of such Borrowing if such Borrowing consists of Base Rate Advances, and (b) on the third Business Day prior to the date of such Borrowing if such Borrowing consists of Eurodollar Rate Advances. Each such Notice of Borrowing shall be irrevocable upon receipt by the Administrative Agent and, in the case of any Notice of Borrowing for Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified by such Notice of Borrowing the applicable conditions set forth in this Section 2.02 or Article IV, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as a part of such Borrowing when such Advance, as a result of such failure, is not made on such date.

(c) Revolving Advances by Lenders. If the Administrative Agent receives a Notice of Borrowing (or if the Administrative Agent gives a Notice of Borrowing pursuant to Section 2.02(f)), the Administrative Agent shall promptly (and in any event not later than 3:00 p.m. (Los Angeles, California time) on the Business Day prior to the date of such Borrowing or, if such Borrowing consists of Eurodollar Rate Advances, the third Business Day prior to the date of such Borrowing) give each Lender notice of such Notice of Borrowing. Each Lender shall, before 11:30 a.m. (Los Angeles, California time) on the date of such Borrowing in the case of any Revolving Borrowing to be made on such date, make available for the account of its Applicable Lending Office to the Administrative Agent such Lender’s ratable portion of such Borrowing by depositing same day funds in the Administrative Agent’s Account. Unless the Administrative Agent shall have received written notice from a Lender prior to the date of any Revolving Borrowing hereunder that such Lender will not make available to the Administrative Agent such Lender’s ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such ratable portion available to the Administrative Agent on the date of such Borrowing in accordance with the terms hereof and the Administrative Agent may, in reliance upon such assumption, but shall not be required to,

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make available to or for the account of the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent and the Administrative Agent makes such ratable portion available to the Borrower, such Lender and the Borrower, without prejudice to any rights or remedies that the Borrower may have against such Lender, severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to or for the account of the Borrower until the date such amount is repaid to the Administrative Agent, at (A) in the case of the Borrower, the interest rate applicable at the time to the Advances comprising such Borrowing, and (B) in the case of such Lender, the Federal Funds Rate with respect to the three-day period commencing from the date such amount is made available to or for the account of the Borrower and the interest rate applicable at the time to the Advances comprising such Borrowing thereafter. If such Lender shall pay to the Administrative Agent such amount, such amount so paid shall constitute such Lender’s Advance as part of the relevant Borrowing for purposes of this Agreement and, to the extent that the Borrower previously paid such amount to the Administrative Agent, the Administrative Agent will refund to the Borrower such amount so paid, but without interest.

(d) Disbursement of Revolving Advances. Upon fulfillment of the applicable conditions set forth in Article IV (which fulfillment the Administrative Agent may assume in the absence of actual knowledge, or notice received from the Borrower or the Required Lenders, to the contrary), the Administrative Agent will make funds for any Borrowing available to the Borrower by crediting the Borrower’s Account, subject to the Administrative Agent’s receipt of funds from the Lenders, and provided that the Administrative Agent shall first make a portion of such funds equal to any outstanding L/C Advance under any Letter of Credit, and any interest accrued and unpaid thereon to and as of such date, available to the applicable L/C Bank for reimbursement of such L/C Advance and payment of such interest.

(e) Swing Line Borrowings. Each Swing Line Borrowing shall be made on notice received by the Administrative Agent and the Swing Line Lender from the Borrower (pursuant to a Notice of Swing Line Borrowing) not later than 9:00 A.M. (Los Angeles, California time) on the date of such Borrowing. Each such Notice of Swing Line Borrowing shall be irrevocable upon receipt by the Administrative Agent and the Swing Line Lender. If (i) the Administrative Agent and the Swing Line Lender receive a Notice of Swing Line Borrowing and (ii) the applicable conditions set forth in Article IV have been fulfilled (which fulfillment the Administrative Agent and the Swing Line Lender may assume in the absence of actual knowledge, or notice received from the Borrower, the Administrative Agent or the Required Lenders, to the contrary), then the Swing Line Lender will make funds for any Swing Line Borrowing available to the Borrower by wire transfer to the Borrower on or before 3:00 p.m. (Los Angeles, California time) on the date of such Swing Line Borrowing.

(f) Settlement of Swing Line Advances. (i) The Administrative Agent may, and upon request by the Swing Line Lender in the Swing Line Lender’s sole and absolute discretion, the Administrative Agent shall, at any time and from time to time, give to the Lenders and the Borrower a Notice of Borrowing for a Borrowing of Revolving Advances which are Base Rate Advances on behalf of the Borrower, in each case in an amount equal to the aggregate amount of Swing Line Advances then owing by the Borrower (or such lesser amount

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as the Administrative Agent or the Swing Line Lender shall specify), and the proceeds of which are to be used to prepay such Swing Line Advances on the date of such Borrowing. Upon receipt of any such Notice of Borrowing, each Lender (other than the Swing Line Lender) shall, before 11:30 a.m. (Los Angeles, California time) on the Business Day following the date on which such Notice of Borrowing is given, make available for the account of its Applicable Lending Office to the Administrative Agent such Lender’s Pro Rata Share of such Borrowing by depositing same day funds in the Administrative Agent’s Account. Notwithstanding any contrary provision of this Agreement, (A) the proceeds of any such Borrowing shall be distributed by the Administrative Agent to the Swing Line Lender as a prepayment of all or a portion of the then outstanding Swing Line Advances, and (B) the outstanding Swing Line Advances of the Swing Line Lender, in an amount equal to the aggregate amount of the Swing Line Advances to be prepaid on such date, shall be deemed to be prepaid with the proceeds of a Revolving Advance made by the Swing Line Lender and such portion of the Swing Line Advances deemed to be so prepaid shall no longer be outstanding as Swing Line Advances but shall be outstanding as Revolving Advances made by the Swing Line Lender.

(ii) In addition to the right of the Swing Line Lender to require a Borrowing under Section 2.02(f)(i), the Swing Line Lender may at any time and from time to time and in its sole and absolute discretion request (by notice to the Administrative Agent and the Borrower) the Administrative Agent to, and upon receipt of such request the Administrative Agent shall, make demand on each Lender for payment of its participation in each Swing Line Advance then outstanding, and upon receipt of any such demand each Lender shall promptly fund such participation by paying to the Administrative Agent, for the account of the Swing Line Lender, the amount of such participation in same day funds on the date such request is given by the Administrative Agent to the Lenders. With respect to each such participation in any Swing Line Advance which is funded by any Lender, the Swing Line Lender shall promptly pay to the Administrative Agent, and the Administrative Agent shall promptly pay to such Lender, in lawful money of the United States and in the kind of funds so received, an amount equal to such Lender’s ratable share of all payments received by the Swing Line Lender in respect of (A) the principal of such Swing Line Advance, and (B) interest on such Swing Line Advance for the period from and after the date on which such participation was funded. If any payment received by the Swing Line Lender on account of any Swing Line Advance and distributed to any Lender as a participant under the preceding sentence is thereafter recovered from the Swing Line Lender in connection with any bankruptcy or insolvency proceeding relating to the Borrower or otherwise, each Lender which received such distribution shall, upon demand by the Swing Line Lender through the Administrative Agent, repay to the Swing Line Lender such Lender’s ratable share of the amount so recovered together with such Lender’s ratable share (according to the proportion of (1) the amount of such Lender’s required prepayment to (2) the total amount so recovered) of any interest or other amount paid or payable by the Swing Line Lender in respect of the total amount so recovered. The Borrower agrees that any Lender purchasing a participation in any Swing Line Advance from the Swing Line Lender hereunder may, to the fullest extent permitted by law, exercise all its rights of payment with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

(iii) Anything contained herein to the contrary notwithstanding, the obligation of each Lender to make any Revolving Advance pursuant to Section 2.02(f)(i) or to fund its

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participation in any Swing Line Advances pursuant to Section 2.02(f)(ii) shall be absolute and unconditional and shall not be subject to any conditions set forth in Article IV hereof or otherwise affected by any circumstance including, without limitation, (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender or any Loan Party; (B) the occurrence or continuance of a Default; (C) any adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party; (D) any breach of any Loan Document by the Borrower, any other Loan Party or any other Lender Party; or (E) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.

(iv) The Borrower irrevocably authorizes (A) the Administrative Agent to give any Notice of Borrowing pursuant to Section 2.02(f)(i) (with a copy to the Borrower), (B) the Lenders to make the Revolving Advances pursuant to such Notice of Borrowing, and (C) the Administrative Agent to distribute the proceeds thereof as provided herein.

(g) Nature of Lenders’ Obligations. The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

(h) Reports by Swing Line Lender. If requested by the Administrative Agent, the Swing Line Lender shall furnish to the Administrative Agent prior to the fifth Business Day of each month (and at such other times as the Administrative Agent may request) a written report summarizing all Swing Line Borrowings and payments in respect thereof during the preceding month and the aggregate outstanding principal amount of all Swing Line Advances as of the last day of such month (or as of such other date as the Administrative Agent may request).

Section 2.03 Repayment.

(a) Revolving Advances. The Borrower shall repay to each Lender (in accordance with the provisions of Section 2.09(a)) on the Commitment Termination Date the aggregate principal amount of all Revolving Advances owing to such Lender outstanding on the Commitment Termination Date.

(b) L/C Advances. The Borrower shall repay each L/C Advance as provided in Section 3.03.

(c) Swing Line Advances. The Borrower shall repay to the Swing Line Lender the aggregate principal amount of all Swing Line Advances then outstanding on the Commitment Termination Date.

Section 2.04 Reduction of the Revolving Commitments and Swing Line Commitments.

(a) Optional Reductions. The Borrower shall have the right, upon at least three Business Days’ notice to the Administrative Agent, to terminate in whole or

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reduce ratably in part the Unused Revolving Commitments of the Lenders; provided, however, that (i) each partial reduction shall be in an amount of Three Million Dollars ($3,000,000) or any multiple of One Million Dollars ($1,000,000) in excess thereof, and (ii) the aggregate amount of the Revolving Commitments shall not be reduced pursuant to this Section 2.04 to an amount less than the sum of (A) the aggregate principal amount of all Revolving Advances then outstanding, (B) the aggregate amount of all Letter of Credit Obligations then outstanding, and (C) the aggregate principal amount of all Swing Line Advances then outstanding.

(b) Mandatory Reductions. The Revolving Facility shall be automatically and permanently reduced, on a pro rata basis, on each date on which prepayment thereof is required to be made pursuant to Section 2.05(b)(iii) in an amount equal to the Net Cash Proceeds received by the Borrower or any of its Subsidiaries in the transaction giving rise to such required prepayment. Each such reduction of the Revolving Facility shall be made ratably among the Lenders in accordance with their Revolving Commitments.

(c) Reduction of Swing Line Commitment. The Swing Line Commitment of the Swing Line Lender shall be (i) terminated automatically and simultaneously upon any termination in whole of the Revolving Commitments, and (ii) reduced ratably in an aggregate amount equal to the product of (A) the amount by which, as a result of any partial reduction of the Revolving Commitments of the Lenders, the aggregate Revolving Commitments of the Lenders are reduced below $20,000,000 multiplied by (B) 0.50 (any such reduction of the Swing Line Commitment to be effective automatically and simultaneously with any such reduction of the Revolving Commitments).

(d) Reduction of the Letter of Credit Subfacility. The Letter of Credit Subfacility shall be (i) terminated automatically and simultaneously upon any termination in whole of the Revolving Commitments, and (ii) reduced by an amount equal to product of (A) the amount by which, as a result of any partial reduction of the Revolving Commitments of the Lenders, the aggregate Revolving Commitments of the Lenders are reduced below $30,000,000 multiplied by (B) 0.50 (any such reduction of the Letter of Credit Subfacility to be effective automatically and simultaneously with any such reduction of the Revolving Commitments).

Section 2.05 Prepayments.

(a) Optional Prepayments. The Borrower may, upon (i) prior notice to the Administrative Agent (which shall be given not later than 11:00 a.m. on the day of prepayment in the case of prepayment of Revolving Advances which consist of Base Rate Advances and three Business Days in advance in the case of prepayment of Revolving Advances which are Eurodollar Rate Advances) or (ii) prior notice to the Swing Line Lender (which may be given on the date of prepayment in the case of prepayment of Swing Line Advances), in either case stating the proposed date and aggregate principal amount of the prepayment and, in the case of Revolving Advances, the Interest Type of Advances to be prepaid (and if such notice is given the Borrower shall), prepay in whole or in part the outstanding principal of Advances of such Interest Type, together with, in the case of any prepayment of Eurodollar Rate Advances, interest thereon to the date of such prepayment on the principal amounts prepaid (plus, in the case of prepayment of Eurodollar Rate Advances prior to the end of the applicable Interest Period, any additional amount for which the Borrower shall be obligated pursuant to Section 9.04(c));

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provided, however, that each partial prepayment of Revolving Advances shall be in an aggregate principal amount of not less than Three Million Dollars ($3,000,000) or an integral multiple of $1,000,000 in excess thereof, and each partial prepayment of Swing Line Advances shall be in an aggregate principal amount of not less than One Million Dollars ($1,000,000).

(b) Mandatory Prepayments.

(i) Excess Advances. If, at any time, the then outstanding aggregate principal amount of all Revolving Advances shall exceed the aggregate amount of the Revolving Commitments of the Lenders at such time, minus the sum of (i) the aggregate amount of the Letter of Credit Obligations then outstanding and (ii) the aggregate principal amount of the Swing Line Advances then outstanding, the Borrower shall immediately prepay, for the ratable account of the Lenders, the outstanding principal amount of Revolving Advances in an aggregate amount equal to such excess. If, at any time, the then outstanding aggregate amount of all Swing Line Advances shall exceed the Swing Line Commitment of the Swing Line Lender, the Borrower shall thereupon prepay, for the account of the Swing Line Lender, the outstanding principal amount of Swing Line Advances in an aggregate amount equal to such excess.

(ii) Incomplete Settlement. If any Lender shall for any reason fail to pay any amount payable by it (including the funding of any participation in any Swing Line Advances), or fail to make any Revolving Advance to be made by it, pursuant to Section 2.02(f), the Borrower shall, on demand by the Administrative Agent, prepay the Swing Line Advances then outstanding in an amount equal to such amount.

(iii) Net Cash Proceeds. The Borrower shall, on the date of receipt by the Borrower or any other Loan Party of (A) 100% of the Net Cash Proceeds from the sale, lease, transfer or other disposition of any assets of the Borrower or any other Loan Party (including the sale by the Borrower or any other Loan Party of the capital stock of any of their respective Subsidiaries but excluding (1) sales of inventory in the ordinary course of business, (2) sales of damaged, worn or obsolete equipment to the extent the proceeds thereof are intended to be (and are) used to purchase replacements for such equipment within one year or sales of damaged, worn or obsolete equipment made after the purchase of replacements for such equipment, (3) sales of the Synthetic Lease Properties permitted under Section 6.02(d)(v) (provided, that any proceeds from such sales which are not used to purchase replacement properties or applied to repay Obligations under the Synthetic Lease shall not be excluded from the prepayment requirements of this section), and (4) sales, leases, transfers and other dispositions of assets other than those contemplated by clauses (1), (2) and (3) above, which are sold, leased, transferred or otherwise disposed of for amounts that do not exceed $2,500,000 in any Fiscal Year), (B) 100% of the Net Cash Proceeds from the incurrence or issuance by the Borrower or any of its Subsidiaries of any Debt not permitted under Section 6.02(b) (it being understood that the provisions of this Section 2.05(b)(iii) shall not be construed to permit the incurrence of Debt otherwise prohibited by Section 6.02(b)), including any refinancing of any Debt, (C) 50% of the Net Cash Proceeds from the sale or issuance by the Borrower or any of its Subsidiaries of any Equity Interests (including receipt of any capital contribution), and (D) 100% of the Net Cash Proceeds of any Extraordinary

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Receipt received by or paid to or for the account of the Borrower or any of its Subsidiaries and not otherwise included in clause (A), (B) or (C) above, prepay outstanding Advances as provided in Section 2.05(c), except that, in the case of sales of assets contemplated by clause (4) above, the amount of such Net Cash Proceeds in excess of $2,500,000 in any Fiscal Year shall be so applied unless such Net Cash Proceeds are intended to be (and are) used to purchase assets useful to the business of the Borrower or any of its Subsidiaries within one year.

(iv) L/C Cash Collateral. If, at any time, the aggregate Available Amount of all Letters of Credit then outstanding exceeds the L/C Sublimit in effect at such time, the Borrower shall immediately pay to the Administrative Agent for deposit in the L/C Cash Collateral Account an amount sufficient to cause the aggregate amount on deposit in such account to equal the amount of such excess.

(v) Interest Payable on Amounts Prepaid. All prepayments under this Section 2.05 shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid.

(c) Application of Prepayments. Prepayments of the Revolving Facility made pursuant to this Section 2.05 shall be first applied to prepay L/C Advances then outstanding until such Advances are paid in full, second applied to prepay Swing Line Advances then outstanding until such Advances are paid in full, third applied to prepay Revolving Advances then outstanding comprising part of the same Borrowings until such Advances are paid in full and fourth deposited in the L/C Cash Collateral Account to cash collateralize 100% of the Available Amount of the Letters of Credit then outstanding. The amount remaining (if any) after the prepayment in full of the Advances then outstanding and the 100% cash collateralization of the aggregate Available Amount of Letters of Credit then outstanding may, provided no Default shall have occurred and be continuing, be returned to the Borrower and the Revolving Facility shall be permanently reduced as set forth in Section 2.04(b).

Section 2.06 Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance from the date of such Advance until such principal is paid in full at the applicable rate set forth below.

(a) Interest on Base Rate and Swing Line Advances. Except to the extent that the Borrower shall elect to pay interest on all or any part of any Revolving Advance made or to be made to the Borrower under Section 2.01 for any Interest Period pursuant to subsections (b) and (c) of this Section 2.06 and except as otherwise provided in this Agreement, the Borrower shall pay interest on the unpaid principal amount of each Advance, from the date of such Advance until such principal amount is paid in full, payable quarterly in arrears on the last Business Day of each March, June, September and December commencing December 31, 2004 and on the date such Advance shall be paid in full, at a fluctuating interest rate per annum equal, subject to Section 2.06(d), to the sum of the Base Rate in effect from time to time and the Applicable Margin for Base Rate Advances in effect from time to time.

(b) Interest Periods for Eurodollar Rate Advances. The Borrower may, pursuant to Section 2.06(c), elect to have the interest on the principal amount of

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all or any portion of any Revolving Advances made or to be made to the Borrower under Section 2.01, in each case ratably according to the respective outstanding principal amounts of Revolving Advances owing to each Lender (each such principal amount owing to a Lender as to which such election has been made being a “Eurodollar Rate Advance” owing to such Lender) determined and payable for a specified period (an “Interest Period” for such Eurodollar Rate Advance) in accordance with subsection (c) below, provided, however, that the Borrower may not (i) make any such election with respect to any Swing Line Advances or L/C Advances, or (ii) have more than five (5) Eurodollar Rate Advances owing to any Lender outstanding at any one time. Each Interest Period shall be one, two, three, or six months, at the Borrower’s election pursuant to subsection (c) below, provided, however, that:

(i) the first day of an Interest Period for any Eurodollar Rate Advance shall be either the last day of any then current Interest Period for such Advance or, if there shall be no then current Interest Period for such Advance, any Business Day;

(ii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; provided, however, that if such extension would cause the last day of such Interest Period to occur in the next following month, the last day of such Interest Period shall occur on the next preceding Business Day; and

(iii) whenever the first day of any Interest Period occurs on a day of the month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months of such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month.

(c) Interest on Eurodollar Rate Advances. The Borrower may from time to time, on the condition that no Event of Default has occurred and is continuing, and subject to the provisions of Sections 2.06(b) and 2.06(e), elect to pay interest on all or any portion of any Revolving Advances during any Interest Period therefor at a rate per annum equal to the sum of the Eurodollar Rate for such Interest Period for such Advances plus the Applicable Margin for Eurodollar Rate Advances in effect from time to time, by notice, specifying the amount of the Advances as to which such election is made (which amount shall aggregate at least Five Million Dollars ($5,000,000) or any multiple of One Million Dollars ($1,000,000) in excess thereof) and the first day and duration of such Interest Period, received by the Administrative Agent before 9:00 a.m. (Los Angeles, California time) three Business Days prior to the first day of such Interest Period. If the Borrower has made such election for Eurodollar Rate Advances for any Interest Period, the Borrower shall pay interest on the unpaid principal amount of such Eurodollar Rate Advances during such Interest Period, payable in arrears on the last day of such Interest Period and, in the case of any Interest Period which is longer than three months, on each three month anniversary of the first day of such Interest Period, in each case at a rate equal, subject to Section 2.06(d), to the sum of the Eurodollar Rate for such Interest Period for such Eurodollar Rate Advances plus the Applicable Margin for Eurodollar Rate Advances in effect from time to time during such Interest Period. On the last day of each Interest Period for any Eurodollar Rate Advance, the unpaid principal balance thereof shall automatically become and

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bear interest as a Base Rate Advance, except to the extent that the Borrower has elected to pay interest on all or any portion of such amount for a new Interest Period commencing on such day in accordance with this Section 2.06(c). Each notice by the Borrower under this Section 2.06(c) shall be irrevocable upon receipt by the Administrative Agent, and the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified by such notice the applicable conditions set forth in this Section 2.06(c) or Article IV, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund any such Eurodollar Rate Advance when such Eurodollar Rate Advance, as a result of such failure, is not made or does not become effective.

(d) Default Interest. Upon the occurrence and during the continuance of an Event of Default, interest shall accrue (i) on any Advance then outstanding at a rate that is 2% per annum in excess of the interest rate otherwise payable under this Agreement with respect to such Advance (which, for the avoidance of doubt, shall include the Applicable Margin) (the “Default Rate”); provided that, in the case of any Eurodollar Rate Advance, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Advance shall thereupon become a Base Rate Advance and shall thereafter bear interest at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Advances (which, for the avoidance of doubt, shall include the Applicable Margin), and (ii) to the fullest extent permitted by law, on any overdue principal, interest or other amounts payable hereunder at a rate that is 2% per annum in excess of the interest rate otherwise payable under this Agreement with respect to Base Rate Advances (which, for the avoidance of doubt, shall include the Applicable Margin). Such interest shall be payable upon demand. Payment or acceptance of the increased rates of interest provided for in this Section 2.06(d) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Administrative Agent or any Lender.

(e) Suspension of Eurodollar Rate Advances.

(i) Illegality. Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder, then, on notice thereof and demand therefor by such Lender to the Borrower through the Administrative Agent, (i) each Eurodollar Rate Advance will automatically, upon such demand, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower that such Lender has determined that the circumstances causing such suspension no longer exist; provided, however, that, before making any such demand, such Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Eurodollar Lending Office if the making of such a designation would allow such Lender or its Eurodollar Lending Office

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to continue to perform its obligations to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances and would not, in the judgment of such Lender, be otherwise disadvantageous to such Lender.

(ii) Other Circumstances. If, with respect to any Eurodollar Rate Advances, (A) the Administrative Agent shall determine in good faith (which determination shall be conclusive) that the Eurodollar Rate cannot be determined in accordance with the definition thereof, or (B) Lenders owed at least 50% of the then aggregate unpaid principal amount thereof notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Lenders of making, funding or maintaining their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i) each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower that such Lenders have determined that the circumstances causing such suspension no longer exist.

(iii) Suspension on Event of Default. Upon the occurrence and during the continuance of any Event of Default, (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to convert Advances into, Eurodollar Rate Advances shall be suspended.

Section 2.07 Fees.

(a) Commitment Fees. The Borrower agrees to pay to the Administrative Agent a commitment fee on the average daily amount of each Lender’s Revolving Commitment less the sum of (i) Revolving Advances made by such Lender and outstanding from time to time, (ii) such Lender’s Pro Rata Share of the aggregate Letter of Credit Obligations outstanding from time to time, and (iii) in the case of the Swing Line Lender only, the outstanding amount of any Swing Line Advances, for the account of such Lender, from the Closing Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Commitment Termination Date, at the rate per annum equal to the Commitment Fee Percentage in effect from time to time, payable in arrears on the last Business Day of each March, June, September and December, commencing December 31, 2004 and, and on the Commitment Termination Date.

(b) Agent’s Fees. The Borrower agrees to pay to the Administrative Agent (i) the fees in the amounts and at the times set forth in the letter dated October 21, 2004 from the Administrative Agent to the Borrower, and (ii) such other fees as may from time to time be agreed between the Borrower and the Administrative Agent.

(c) Absolute Obligation. The Borrower’s obligation hereunder to pay the fees referred to in this Section 2.07 shall be absolute and unconditional and shall survive

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the making and repayment of Advances, the termination of all Letter of Credit Obligations and the termination of this Agreement. All fees which are due or become due pursuant to this Section 2.07 are nonrefundable.

Section 2.08 Increased Costs, Etc.

(a) Increased Costs. If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost (including Taxes, other than Excluded Taxes) to any Lender Party of agreeing to make or of making, funding or maintaining Eurodollar Rate Advances or of agreeing to issue or of issuing or maintaining Letters of Credit (or of agreeing to purchase or purchasing participations therein) or of agreeing to make or of making or maintaining L/C Advances (or of agreeing to purchase or purchasing participations therein), then the Borrower shall from time to time, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender Party additional amounts sufficient to compensate such Lender Party for such increased cost.

(b) Capital Requirements. If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the amount of capital required or expected to be maintained by any Lender Party or any corporation controlling such Lender Party as a result of or based upon the existence of such Lender Party’s commitment to lend or to issue or purchase participations in Letters of Credit hereunder and other commitments of such type or the issuance or maintenance of or participation in the Letters of Credit (or similar contingent obligations), then, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), the Borrower shall pay to the Administrative Agent for the account of such Lender Party, from time to time as specified by such Lender Party, additional amounts sufficient to compensate such Lender Party for the increase in costs incurred by such Lender Party as a result of maintaining such increased capital to the extent that such Lender Party reasonably determines such increase in capital to be attributable in whole or in part to the existence of such Lender Party’s commitment to lend or to issue or participate in Letters of Credit hereunder or to the issuance or maintenance of or participation in any Letters of Credit (or similar contingent obligations).

(c) Mitigation. If any Lender Party desires to make a claim against Borrower under this Section 2.08, such Lender Party shall notify Borrower of any event occurring after the date of this Agreement entitling such Lender Party to compensation under paragraph (a) or (b) of this Section 2.08 as promptly as practicable, but in any event within 90 days after such Lender Party obtains actual knowledge thereof; provided that (i) such Lender Party shall only be entitled to payment from Borrower for any Additional Costs under this Section 2.08 incurred from and after the date that is 90 days prior to the date on which such Lender Party gives such notice, and (ii) each Lender Party will use commercially reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to mitigate the amount of the Additional Costs associated with such event, including designating a different

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Applicable Lending Office if the making of such designation would avoid the need for, or reduce the amount of, such increased cost and would not, in the reasonable judgment of such Lender Party, result in any economic, legal or regulatory disadvantage to such Lender Party (other than economic disadvantages for which the Borrower agrees to indemnify such Lender Party). Any Lender Party making a claim under this Section 2.08 shall provide to Borrower an officer’s certificate setting forth in reasonable detail (i) the events giving rise to such Additional Costs and (ii) the amount of such Lender Party’s request for compensation under paragraph (a) or (b) of this Section 2.08, together with a statement that the determinations and allocations made in respect of the Additional Costs comply with the provisions of this Section 2.08. Determinations and allocations by any Lender Party for purposes of this Section 2.08 of any change in law or regulation under paragraph (a) or any change in capital requirements under paragraph (b) on its costs or rate of return of maintaining its Commitment or its funding or on amounts receivable by it in respect of Advances made by it, and of the amounts required to compensate such Lender Party under this Section 2.08 shall be conclusive absent manifest error.

(d) Exceptions to Compensation Requirement. Borrower shall not be required to make any payments under this Section 2.08 to any Lender Party if (i) a claim hereunder arises through circumstances specific to such Lender Party and which do not affect commercial lenders in the same jurisdiction as such Lender Party generally, or (ii) such Lender Party is required by Section 2.08(e) to assign its Commitment to a designated assignee but fails to do so (other than as a result of such designated institution failing to execute an Assignment and Acceptance and consummating the transaction contemplated thereby), or (iii) the claim arises out of, and immediately upon, a voluntary relocation by such Lender Party of its Applicable Lending Office.

(e) Replacement of Lender Party. If any Lender Party gives notice of a claim against Borrower under this Section 2.08, Borrower shall have the right by notice to such Lender Party to request such Lender Party to transfer its Commitment and its interests under the Loan Documents, without representation or warranty (except for the absence of such Liens on such interests arising by, through or under such Lender Party) and in accordance with Section 9.07, on a Business Day not fewer than ten Business Days after the giving of such notice (the “Transfer Date”) to an Eligible Assignee designated by Borrower (the “Transferee”) for consideration equal to the sum of (i) such Lender Party’s share of the principal of the Advances outstanding, plus (ii) accrued interest to the Transfer Date on such share of the Advances, plus (iii) all other amounts, if any, owing to such Lender Party under the Loan Documents.

Section 2.09 Payments and Computations.

(a) Payments by Borrower. The Borrower shall make each payment hereunder and under any other Loan Document to which it is a party, irrespective of and without condition or deduction for any counterclaim, defense, recoupment or setoff, in lawful money of the United States and in same day funds delivered to the Administrative Agent not later than 10:00 a.m. (Los Angeles, California time) on the day when due by deposit of such funds to the Administrative Agent’s Account. Any payment so delivered to the Administrative Agent after 10:00 a.m. (Los Angeles, California time) on any Business Day, or on any day which is not a Business Day, shall be deemed received by the Administrative Agent on the next

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succeeding Business Day. The Administrative Agent will promptly after receipt of each payment cause to be distributed like funds relating to the payment of principal, interest, commitment fees or letter of credit fees ratably to each Lender for the account of its Applicable Lending Office, and like funds relating to the payment of any other amount payable to any Lender or any L/C Bank (including payments with respect to Letters of Credit and payments for the account of any Lender under Sections 2.08, 2.10 or 9.04(c)) to such Lender for the account of its Applicable Lending Office or to such L/C Bank, in each case to be applied in accordance with, and subject to, the terms of this Agreement, including Section 2.09(e) below. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(c), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under any other Loan Document in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves.

(b) Computations. All computations of interest in respect of Base Rate Advances based on BNP Paribas’ “base rate” shall be made by the Administrative Agent on the basis of a year of 365/366 days and all other computations of interest in respect of any other amounts payable hereunder, including fees, shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is being computed; provided that if any Advance is repaid on the same day on which it is made, one day’s interest shall be paid on such Advance. Each determination by the Administrative Agent of an interest rate, fee, commission or discount rate hereunder shall be conclusive and binding for all purposes, absent manifest error.

(c) Payments Assumed. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders or any L/C Bank hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, but shall not be required to, cause to be distributed to each Lender or such L/C Bank on such due date an amount equal to the amount then due to such Lender or such L/C Bank. If and to the extent that the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender and L/C Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender or L/C Bank together with interest thereon, for each day from the date such amount is distributed to such Lender or L/C Bank until the date such Lender or L/C Bank repays such amount to the Administrative Agent, at the Federal Funds Rate with respect to the three-day period commencing from the date such amount is distributed to such Lender Party and at the interest rate applicable to Base Rate Advances at such time thereafter.

(d) Application of Payments Specified by the Borrower. Except as otherwise specified herein, so long as no Event of Default has occurred and is continuing, all payments shall be applied as instructed by the Borrower if such instructions are received by the Administrative Agent prior to or contemporaneously with receipt of funds therefor.

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(e) Application of Payments Not Otherwise Specified. If the Administrative Agent receives funds for application to the Advances or any Letter of Credit Obligations or other Obligations of the Borrower under the Loan Documents under circumstances for which the Loan Documents do not specify the Advances or the Facility or the Obligations to which, or the manner in which, such funds are to be applied, the Administrative Agent may elect to distribute such funds first, to the L/C Banks ratably in payment of the principal of and interest on any outstanding L/C Advances, second, to the payment of the outstanding Swing Line Advances and interest thereon, third, to each Lender ratably in accordance with such Lender’s proportionate share of all Advances (other than Swing Line Advances) then outstanding, in repayment or prepayment of such of the outstanding Advances (other than Swing Line Advances), and for application to such principal installments, as the Administrative Agent may direct, and thereafter ratably to the Lenders in repayment or prepayment of any other Obligations of the Borrower then outstanding under the Loan Documents as the Administrative Agent shall direct, provided that if an Event of Default has occurred and is continuing and the Revolving Commitments of the Lenders and the Swing Line Commitments of the Swing Line Lender have been terminated in full, the Administrative Agent shall distribute any payments and any proceeds of any collection, sale or other realization or liquidation of any Collateral first, to the payment of all costs and expenses of the Administrative Agent under the Loan Documents, second, to the L/C Banks ratably in payment of the principal of and interest on any outstanding L/C Advances, third, to the payment of the outstanding Swing Line Advances and interest thereon, and fourth, to each Lender ratably in accordance with such Lender’s proportionate share of the principal amount of all Advances (other than Swing Line Advances) and Letter of Credit Obligations then outstanding, in payment or prepayment of such Obligations owed to such Lender under the Loan Documents, and for application to such principal installments (if applicable) as the Administrative Agent shall direct.

(f) Payments on Business Days. Whenever any payment hereunder or under any other Loan Document shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest and commitment and other fees; provided, however, if such extension would cause payment of interest on or principal of any Eurodollar Rate Advance to be made in the next following month, such payment shall be made on the immediately preceding Business Day.

(g) Payments From Borrower’s Accounts. The Borrower hereby authorizes each Lender Party and each of its Affiliates, if and to the extent payment owed to such Lender Party is not made when due hereunder or, in the case of a Lender Party, under the Notes held by such Lender Party, to charge from time to time, to the fullest extent permitted by law but subject to Sections 2.11 and 9.05, against any or all of the Borrower’s accounts with such Lender Party or such Affiliate any amount so due.

Section 2.10 Taxes.

(a) Withholding Taxes. Any and all payments by the Borrower hereunder or under the Notes or any other Loan Document shall be made, in accordance with Section 2.09, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto

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(“Taxes”), except to the extent required by applicable law. If the Borrower shall be required by applicable law to deduct or withhold any Tax (other than an Excluded Tax) from or in respect of any sum payable by the Borrower or under this Agreement, the Notes or any other Loan Documents to any Lender Party or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to the additional sum payable pursuant to this clause (i)) such Lender Party or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions or withholdings been made, (ii) the Borrower shall make such deductions or withholdings, and (iii) the Borrower shall pay the full amount deducted or withheld to the relevant taxation authority or other authority in accordance with applicable law. The Taxes for which the Borrower is required to make additional payments pursuant to this Section 2.10(a) are called herein “Indemnified Taxes”.

(b) Other Taxes. In addition, the Borrower shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies (other than Excluded Taxes) that arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or the Notes (hereinafter referred to as “Other Indemnified Taxes”).

(c) Excluded Taxes. For the purposes of this Section 2.10, “Excluded Taxes” means, with respect to any Lender Party, the Administrative Agent and any other Person entitled to receive a payment to be made by or on account of any obligation of the Borrower hereunder or under the Notes (each of which is called herein a “Tax Indemnitee”), (i) any Taxes which are imposed on or with respect to, or measured by, the net income of such Tax Indemnitee and which are imposed by the United States of America, or by any government or other taxation authority in the jurisdiction under the laws of which such Tax Indemnitee is organized or in which its principal office is located or, in the case of any Lender Party, in which any of its Applicable Lending Offices is located or, in the case of the Administrative Agent, in which it has an office location at which it performs its duties as Administrative Agent, (ii) in the case of any Lender Party or Administrative Agent that is organized under the laws of a jurisdiction outside the United States of America, any withholding tax that (A) is in effect and applies to amounts payable by the Borrower under this Agreement, the Notes or any other Loan Document to or for the benefit of such Lender Party at the time such Lender Party becomes a party to this Agreement (or designates a new Applicable Lending Office) except, in the case of any Lender Party that becomes a party to this Agreement or designates a new Applicable Lending Office after the Original Closing Date, to the extent that such Lender Party is entitled at the time it designates a new Applicable Lending Office, or to the extent that such Lender Party’s assignor was entitled at the time such Lender Party becomes a party to this Agreement, as the case may be, to receive additional amounts from the Borrower with respect to any withholding tax pursuant to Section 2.10(a), or (B) is attributable to such Lender Party’s failure to comply with Section 2.10(f) or such Administrative Agent’s failure to comply with Section 2.10(f) or 9.07(d), other than by reason of not being eligible for any exception from, or reduced rate of, withholding upon completion of the Internal Revenue Service Form at the time required, (iii) any Tax that is imposed in connection with any sale, assignment, transfer or other disposition by any Tax Indemnitee of all or any part of its interest in this Agreement, the Notes or any other Loan Documents other than during the continuance of an Event of Default, and (iv) any Tax imposed by any government or other taxation authority in any jurisdiction to the extent such Tax is

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attributable to a connection between such jurisdiction and such Tax Indemnitee other than a connection arising from the transactions contemplated by this Agreement and the other Loan Documents.

(d) Indemnification. The Borrower shall indemnify each Lender Party and the Administrative Agent for the full amount of Indemnified Taxes and Other Indemnified Taxes, and for the full amount of taxes imposed by any jurisdiction on amounts payable under this Section 2.10, paid by such Lender Party or the Administrative Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender Party or the Administrative Agent (as the case may be) makes written demand therefor, provided that such written demand includes a description in reasonable detail of the Indemnified Tax or Other Indemnified Tax for which indemnification is being demanded and the calculation in reasonable detail of the amount of such indemnity. So long as no Default shall have occurred and be continuing, and the Administrative Agent or Lender Party shall have determined that no adverse tax consequences could reasonably be expected to result therefrom, at the request and expense of the Borrower and after receipt of an opinion from recognized counsel (reasonably satisfactory to the Administrative Agent or the applicable Lender Party, as the case may be) stating that there is a substantial basis to contest the imposition or assertion of an Indemnified Tax or Other Indemnified Tax or Tax for which the Borrower is or would be required to indemnify the Administrative Agent or applicable Lender Party pursuant to Section 2.08 (a “Tax Opinion”), the Administrative Agent or such Lender Party, as applicable, shall contest the imposition or assertion of such Indemnified Tax or Other Indemnified Tax or Tax in good faith in accordance with applicable law; provided, that such imposition or assertion of an Indemnified Tax or Other Indemnified Tax or Tax exceeds $100,000. The Borrower hereby agrees to reimburse the Administrative Agent or such Lender Party for all costs of such contest upon demand. The Administrative Agent or such Lender Party, as applicable, shall have responsibility for the conduct of any contest conducted pursuant to this Section 2.10(d).

(e) Evidence of Payment. Within 30 days after the date of any payment by the Borrower of an Indemnified Tax pursuant to Section 2.10(a) or any Other Indemnified Tax pursuant to Section 2.10(b), the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 9.02, the original receipt of payment thereof or a certified copy of such receipt or, if the relevant taxation authority does not provide a receipt for such payment, such evidence of such payment as may be reasonably obtainable by the Borrower and reasonably satisfactory to the Administrative Agent. In the case of any payment hereunder or under the Notes by the Borrower through an account or branch outside the United States or on behalf of the Borrower by a payor that is not a United States person, if the Borrower determines that no Taxes are payable in respect thereof, the Borrower shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Indemnified Taxes. Notwithstanding such opinion, if any Lender Party or the Administrative Agent receives notice from the relevant taxing authority that any Indemnified Tax is due with respect to such payment, the Borrower shall indemnify such Lender Party or the Administrative Agent, as the case may be, to the extent required by Section 2.10(d). For purposes of this subsection (e) and subsection (f), the terms “United States” and “United States person” shall have the meanings specified in Section 7701 of the Internal Revenue Code.

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(f) Foreign Lenders and L/C Banks. Each Lender Party organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender, and on the date of the Assignment and Acceptance pursuant to which it became a Lender Party in the case of each other Lender Party, and from time to time thereafter upon the reasonable request in writing by the Borrower or the Administrative Agent (but only so long thereafter as such Lender Party remains lawfully able to do so), provide the Administrative Agent and the Borrower with a properly completed and signed Internal Revenue Service Form W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender Party is exempt from or is entitled to a reduced rate of United States withholding tax on payments under this Agreement or the Notes. If the form provided by a Lender Party at the time such Lender Party first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered an Excluded Tax unless and until such Lender Party provides the appropriate form certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered an Excluded Tax for periods governed by such form; provided, however, that if, at the date of the Assignment and Acceptance pursuant to which a Lender Party assignee becomes a party to this Agreement, the Lender Party assignor was entitled to indemnity payments under Section 2.10(a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Indemnified Taxes shall include (in addition to withholding taxes, other than Excluded Taxes, that may be imposed in the future or other amounts otherwise included in Indemnified Taxes) United States withholding tax, if any, applicable with respect to the Lender Party assignee on such date. If any form or document referred to in this Section 2.10(f) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service Form W-8BEN or W-8ECI, that the Lender Party reasonably considers to be confidential, the Lender Party shall give notice thereof to the Borrower and shall not be obligated to include in such form or document such confidential information.

The Administrative Agent, and any successor Administrative Agent, that is organized under the laws of a jurisdiction outside the United States shall, on or prior to the date it becomes a party to this Agreement, and from time to time thereafter upon the reasonable request in writing by the Borrower, provide the Borrower with a properly completed and signed Internal Revenue Service Form W-8IMY (including all required attachments and supplements).

(g) Mitigation of Withholding Taxes. Any Lender Party claiming any additional amounts payable pursuant to this Section 2.10 shall use commercially reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Eurodollar Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender Party, be otherwise disadvantageous to such Lender Party.

If the Borrower is required by applicable law to withhold any Indemnified Tax with respect to any amount payable to or for the benefit of any Lender Party pursuant to this Agreement or the Notes, the Borrower may, at any time upon at least ten (10) Business Days prior written notice to the Administrative Agent, arrange to have any other Lender or any

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Eligible Assignee purchase from the affected Lender in accordance with Section 9.07 all of its Notes and/or Revolving Commitments for an amount equal to the aggregate outstanding principal amount thereof plus interest thereon accrued to (but not including) the date of purchase.

(h) Refunds. If, in the case of any Indemnified Tax, Other Indemnified Tax, or Tax in respect of which the Borrower has paid an indemnity to or for the account of any Tax Indemnitee pursuant to this Section 2.10 or Section 2.08, as the case may be, the Tax Indemnitee has received a refund of such Indemnified Tax, Other Indemnified Tax or Tax pursuant to Section 2.08, then the Tax Indemnitee shall remit to the Borrower the portion of such refund (net of any expenses incurred in connection therewith) that is attributable to the payment of such Indemnified Tax, Other Indemnified Tax, or Tax as determined in the sole discretion of the Tax Indemnitee which determination shall be final, provided that if an Event of Default shall have occurred the Tax Indemnitee shall cease to have any obligation under this Section 2.10(h).

Section 2.11 Sharing of Payments, Etc. If any Lender Party shall obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise, other than as a result of an assignment pursuant to Section 9.07) (a) on account of Obligations due and payable to such Lender Party hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender Party at such time to (ii) the aggregate amount of the Obligations due and payable to all Lender Parties hereunder and under the Notes at such time) of payments on account of the Obligations due and payable to all Lender Parties hereunder and under the Notes at such time obtained by all the Lender Parties at such time or (b) on account of Obligations owing (but not due and payable) to such Lender Party hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing to such Lender Party at such time to (ii) the aggregate amount of the Obligations owing (but not due and payable) to all Lender Parties hereunder and under the Notes at such time) of payments on account of the Obligations owing (but not due and payable) to all Lender Parties hereunder and under the Notes at such time obtained by all the Lender Parties at such time, such Lender Party shall forthwith purchase from the other Lender Parties such interests or participating interests in the Obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Lender Party to share the excess payment ratably with each of them; provided, however that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender Party, such purchase from each other Lender Party shall be rescinded and such other Lender Party shall repay to the purchasing Lender Party the purchase price to the extent of such other Lender Party’s ratable share (according to the proportion of (i) the purchase price paid to such Lender Party to (ii) the aggregate purchase price paid to all Lender Parties) of such recovery together with an amount equal to such Lender Party’s ratable share (according to the proportion of (i) the amount of such other Lender Party’s required repayment to (ii) the total amount so recovered from the purchasing Lender Party) of any interest or other amount paid or payable by the purchasing Lender Party in respect of the total amount so recovered. The Borrower agrees that any Lender Party so purchasing an interest or participating interest from another Lender Party pursuant to this Section 2.11 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such interest or participating interest as fully as if such Lender Party were the direct creditor of the Borrower in the amount of such interest or participating interest.

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Section 2.12 Use of Proceeds. The proceeds of the Advances and drawings under the Letters of Credit shall be available (and the Borrower agrees that it shall use such proceeds): (a) to repay in full all amounts outstanding under the Existing Credit Agreement, (b) to pay transaction fees and expenses, (c) to repay amounts outstanding under the Synthetic Lease Documents and (d) to provide working capital for the Borrower and its Subsidiaries and, subject to the provisions of this Agreement and the other Loan Documents, for other general corporate purposes of the Borrower and its Subsidiaries. No portion of the proceeds of any borrowing under this Agreement shall be used by the Borrower or any of its Subsidiaries in any manner that might cause the borrowing or the application of such proceeds to violate Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Securities Exchange Act of 1934, as amended from time to time, and any successor statute, in each case as in effect on the date or dates of such borrowing and such use of proceeds.

Section 2.13 Evidence of Debt.

(a) Maintenance of Accounts by Lenders. Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Advance owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(b) Maintenance of Accounts by Agent. The Register maintained by the Administrative Agent pursuant to Section 9.07(c) shall include a control account, and a subsidiary account for each Lender Party, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the Interest Type of the Advances comprising such Borrowing and any Interest Period applicable thereto, (ii) the terms of each Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender Party hereunder, and (iv) the amount of any sum received by the Administrative Agent from the Borrower hereunder and each Lender Party’s share thereof. The entries made in the Register shall be conclusive and binding for all purposes, absent manifest error.

Section 2.14 Conversion of Advances.

(a) Optional. The Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 9:00 a.m. (Los Angeles, California time) on the third Business Day prior to the date of the proposed Conversion, Convert all or any portion of the Advances of one Interest Type comprising the same Borrowing into Advances of the other Interest Type; provided, however, that (i) any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, (ii) any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than $3,000,000 and integral multiples of $1,000,000 thereafter, (iii) no Conversion of any Advances shall result in more separate Borrowings than

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permitted under Section 2.06(b) and (iv) each Conversion of Advances comprising part of the same Borrowing under the Revolving Facility shall be made ratably among the Lenders in accordance with their Commitments under the Revolving Facility. Each such notice of Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for such Advances. Each notice of Conversion shall be irrevocable and binding on the Borrower and shall be subject to Section 9.04(c).

(b) Mandatory. On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $3,000,000, such Advances shall automatically Convert into Base Rate Advances.

ARTICLE III

AMOUNTS AND TERMS OF LETTERS OF CREDIT

Section 3.01 The Letter of Credit Subfacility. The Borrower may request that the L/C Bank Issue Letters of Credit for the account of the Borrower from time to time on any Business Day during the period after the Closing Date until the Commitment Termination Date (a) in an aggregate Available Amount for all Letters of Credit not to exceed at any time Fifteen Million Dollars ($15,000,000) (the “Letter of Credit Subfacility”), and (b) in an Available Amount for each such Letter of Credit not to exceed the Unused Revolving Commitments of the Lenders on such Business Day. All Letters of Credit outstanding under and as defined in the Existing Credit Agreement shall be deemed to be Letters of Credit Issued hereunder. The L/C Bank shall not be obligated to issue a Letter of Credit if such Issuance would cause the sum of the Revolving Advances, the Swing Line Advances and the Letter of Credit Obligations then outstanding to exceed the Revolving Commitments of the Lenders. No Letter of Credit shall (i) have a face amount of less than $500,000, or (ii) have an expiration date (including all rights of the Borrower or the beneficiary to require renewal) later than the earlier of five (5) Business Days before the Commitment Termination Date and one year after the date of issuance thereof; provided, however, any Letter of Credit may by its terms be renewable on terms satisfactory to the L/C Bank, but shall not have an expiration date later than five Business Days before the Commitment Termination Date unless the Borrower and the applicable L/C Bank enter into an agreement satisfactory to such L/C Bank in its sole discretion with respect to the acceleration and replacement of such Letter of Credit, which agreement may require the Borrower to cash collateralize such Letter of Credit or enter into such other collateral arrangements as determined by the L/C Bank in its sole discretion. Within the limits of the Letter of Credit Subfacility, and subject to the limits referred to above, the Borrower may request the Issuance of one or more Letters of Credit under this Section 3.01, repay amounts due resulting from L/C Advances thereunder pursuant to Section 3.03, and request the Issuance of one or more additional Letters of Credit under this Section 3.01.

Section 3.02 Issuance of Letters of Credit.

(a) Notice of Issuance. Each Letter of Credit shall be Issued pursuant to a Notice of Issuance, which must be received by the Administrative Agent and the

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L/C Bank not later than 9:00 a.m. (Los Angeles, California time) on the third Business Day prior to the date of the proposed Issuance of such Letter of Credit (or such shorter period as may be acceptable to the applicable L/C Bank). Each such Notice of Issuance shall specify the requested (i) date of such Issuance (which shall be a Business Day), (ii) Available Amount of such Letter of Credit, (iii) expiration date of such Letter of Credit, (iv) name and address of the beneficiary of such Letter of Credit, and (v) form of such Letter of Credit, and shall be accompanied by such customary application and agreement for letter of credit of the L/C Bank (a “Letter of Credit Agreement”) as the L/C Bank may specify to the Borrower for use in connection with such requested Letter of Credit.

(b) Conditions to Issuance. If (i) the requested form of such Letter of Credit is acceptable to the Administrative Agent and the L/C Bank in the reasonable discretion of each, and (ii) such L/C Bank has not received notice from the Administrative Agent or the Required Lenders that the Issuance of such Letter of Credit is not authorized because such Issuance would not comply with the requirements of clause (a) or (b) of Section 3.01 or one or more of the conditions set forth in Section 4.02 has not been satisfied, then such L/C Bank will, upon fulfillment of the applicable conditions set forth in Section 4.02 (which fulfillment such L/C Bank may assume in the absence of actual knowledge, or notice received from the Borrower, the Administrative Agent or the Required Lenders, to the contrary) and subject to the provisions of this Article III, make such Letter of Credit available to the Borrower at the Administrative Agent’s office referred to in Section 9.02 or as otherwise agreed upon with the Borrower in connection with such Issuance. In the event and to the extent that the provisions of any Letter of Credit Agreement shall conflict with this Agreement, the provisions of this Agreement shall govern.

Section 3.03 Drawing and Reimbursement. The Borrower agrees to reimburse the L/C Bank under each Letter of Credit, within one Business Day after it has notice of any L/C Advance by such L/C Bank thereunder, for the principal amount of such L/C Advance, and shall pay to such L/C Bank, on demand, interest on the unreimbursed principal of such L/C Advance at a rate per annum equal to (a) from the date of such L/C Advance to the first Business Day after notice thereof has been given to the Borrower, the rate applicable to Base Rate Advances in effect from time to time, and (b) from and after such first Business Day, the Default Rate. If the Borrower shall fail to so reimburse the L/C Bank within one Business Day after the Borrower receives notice that any such L/C Advance has been made, then upon demand by the L/C Bank, and whether or not a Default has occurred and is continuing or any conditions set forth in Section 4.02 are satisfied, each Lender shall purchase from such L/C Bank, and such L/C Bank shall sell and assign to each Lender, such Lender’s Pro Rata Share of such outstanding L/C Advance as of the date of such purchase, by making available for the account of such L/C Bank, by deposit to the Administrative Agent’s Account, in same day funds, an amount equal to the portion of the outstanding principal amount of such L/C Advance to be purchased by such Lender. Each Lender agrees to purchase its Pro Rata Share of an outstanding L/C Advance on (A) the Business Day on which demand therefor is made by the L/C Bank which made such L/C Advance, provided notice of such demand is given not later than 12:00 noon (Los Angeles, California time) on such Business Day, or (B) the first Business Day next succeeding such demand if notice of such demand is given after such time. Upon any such assignment by an L/C Bank to any Lender of a portion of an L/C Advance, such L/C Bank represents and warrants to such Lender that such L/C Bank is the legal and beneficial owner of such interest being assigned by it, but makes no other representation or warranty and assumes no responsibility with respect to such L/C Advance, the Loan Documents or any Loan Party.

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Section 3.04 Obligations Absolute. The Obligations of the Borrower under this Agreement, any Letter of Credit Agreement and any other agreement or instrument relating to any Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, such Letter of Credit Agreement and such other agreement or instrument under all circumstances, including, without limitation, the following circumstances (it being understood that any such payment by the Borrower is without prejudice to, and does not constitute a waiver of, any rights the Borrower might have or might acquire as a result of the payment by any L/C Bank of any draft or the reimbursement by the Borrower thereof):

(a) any lack of validity or enforceability of this Agreement, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (this Agreement and all of the other foregoing being collectively referred to herein as the “L/C Related Documents”);

(b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of the Borrower in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents;

(c) the existence of any claim, set-off, defense or other right that the Borrower or any of its Subsidiaries may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), any L/C Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction;

(d) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

(e) payment by any L/C Bank under a Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit, or payment by the L/C Bank under a Letter of Credit in any other circumstances in which conditions to payment are not met;

(f) any exchange, release or non-perfection of any Collateral or other collateral, or any release or amendment or waiver of or consent to departure from the Guaranty or any other guarantee, for all or any of the Obligations of the Borrower in respect of the L/C Related Documents; or

(g) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a Guarantor or any other guarantor.

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Section 3.05 Letter of Credit Compensation.

(a) The Borrower shall pay to the Administrative Agent for the account of each Lender, a letter of credit fee with respect to each Letter of Credit, in an amount equal to a rate per annum equal to the Applicable Margin for Eurodollar Rate Advances in effect from time to time on such Lender’s Pro Rata Share of the average daily Available Amount of such Letter of Credit outstanding from time to time. The letter of credit fees payable under this Section 3.05(a) shall be payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing December 31, 2004, and on the Commitment Termination Date. For purposes of computing any fees under this Section 3.05(a), the determination of the maximum amount available to be drawn under a Letter of Credit at any time shall assume strict compliance with all conditions for drawing. Any fees paid pursuant to this Section 3.05(a) are nonrefundable.

(b) The Borrower shall pay to each L/C Bank, for its own account and on demand, such other commissions, issuance fees, fronting fees, transfer fees and other fees, charges and expenses in connection with the Issuance, amendment, transfer, cancellation or administration of each Letter of Credit as the Borrower and such L/C Bank shall agree.

Section 3.06 Use of Letters of Credit. Any Letters of Credit Issued hereunder shall be used solely to support Obligations of the Borrower and its Subsidiaries not prohibited hereunder.

ARTICLE IV

CONDITIONS OF LENDING

Section 4.01 Conditions Precedent to Initial Borrowing. The obligation of each Lender Party to make an Advance and the obligation of an L/C Bank to Issue a Letter of Credit on the occasion of the initial Borrowing is subject to the following conditions precedent:

(a) The Lender Parties shall be satisfied with the corporate and legal structure and capitalization of each Loan Party, including the terms and conditions of the charter, bylaws and each class of Equity Interests of each Loan Party and of each agreement or instrument relating to such structure or capitalization.

(b) (i) The Required Lenders under the Existing Credit Agreement shall have consented to the addition of a revolving credit facility to the Existing Credit Agreement, the proceeds of which shall be used to repay all Advances under and as defined in the Existing Credit Agreement and (ii) the Administrative Agent (A) shall be satisfied, and shall have received satisfactory evidence, that any outstanding notes under the Existing Credit Agreement held by any lender thereunder who is not a Lender under this Agreement shall be prepaid, redeemed or defeased in full or otherwise satisfied and extinguished contemporaneously with the initial Borrowing and (B) shall be satisfied in all respects with the Existing Debt and all terms and conditions of any Existing Debt Agreement;

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(c) Since December 28, 2003 nothing shall have occurred (and the Lenders shall have become aware of no facts or conditions not previously known) which the Lenders shall determine could reasonably be expected to have a Material Adverse Effect.

(d) There shall exist no action, suit, investigation, litigation or proceeding pending or threatened before any court, governmental agency or arbitrator affecting any Loan Party or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect or which purports to affect the legality, validity or enforceability of this Agreement, any Note, any other Loan Document or the consummation of the transactions contemplated hereby.

(e) The Borrower shall have paid all accrued costs, fees and expenses of, or other compensation payable to, the Administrative Agent, the Syndication Agent, the Lead Arranger and the Lender Parties (including the accrued fees and expenses of counsel to the Administrative Agent, the Syndication Agent and the Lead Arranger).

(f) The Synthetic Lease Documents shall be in full force and effect, and no consent shall be required thereunder in connection with the execution and delivery of this Agreement.

(g) The Administrative Agent shall have received, and shall be satisfied in all respects with, (i) if not readily available from public sources on the internet, the Consolidated financial statements of the Borrower and its Subsidiaries for the Fiscal Years ended December 30, 2001, December 29, 2002 and December 28, 2003, including balance sheets and income and cash flow statements audited by independent public accountants of recognized national standing and prepared in conformity with GAAP and (ii) the unaudited interim Consolidated financial statements of the Borrower and its Subsidiaries for each fiscal quarter ended subsequent to the date of the latest financial statements delivered pursuant to clause (i) of this paragraph as to which such financial statements are available.

(h) The Administrative Agent shall have received on or before the day of the initial Borrowing the following, each dated such day (unless otherwise specified), in form and substance satisfactory to the Administrative Agent (unless otherwise specified) and (except for the Notes) in sufficient copies for each Lender Party:

(i) Fully executed counterparts of this Agreement.

(ii) The Notes to the order of each Lender, as appropriate.

(iii) Certified copies of the resolutions of the Board of Directors of the Borrower and each other Loan Party approving this Agreement, the Notes, and each other Loan Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Notes, and each other Loan Document.

(iv) With respect to each Loan Party, a copy of a certificate of the Secretary of State of the State of such Loan Party’s organization, dated

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reasonably near the date of the initial Borrowing, listing the charter of such Loan Party and each amendment thereto on file in such office and certifying (A) as to a true and correct copy of the charter of such Loan Party and each amendment thereto on file in such Secretary’s office, and (B) that (1) such amendments are the only amendments to such Loan Party’s charter on file in such office, (2) such Loan Party has paid all franchise taxes to the date of such certificate, and (3) such Loan Party is duly incorporated and in good standing or presently subsisting under the laws of the State of such Loan Party’s organization.

(v) With respect to each Loan Party, a copy of a certificate of the Secretary of State of each jurisdiction in which such Loan Party is qualified to do business, as listed on Schedule 4.01(h)(v), dated reasonably near the date of the initial Borrowing, stating that such Loan Party is duly qualified and in good standing as a foreign corporation in such State and has filed all annual reports required to be filed to the date of such certificate.

(vi) A certificate of each Loan Party, signed on behalf of such Loan Party by its President or a Vice President and its Secretary or any Assistant Secretary, dated the date of the initial Borrowing (the statements made in which certificate shall be true on and as of the date of the initial Borrowing), certifying as to (A) the absence of any amendments to the charter of such Loan Party since the date of the Secretary of State’s certificate referred to in Section 4.01(h)(iv), (B) a true and correct copy of the bylaws of such Loan Party as in effect on the date of the initial Borrowing, (C) the due incorporation and good standing of such Loan Party as a corporation organized under the laws of the State of its jurisdiction of incorporation, and the absence of any proceeding for the dissolution or liquidation of such Loan Party, (D) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the date of the initial Borrowing and (E) the absence of any event occurring and continuing, or resulting from the initial Borrowing, that constitutes a Default.

(vii) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign this Agreement, the Notes, and each other Loan Document to which they are or are to be parties and the other documents to be delivered hereunder and thereunder.

(viii) A reaffirmation agreement in substantially the form of Exhibit E-4 (as amended from time to time in accordance with its terms, the “Reaffirmation Agreement”), duly executed by each Loan Party, together with:

(A) certificates representing any Pledged Shares (as defined in the Pledge Agreement) not previously delivered to the Collateral Agent (as defined in the Pledge Agreement), accompanied by undated stock powers executed in blank, and any instruments evidencing the Pledged Debt (as defined in the Security Agreement) not previously delivered to the Administrative Agent, endorsed in blank,

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(B) duly executed financing statements in appropriate form for filing under the Uniform Commercial Code in all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect, maintain and protect the Liens created by the Security Agreement, the Pledge Agreement and the Subordinate Security Agreement covering the Collateral described in the Security Agreement, the Pledge Agreement and the Subordinate Security Agreement and completed requests for information dated on or before the date of the initial Borrowing listing all effective financing statements filed in such jurisdictions that name any Subsidiary of the Borrower (other than any Foreign Subsidiary) as debtor, together with copies of such other financing statements,

(C) evidence of the insurance required by the terms of the Security Agreement and the Subordinate Security Agreement (subject to such exceptions as may be acceptable to the Administrative Agent), and

(D) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect, maintain and protect the Liens created under the Security Agreement, the Pledge Agreement, the Subordinate Security Agreement or covering any Collateral, or the priority thereof, has been taken.

(ix) Trust Deed Modifications with respect to the Trust Deeds, duly executed by the applicable Loan Party in appropriate form for filing in all filing or recording offices that the Administrative Agent may deem necessary or desirable in order to maintain a valid and subsisting Lien subject only to Permitted Liens on the property described therein in favor of the Administrative Agent for the benefit of the Secured Parties, together with:

(A) Trust Deed modification endorsements to the Trust Deed Policies issued by Chicago Title Insurance Company in form and substance and in amounts acceptable to the Administrative Agent,

(B) evidence of the insurance required by the terms of each Trust Deed (subject to such exceptions as may be acceptable to the Administrative Agent), and

(C) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to maintain valid first and subsisting Liens on the property described in the Trust Deeds has been taken.

(x) Intentionally omitted.

(xi) Such financial, business and other information regarding the Borrower and its Subsidiaries as the Lender Parties shall have requested, including, without limitation, information as to possible contingent liabilities, tax matters, environmental matters, obligations under ERISA and Employee Benefit Plans, collective

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bargaining agreements and other arrangements with employees, and forecasts prepared by management of the Borrower, in form and substance satisfactory to the Lender Parties, of balance sheets, income statements and cash flow statements on an annual basis for each year until the Commitment Termination Date.

(xii) A certificate, in the form of Exhibit I hereto, attesting to the Solvency of each Loan Party before and after giving effect to the transactions contemplated hereby, from the Borrower’s chief financial officer.

(xiii) Favorable opinions of (i) Holland & Knight LLP, special California counsel for the Borrower and the other Loan Parties, in substantially the form of Exhibit J-1 hereto and (ii) Donald G. Alvarado, general counsel of the Borrower, in substantially the form of Exhibit J-2 hereto and, in each case, as to such other matters as any Lender Party through the Agent may reasonably request.

(xiv) Intentionally omitted.

(xv) Trust Deed Modifications with respect to the Second Trust Deeds, duly executed by the Borrower or the Owner Trustee, as applicable, in appropriate form for filing in all filing or recording offices that the Administrative Agent may deem necessary or desirable in order to maintain a valid and subsisting Lien subject only to Permitted Liens on the property described therein in favor of the Administrative Agent for the benefit of the Secured Parties, together with:

(A) trust deed modification endorsements to the Second Trust Deed Title Policies issued by Chicago Title Insurance Company in form and substance and in amounts acceptable to the Administrative Agent,

(B) evidence of the insurance required by the terms of each Second Trust Deed (subject to such exceptions as may be acceptable to the Administrative Agent), and

(C) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to maintain valid second and subsisting Liens on the property described in the Second Trust Deeds has been taken.

(xvi) Intentionally omitted.

(xvii) Intentionally omitted.

(xviii) Intentionally omitted.

(xix) Evidence of insurance naming the Administrative Agent as additional insured and/or loss payee with such responsible and reputable insurance companies or associations, and in such amounts and covering such risks, as is reasonably satisfactory to the Initial Lenders.

(xx) A Notice of Borrowing, Notice of Swing Line Borrowing or Notice of Issuance, as applicable, relating to the initial Borrowing.

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Section 4.02 Conditions Precedent to Each Borrowing and Issuance. The obligation of each Lender to make an Advance and the obligation of an L/C Bank to Issue a Letter of Credit (including the initial issuance), and the right of the Borrower to request a Swing Line Borrowing, shall be subject to the further conditions precedent that on the date of such Borrowing or Issuance:

(a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing, Notice of Swing Line Borrowing or Notice of Issuance and the acceptance by the Borrower of the proceeds of such Borrowing or of such Letter of Credit shall constitute a representation and warranty by the Borrower that both on the date of such notice and on the date of such Borrowing or Issuance such statements are true):

(i) the representations and warranties contained in each Loan Document are correct on and as of the date of such Borrowing or issuance, before and after giving effect to such Borrowing or Issuance and to the application of the proceeds therefrom, as though made on and as of such date (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date of such Borrowing or Issuance, in which case such representations and warranties shall have been true and correct as of such other date), and

(ii) no Default has occurred and is continuing, or would result from such Borrowing or Issuance or from the application of the proceeds therefrom; and

(b) the Administrative Agent shall have received a Notice of Borrowing, Notice of Swing Line Borrowing or Notice of Issuance, and such other approvals, opinions or documents as any Lender or such L/C Bank through the Administrative Agent may reasonably request.

Section 4.03 Determinations Under Section 4.01. For purposes of determining compliance with the conditions specified in Section 4.01, each Lender Party has reviewed all documents which it has deemed reasonable to review and shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender Parties unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender Party prior to the initial Borrowing specifying its objection thereto and such Lender Party shall not have made available to the Administrative Agent such Lender Party’s ratable portion of such Borrowing.

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ARTICLE V

REPRESENTATIONS AND WARRANTIES

Section 5.01 Representations and Warranties of the Borrower. The Borrower represents and warrants as follows:

(a) Incorporation, Qualification, Corporate Power and Authority. Each Loan Party (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not be likely to have a Material Adverse Effect and (iii) has all requisite corporate power and authority (including all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. All of the outstanding Equity Interests in the Borrower have been validly issued and are fully paid and non-assessable.

(b) Capital Stock. Set forth on Schedule 5.01(b) hereto is a complete and accurate list of all Subsidiaries of the Borrower and each Loan Party, showing (as to each such Subsidiary) as of the date hereof, the jurisdiction of its incorporation, the number of shares of each class of its Equity Interests authorized and the number outstanding, the percentage of each such class of its Equity Interests owned (directly or indirectly) by the Borrower or such Loan Party and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase and similar rights. All of the outstanding Equity Interests of all of such Subsidiaries have been validly issued, are fully paid and non-assessable and are owned by the Borrower or such Loan Party or one or more of its Subsidiaries free and clear of all Liens, except those created by the Collateral Documents. Each such Subsidiary (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not be likely to have a Material Adverse Effect and (iii) has all requisite corporate power and authority (including all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted.

(c) Authorization; No Conflict or Violation; Compliance with Laws. The execution, delivery and performance by each Loan Party of this Agreement, the Notes, and each other Loan Document to which it is or is to be a party, and the consummation of the other transactions contemplated hereby and thereby, are within such Loan Party’s corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party’s charter or by-laws, (ii) violate any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default or require any payment to be made under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens created by the Collateral Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which could have a Material Adverse Effect.

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(d) Approvals and Consents. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of this Agreement, the Notes, or any other Loan Document to which it is or is to be a party, or for the consummation of the other transactions contemplated hereby and thereby, (ii) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (iii) the perfection or maintenance of the Liens created by the Collateral Documents (including the first priority nature thereof, except to the extent provided in the Intercreditor Agreement (Leased Property)) or (iv) the exercise by the Administrative Agent or any Lender Party of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except for the authorizations, approvals, actions, notices, consents and filings listed on Schedule 5.01(d) hereto, all of which have been duly obtained, taken, given or made and are in full force and effect.

(e) Enforceability. This Agreement has been, and each of the Notes, and each other Loan Document when delivered hereunder will have been, duly executed and delivered by each Loan Party thereto. This Agreement is, and each of the Notes, and each other Loan Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party thereto, enforceable against such Loan Party in accordance with its terms.

(f) Financial Statements.

(i) The Consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at December 28, 2003, and the related Consolidated and consolidating statements of income and cash flows of the Borrower and its Subsidiaries for the Fiscal Year then ended, accompanied by an unqualified opinion of Ernst & Young LLP, independent public accountants, and the Consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at June 13, 2004, and the related Consolidated and consolidating statements of income and cash flows of the Borrower and its Subsidiaries for the 24 weeks then ended, duly certified by the chief financial officer of the Borrower, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheets as at June 13, 2004 and said statements of income and cash flows for the 24 weeks then ended, to year-end audit adjustments, the Consolidated and consolidating financial condition of the Borrower and its Subsidiaries as at such dates and the Consolidated and consolidating results of the operations of the Borrower and its Subsidiaries for the periods ended on such dates, all in accordance with GAAP applied on a consistent basis, and since December 28, 2003, there has been no Material Adverse Change.

(ii) The Consolidated forecasted balance sheets, income statements and cash flow statements of the Borrower and its Subsidiaries delivered to the Lenders pursuant to Section 4.01(h)(xi) and 6.03(l) were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in the light of conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrower’s best estimate of its future financial performance.

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(iii) Except as fully disclosed in the financial statements delivered pursuant to Section 4.01(f), there were as of the date of the delivery of such financial statements and as of the Closing Date no liabilities or obligations with respect to the Borrowers or its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in aggregate, could reasonably be expected to have a Material Adverse Effect, and no Loan Party knows of any basis for the assertion against any Loan Party of any liability or obligation of any nature whatsoever that is not fully disclosed in such financial statements which, either individually or in the aggregate, could have a Material Adverse Effect.

(g) Disclosure. Neither the Offering Memorandum nor any other information, exhibit or report furnished by or on behalf of any Loan Party to the Administrative Agent or any Lender Party in connection with the negotiation and syndication of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading.

(h) Litigation. There is no action, suit, investigation, litigation or proceeding affecting any Loan Party, including any Environmental Action, pending or, to the knowledge of Borrower, threatened before any court, governmental agency or arbitrator that (i) could reasonably be expected to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement, any Note, or any other Loan Document or the consummation of the transactions contemplated hereby or thereby. For purposes of disclosure, the Loan Parties have disclosed the litigation set forth on Schedule 5.01(h).

(i) Use of Proceeds.

(i) No proceeds of any Advance will be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Securities Exchange Act of 1934.

(ii) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance or drawings under any Letter of Credit will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock.

(iii) Following application of the proceeds of each Advance, not more than 25 percent of the value of the assets (either of the Borrower only or of the Borrower and its Subsidiaries on a Consolidated basis) subject to the provisions of Section 6.02(a) or 6.02(e) or subject to any restriction contained in any agreement or instrument between the Borrower and any Lender Party or any Affiliate of any Lender Party relating to Debt will be Margin Stock.

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(j) Employee Benefit Plans.

(i) Set forth on Schedule 5.01(j) is a complete and accurate list of all Pension Plans and Multiemployer Plans with respect to any employees of Borrower, any Subsidiary of Borrower or any of their respective ERISA Affiliates.

(ii) Except as set forth on Schedule 5.01(j), the Borrower, each of its Subsidiaries and each of their respective ERISA Affiliates are in compliance with all applicable provisions and requirements of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their obligations under each Employee Benefit Plan.

(iii) The Borrower has received, with respect to each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code, a favorable determination letter from the Internal Revenue Service indicating that such Employee Benefit Plan is so qualified and nothing has occurred subsequent to the issuance of such determination letter which would cause such Employee Benefit Plan to lose its qualified status.

(iv) No liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Employee Benefit Plan or any trust established under Title IV of ERISA (other than required contributions) has been or is expected to be incurred by Borrower, any of its Subsidiaries or any of their ERISA Affiliates.

(v) No ERISA Event has occurred or is reasonably expected to occur that (a) would be reasonably expected to have a Material Adverse Effect, or (b) has resulted in or could reasonably be expected to result in a material liability of the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates.

(vi) Except to the extent set forth on Schedule 5.01(j), no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates.

(vii) The present value of the aggregate accrued benefit liabilities under each Pension Plan sponsored, maintained or contributed to by the Borrower, any of its Subsidiaries or any of their ERISA Affiliates (determined as of the end of the most recent plan year on the basis of the actuarial assumptions specified for funding purposes in the most recent actuarial valuation for such Pension Plan) did not exceed the aggregate current value of the assets of such Pension Plan.

(viii) As of the most recent valuation date for each Multiemployer Plan for which the actuarial report is available, the potential liability of the Borrower, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with the potential liability of the Borrower, its Subsidiaries

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and their respective ERISA Affiliates for a complete withdrawal from all other Multiemployer Plans, based on information available pursuant to Section 4221(e) of ERISA, is zero.

(ix) The Borrower, each of its Subsidiaries and each of their ERISA Affiliates have complied with the requirements of Section 515 of ERISA with respect to each Multiemployer Plan and are not in material “default” (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan.

(k) No Adverse Conditions. Neither the business nor the properties of any Loan Party are affected by any fire, explosion, accident, strike, lockout, slowdown, stoppage, unfair labor practice or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that could have a Material Adverse Effect and there has been no Material Adverse Change affecting the value of the Collateral or the ability of the Borrower or any other Loan Party to perform its obligations under the Loan Documents.

(l) Compliance with Environmental Laws.

(i) The operations and properties of each Loan Party and each of its Subsidiaries comply in all respects with all Environmental Laws, all necessary Environmental Permits have been obtained and are in effect for the operations and properties of the Borrower and its Subsidiaries, the Borrower and its Subsidiaries are in compliance in all respects with all such Environmental Permits, and no circumstances exist that could (A) form the basis of an Environmental Action against any Loan Party or any of its Subsidiaries or any of their properties, (B) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law or (C) reasonably be expected to prevent or interfere with the compliance by the Loan Parties and their Subsidiaries with Environmental Laws in the future, in each case except to the extent that any non-compliance, any failure to obtain such Environmental Permits or the existence of such circumstances could not reasonably be expected to have a Material Adverse Effect.

(ii) Except as set forth on Schedule 5.01(l)(ii), (A) as of the Closing Date, none of the properties of any Loan Party or any of its Subsidiaries is listed or, to the knowledge of the Borrower after due inquiry, proposed for listing on the National Priorities List under CERCLA or on the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the Environmental Protection Agency or any analogous state list of sites requiring investigation or cleanup or, to the best of its knowledge and except as could not reasonably be expected to have a Material Adverse Effect, is adjacent to any such property, and except as disclosed in the environmental reports delivered to the Administrative Agent prior to the Closing Date, no underground storage tanks, as such term is defined in 42 U.S.C. § 6991, are located on any property of any Loan Party or any of its Subsidiaries or, to the best of its knowledge and except as could not reasonably be expected to have a Material Adverse

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Effect, on any adjoining property; and (B) after the Closing Date, except as could not reasonably be expected to have a Material Adverse Effect, none of the properties of any Loan Party or any of its Subsidiaries is listed or, to the knowledge of the Borrower after due inquiry, proposed for listing on the National Priorities List under CERCLA or on the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the Environmental Protection Agency or any analogous state list of sites requiring investigation or cleanup or is adjacent to any such property, and no underground storage tanks, as such term is defined in 42 U.S.C. § 6991, are located on any property of any Loan Party or any of its Subsidiaries or, to the best of its knowledge, on any adjoining property.

(iii) (A) Except as could not reasonably be expected to have a Material Adverse Effect, neither any Loan Party nor any of its Subsidiaries has transported or arranged for the transportation of any Hazardous Materials to any location that is listed or, to the knowledge of the Borrower after due inquiry, proposed for listing on the National Priorities List under CERCLA or on the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the Environmental Protection Agency or any analogous state list, and (B) except as could not reasonably be expected to have a Material Adverse Effect, Hazardous Materials have not been generated, used, treated, handled, managed, stored or disposed of on, or released or transported to or from, any property of any Loan Party or any of its Subsidiaries or any adjoining property, except in full compliance with all Environmental Laws and Environmental Permits.

(iv) As of the Closing Date, none of the Loan Parties has received any communication (written or oral), whether from a governmental authority, citizens group, employee or any other Person, that alleges that any Loan Party or any of its Subsidiaries is not in compliance with any Environmental Laws in any manner which could reasonably be expected to have a Material Adverse Effect.

(v) There is no Environmental Action pending or, to the knowledge of the Borrower, threatened against any Loan Party or any of its Subsidiaries, or against any Person for whom any Loan Party or any of its Subsidiaries has retained or assumed environmental liability either contractually or by operation of law that could reasonably be expected to have a Material Adverse Effect.

(vi) Except as could not reasonably be expected to have a Material Adverse Effect, without in any way limiting the generality of the foregoing, (A) there is no asbestos or lead-based materials contained in or forming part of any building, building component, structure or office space owned or leased by any Loan Party or any of its Subsidiaries, and (B) no polychlorinated biphenyls (PCBs) or PCB-containing items are used or stored at any property owned or leased by any Loan Party or any of its Subsidiaries in any manner or quantity.

(vii) The Borrower has conducted a diligent search of its records and has provided to the Administrative Agent all assessments, reports, data, results of investigations or audits, and other information that it discovered as a result of such search regarding environmental matters pertaining to or the environmental condition of any property owned, leased, operated or used by any Loan Party or any of its Subsidiaries, or the compliance (or noncompliance) by any Loan Party or any of its Subsidiaries with any Environmental Laws.

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(viii) No Loan Party, and none of their respective Subsidiaries, is required by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the effectiveness of any transactions contemplated hereby, (i) to perform a site assessment for Hazardous Materials, (ii) to remove or remediate Hazardous Materials, (iii) to give notice to or receive approval from any governmental authority, or (iv) to record or deliver to any Person any disclosure document or statement pertaining to environmental matters.

(m) No Burdensome Agreements. None of the Loan Parties or any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease, license or other agreement or instrument or subject to any charter or corporate restriction that could reasonably be expected to have a Material Adverse Effect.

(n) Tax Information.

(i) Each Loan Party has filed, has caused to be filed or has been included in all material tax returns (Federal, state, local and foreign) required to be filed and has paid all material taxes due, together with any applicable interest and penalties.

(ii) Set forth on Schedule 5.01(n) is a complete and accurate list, as of the date hereof, of each taxable year of each Loan Party for which United States Federal income tax returns have been filed and for which the expiration of the applicable statute of limitations for assessment or collection has not occurred by reason of extension or otherwise (an “Open Year”).

(iii) No issues have been raised by the Internal Revenue Service in respect of Open Years that, in the aggregate, could have a Material Adverse Effect.

(iv) No issues have been raised by any state, local or foreign taxing authority with respect to tax periods for which the expiration of the applicable statute of limitations for assessment or collection has not occurred by reason of extension or otherwise that, in the aggregate, could have a Material Adverse Effect.

(v) None of the Loan Parties has any liability under a tax sharing or similar agreement, except pursuant to the Casino Tax Sharing Documents.

(o) No Investment Company. None of the Loan Parties is an “investment company,” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended, or a “holding company”, or a “subsidiary company” of a “holding company”, or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company”, as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. Neither the making of any Advances, nor the Issuance of any Letters of Credit, nor the application of the

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proceeds or repayment thereof by the Borrower, nor the consummation of the other transactions contemplated hereby, will violate any provision of the Investment Company Act of 1940, as amended or any rule, regulation or order of the Securities and Exchange Commission thereunder or the Public Utility Holding Company Act of 1935, as amended.

(p) Solvency. Each Loan Party is, individually and together with its Subsidiaries, Solvent.

(q) Debt of the Borrower and its Subsidiaries.

(i) Set forth on Schedule 5.01(q)(i) hereto is a complete and accurate list of all Debt which remains outstanding on the Closing Date (the “Existing Debt”), showing as of the date hereof the obligor and the principal amount outstanding thereunder and the maturity date thereof.

(ii) Set forth on Schedule 6.02(a) hereto is a complete and accurate list of all Liens on the property or assets of any Loan Party or any of its Subsidiaries as of the Closing Date (the “Existing Liens”), showing as of the date hereof the lienholder thereof and the property or assets of such Loan Party or such Subsidiary subject thereto.

(r) Real Property.

(i) Set forth on Schedule 5.01(r)(i) hereto is a complete and accurate list, as of the date hereof, of all real property owned by any Loan Party or leased to any Loan Party under a ground lease (collectively, the “Owned Real Property”), showing as of the date hereof the street address, county or other relevant jurisdiction, state, record owner and net book value thereof. Each Loan Party has good, marketable and insurable fee simple title to the property identified on Schedule 5.01(r)(i) as owned and a leasehold interest in the property identified on Schedule 5.10(r)(i) as subject to a ground lease, in each case free and clear of all Liens, other than Liens created or permitted by the Loan Documents. With respect to the Owned Real Property, (i) no Loan Party has entered into any contract for construction on any such parcel that is still in effect (other than contracts for (x) minor improvements which would not give rise to any Lien (other than a Permitted Lien) on any Owned Real Property or (y) maintenance), (ii) to the knowledge of the Loan Parties, the buildings and improvements located on each such parcel are located within the boundary lines of such parcel and are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances, building code requirements, permits, licenses or other forms of approval, regulation or restrictions by any applicable governmental authority, except to the extent that any such violation could not reasonably be expected to have a Material Adverse Effect, and do not encroach on any easement which may burden the land, (iii) to the knowledge of the Loan Parties, the land does not serve any adjoining property for any purpose inconsistent with the use of the land, (iv) except as may be shown on the preliminary title reports issued by Chicago Title Insurance Company with respect to the Owned Real Property, no such parcel is located within any flood plain or subject to any similar type restriction for which any permits or licenses necessary to the use thereof

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have not been obtained, (v) except as may be shown on the preliminary title reports issued by Chicago Title Insurance Company with respect to the Owned Real Property, there are no outstanding options or rights of first refusal or similar rights to purchase any such parcel or any portion thereof or interest therein; and (vi) all facilities located on each such parcel are supplied with utilities and other services necessary for their ownership, operation or use, all of which services are adequate and in accordance with all applicable laws, ordinances, rules and regulations. Chicago Title Insurance Company has provided the Administrative Agent with (x) a preliminary title report with respect to each Owned Real Property, and (y) a copy of each of the Schedule B exceptions listed therein. Except as may be shown on the preliminary title reports provided by Chicago Title Insurance Company, there are no proceedings, claims, disputes or conditions affecting any of the Owned Real Property that might curtail or interfere with the use, operation or ownership of such property. Neither the whole nor any portion of the Owned Real Property nor any other assets of any Loan Party is subject to any governmental decree or order to be sold or is being condemned, expropriated or otherwise taken by any public authority with or without payment of compensation therefor, nor has any Loan Party received any notice of any such proposed condemnation, expropriation or taking. Each Loan Party has obtained all applicable permits required to use and operate all of the Owned Real Property in the manner in which the Owned Real Property is currently being used and operated.

(ii) Set forth on Schedule 5.01(r)(i) (with respect to ground leases) and on Schedule 5.01(r)(ii) hereto is a complete and accurate list, as of the date hereof, of all leases, subleases, assignment of leases and occupancy agreements (together with all amendments, modifications, renewals or extensions of any thereof) of real property under which any Loan Party is the lessee, sublessee or occupant, showing as of the date hereof the street address, county or other relevant jurisdiction and state. Each agreement referenced in this Section 5.01(r)(ii) is in full force and effect, and there are no existing defaults under any such agreement by any Loan Party, or, to the knowledge of Borrower, by any lessor thereunder, nor, to the knowledge of Borrower, has any event occurred that (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a default under any such agreement. Each such agreement constitutes the legal, valid and binding obligation of each applicable Loan Party, enforceable against such Loan Party in accordance with its terms, and each such agreement is, to the knowledge of Borrower, the legal, valid and binding obligation of the lessor thereof, enforceable in accordance with its terms.

(s) Investments. Set forth on Schedule 5.01(s) hereto is a complete and accurate list of all Investments held by any Loan Party, showing as of the date hereof the amount and the obligor or issuer thereof.

(t) Intellectual Property. Set forth on Schedule 5.01(t) hereto is a complete and accurate list of all patents, trademarks, trade names, service marks and copyrights, and all applications therefor and licenses thereof, of each Loan Party, showing as of the date hereof the jurisdiction in which registered or applied, the registration or application number, the date of registration or filing and the expiration date. All registrations listed on Schedule 5.01(t) are in full force and effect and are valid and enforceable and all applications and registrations listed on Schedule 5.01(t) are standing in the name of the current owner, which

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owner is a Loan Party. The conduct of business of the Loan Parties does not infringe upon or violate any intellectual property rights of any third party in any manner which could reasonably be expected to have a Material Adverse Effect. Each Loan Party owns or has the valid right to use all patents, trademarks, trade names, service marks, copyrights and trade secrets used in its business as currently conducted.

(u) Other Agreements. Schedule 5.01(u) sets forth a complete and accurate list as of the date hereof of (i) all joint venture and partnership agreements to which the Borrower or any of its Subsidiaries is a party, and (ii) all covenants not to compete restricting the Borrower or any of its Subsidiaries to which the Borrower or any of its Subsidiaries is a party or by which the Borrower or any of its Subsidiaries is bound.

(v) Intentionally Omitted.

(w) Trust Deeds. The execution and delivery of the Trust Deeds and the Trust Deed Modifications by the Loan Parties, together with the recordation thereof in the appropriate recording offices of the applicable jurisdictions, shall be effective to create in favor of the Administrative Agent for the benefit of the Secured Parties a valid first priority Lien on all of the Owned Real Property, free and clear of all other Liens other than Permitted Liens. Regardless of whether the Synthetic Lease is re-characterized as a financing mechanism, the execution and delivery of the Second Trust Deeds and the Trust Deed Modifications with respect to the Second Trust Deeds modifications by the Borrower and the Owner Trustee, respectively, together with the recordation thereof in the appropriate recording offices of the applicable jurisdictions, shall be effective to create in favor of the Administrative Agent for the benefit of the Secured Parties, a valid second priority (but only to the extent provided in the Intercreditor Agreement (Leased Property)) Lien on all of the Synthetic Lease Properties, free and clear of all other Liens other than Permitted Liens.

(x) First Priority Lien. All filings and other actions necessary or desirable to perfect and protect the security interest in the Collateral created under the Collateral Documents and reaffirmed under the Reaffirmation Agreement have been duly made or taken, and the Collateral Documents create in favor of the Administrative Agent for the benefit of the Secured Parties a valid and, together with such filings and other actions, perfected first priority security interest in the Collateral (other than the Synthetic Lease Properties, in which the Administrative Agent, for the benefit of the Secured Parties, shall have a second priority security interest, but only to the extent provided in the Intercreditor Agreement (Leased Property)), securing the payment of the Obligations under the Loan Documents, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. The Loan Parties are the legal and beneficial owners of the Collateral free and clear of any Lien, except for the liens and security interests created or permitted under the Loan Documents and the Synthetic Lease Documents and the Landlord’s Lien Rights in respect of the property listed on Schedule 5.01(r)(ii) located in the States of Washington, Oregon and Florida.

(y) Insurance. Schedule 5.01(y) sets forth a true and complete listing of all insurance maintained by the Loan Parties as of the date hereof, and with the amounts insured (and any deductibles) set forth therein. The amounts of such insurance cover all risks as is commercially reasonable and prudent with respect to the business and properties of the

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Borrower and its Subsidiaries and which is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates.

(z) Broker’s, Finder’s or Similar Fees. Except for fees payable by the Borrower to the Administrative Agent, there are no brokerage commissions, finder’s fees or similar fees or commissions payable by any Loan Party pursuant to any agreement entered into by any Loan Party or of which any Loan Party is aware in connection with the transactions contemplated hereby or any Loan Document.

ARTICLE VI

COVENANTS OF THE BORROWER

Section 6.01 Affirmative Covenants. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Borrower will:

(a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, including, without limitation, compliance with ERISA and workers’ compensation laws.

(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges or levies imposed upon any of them or upon their respective property and (ii) all material lawful claims that, if unpaid, might by law become a Lien upon their respective property; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien (other than a Permitted Lien) resulting therefrom attaches to its property.

(c) Compliance with Environmental Laws. Comply, and cause each of its Subsidiaries and all lessees and other Persons occupying its properties to comply, in all material respects, with all Environmental Laws and Environmental Permits applicable to their respective operations and properties; obtain and renew, and cause each of its Subsidiaries to obtain and renew, all Environmental Permits necessary for their respective operations and properties; and to the extent required by applicable Environmental Laws and in accordance with the requirements thereof, conduct, and cause each of its Subsidiaries to conduct, any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of their respective properties; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings diligently pursued, appropriate reserves are being maintained with respect to such circumstances and the failure to take any such action could not reasonably be expected to have a Material Adverse Effect.

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(d) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is commercially reasonable and prudent with respect to the business and properties of the Borrower and its Subsidiaries and which is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates. Each such policy of insurance shall (a) name the Administrative Agent for the benefit of the Secured Parties as an additional insured thereunder as its interests may appear and (b) in the case of each insurance policy pursuant to which proceeds are paid to the Borrower or any other Loan Party, contain a loss payable clause or endorsement, reasonably satisfactory in form and substance to Administrative Agent, that names the Administrative Agent for the benefit of the Secured Parties as a loss payee thereunder and provides for at least 30 days prior written notice to the Administrative Agent of any cancellation of such policy. The insurance maintained by the Borrower and its Subsidiaries as of the date hereof shall be deemed to satisfy the requirements of this Section 6.01(d) as of the date hereof.

(e) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, their respective corporate existence, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided, however, that the Borrower and its Subsidiaries may consummate any merger or consolidation permitted under Section 6.02(c) and provided, further, neither the Borrower nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of the Borrower or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Borrower, such Subsidiary or the Lender Parties.

(f) Inspection Rights. At any reasonable time and from time to time and upon reasonable notice, permit the Administrative Agent or any of the Lender Parties or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit and inspect the properties of, the Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants (who are hereby directed by the Borrower to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with the Administrative Agent or any agent or representative thereof in accordance with this Agreement).

(g) Preparation of Environmental Reports. At the written request of the Administrative Agent from time to time, provide to the Administrative Agent within 60 days after such request, at the expense of the Borrower, an environmental site assessment report for all of its and its Subsidiaries’ properties described in such request, prepared by an environmental consulting firm reasonably acceptable to the Administrative Agent, indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance, removal or remedial action in connection with any Hazardous Materials on such properties; without limiting the generality of the foregoing, if the Administrative Agent reasonably determines at any time that a material risk exists that any such report will not be provided within the time referred to above, the Administrative Agent may retain an

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environmental consulting firm to prepare such report at the expense of the Borrower, and the Borrower hereby grants and agrees to cause any Subsidiary which owns any property described in such request to grant at the time of such request, to the Administrative Agent, the Lender Parties, such firm and any agents or representatives thereof the rights, upon reasonable notice and during normal business hours, to enter onto their respective properties in order to perform such assessment; provided that any action taken by the Administrative Agent pursuant to this provision or otherwise under this Agreement pertaining to the environmental activities of the Borrower or any of its Subsidiaries shall not be construed to render the Administrative Agent liable for the conditions of any such property or responsible for any obligations of the Borrower or any other Person as against any governmental agency or any other Person. For the avoidance of doubt, the Borrower disclaims any obligation to indemnify any Indemnified Party for claims of third parties arising out of the gross negligence or willful misconduct of any of the Lender Parties, any environmental consulting firm retained by any of them or their respective agents or representatives in connection with any entry by any of them onto the property of the Borrower or any Subsidiary pursuant to this Section 6.01(g).

(h) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time.

(i) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of their respective properties that are used or useful in the conduct of their respective businesses in good working order and condition, ordinary wear and tear excepted.

(j) Compliance with Terms of Leaseholds; New Leases. Make all payments and otherwise perform and observe all obligations in respect of the Synthetic Lease and all other leases of real property to which the Borrower or any of its Subsidiaries is a party, keep such Synthetic Lease and all other leases in full force and effect and not allow such Synthetic Lease or other leases to lapse or be terminated or any rights to renew such leases to be forfeited or canceled except, with respect to the Synthetic Lease, pursuant to the terms thereof, enforce each Synthetic Lease Document and each other agreement relating to the other leases in accordance with its terms, and take all such action requested by the Administrative Agent or the Required Lenders to such end, and notify the Administrative Agent of any default by any party with respect to such Synthetic Lease and other leases and cooperate with the Administrative Agent in all respects to cure any such default, and cause each of its Subsidiaries to do each of the foregoing. The Borrower agrees, and agrees to cause each other Loan Party, to exercise commercially reasonable efforts, in connection with any lease, sublease, assignment of lease or other occupancy agreement entered into after the date hereof in which the Borrower or such Loan Party is the lessee, sublessee, assignee or occupant, (x) to obtain from the applicable lessor a complete, fully executed Landlord’s Waiver and Consent Agreement in the form of Exhibit O or (y) to include the provisions of such Landlord’s Waiver and Consent Agreement in the applicable lease, sublease, assignment of lease or other occupancy agreement, but in each case without requiring the payment of any amounts to the applicable lessor as an inducement for the execution of such Landlord Waiver and Consent Agreement or the inclusion in the applicable lease, sublease, assignment of lease or other occupancy agreement of such provision.

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(k) Additional Loan Parties; Additional Collateral. Upon (x) the request of the Administrative Agent, (y) the formation or acquisition of any new direct or indirect Subsidiaries by any Loan Party (provided that compliance herewith shall not constitute a waiver of Section 6.02(h)), or (z) the acquisition of any property by any Loan Party, the Borrower shall, in each case at the Borrower’s expense:

(i) within 30 days after such request, formation or acquisition, cause such Subsidiary (other than a Foreign Subsidiary) to duly execute and deliver to the Administrative Agent an amendment to the Guaranty in substantially the form of Exhibit L, whereby such Subsidiary shall guarantee all Obligations of the Loan Parties under the Loan Documents,

(ii) within 30 days after such request, formation or acquisition, furnish to the Administrative Agent a description of the real and personal properties of the Loan Parties and their respective Subsidiaries in detail satisfactory to the Administrative Agent,

(iii) within 30 days after such request, formation or acquisition,

(A) cause such Subsidiary (other than a Foreign Subsidiary) to duly execute and deliver to the Administrative Agent an amendment to the Security Agreement in substantially the form of Exhibit M-1 hereto, and any documents in connection therewith, whereby such Subsidiary shall grant a Lien on those of its assets described in the Security Agreement to secure the Obligations under the Loan Documents,

(B) cause such Subsidiary and each direct and indirect parent of such Subsidiary to duly execute and deliver to the Administrative Agent an amendment to the Pledge Agreement in substantially the form of Exhibit M-2 hereto, and any documents in connection therewith, whereby such Subsidiary shall pledge or cause to be pledged to the Administrative Agent all of the outstanding capital stock of such Subsidiary (or, if such Subsidiary is a Foreign Subsidiary, 65% of such capital stock) owned by any Loan Party to secure such Loan Party’s Obligations under the Loan Documents, and

(C) with respect to any real property with a fair market value of $750,000 or more in which such Loan Party (other than a Foreign Subsidiary) has an interest (including any Synthetic Lease Property), cause such Loan Party to duly execute and deliver such deeds of trust, trust deeds and mortgages, including second lien mortgages with respect to additional Synthetic Lease Properties (“Additional Trust Deeds”), in appropriate form for filing in all filing or recording offices that the Administrative Agent may deem necessary or desirable to create a valid first and subsisting Lien on the property described therein in favor of the Administrative Agent for the benefit of the Secured Parties,

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(iv) within 30 days after such request, formation or acquisition, take (and cause such Subsidiary, each direct and indirect parent of such Subsidiary or any Loan Party to take) whatever action may be necessary or desirable in the opinion of the Administrative Agent to vest in the Administrative Agent, for the benefit of the Secured Parties, valid and subsisting Liens on the properties purported to be subject to the Collateral Documents, pursuant to subclause (iii) above, enforceable against all third parties in accordance with their terms (including the filing of Uniform Commercial Code financing statements, the giving of notices and the endorsement of notices on title documents and the recording of any Additional Trust Deed),

(v) promptly take (and cause such Subsidiary or any Loan Party to take) all action requested by the Administrative Agent or the Required Lenders to provide Trust Deed Policies, American Land Title Association form surveys, appraisals, assignments of leases and rents, consents and agreements of lessors and other third parties, estoppel letters and other confirmations and evidence of insurance with respect to any real property that becomes the subject of an Additional Trust Deed, in each case in form and substance satisfactory to the Administrative Agent,

(vi) upon request of the Administrative Agent, deliver to the Administrative Agent, a signed copy of a favorable opinion, addressed to the Administrative Agent and the Lender Parties, of counsel for the Loan Parties acceptable to the Administrative Agent with respect to any of the foregoing (including any of the foregoing guaranties, security agreements, pledges, mortgages and assignments being legal, valid and binding obligations of each Loan Party party thereto enforceable in accordance with their terms, and any of the recordings, filings, notices, endorsements and other actions requested by the Administrative Agent being sufficient to create valid perfected Liens on such properties) and as to such other matters as the Administrative Agent may reasonably request,

(vii) as promptly as practicable after such request, formation or acquisition, deliver to the Administrative Agent upon request of the Administrative Agent or the Required Lenders with respect to each parcel of real property owned or held by the entity that is the subject of such request, formation or acquisition, title reports, surveys and engineering, soils and other reports, and environmental assessment reports, each in scope, form and substance satisfactory to the Administrative Agent; provided that to the extent that any Loan Party or any of its Subsidiaries shall have otherwise received any of the foregoing items with respect to such real property, such items shall, promptly after the receipt thereof, be delivered to the Administrative Agent, and

(viii) at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such other action as the Administrative Agent may reasonably deem necessary in obtaining the full benefits of, or in perfecting and preserving the Liens of, such guaranties, mortgages, pledges, assignments, security agreement supplements and security agreements.

(l) Further Assurances. (i) Promptly upon request by the Administrative Agent, or any Lender Party through the Administrative Agent, correct, and cause

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each of its Subsidiaries promptly to correct, any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof, and (ii) promptly upon request by the Administrative Agent, or any Lender Party through the Administrative Agent, do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, conveyances, pledge agreements, mortgages, deeds of trust, trust deeds, assignments, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as the Administrative Agent, or any Lender Party through the Administrative Agent, may reasonably require from time to time in order to (A) carry out more effectively the purposes of the Loan Documents, (B) to the fullest extent permitted by applicable law, subject any Loan Party’s or any of its Subsidiaries’ properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (C) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (D) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Lender Parties the rights granted or now or hereafter intended to be granted to the Lender Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so. If a Default has occurred and is continuing, each Loan Party agrees that upon the Administrative Agent’s request, such Loan Party (x) shall grant, and shall cause its Subsidiaries to grant, to the Collateral Agent (as defined in the Collateral Documents) for the benefit of the Secured Parties a security interest in all properties, assets, rights or interests of such Loan Party or such Subsidiary in which a Lien has not previously been granted to the Collateral Agent pursuant to the Collateral Documents and (y) shall take all steps necessary to perfect the security interest granted to the Collateral Agent on or after the Closing Date to the extent not previously perfected, regardless of whether the Administrative Agent agreed either not to take a security interest or not perfect any security interest in any such property, asset, right or interest on the Closing Date and regardless of whether any such property, asset, right or interest satisfies a threshold or other requirement for granting such a lien otherwise set forth herein.

(m) Appraisals. At the request of the Administrative Agent from time to time after the Closing Date, provide to the Administrative Agent within 60 days after such request, at the expense of the Borrower, appraisals of the properties of the Borrower and its Subsidiaries described in such request as the Administrative Agent may reasonably determine are necessary to ensure compliance with, and which appraisals comply with all applicable requirements of, the Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended.

(n) Intentionally Omitted.

(o) Flood Hazard Certification. From time to time as reasonably requested by the Administrative Agent or the Required Lenders, at the Borrower’s expense, deliver such flood hazard certification as the Administrative Agent or the Required Lenders may require with respect to the properties subject to the Trust Deeds.

Section 6.02 Negative Covenants. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be

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outstanding or any Lender Party shall have any Commitment hereunder, the Borrower will not, at any time:

(a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its or their assets of any character (tangible or intangible) whether now owned or hereafter acquired other than the Liens specified below in this Section 6.02(a), or sign or file, or permit any of its Subsidiaries to sign or file, under the Uniform Commercial Code of any jurisdiction, a financing statement that names the Borrower or any of its Subsidiaries as debtor, or sign, or permit any of its Subsidiaries to sign, any security agreement authorizing any secured party thereunder to file such financing statement, or assign, or permit any of its Subsidiaries to assign, any accounts or other right to receive income other than in respect of any of the following:

(i) Liens created by the Loan Documents;

(ii) Liens created by the Synthetic Lease Documents for the purpose of securing the Borrower’s obligations thereunder as in effect on the date hereof to the extent that such Liens are subject to the Intercreditor Agreements;

(iii) Permitted Liens;

(iv) Existing Liens securing Existing Debt and any replacement, extension or renewal of any such Lien; provided that (x) no such replacement, extension or renewal shall encumber any additional assets of the Borrower or any of its Subsidiaries and (y) the amount of Debt secured by such Lien shall not be increased from that existing on the Closing Date;

(v) purchase money Liens upon or in real property or equipment acquired or held by the Borrower or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such real property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such real property or equipment to be subject to such Liens, or Liens existing on any such real property or equipment at the time of acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, however, that no such Lien shall extend to or cover any property other than the real property or equipment being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; and provided further that the aggregate principal amount of the Debt secured by Liens permitted by this clause (v) shall not exceed $7,500,000 at any time outstanding;

(vi) Liens arising in connection with Capitalized Leases in an aggregate principal amount not to exceed $20,000,000 at any time outstanding, provided that no such Lien shall extend to or cover any Collateral or other assets (other than the assets subject to such Capitalized Leases);

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(vii) other Liens securing Debt outstanding in an aggregate principal amount not to exceed $5,000,000 provided that no such Lien shall extend to or cover any Collateral; and

(viii) Liens securing Secured Hedge Agreements permitted under Section 6.02(b)(i)(B).

If the Borrower or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of this Section 6.02(a), it shall make or cause to be made effective provision whereby the Obligations will be secured by such Lien equally and ratably with any and all other Debt secured thereby as long as any such Debt shall be so secured; provided that, notwithstanding the foregoing, this covenant shall not be construed as a consent by the Required Lenders to the creation or assumption of any such Lien not permitted by the provisions of this Section 6.02(a).

(b) Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt other than:

(i) in the case of the Borrower,

(A) Debt under the Synthetic Lease Documents in a principal amount outstanding not to exceed the principal amount outstanding on the Closing Date,

(B) (x) the Secured Hedge Agreements between the Borrower and BNP Paribas and between the Borrower and Union Bank of California, N.A. and (y) other Hedge Agreements whose purpose is to hedge against fluctuations in interest rates and are entered into by the Borrower in the ordinary course of business, consistent with prudent business practice and not entered into for speculative purposes; provided that the aggregate notional amount of such Secured Hedge Agreements and other Hedge Agreements shall not exceed $100,000,000 at any time outstanding, and

(C) Debt owed to a wholly-owned Domestic Subsidiary of the Borrower that is a Loan Party; provided that such Debt is evidenced by a promissory note that has been pledged to the Administrative Agent pursuant to the Security Agreement.

(ii) in the case of any wholly-owned Domestic Subsidiary of the Borrower that is a Loan Party, Debt owed to the Borrower or to another wholly-owned Domestic Subsidiary of the Borrower that is a Loan Party so long as such Debt is evidenced by a promissory note that has been pledged to the Administrative Agent pursuant to the Security Agreement; and

(iii) in the case of the Borrower and any of its Subsidiaries,

(A) Debt under the Loan Documents;

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(B) Debt secured by Liens permitted by Section 6.02(a)(v) and (vi) not to exceed in the aggregate the amounts set forth in such Sections,

(C) the Existing Debt, and any Debt issued in exchange for, or the net proceeds of which are used to refinance, all or a part of the Existing Debt; provided, however, that the principal amount of such refinancing Debt does not exceed the principal amount, plus accrued interest (if any), of the Existing Debt so refinanced,

(D) endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business,

(E) unsecured Debt of the Borrower in respect of its daily overdraft facility but only to the extent such Debt (1) is incurred in the ordinary course of the Borrower’s business consistent with past practices (2) does not exceed $7,500,000 in principal amount at any time outstanding, and (3) is repaid in full within 3 Business Days of the incurrence of such Debt, and

(F) other unsecured Debt (other than Debt owed to Casino) of the Borrower and its Subsidiaries in an aggregate principal amount at any time outstanding not to exceed $10,000,000.

(c) Mergers, Corporate Changes, Etc. Merge into or consolidate with any Person or permit any Person to merge into it or liquidate or dissolve itself (or suffer any liquidation or dissolution), or permit any of its Subsidiaries to do (or suffer) any of the foregoing, except that (i) any Subsidiary of the Borrower may merge into or consolidate with, any other Subsidiary of the Borrower that is, or as a result of such merger or consolidation shall become, a Loan Party, or that, in the case of any such consolidation, the Person formed by such consolidation shall be a wholly-owned Solvent Domestic Subsidiary of the Borrower; (ii) any of the Borrower’s Subsidiaries may merge into or consolidate with Borrower so long as the surviving entity is Borrower; (iii) any of the Borrower’s Subsidiaries may liquidate or dissolve if all of the assets of such Subsidiary are acquired by the Borrower or any other Loan Party; and (iv) each of the Borrower’s Domestic Subsidiaries may change its jurisdiction of formation by merger or otherwise so long as such jurisdiction remains within the United States of America and the Borrower or such Domestic Subsidiary provides notice of such change and otherwise complies with the provisions of the Security Agreement and the Pledge Agreement; provided, however, that in each case, immediately after giving effect thereto, no Default shall have occurred and be continuing or would result therefrom.

(d) Sales of Assets. Sell, lease, license, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, license, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any assets other than:

(i) sales of Inventory in the ordinary course of its business,

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(ii) in a transaction authorized by subsection (c) of this Section 6.02,

(iii) the sale of any asset by any Loan Party (other than (x) a bulk sale of Inventory, (y) a sale of Accounts Receivable other than delinquent accounts for collection purposes only and (z) sales of assets permitted under clause (v) below) so long as (A) the purchase price paid to the Loan Party for such asset shall be no less than the fair market value of such asset at the time of such sale, (B) the purchase price for such asset shall be paid to the Loan Party solely in cash and (C) the aggregate purchase price paid to all of the Loan Parties for such asset and all other assets sold by the Loan Parties during the same Fiscal Year pursuant to this clause (iii) shall not exceed $10,000,000 in any Fiscal Year and $25,000,000 during the term of this Agreement (which, for the avoidance of doubt, does not include the period from the Original Closing Date to the Closing Date); provided that the proceeds of such asset sales are applied in accordance with Section 2.05(b)(iii),

(iv) the grant of any option or other right to purchase any asset in a transaction which would be permitted under the provisions of the immediately preceding clause (iii), and

(v) the sale of any of the Synthetic Lease Properties in accordance with Section 11.2 of the Synthetic Lease as in effect on the date hereof and subject to the $5,000,000 limitation set forth therein, provided that the net proceeds of such sale are applied in accordance with Section 2.05(b)(iii);

provided that in each case, immediately after giving effect thereto, no Default shall have occurred and be continuing or would result therefrom.

(e) Investments in Other Persons. Make or hold, or permit any of its Subsidiaries to make or hold, any Investment in any Person other than:

(i) Investments by the Borrower and its Subsidiaries in the Borrower or in Subsidiaries that are or become Loan Parties,

(ii) (A) Investments held by the Borrower and its Subsidiaries on the Original Closing Date in Smart & Final de Mexico, S.A. de C.V. and in Smart & Final del Noroeste, S.A. de C.V. and any increases in the value thereof and (B) Investments made by the Borrower and its Subsidiaries after the Original Closing Date in such entities in an aggregate amount under this clause (B) not to exceed $2,500,000,

(iii) loans and advances to officers and employees in the ordinary course of the business of the Borrower and its Subsidiaries as presently conducted in an aggregate principal amount not to exceed $2,000,000 at any time outstanding,

(iv) Investments by the Borrower and its Subsidiaries in Cash Equivalents,

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(v) Investments existing on the Closing Date and set forth on Schedule 5.01(s); and

(vi) other Investments in an aggregate amount invested not to exceed $2,000,000; provided that with respect to Investments made under this clause (vi), immediately before and after giving effect thereto, no Default shall have occurred and be continuing or would result therefrom.

(f) Dividends, Etc. Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its capital stock or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such or issue or sell any capital stock or any warrants, rights or options to acquire such capital stock, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of the Borrower or any warrants, rights or options to acquire such capital stock or to issue or sell any capital stock or any warrants, rights or options to acquire such capital stock, except that, so long as no Default shall have occurred and be continuing or would result therefrom:

(i) the Borrower may declare and deliver dividends and distributions payable only in (and to the holders of) common stock of the Borrower,

(ii) the Borrower may declare and pay cash dividends to its stockholders in an amount not to exceed $10,000,000 per Fiscal Year of the Borrower, commencing with Fiscal Year 2005;

(iii) except to the extent the Net Cash Proceeds thereof are required to be applied to the prepayment of the Advances pursuant to Section 2.05(b), the Borrower and any of its Subsidiaries may purchase, redeem, retire, defease or otherwise acquire shares of such Person’s capital stock with the proceeds received from the issuance of its capital stock with equal or inferior voting powers, designations, preferences and rights;

(iv) the Borrower and any of its Subsidiaries may issue equity securities upon the exercise of rights to acquire such equity securities but only if the Net Cash Proceeds, if any, from the exercise of such rights are applied to the repayment of Advances to the extent required pursuant to Section 2.05(b); and

(v) any Subsidiary may declare and pay dividends to the Borrower or to a Subsidiary of the Borrower that is a Loan Party.

(g) Change in Nature of Business. Make, or permit any of the other Loan Parties to make, any material change in the nature of its business as carried on at the date hereof.

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(h) Charter Amendments; New Subsidiaries. Amend, or permit any of the other Loan Parties to amend, its or their certificate or articles of incorporation, bylaws or other organizational or charter documents (including, without limitation, by filing any certificate of designation with respect to any preferred stock or otherwise creating any new preferred stock) or, create or acquire, or permit any of the other Loan Parties to directly or indirectly create or acquire, a Subsidiary not in existence on the date hereof.

(i) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as required by generally accepted accounting principles.

(j) Prepayments, Etc. of Debt; Amendments to Agreements. (i) Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled payment or maturity thereof in any manner any Debt other than the prepayment of (A) the Advances in accordance with the terms of this Agreement and (B) Capitalized Leases in the ordinary course of business; (ii) make any payment in violation of any subordination terms of any Debt; (iii) amend, modify or change in any manner any term or condition of any Intercompany Note, any other Existing Debt or any Casino Tax Sharing Document; (iv) amend, modify or change in any manner which is materially adverse to the Lender Parties any term or condition of the Synthetic Lease Documents; or (v) permit any of the Loan Parties to do any of the foregoing other than to prepay any Debt payable to the Borrower.

(k) Negative Pledge. Enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or conditioning the creation or assumption of any Lien upon any of their respective property or assets other than (i) in favor of the Administrative Agent and the Lender Parties or (ii) any Debt permitted by Section 6.02(b)(iii)(B) hereof, in each case so long as such prohibition or condition extends only to the property subject to the Lien securing such Debt.

(l) Partnerships. Become a general partner in any general or limited partnership or joint venture, or permit any of its Subsidiaries to do so, other than any Subsidiary the sole assets of which consist of its interest in such partnership or joint venture.

(m) Affiliate Transactions. Enter into, or permit any of its Subsidiaries to enter into, directly or indirectly, any transaction with (including, without limitation, the purchase, sale or exchange of property or the rendering of any service to) any Affiliate of the Borrower, except pursuant to (x) the reasonable requirements of the Borrower’s or such Subsidiary’s business, as the case may be, and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than could be obtained in a comparable arm’s-length transaction with an unaffiliated Person, (y) the Casino Tax Sharing Documents and (z) Capitalized Leases between any Loan Party and Casino in existence on the Closing Date and set forth on Schedule 5.01(q)(i).

(n) Intentionally Omitted.

(o) Payment Restrictions Affecting Subsidiaries; Document Amendment. Directly or indirectly, enter into or suffer to exist, or permit any of its Subsidiaries

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to enter into or suffer to exist, any agreement or arrangement (other than the Loan Documents) (i) limiting the ability of any such Subsidiary to declare or pay dividends or other distributions in respect of its Equity Interests or repay or prepay any Debt owed to, make loans or advances to, or otherwise transfer assets to or invest in, the Borrower or any Subsidiary of the Borrower (whether through a covenant restricting dividends, loans, asset transfers or investments, a financial covenant or otherwise), or (2) limiting the ability of any Loan Party to enter into amendments, modifications or waivers of the Loan Documents.

(p) Speculative Transactions. Engage, or permit any of its Subsidiaries to engage, in any transaction involving commodity options or futures contracts or any similar speculative transactions other than Hedge Agreements permitted pursuant to Section 6.02(b)(i)(B).

Section 6.03 Reporting Requirements. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Borrower shall deliver to the Administrative Agent (with a courtesy copy to each Lender; provided that the failure to provide any such courtesy copy to any Lender shall not constitute a breach or violation of this Section 6.03 and shall not give rise to any Default):

(a) Intentionally Omitted.

(b) Default Notice. As soon as possible and in any event within two Business Days after the occurrence of any Default and within two Business Days after any Material Adverse Effect occurs or arises, a statement of the chief executive officer, chief financial officer, treasurer or controller of the Borrower setting forth details thereof and the action that the Borrower has taken and proposes to take with respect thereto.

(c) Quarterly Financials. As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year, Consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such quarter and Consolidated and consolidating statements of income and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for such period (on a quarterly and year-to-date basis from the forecast delivered pursuant to Section 6.03(l)) and the corresponding figures for the corresponding period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief executive officer, chief financial officer, treasurer or controller of the Borrower as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that the representations and warranties in Section 5.01 are true and correct in all material respects as of the date of such certificate and that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken and proposes to take with respect thereto, and (ii) a schedule in form satisfactory to the Administrative Agent of the computations used by the Borrower in determining compliance with the covenants contained in Sections 6.02(a), (b), (d), (e), (f) and 6.04; provided that in the event of any change in generally accepted accounting principles used in the preparation of such financial statements, the Borrower shall also provide, if necessary for

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the determination of compliance with Section 6.04, a statement of reconciliation conforming such financial statements to GAAP. Notwithstanding the foregoing, however, Borrower shall not be required to report consolidating numbers with respect to Smart & Final de Mexico, S.A. de C.V.

(d) Annual Financials. As soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, including therein audited Consolidated and unaudited consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year and audited Consolidated and unaudited consolidating statements of income and cash flows of the Borrower and its Subsidiaries for such Fiscal Year, in each case with respect to such audited balance sheets and statements of income and cash flow accompanied by an opinion acceptable to the Administrative Agent of Ernst & Young LLP or other independent public accountants of recognized standing acceptable to the Administrative Agent, together with (i) a certificate of such accounting firm to the Lenders stating that in the course of the regular audit of the business of the Borrower and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Default has occurred and is continuing, a statement as to the nature thereof, (ii) a schedule in form satisfactory to the Administrative Agent of the computations used by such accountants in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Sections 6.02(a), (b), (d), (e), (f) and 6.04 and including a comparison of the results for such Fiscal Year to the results for such Fiscal Year set forth in the forecast delivered pursuant to Section 6.03(l), and (iii) a certificate of the chief executive officer, chief financial officer, treasurer or controller of the Borrower (A) stating that the representations and warranties in Section 5.01 are true and correct in all material respects as of the date of such certificate and that no Default has occurred and is continuing or, if a default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken and proposes to take with respect thereto, and (B) verifying, as of the end of such Fiscal Year, compliance with the covenants contained in Sections 6.02(a), (b), (d), (e), (f) and 6.04, and the computations (which shall be set forth therein) used in determining such compliance. Notwithstanding the foregoing, Borrower shall not be required to report consolidating numbers with respect to Smart & Final de Mexico, S.A. de C.V.

(e) ERISA Events. Promptly and in any event within ten Business Days after the Borrower, any Subsidiary or any ERISA Affiliate knows or has reason to know that any material ERISA Event with respect to any such Person has occurred, a statement of the chief executive officer, chief financial officer, treasurer or controller of the Borrower describing such ERISA Event and the action, if any, that the applicable Person has taken and/or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto.

(f) Plan Terminations. Promptly and in any event within 10 Business Days after receipt thereof by the Borrower, any Subsidiary or any ERISA Affiliate, copies of any notice from the PBGC stating its intention to terminate any Employee Benefit Plan or to have a trustee appointed to administer any such Employee Benefit Plan.

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(g) Plan Annual Reports. Promptly and in any event within 30 days after the receipt of a request therefor by the Administrative Agent or the Required Lenders, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan of the Borrower, each Subsidiary or each ERISA Affiliate.

(h) Multiemployer Plan Notices. Promptly and in any event within 10 Business Days after receipt thereof by the Borrower, any Subsidiary or any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of each notice concerning (i) the imposition of Withdrawal Liability by any such Multiemployer Plan on the Borrower, any Subsidiary or any ERISA Affiliate, (ii) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (iii) the amount of liability incurred, or that may be incurred, by the Borrower, any Subsidiary or any ERISA Affiliate in connection with any event described in clause (i) or (ii) above.

(i) Litigation. As promptly as practicable, notice of the commencement of, or any material adverse change in the status of or in the financial effect on any Loan Party or any Subsidiary thereof, any material actions, suits, investigations, litigation and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(d) that is not disclosed in any report filed by the Borrower with the Securities Exchange Commission or any governmental authority that may be substituted therefor.

(j) Press Releases; Securities Reports. Promptly after the sending or filing thereof, copies of all (i) press releases, (ii) proxy statements, financial statements and reports that any Loan Party or any of its Subsidiaries sends to its stockholders, and (iii) regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange.

(k) Environmental Conditions. Promptly after the assertion or occurrence thereof, notice of any material Environmental Action against or of any material noncompliance by any Loan Party or any of their respective Subsidiaries with any Environmental Law or Environmental Permit, or any condition or occurrence on any property of any Loan Party or any of their respective Subsidiaries that results in or could (i) form the basis for such material Environmental Action or material noncompliance, or (ii) cause any property of any Loan Party or any of their respective Subsidiaries to be subject to any material restrictions on ownership, occupancy, use or transferability under any Environmental Law.

(l) Annual Forecasts. Together with the annual financial statements required pursuant to Section 6.03(d), forecasts prepared by management of the Borrower, in form satisfactory to the Administrative Agent, of balance sheets, income statements and cash flow statements on an annual basis for each Fiscal Year until the Commitment Termination Date, together with an explanation of the assumptions on which such forecasts are based.

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(m) Creditor Reports. If requested by the Administrative Agent, copies of any statement or report furnished to any holder of debt securities of any Loan Party or of any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement as to the occurrence of any “default” thereunder.

(n) Synthetic Lease Notices. Promptly upon receipt thereof, copies of (i) all notices, requests and other documents received by any Loan Party or any of its Subsidiaries under or pursuant to any Synthetic Lease Document regarding any event that could materially impair the value of the interests or the rights of any Loan Party or otherwise have a Material Adverse Effect, (ii) any amendment, modification or waiver of any provision of any Synthetic Lease Document (provided that compliance herewith shall not constitute a waiver of Section 6.02(j)), and (iii) from time to time upon request by the Administrative Agent, such information and reports regarding the Synthetic Lease Documents as the Administrative Agent may reasonably request; in each case, to the extent not otherwise required to be delivered to the Administrative Agent pursuant to any other clause of this Section 6.03.

(o) Real Property. Within 30 days following any request by the Administrative Agent (which request shall not be made more than once in any Fiscal Year unless a Default shall have occurred and be continuing), a report supplementing Schedules 5.01(r)(i) and 5.01(r)(ii), including an identification of all Owned Real Property and leased real property, as applicable, disposed of by any Loan Party or any of its Subsidiaries during the period from the Closing Date until delivery of such report or, if any such report has previously been provided, since the date of the most recent report, a list and description (including, if the Administrative Agent so requests, the street address, county or other relevant jurisdiction, state, record owner, book value thereof and, in the case of leases of property, the lessor, lessee, expiration date and annual rental cost thereof) of all real property acquired or leased during the period from the Closing Date until delivery of such report or, if any such report has previously been provided, since the date of the most recent report, and a description of such other changes in the information included in such Schedules as may be necessary for such Schedules to be accurate and complete.

(p) Insurance. Within 30 days following any request by the Administrative Agent (which request shall not be made more than once in any Fiscal Year unless a Default shall have occurred and be continuing), a report summarizing the insurance coverage (specifying type, amount and carrier) in effect for the Borrower and its Subsidiaries and containing such additional information as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably specify.

(q) Intentionally Omitted.

(r) Dispositions and Commitment Reductions. Together with the delivery of financial statements pursuant to Sections 6.03(c) and (d), a certificate from the chief executive officer, chief financial officer, treasurer or controller of the Borrower stating the following information:

(i) the amount of Net Cash Proceeds received from sales or other dispositions of assets of the Borrower or any other Loan Party since the beginning of the applicable Fiscal Year;

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(ii) the amount of Net Cash Proceeds received from sales or other dispositions of assets of the Borrower or any other Loan Party during the applicable fiscal quarter of the Borrower;

(iii) the amount of Net Cash Proceeds received from sales or other dispositions of assets of the Borrower or any other Loan Party since the beginning of the applicable Fiscal Year which are in excess of $2,500,000;

(iv) the amount of the outstanding Advances required to be prepaid pursuant to Section 2.05(b)(iii) for the applicable fiscal quarter of the Borrower;

(v) the amount of the Revolving Facility prior to any prepayment of the outstanding Advances pursuant to Section 2.05(b)(iii); and

(vi) the amount by which the Revolving Facility is automatically and permanently reduced pursuant to Section 2.04 and the dates of each such reduction during the applicable fiscal quarter of the Borrower.

(s) Other Information. Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party as Administrative Agent, or any Lender Party through the Administrative Agent, may from time to time reasonably request.

Section 6.04 Financial Covenants. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Borrower will:

(a) Net Worth. Maintain at all times a Consolidated Net Worth of not less than the sum of (i) $210,000,000, plus (ii) 50% of positive cumulative Consolidated Net Income for any fiscal quarter of the Borrower (but without any deduction for any period in which Consolidated Net Income is a negative number) plus (iii) 100% of the amount of all cash proceeds of any equity issuances by the Borrower or any of its Subsidiaries after the date hereof; provided, however, that changes in other comprehensive income shall be disregarded in calculating Consolidated Net Worth.

(b) Senior Leverage Ratio. Not permit the Senior Leverage Ratio at the end of any fiscal quarter of the Borrower commencing with the fourth fiscal quarter of Fiscal Year 2004 to exceed 1.60 to 1.0.

(c) Adjusted Leverage Ratio. Not permit the Adjusted Leverage Ratio at the end of any fiscal quarter of the Borrower commencing with the fourth fiscal quarter of Fiscal Year 2004 to exceed 3.50 to 1.0.

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(d) Fixed Charge Coverage Ratio. Not permit the Fixed Charge Coverage Ratio at the end of any fiscal quarter of the Borrower commencing with the fourth fiscal quarter of Fiscal Year 2004 to be less than 2.25 to 1.0; provided, that this Section 6.04(d) shall no longer apply commencing with the first fiscal quarter of Fiscal Year 2007 if all obligations under the Synthetic Lease Documents shall have been repaid prior to such fiscal quarter.

(e) Capital Expenditures. Not make, or permit any of its Subsidiaries to make, any Capital Expenditures that would cause the aggregate of all such Capital Expenditures made by the Borrower and its Subsidiaries to exceed $60,000,000 during any Fiscal Year.

ARTICLE VII

EVENTS OF DEFAULT

Section 7.01 Events of Default. If any of the following events (“Events of Default”) shall occur and be continuing:

(a) the Borrower shall fail to pay any principal of any Advance when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or any Loan Party shall fail to make any interest or any other payment under any Loan Document within three Business Days after such interest or other amount becomes due and payable; or

(b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made or deemed made; or

(c) the Borrower shall fail to perform or observe any term, covenant or agreement contained in Sections 2.12, 6.01(e), (f), (k), (1) or (m), 6.02 or 6.04; or

(d) (i) any Loan Party shall fail to perform or observe any term, covenant or agreement contained in Section 6.03 if such failure shall remain unremedied for 10 days after the earlier of the date on which (x) such Loan Party (including any officer of such Loan Party) becomes aware of such failure, or (y) written notice thereof shall have been given to the Borrower by the Administrative Agent or (ii) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 30 days after the earlier of the date on which (x) such Loan Party (including any officer of such Loan Party) becomes aware of such failure, or (y) written notice thereof shall have been given to the Borrower by the Administrative Agent; or

(e) any “Event of Default” (under and as defined in the Participation Agreement) shall have occurred and be continuing; or any Loan Party or any of its Subsidiaries shall fail to pay any principal of, premium or interest on or any other amount payable in respect of any Debt of such Loan Party or Subsidiary that is outstanding in a principal

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amount of at least $5,000,000 in the aggregate (but excluding Debt outstanding hereunder) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt or otherwise to cause, or to permit the holder thereof to cause, such Debt to mature; or any such Debt shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or

(f) any Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by any Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property, or any such proceeding shall have been commenced against any Loan Party or any of its Subsidiaries and shall not have been withdrawn, dismissed, bonded or discharged within 60 days thereafter or at any time an order for relief is granted in such proceeding; or any Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or

(g) any judgments or orders in excess of $5,000,000 individually or $10,000,000 in the aggregate for the payment of money shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(h) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(i) any provision of any Loan Document after delivery thereof on the Original Closing Date or pursuant to Section 4.01 shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it, or any such Loan Party shall so state in writing; or

(j) any Collateral Document or financing statement after delivery thereof on the Original Closing Date or pursuant to Sections 4.01 or 6.01 shall for any reason (other than pursuant to the terms thereof or pursuant to the Intercreditor Agreement (Leased Property)) cease to create a valid and perfected first priority Lien on the Collateral purported to be covered thereby; or

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(k) (i) if at any time when Casino is not the single largest shareholder of the Borrower, any Person or two or more Persons acting in concert (other than Casino) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Interests of the Borrower representing 33 ¹/3% or more of the combined voting power of all Voting Interests of the Borrower; or (ii) the majority of the seats (other than vacant seats) on the board of directors of the Borrower cease to be occupied by Persons who either (a) were members of the board of directors of the Borrower on the Original Closing Date or (b) were nominated for election by the board of directors (or any committee thereof) of the Borrower, a majority of whom were directors on the Original Closing Date or whose election or nomination for election was previously approved by a majority of such directors; or (iii) any Person or two or more Persons acting in concert (other than Casino) shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of, the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Borrower, other than any contract or arrangement with respect to acquisition of Voting Interests of the Borrower (it being understood that such acquisition of Voting Interests is governed by clause (i) of this paragraph); or

(l) there shall occur one or more ERISA Events which individually or in the aggregate results in or reasonably could be expected to result in a Material Adverse Effect; or there exists any fact or circumstance that reasonably could be expected to result in the imposition of a Lien or security interest under Section 412(n) of the Internal Revenue Code or under ERISA on the assets of the Borrower and its Subsidiaries;

then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Commitments of each Lender Party and the obligation of each Lender Party to make Advances and of any L/C Bank to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an Event of Default described in Section 7.01(f), (x) the Commitments of each Lender Party and the obligation of each Lender Party to make Advances and of each L/C Bank to issue Letters of Credit shall automatically be terminated and (y) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. Nothing contained in this Section 7.01 is intended to preclude or limit the Administrative Agent from exercising any of the rights or remedies available to it under any of the Loan Documents or at law.

Section 7.02 Actions in Respect of the Letters of Credit Upon Default. If any Event of Default shall have occurred and be continuing, the Administrative Agent may from time to time, or shall at the request of the Required Lenders, irrespective of whether it is taking any of the actions described in Section 7.01 or otherwise, make demand upon the Borrower to, and

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forthwith upon such demand the Borrower will, pay to the Administrative Agent on behalf of the Lender Parties in same day funds at the Administrative Agent’s office designated in such demand, for deposit to a non-interest bearing account established by the Administrative Agent for such purposes or for purposes of Sections 2.05(b)(iv), 2.05(c) or 3.01 or (the “L/C Cash Collateral Account”), an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding (and the Borrower hereby grants to the Administrative Agent, for the ratable benefit of the Administrative Agent and each Lender Party, a continuing security interest in all amounts at any time on deposit in the L/C Cash Collateral Account to secure all Letter of Credit Obligations from time to time outstanding and all other Obligations hereunder). If at any time the Administrative Agent determines that any funds held in the L/C Cash Collateral Account are subject to any right or claim of any Person other than the Administrative Agent and the Lender Parties or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Borrower will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional funds to be deposited and held in the L/C Cash Collateral Account, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, then held in the L/C Cash Collateral Account that the Administrative Agent determines to be free and clear of any such right and claim.

ARTICLE VIII

THE CREDIT AGENTS

Section 8.01 Authorization and Action. Each Lender Party (in its capacity as a Lender, the Swing Line Lender (if applicable), the L/C Bank (if applicable) and on behalf of itself and its Affiliates) hereby appoints (a) BNP Paribas as its Administrative Agent,                      as its Syndication Agent and                      as its Documentation Agent under and for purposes of this Agreement, the Notes and each other Loan Document, and (b) BNP Paribas as its Administrative Agent and Collateral Agent under and for purposes of the Collateral Documents. Each Lender Party (i) authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto and (ii) authorizes and instructs the Administrative Agent to enter into each of the Loan Documents, including the Intercreditor Agreements and any new intercreditor agreements required pursuant to Section 9.14. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lender Parties and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action that exposes the Administrative Agent to personal liability or that is contrary to this Agreement or applicable law. With respect to any action to be taken by the Administrative Agent in its sole discretion pursuant to this Agreement, the Administrative Agent may obtain the instructions of the Required Lenders and may act or refrain from acting (and shall be fully protected in so acting or refraining from acting) upon such instructions, and such instructions shall be binding upon all Lender Parties and all holders of Notes; provided that the Administrative Agent shall not be required to take any action that exposes the Administrative

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Agent to personal liability or that is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender Party prompt notice of each notice given to any of them by the Borrower pursuant to the terms of this Agreement.

Section 8.02 Administrative Agent’s Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by any of them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 9.07; (ii) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender Party and shall not be responsible to any Lender Party for any statements, warranties or representations made in or in connection with the Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (v) shall not be responsible to any Lender Party for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant hereto or thereto; (vi) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopy or cable) believed by it to be genuine and signed or sent by the proper party or parties; and (vii) shall incur no liability as a result of any determination whether the transactions contemplated by the Loan Documents constitute a “highly leveraged transaction” within the meaning of the interpretations issued by the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System.

Section 8.03 Credit Agents and Affiliates. With respect to its Commitments and the Advances made by it and the Notes issued to it, each Credit Agent shall have the same rights and powers under the Loan Documents as any other Lender Party and may exercise the same as though it were not a Credit Agent; and the terms “Lender”, “Lenders”, “Lender Party” or “Lender Parties” shall, unless otherwise expressly indicated, include each Credit Agent in its individual capacity. Each Credit Agent and its respective Affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of their Subsidiaries and any Person who may do business with or own securities of any Loan Party or any such Subsidiary, all as if such Credit Agent were not a Credit Agent and without any duty to account therefor to the Lender Parties.

Section 8.04 Lender Party Credit Decision. Each Lender Party acknowledges that it has, independently and without reliance upon the Credit Agents or any other Lender Party and based on the financial statements referred to in Section 5.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender Party also acknowledges that it will, independently and without

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reliance upon the Credit Agents or any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

Section 8.05 Indemnification. Each Lender Party severally agrees to indemnify each Credit Agent and the Lead Arranger and their respective affiliates, officers, directors, employees, attorneys, agents and advisors (to the extent not promptly reimbursed by the Borrower) from and against such Lender Party’s ratable share of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against any Credit Agent or the Lead Arranger in any way relating to or arising out of the Loan Documents or any action taken or omitted by any Credit Agent or the Lead Arranger under the Loan Documents; provided, however, that no Lender Party shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of any Credit Agent or the Lead Arranger. Without limitation of the foregoing, each Lender Party agrees to reimburse the Credit Agents and the Lead Arranger promptly upon demand for its ratable share of any costs and expenses payable by the Borrower under Section 9.04, to the extent that the Credit Agents or the Lead Arranger are not promptly reimbursed for such costs and expenses by the Borrower. For purposes of this Section 8.05, the Lender Parties’ respective ratable shares of any amount shall be determined, at any time, according to the sum of (a) the aggregate principal amount of the Advances (other than L/C Advances) outstanding at such time and owing to the respective Lender Parties, plus (b) their respective Pro Rata Shares of the aggregate Letter of Credit Obligations outstanding at such time, plus (c) their respective Unused Revolving Commitments at such time. The failure of any Lender Party to reimburse the Credit Agents and the Lead Arranger promptly upon demand for its ratable share of any amount required to be paid by the Lender Parties to the Credit Agents and the Lead Arranger as provided herein shall not relieve any other Lender Party of its obligation hereunder to reimburse the Credit Agents and the Lead Arranger for its ratable share of such amount, but no Lender Party shall be responsible for the failure of any other Lender Party to reimburse the Credit Agents and the Lead Arranger for such other Lender Party’s ratable share of such amount.

Section 8.06 Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lender Parties and the Borrower and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent, which shall thereupon become the Administrative Agent hereunder. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation or the Required Lenders’ removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lender Parties, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. If within 45 days after written notice is given of the retiring Administrative Agent’s resignation or removal under this Section 8.06 no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on or after such 45th day, the retiring Administrative Agent shall have the right to petition a court of competent jurisdiction

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to appoint a successor Administrative Agent. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent and upon the execution and filing or recording of such financing statements, or amendments thereto, and such amendments or supplements to the Trust Deeds, and such other instruments or notices, as may be necessary or desirable, or as the Required Lenders may request, in order to continue the perfection of the Liens granted or purported to be granted by the Collateral Documents, such successor Administrative Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Administrative Agent’s resignation or removal hereunder as Administrative Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement.

Section 8.07 Syndication Agent and Documentation Agent. The Syndication Agent and the Documentation Agent shall not have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, neither the Syndication Agent nor the Documentation Agent shall have or be deemed to have any fiduciary relationship with any Lender Party.

Section 8.08 Secured Hedge Agreements.

(a) Each Lender proposing to enter into a Secured Hedge Agreement hereby agrees to provide the Administrative Agent with notice of intent to enter into such agreement; further, each Lender party to a Secured Hedge Agreement, hereby agrees to promptly provide the Administrative Agent with an executed copy of same.

(b) Each Secured Hedge Bank hereby agrees to promptly provide Administrative Agent notice of default under any Secured Hedge Agreement.

ARTICLE IX

MISCELLANEOUS

Section 9.01 Amendments, Etc.; Release of Collateral; Termination.

(a) Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes or any other Loan Document, nor consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing and signed (or, in the case of the Collateral Documents, consented to) by the Required Lenders (and, in the case of any such amendment, the Borrower), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that (a) no amendment, waiver or consent shall, unless in writing and signed by all of the Lender Parties, do any of the following at any time: (i) waive any of the conditions specified in Sections 4.01 or 4.02, (ii) change the percentage of the Commitments, the aggregate unpaid principal amount of the Advances or the aggregate Available Amount of outstanding Letters of Credit that shall be required for the Lender Parties or any of them to take any action hereunder, (iii) release

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all of the Collateral or substantially all of the Collateral in any transaction or series of related transactions (it being understood that the Administrative Agent may release Collateral constituting less than substantially all of the Collateral in accordance with Section 9.01(b)), (iv) release all or substantially all of the Guarantors from their obligations under the Guaranty, (v) reduce or postpone the payment of principal (but not any mandatory prepayment pursuant to Section 2.05(b)(iii)), interest, fees or other amounts due hereunder, or (vi) amend this Section 9.01; and (b) no amendment, waiver or consent shall, unless in writing and signed by the Required Lenders and each Lender that is directly affected by such amendment, waiver or consent, (i) increase or extend the Commitments of such Lender (other than any extension of the Commitment of such Lender as a result of a waiver of any mandatory prepayment pursuant to Section 2.05(b)(iii) that results in a corresponding waiver of any mandatory Commitment reduction pursuant to Section 2.04(b)), or (ii) change the order of application of any prepayment set forth in Section 2.05 in any manner that materially affects such Lender; provided, further that no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender or the applicable L/C Bank, as the case may be, in addition to the Lenders required above to take such action, affect the rights or obligations of the Swing Line Lender or of any L/C Bank, as the case may be, under this Agreement; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lender Parties required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or the other Loan Documents.

(b) Release of Collateral. Upon the written request of the Borrower, and without the consent of the Required Lenders or any other Lender Party, the Administrative Agent is authorized to and, subject to the provisions of this Section 9.01(b), shall release any item or items of Collateral comprising less than substantially all of the Collateral at the time of such release (and is authorized to, and subject to the provisions of this Section 9.01(b), shall, at the Borrower’s expense, execute any documents or instruments reasonably requested by the Borrower in connection therewith) if (A) such release is requested in conjunction with the consummation of any sale or other disposition of such Collateral that is not prohibited by this Agreement, (B) arrangements satisfactory to the Administrative Agent for the receipt by the Administrative Agent of any prepayment required under Section 2.05(b) have been made, and (C) the Borrower has delivered to the Administrative Agent a certificate signed by the Borrower’s chief executive officer, chief financial officer, treasurer or controller certifying that such sale or other disposition is not prohibited by this Agreement.

(c) Termination. Upon the payment in full of all Obligations (other than Obligations which by their terms survive termination of this Agreement) of the Loan Parties under the Loan Documents, the expiration or termination of all Letters of Credit and the expiration or termination of all Commitments hereunder, the Administrative Agent shall upon request provide a payoff letter or similar document indicating that all Obligations of the Loan Parties under the Loan Documents (other than any Obligations which survive termination of the Loan Documents) have been discharged. On or after delivery of such payoff letter or similar document, upon the written request of the Borrower, the Administrative Agent is authorized by the Lender Parties to and shall (i) release all of the Collateral (and is authorized by the Lender Parties to and shall, at the Borrower’s expense, execute any documents or instruments reasonably requested by the Borrower in connection therewith) and (ii) deliver any Collateral in the Administrative Agent’s possession to the Agent (as defined in the Participation Agreement) if the Synthetic Lease is outstanding at such time.

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(d) Replacement of a Lender Party. In the event any Lender Party refuses to consent to any amendment, waiver or other modification of any Loan Document requested by the Borrower that requires the consent of all the Lenders affected and such amendment, waiver or other modification is consented to by the Required Lenders, Borrower shall have the right by notice to such Lender Party to request such Lender Party to assign its Commitment and its interests under the Loan Documents, without representation or warranty (except for the absence of such Liens on such interests arising by, through or under such Lender Party) and in accordance with Section 9.07, on a Business Day not fewer than ten Business Days after the giving of such notice, to an Eligible Assignee designated by Borrower for consideration equal to the sum of (i) such Lender Party’s share of the principal of the Advances outstanding, plus (ii) accrued interest to the date of assignment on such share of the Advances, plus (iii) all other amounts, if any, owing to such Lender Party under the Loan Documents; provided that (A) such Eligible Assignee shall consent to such amendment, waiver or other modification, (B) such assignment shall not conflict with any law, rule or regulation or order of any court or other governmental authority having jurisdiction, (C) the Borrower shall have received the prior written consent of the Administrative Agent, the L/C Bank and the Swingline Lender, which consent shall not unreasonably be withheld, and (D) upon the effectiveness of such assignment, the proposed amendment, waiver or other modification shall become effective. Each Lender Party hereby grants to the Administrative Agent an irrevocable power of attorney (which power is coupled with an interest) to execute and deliver, on behalf of such Lender Party as assignor, any Assignment and Acceptance necessary to effectuate any assignment of such Lender Party’s interests hereunder in the circumstances contemplated by this Section 9.01(d).

Section 9.02 Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopy or cable communication) and mailed, telegraphed, telecopied, cabled or delivered, if to the Borrower, at its address at Smart & Final Inc., 600 Citadel Drive, Commerce, California 90040, Telecopier No. (323) 869-7862, Attn: Donald G. Alvarado; if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; and if to the Administrative Agent, at its address at BNP Paribas, 919 Third Avenue, New York, New York 10022-3901, Telecopier No. (212) 471-6695, Attn: Loan Operations, with a copy to: BNP Paribas, 725 South Figueroa Street, Suite 2090, Los Angeles, California 90017, Telecopier No. (213) 488-9602, Attn: Clive Bettles or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telegraphed, telecopied or cabled, be effective when deposited in the mails, delivered to the telegraph company, transmitted by telecopier or delivered to the cable company, respectively, except that notices and communications to the Administrative Agent pursuant to Article II, III, IV or VIII shall not be effective until received by the Administrative Agent.

Section 9.03 No Waiver; Remedies. No failure on the part of any Lender Party or the Administrative Agent to exercise, and no delay in exercising, any right hereunder, under any Note or under any other Loan Document shall operate as a waiver thereof; nor shall any single or

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partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

Section 9.04 Costs and Expenses. (a) The Borrower agrees to pay on demand (i) all costs and expenses of the Lead Arranger and the Administrative Agent in connection with the negotiation, preparation, execution, delivery, syndication, administration, modification and amendment of the Loan Documents, whether or not the Loan Documents are executed or the Facility is closed (including, without limitation, (A) all due diligence, credit review, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of counsel (whether employed by such Person or separately engaged) for the Lead Arranger and the Administrative Agent with respect thereto) and (ii) all costs and expenses of the Lead Arranger, the Administrative Agent, each Lender and each L/C Bank in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, any bankruptcy, insolvency or other similar proceeding affecting creditors’ rights generally or otherwise, including with respect to advising such Person as to their rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors’ rights generally and any proceeding ancillary thereto and in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a “work-out” (including, without limitation, the reasonable fees and expenses of counsel (whether employed by such Person or separately engaged) for the Lead Arranger, the Administrative Agent and each Lender Party with respect thereto).

(b) The Borrower agrees to indemnify, defend and save and hold harmless each Credit Agent, the Lead Arranger, each Lender, each L/C Bank and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an “Indemnified Party”) from and against, and shall pay on demand, any and all claims, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (including, without limitation, reasonable fees and expenses of counsel but excluding Taxes, it being understood and agreed that the obligations of the Borrower to indemnify the Lender Parties and the Administrative Agent for Taxes are set forth in Section 2.10) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with (i) this Agreement or any other Loan Document, the actual or proposed use of the proceeds of any Advance or of any Letter of Credit issued hereunder or any of the transactions contemplated hereby or by the other Loan Documents, (ii) the actual or alleged presence of Hazardous Materials on any property of any Loan Party or any Environmental Action relating in any way to any Loan Party, (iii) any pollution or threat to human health or the environment that is related in any way to any Loan Party or any of its Subsidiaries or any other owner’s or operator’s management, use, control, ownership or operation of the properties owned, leased, operated or used by any Loan Party or any of its Subsidiaries, including all on-site and off-site activities involving Hazardous Materials, (iv) any Environmental Action against any Person whose liability for such Environmental Action

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any Loan Party or any of its Subsidiaries has assumed or retained either contractually or by operation of law, or (v) the breach of any environmental representation or warranty set forth in Sections 5.01(h) and 5.01(l), in each case whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct. The Borrower also agrees not to assert any claim against any Credit Agent, the Lead Arranger, any Lender Party, any of their Affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to any of the transactions contemplated herein or in any other Loan Document or the actual or proposed use of the proceeds of the Advances.

(c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by the Borrower to or for the account of a Lender Party other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.05 or 2.06, acceleration of the maturity of the Notes pursuant to Section 7.01 or for any other reason, the Borrower shall, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender Party any amounts required to compensate such Lender Party for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion or such failure to pay or prepay, as the case may be, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender Party to fund or maintain such Advance.

(d) If any Loan Party fails to pay when due any costs, expenses or other amounts payable by it under any Loan Document, including, without limitation, fees and expenses of counsel and indemnities, such amount may be paid on behalf of such Loan Party by the Administrative Agent or any Lender Party, in its sole discretion, and the Borrower shall reimburse the Administrative Agent or such Lender Party on demand for any amounts so paid with interest thereon at the Default Rate from the date of such payment until so reimbursed.

Section 9.05 Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent, each Lender Party and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Administrative Agent, such Lender Party or such Affiliate to or for the credit or the account of the Borrower against any and all of the Obligations of the Borrower now or hereafter existing under this Agreement and the Note or Notes held by such Lender Party, irrespective of whether the Administrative Agent, such Lender Party or such Affiliate shall have made any demand under this Agreement or such Note or Notes and although such Obligations may be unmatured; provided, however, that (a) any such set-off and application shall be subject to the provisions of Section 2.11 and (b) each Lender Party shall give the Administrative Agent at least two (2)

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Business Days’ prior written notice of its intent to set off, and each Lender Party shall cooperate with the Administrative Agent in taking any such reasonable actions as may be necessary to minimize any adverse effect of Sections 580 and 726 of the California Code of Civil Procedure. The Administrative Agent and each Lender Party agrees promptly to notify the Borrower after any such set-off and application; provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent, each Lender Party and their respective Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that the Administrative Agent, such Lender Party and their respective Affiliates may have.

Section 9.06 Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have been notified by each Initial Lender that such Initial Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender Party and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender Parties.

Section 9.07 Assignments and Participations. (a) Each Lender Party may assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or Commitments, and the Advances owing to it and the Note or Notes held by it); provided, however, that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of all of the Facilities, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender Party or an assignment of all of a Lender Party’s rights and obligations under this Agreement, the amount of the Commitments and Advances of the assigning Lender Party being assigned pursuant to each such assignment shall (unless otherwise consented to by the Borrower and the Administrative Agent (except that no consent of the Borrower shall be required if a Default has occurred and is continuing)) be equal to $5,000,000 or an integral multiple of $1,000,000 in excess thereof, (iii) each such assignment shall be to an Eligible Assignee, (iv) such Lender Party shall have obtained the Administrative Agent’s prior written consent to such assignment, and (v) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,500. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender Party hereunder and (y) the Lender Party assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender Party’s rights and obligations under this Agreement, such Lender Party shall cease to be a party hereto).

(b) By executing and delivering an Assignment and Acceptance, the Lender Party assignor thereunder and the assignee thereunder confirm to and agree with each

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other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender Party makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, this Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Lender Party makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any other Loan Party or the performance or observance by any Loan Party of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 5.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender Party or any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to the Administrative Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender or L/C Bank, as the case may be.

(c) The Administrative Agent shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lender Parties and the Commitment of, and principal amount of the Advances owing to, each Lender Party from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lender Parties shall treat each Person whose name is recorded in the Register as a Lender Party hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender Party at any reasonable time and from time to time upon reasonable prior notice.

(d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender Party and an assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, (iii) give prompt notice thereof to the Borrower, and (iv) deliver to the Borrower promptly a properly completed and signed Internal Revenue Service Form W-8IMY reflecting such assignment. Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it

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pursuant to such Assignment and Acceptance and, if the assigning Lender Party has retained a Commitment hereunder, a new Note to the order of the assigning Lender Party in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit D-1 or D-2 hereto, as applicable.

(e) Each Lender Party may sell participations in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) such Lender Party’s obligations under this Agreement (including, without limitation, its Commitments) shall remain unchanged, (ii) such Lender Party shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender Party shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent and the other Lender Parties shall continue to deal solely and directly with such Lender Party in connection with such Lender Party’s rights and obligations under this Agreement, (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or release all or substantially all of the Collateral, and (vi) such Lender Party shall be solely responsible for any and all Taxes on or with respect to any participation or any amount payable by or for the account of such Lender Party to or for the account of any participant of such Lender Party. The Borrower agrees that any Person so purchasing a participation from a Lender Party pursuant to this Section 9.07(e) shall be entitled to (i) exercise all its rights of payment (including the right of set-off) with respect to such participation to the fullest extent permitted by law and as fully as if such Person were the direct creditor of the Borrower in the amount of such participation, and (ii) the benefits of Sections 2.08 and 2.10.

(f) Any Lender Party may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender Party by or on behalf of the Borrower; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Lender Party.

(g) Notwithstanding any other provision set forth in this Agreement or any other Loan Document to the contrary, any Lender Party may assign all or any portion of the Advances or Notes held by it to secure obligations of such Lender Party, including any pledge or assignment to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank, provided that any payment in respect of such assigned Notes or Advances made by the Borrower to or for the

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account of the assigning and/or pledging Lender in accordance with the terms of this Agreement shall satisfy the Borrower’s obligations hereunder in respect of such assigned Advances or Notes to the extent of such payment. No such assignment shall release the assigning Lender Party from its obligations hereunder. In the case of any Lender Party that is a fund that invests in bank loans, such Lender Party may, without the consent of the Borrower or the Administrative Agent, collaterally assign or pledge all or any portion of its rights under this Agreement, including the Advances and Notes or any other instrument evidencing its rights as a Lender under this Agreement, to any holder of, trustee for, or any other representative of holders of, obligations owed or securities issued, by such fund, as security for such obligations or securities.

Section 9.08 Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES (I) AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR ANY FEDERAL COURT SITTING IN LOS ANGELES, CALIFORNIA AND (II) CONSENT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE PARTIES BY MAIL AT THE ADDRESSES SPECIFIED IN SECTION 9.02. THE PARTIES HEREBY WAIVE ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

Section 9.09 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement.

Section 9.10 No Liability of the L/C Bank. The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither any L/C Bank nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by such L/C Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrower shall have a claim against such L/C Bank, and such L/C Bank shall be liable to the Borrower, to the extent of any direct, but not consequential, damages suffered by the Borrower that the Borrower proves were caused by (i) such L/C Bank’s willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) such L/C Bank’s willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, such L/C Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary.

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Section 9.11 Confidentiality. The Administrative Agent and each Lender Party agrees to keep confidential any Confidential Information furnished or made available to it by the Borrower pursuant to this Agreement; provided that nothing herein shall prevent any Lender Party from disclosing such information (i) to any other Lender Party or any Affiliate of any Lender Party or any officer, director, employee, agent, or advisor of any Lender Party or Affiliate of any Lender Party, (ii) to any other Person if incidental to the administration of the credit facility provided herein, (iii) as required by any law, rule, or regulation, (iv) upon the order of any court or administrative agency, (v) upon the request or demand of any regulatory agency or authority, (vi) that is or becomes available to the public or that is or becomes available to any Lender Party other than as a result of a disclosure by any Lender Party prohibited by this Agreement, (vii) in connection with any litigation to which such Lender Party or any of its Affiliates may be a party, (viii) to the extent necessary in connection with the exercise of any remedy under this Agreement or any other Loan Document or (ix) to any Eligible Assignee or participant or proposed Eligible Assignee or participant in accordance with Section 9.07(f).

Section 9.12 Waiver of Jury Trial. EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT, THE L/C BANK AND THE LENDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, THE ADVANCES, ANY LETTER OF CREDIT OR THE ACTIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

Section 9.13 Marshalling; Payments Set Aside. Neither the Administrative Agent nor any Lender Party shall be under any obligation to marshal any assets in favor of the Borrower or any other party or against or in payment of any or all of the Obligations under the Loan Documents. To the extent that the Borrower makes a payment or payments to the Administrative Agent or the Lender Parties (or to the Administrative Agent for the benefit of the Lender Parties), or the Administrative Agent or any Lender Party enforces any security interests or exercise its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.

Section 9.14 Agreement to Enter Into New Intercreditor Agreement. If at any time the Obligations under the Synthetic Lease are paid off and refinanced in accordance with the terms of the Loan Documents, upon the Borrower’s request, the Administrative Agent shall enter into an intercreditor agreement with the new agent or agents with respect to the Leased Collateral (as defined in the Intercreditor Agreement attached as Exhibit Q-2 hereto), which

94

intercreditor agreement shall contain provisions substantially similar to the provisions of the Intercreditor Agreement attached as Exhibit Q-2 hereto, including the subordination provisions of Paragraph 2 thereof.

Section 9.15 Survival of Agreement. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Credit Agents, the L/C Bank or any Lender Party may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.08, 2.10, 2.11 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the payment of the Letter of Credit Obligations, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.

Section 9.16 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

Section 9.17 USA Patriot Act Notice. Each Lender Party that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender Party) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name, address and tax identification number of the Borrower and other information regarding the Borrower that will allow such Lender Party or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act. This notice is given in accordance with the requirements of the Act and is effective as to the Lender Parties and the Administrative Agent.

Section 9.18 Existing Agreement Superseded. As and to the extent set forth in Section 1.07, on and after the Closing Date, the Existing Credit Agreement is superseded by this Agreement, which hereby renews, amends, restates and modifies, but does not novate or extinguish, the obligations under the Existing Credit Agreement.

95

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

SMART & FINAL INC.,
as Borrower
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer

Amended and Restated Credit Agreement

BNP PARIBAS,
as Administrative Agent, L/C Bank, Swingline Lender and a Lender
By:	/s/ Clive Bettles
Name:	Clive Bettles
Title:	Managing Director
By:	/s/ Janice S. Ho
Name:	Janice S. Ho
Title:	Director

Amended and Restated Credit Agreement

Initial Lenders:
UNION BANK OF CALIFORNIA, N.A., as Syndication Agent and a Lender
By:	/s/ Peter Thompson
Name:	Peter Thompson
Title:	Vice President

Amended and Restated Credit Agreement

NATEXIS BANQUES POPULAIRES, as Documentation Agent and a Lender
By:	/s/ Nicolas Regent
Name:	Nicolas Regent
Title:	Vice President
	Multinational Group
By:	/s/ Pieter J. van Tulder
Name:	Pieter J. van Tulder
Title:	Group Head

Amended and Restated Credit Agreement

COOPERATIVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., “RABOBANK NEDERLAND”, NEW YORK BRANCH, as Documentation Agent and a Lender
By:	/s/ Brad Scott
Name:	Brad Scott
Title:	Executive Director
By:	/s/ Rebecca O. Morrow
Name:	Rebecca O. Morrow
Title:	Executive Director

Amended and Restated Credit Agreement

COBANK, ACB
By:	/s/ Jeff Liggett
Name:	Jeff Liggett
Title:	Assistant Vice President

Amended and Restated Credit Agreement

CITY NATIONAL BANK
By:	/s/ Brandon Feitelson
Name:	Brandon Feitelson
Title:	Vice President

Amended and Restated Credit Agreement

CREDIT INDUSTRIEL ET COMMERCIAL
By:	/s/ Eric Dulot
Name:	Eric Dulot
Title:	Vice President
By:	/s/ Albert M. Calo
Name:	Albert M. Calo
Title:	Vice President

Amended and Restated Credit Agreement

HARRIS TRUST & SAVINGS BANK
By:	/s/ C. Scott Place
Name:	C. Scott Place
Title:	Vice President

Amended and Restated Credit Agreement

RZB FINANCE LLC
By:	/s/ John A. Valiska
Name:	John A. Valiska
Title:	Group Vice President
By:	/s/ Christoph Hoedl
Name:	Christoph Hoedl
Title:	Vice President

Amended and Restated Credit Agreement

U.S. BANK NATIONAL ASSOCIATION
By:	/s/ Guy Shinagawa
Name:	Guy Shinagawa
Title:	Assistant Vice President

Amended and Restated Credit Agreement

EX-10.53

Exhibit 10.53

REAFFIRMATION AGREEMENT

This REAFFIRMATION AGREEMENT, dated as of November 18, 2004 (this “Agreement”), is among each of the signatories listed as a “Grantor” on the signature pages hereto (the “Grantors”), Wells Fargo Bank Northwest, National Association, not individually, but solely as Owner Trustee under S&F Trust 1998-1 (the “Owner Trustee”), and BNP PARIBAS, as administrative agent for the Lender Parties referred to in the Amended and Restated Credit Agreement described below (in such capacity, the “Administrative Agent”).

PRELIMINARY STATEMENTS

A. Smart & Final Inc. (the “Borrower”), the lenders party thereto (the “Lenders”), the Administrative Agent, BNP Paribas Securities Corporation, as lead arranger and book manager, Union Bank of California, N.A., as syndication agent, and Natexis Banques Populaires and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as documentation agents, have entered into an Amended and Restated Credit Agreement dated as of November 18, 2004 (together with all Exhibits and Schedules thereto and as amended, amended and restated, supplemented, replaced or otherwise modified from time to time, the “Amended and Restated Credit Agreement”), which amended and restated in full the Credit Agreement dated as of November 30, 2001 (the “Original Credit Agreement”), among the Borrower, the lenders party thereto, Harris Trust & Savings Bank, as syndication agent, Cooperative Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as documentation agent, and the Administrative Agent. Capitalized terms used but not otherwise defined herein are used with the meanings attributed thereto in the Amended and Restated Credit Agreement.

B. The Grantors (other than the Borrower) are party to the Guaranty dated as of November 30, 2001 (as amended, amended and restated, supplemented, replaced or otherwise modified from time to time, the “Guaranty”) in favor of the Administrative Agent.

C. The Grantors and the Administrative Agent are party to (i) the Pledge Agreement dated as of November 30, 2001 (as amended, amended and restated, supplemented, replaced or otherwise modified from time to time, the “Pledge Agreement”) and (ii) the Security Agreement dated as of November 30, 2001 (as amended, amended and restated, supplemented, replaced or otherwise modified from time to time, the “Security Agreement”).

D. The Borrower, the Owner Trustee and the Administrative Agent are party to the Subordinate Security Agreement dated as of November 30, 2001 (as amended, amended and restated, supplemented, replaced or otherwise modified from time to time, the “Subordinate Security Agreement”).

E. In connection with the amendment and restatement of the Original Credit Agreement pursuant to the Amended and Restated Credit Agreement, the Borrower has requested that the Administrative Agent consent to certain conforming changes to the Guaranty, the Pledge Agreement, the Security Agreement and the Subordinate Security Agreement, and the Grantors and the Owner Trustee have agreed to reaffirm their obligations under the Guaranty, the Pledge Agreement, the Security Agreement and the Subordinate Security Agreement (to the extent each is a party thereto).

NOW, THEREFORE, in consideration of the premises and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Amendments.

(a) The Pledge Agreement is hereby amended by (i) replacing each reference therein to the “Closing Date” with “Original Closing Date” and (ii) replacing each of the schedules thereto with the schedules attached hereto as Annex I.

(b) The Security Agreement is hereby amended by (i) adding the following sentence to the end of Section 7.1(a)(v) of the Security Agreement: “The Collateral Agent agrees that it shall not apply any such balance from any Deposit Account, instruct any bank at which any Deposit Account is maintained to pay the balance of any Deposit Account to or for the benefit of the Collateral Agent or issue any other instructions with respect to any Deposit Account, in each case unless an Event of Default shall have occurred and be continuing.” and (ii) replacing each of the schedules thereto with the schedules attached hereto as Annex II.

2. Reaffirmation of Guaranty. Each of the undersigned Grantors hereby acknowledges that it has reviewed the terms and provisions of the Amended and Restated Credit Agreement and consents to the amendments and modifications effected thereby. Each of the undersigned Grantors (other than the Borrower) hereby agrees and confirms, both before and after giving effect to the amendment and restatement of the Original Credit Agreement pursuant to the Amended and Restated Credit Agreement, that it is a party to and is bound by the Guaranty as a guarantor thereunder, by virtue of its having been an original signatory thereto. The Guaranty is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed.

3. Reaffirmation of Collateral Documents. Each of the undersigned Grantors hereby agrees and confirms, both before and after giving effect to the amendment and restatement of the Original Credit Agreement pursuant to the Amended and Restated Credit Agreement, that it is a party to and is bound by the Pledge Agreement, the Security Agreement and, to the extent each is a party thereto, each other Collateral Document as a grantor of collateral thereunder, by virtue of its having been an original signatory thereto. Each of the Collateral Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.

4. Reaffirmation of Subordinate Security Agreement. The Owner Trustee hereby agrees and confirms, both before and after giving effect to the amendment and restatement of the Original Credit Agreement pursuant to the Amended and Restated Credit Agreement, that it is a party to and is bound by the Subordinate Security Agreement as a grantor of collateral thereunder, by virtue of its having been an original signatory thereto. The Subordinate Security Agreement is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed.

5. Reaffirmation of Grant of Security Interest. Without limiting the generality of the foregoing, each of the Collateral Documents and all of the Collateral described therein do and shall continue to secure the payment of all Secured Obligations under and as defined therein. Each of the undersigned Grantors and the Owner Trustee hereby reaffirms its grant of, and hereby grants, a security interest in the Collateral to the Administrative Agent for the ratable benefit of the Secured Parties, as collateral security for the prompt and complete payment and performance when due of the Secured Obligations under and as defined in each Collateral Document.

6. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement.

7. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.

[signature pages follow]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

Grantors:
SMART & FINAL INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
AMERICAN FOODSERVICE DISTRIBUTORS
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer

Reaffirmation Agreement

SMART & FINAL STORES CORPORATION
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
SMART & FINAL OREGON, INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
PORT STOCKTON FOOD DISTRIBUTORS, INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer

Reaffirmation Agreement

AMERIFOODS TRADING COMPANY
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
CASINO FROZEN FOODS, INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer

Reaffirmation Agreement

FOODSERVICESPECIALISTS.COM, INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
OKUN PRODUCE INTERNATIONAL, INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
HL HOLDING CORPORATION
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer

Reaffirmation Agreement

WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not individually, but solely as the Owner Trustee under S&F Trust 1998-1
By:	/s/ Val T. Orton
Name:	Val T Orton
Title:	Vice President

Reaffirmation Agreement

BNP PARIBAS,
as Administrative Agent
By:	/s/ Clive Bettles
Name:	Clive Bettles
Title:	Managing Director
By:	/s/ Janice S. Ho
Name:	Janice S. Ho
Title:	Director

Reaffirmation Agreement

EX-10.54

Exhibit 10.54

TRADEMARK SECURITY AGREEMENT

This TRADEMARK SECURITY AGREEMENT (this “Agreement”), dated as of November 18, 2004, is made among Smart & Final Inc., a Delaware corporation (the “Borrower”), American Foodservice Distributors, a California corporation (“Foodservice”), Smart & Final Stores Corporation, a California corporation (“S&F Stores”), Smart & Final Oregon, Inc., an Oregon corporation (“Oregon”), Port Stockton Food Distributors, Inc., a California corporation (“Port Stockton”), Casino Frozen Foods, Inc., a California corporation (“Casino Foods”), Amerifoods Trading Company, a Florida corporation (“Amerifoods”), FoodServiceSpecialists.com, Inc., an Oregon corporation (“Foodservice Specialists”), Okun Produce International, Inc., a Florida corporation (“Okun”), and HL Holding Corporation, a Nevada corporation (“HL Holding”) (collectively, the “Grantors”), and BNP PARIBAS, as Administrative Agent (the “Administrative Agent”) for each of the Lender Parties.

W I T N E S S E T H :

WHEREAS, pursuant to a Credit Agreement, dated as of November 30, 2001 (as amended and restated as of the date hereof (as so amended and restated, the “Amended and Restated Credit Agreement” and as the same may be further amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the various financial institutions as are or may become parties thereto (the “Lenders”) and the Administrative Agent, the Lender Parties have extended Commitments to make Advances to the Borrower;

WHEREAS, in connection with the Credit Agreement, the Grantors have executed and delivered a Security Agreement, dated as of November 30, 2001 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”);

WHEREAS, as a condition precedent to the effectiveness of the Amended and Restated Credit Agreement and the making of Advances thereunder, the Grantors are required to execute and deliver this Agreement; and

WHEREAS, the Grantors have duly authorized the execution, delivery and performance of this Agreement;

NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Lender Parties to make Advances to the Borrower pursuant to the Credit Agreement, each Grantor agrees, for the benefit of each Lender Party, as follows.

SECTION 1. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided (or incorporated by reference) in the Security Agreement.

SECTION 2. Grant of Security Interest. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, to secure all of the Secured Obligations, each Grantor does hereby mortgage, pledge and hypothecate to the Administrative Agent, and grant to the Administrative Agent a security interest in, for its benefit and the benefit of each Lender Party, all of the following property (the “Trademark Collateral”), whether now owned or hereafter acquired or existing by it:

(a) all United States, state and foreign trademarks, trade names, corporate names, company names, business names, fictitious business names, internet domain names, trade styles, service marks, certification marks, collective marks, logos, other source or business identifiers, designs and general intangibles of a like nature, all registrations and applications for any of the foregoing, including, but not limited to the registrations and applications referred to in Item A of Attachment I hereto, all extensions or renewals of any of the foregoing, all of the goodwill of the business connected with the use of and symbolized by the foregoing, the right to sue for past, present and future infringement or dilution of any of the foregoing or for any injury to goodwill, and all proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit (all of the foregoing items in this clause (a) being collectively called a “Trademark”), now existing anywhere in the world or hereafter adopted or acquired, whether currently in use or not; and

(b) all agreements providing for the granting of any right in or to Trademarks (whether such Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Item B of Attachment 1 attached hereto.

SECTION 3. Security Agreement. This Agreement has been executed and delivered by the Grantors for the purpose of registering the security interest of the Administrative Agent in the Trademark Collateral with the United States Patent and Trademark Office and corresponding offices in other countries of the world. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the benefit of each Lender Party under the Security Agreement. The Security Agreement (and all rights and remedies of the Administrative Agent and each Lender Party thereunder) shall remain in full force and effect in accordance with its terms.

SECTION 4. Acknowledgment. Each Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Trademark Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein.

SECTION 5. Loan Document, etc. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Credit Agreement.

SECTION 6. Counterparts. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written.

SMART & FINAL INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
AMERICAN FOODSERVICE DISTRIBUTORS
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer

Trademark Security Agreement

SMART & FINAL STORES CORPORATION
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
SMART & FINAL OREGON, INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
PORT STOCKTON FOOD DISTRIBUTORS, INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer

Trademark Security Agreement

CASINO FROZEN FOODS, INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
AMERIFOODS TRADING COMPANY
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
FOODSERVICESPECIALISTS.COM, INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer

Trademark Security Agreement

OKUN PRODUCE INTERNATIONAL, INC.
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer
HL HOLDING CORPORATION
By:	/s/ Richard N. Phegley
Name:	Richard N. Phegley
Title:	Senior Vice President and Chief Financial Officer
By:	/s/ Jan P. Berger
Name:	Jan P. Berger
Title:	Vice President and Treasurer

Trademark Security Agreement

BNP PARIBAS, as the Administrative Agent
By:	/s/ Clive Bettles
Name:	Clive Bettles
Title:	Managing Director
By:	/s/ Janice S. Ho
Name:	Janice S. Ho
Title:	Director

Trademark Security Agreement

ATTACHMENT 1

TO TRADEMARK SECURITY AGREEMENT

Item A. Trademarks

Trademark Assets in the United States

Trademarks owned by Smart & Final Stores Corporation
Mark	Registered	Filed	Status
BAY HARBOR® (Reg. No. 2,704,013)	04/08/2003	12/17/2001	Renewal due 04/8/2013
PRO PRIDE® (Reg. No. 2,840,102)	05/11/2004	10/30/2002	Renewal due 05/11/2014
PRO PRIDE® (Reg. No. 2,840,101)	05/11/2004	10/30/2002	Renewal due 5/11/2014
PRO PRIDE® (Reg. No. 2,840,103)	05/11/2004	10/30/2002	Renewal due 05/11/2014
PRO VALUE® (Reg. No. 2,838,632)	05/04/2004	03/11/2003	Renewal due 05/04/2014
PRO VALUE™ (Serial No. 78/224,385		03/11/2003	ITU Allowed 08/03/2004
SEQUANA™ (Serial No. 78/266,701)		06/24/2003	Use Published 09/14/2004
SMART ALLIANCE® (Reg. No. 2,877,183)	08/24/2004	02/25/2003	Renewal due 08/24/2014
SMART CASH & CARRY™ (Serial No. 78/332,957)		11/25/2003	Use Pending

Trademarks owned by Smart & Final Stores Corporation
Mark	Registered	Filed	Status
SMART PRO CASH & CARRY™ (Serial No. 78/350,892)		01/12/2004	ITU Pending
UNITED GROCERS CASH & CARRY™ (Serial No. 78/332,954)		11/25/2003	Use Pending
PRO VALUE® (Reg. No. 2,834,510)	04/20/2004	03/11/2003	Renewal due 04/20/2014
SMART & FINAL CHEF’S REVIEW ™ (& design) (Serial No. 78/351,278)		01/13/2004	Use Published 09/30/2004
SMART & FINAL CHEF’S REVIEW ™ (& design) (Serial No. 78/351,266)		01/13/2004	Use Published 09/30/2004
SMART & FINAL CHEF’S REVIEW ™ (& design) (Serial No. 78/333,183)		11/25/2003	Use Published 09/29/2004
SMART & FINAL CHEF’S REVIEW ™ (& design) (Serial No. 78/333,082)		11/25/2003	Use Published 09/29/2004
SMART & FINAL CHEF’S REVIEW ™ (& design) (Serial No. 78/332,956)		11/25/2003	Use Published 09/29/2004
SMART & FINAL CHEF’S REVIEW ™ (& design) (Serial No. 78/332,904)		11/25/2003	Use Pending
SMART & FINAL CHEF’S REVIEW ™ (& design) (Serial No. 78/332,884)		11/25/2003	Use Published 09/29/2004
SMART & FINAL CHEF’S REVIEW ™ (& design) (Serial No. 78/332,863)		11/25/2003	Use Published 09/29/2004

Foreign Trademark Assets

Trademark Asset (Reg./Serial No.)	Jurisdiction	Registrant/Applicant	Status
PRO PRIDE® (Reg. No. 805031)	Mexico	Smart & Final Stores Corporation	Registered 09/08/2003 Renewal due 04/30/2013
PRO PRIDE® (Reg. No. 806032)	Mexico	Smart & Final Stores Corporation	Registered 09/08/2003 Renewal due 04/30/2013
PRO VALUE® (Reg. No. 823105)	Mexico	Smart & Final Stores Corporation	Registered 02/27/2004 Renewal due 09/11/2013
PRO VALUE® (Reg. No. 823106)	Mexico	Smart & Final Stores Corporation	Registered 02/27/2004 Renewal due 09/11/2013

Item B. Trademark Licenses

1. Smart & Final Inc., Smart & Final Stores Corporation and American Foodservice Distributors licensed to GFS Holdings, Henry Lee Company, GFS Stores LLC, and GFS Orlando LLC the following trademarks, the term for these licenses expires as of September 6, 2005:

Ambiance	Smart and Final
Bay Harbor	Smart and Final Iris Co.
Davis Lay	Smart Buy
Dec-O-Toppes	Smart Cash
Iris	Smart Partners
La Romanella	Smart Pro
Montecito	Smart Track
Pro Pride	Smart U
Pro Value	Smart University
Rushing Waters	Smarty
Smart & Final	Snack’rs
Smart Advantage	Tender-Lee

.

EX-21

Exhibit 21

SUBSIDIARIES

Name	State of Incorp.	Date of Incorp.	Status/Date of Dissolution
Casino USA, Inc.	California	9-19-30	CURRENT/ACTIVE
Smart & Final Inc.	Delaware	7-2-91	CURRENT/ACTIVE
Smart & Final Stores Corporation	California	10-23-90	CURRENT/ACTIVE
Smart & Final Oregon, Inc.	Oregon	5-7-98	CURRENT/ACTIVE
Smart & Final de Mexico	Mexico	3-11-93	CURRENT/ACTIVE
Smart & Final del Noroeste	Mexico	8-13-93	CURRENT/ACTIVE
FoodServiceSpecialists.com	Oregon	9-8-00	CURRENT/ACTIVE
Casino Frozen Foods, Inc.	California	10-29-90	CURRENT/ACTIVE
American Foodservice Distributors, Inc.	California	10-1-90	CURRENT/ACTIVE
Port Stockton Food Dist., Inc.	California	5-8-62	CURRENT/ACTIVE
AmeriFoods Trading Company	Florida	7-10-95	CURRENT/ACTIVE
Henry Lee Exports Corp.	US Virgin Islands	4-29-91	CURRENT/ACTIVE
H L Holding Corporation	Nevada	12-23-97	CURRENT/ACTIVE
Okun Produce Company	Florida	7-5-73	CURRENT/ACTIVE

Non-profit foundations for charitable purposes do not have “shareholders” i.e. Smart & Final Disaster Relief Fund and Smart & Final Scholarship Foundation and are therefore not listed as subsidiaries.

Page 1

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement File Nos. 33-60502, 333-01360, 333-35243 and 333-87767 of Smart & Final Inc. of our reports dated March 2, 2005, with respect to (1) the consolidated financial statements and schedule of Smart & Final Inc., and (2) management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Smart & Final Inc., included in the Annual Report (Form 10-K) for each of the three years in the fiscal period ended January 2, 2005.

/s/ ERNST & YOUNG LLP

Los Angeles, California

March 10, 2005

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT AND RULE 13A-14(A) OR 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Etienne Snollaerts, certify that:

1. I have reviewed this Annual Report on Form 10-K of Smart & Final Inc. for the year ended January 2, 2005;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2005	/s/ Etienne Snollaerts
	Etienne Snollaerts
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY

ACT AND RULE 13A-14(A) OR 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Richard N. Phegley, certify that:

1. I have reviewed this Annual Report on Form 10-K of Smart & Final Inc. for the year ended January 2, 2005;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2005	/s/ Richard N. Phegley
	Richard N. Phegley
	Chief Financial Officer

EX-32.1

Exhibit 32.1

Written Statement of the Chief Executive Officer

Pursuant to 18 U.S.C. §1350

Solely for the purposes of complying with 18 U.S.C. §1350, I, the undersigned Chief Executive Officer of Smart & Final Inc. (the “Company”), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended January 2, 2005 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Etienne Snollaerts

Etienne Snollaerts

March 11, 2005

EX-32.2

Exhibit 32.2

Written Statement of the Chief Financial Officer

Pursuant to 18 U.S.C. §1350

Solely for the purposes of complying with 18 U.S.C. §1350, I, the undersigned Chief Financial Officer of Smart & Final Inc. (the “Company”), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended January 2, 2005 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Richard N. Phegley

Richard N. Phegley

March 11, 2005