UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT TO ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
VICORP Restaurants, Inc.
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 2
The undersigned registrant hereby amends the following items,
financial statements, exhibits, or other portions of its Annual
Report of 1998 on Form 10-K as set forth in the pages attached
hereto:
The information comprising Part III, Item 10. Directors and
Executive Officers of the Registrant; Item 11. Executive
Compensation; Item 12. Security Ownership of Certain Beneficial
Owners and Management; and Item 13. Certain Relationships and
Related Transactions.
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
VICORP Restaurants, Inc.
(Registrant)
By /s/ Richard E. Sabourin
------------------------
Richard E. Sabourin
Executive Vice President/
Chief Financial Officer
Date: February 26, 1999
Commission File Number 0-12343
Item 10. Directors and Executive Officers of the Registrant.
Directors of the Company
<TABLE>
<CAPTION>
Served as
a director
Name and Age Position since
- ------------ -------- ----------
<S> <C> <C>
Carole Lewis Anderson, 54 Director of the Company April 1991
Bruce B. Brundage, 63 Director of the Company August 1988
Charles R. Frederickson, 61 Chairman of the Board, Chief June 1968
Executive Officer and President
of the Company
John C. Hoyt, 71 Director of the Company October 1982
Robert T. Marto, 53 Director of the Company August 1989
Dudley C. Mecum, 64 Director of the Company December 1989
Dennis B. Robertson, 61 Director of the Company August 1988
Hunter Yager, 69 Director of the Company April 1996
Arthur Zankel, 66 Director of the Company October 1988
</TABLE>
Carole Lewis Anderson became a director in April 1991. Since
June 1995, she has been a principal of Suburban Capital Markets,
Inc., a commercial real estate mortgage company. Prior to that
time, she was the President of MASDUN Capital Advisors, a private
investment banking company which engages in corporate and real
estate finance. Ms. Anderson is also a trustee of AARP Cash
Investment Funds, AARP Growth Trust, AARP Income Trust, AARP
Managed Investment Portfolios Trust, and AARP Tax-Free Income
Trusts.
Bruce B. Brundage became a director of the Company in August
1988. Since 1973, Mr. Brundage has been the President of
Brundage & Company, a Denver-based company specializing in the
private placement of long-term financing and the negotiation,
appraisal and arrangement of mergers and acquisitions. Mr.
Brundage is also a director of Black Hills Corporation.
Charles R. Frederickson, a director of the Company since
1968, was appointed to the position of Chairman of the Board in
November 1986, and to the positions of Chief Executive Officer
and President in May 1998.
John C. Hoyt, a director since October 1982, has for more
than the past five years been an officer, director, and
controlling shareholder of Midwest Pancake Houses, Inc., which is
a Village Inn franchisee. See Certain Relationships and Related
Transactions.
Robert T. Marto, a private investor, has been a director
since August 1989. He was the President and Chief Executive
Officer of White River Corporation from December 1993 to December
1997.
Dudley C. Mecum became a director in December 1989. He is
currently a Managing Director in Capricorn Holdings LLC, a
leveraged buy-out fund. From August 1989 until January 1997, Mr.
Mecum was a partner in G.L. Ohrstrom & Company. Mr. Mecum is
also a director of Citigroup; Lyondell Petrochemical Co.;
Dyncorp; The Metris Companies, Inc.; Suburban Propane MLP;
Travelers Property and Casualty; and CCC Information Services,
Inc.
Dennis B. Robertson became a director of the Company in
August 1988. Mr. Robertson is currently the Chairman, President,
and CEO of DOCK'S Great Fish, Inc., which operates seafood
restaurants. From October 1997 to November 1998, he was the
Chairman of that Company and from October 1991 to October 1997,
he was its Chairman and CEO.
Hunter Yager became a director in April 1996. In 1985 he
retired from Grey Advertising, Inc., where he was an Executive
Vice President. Since his retirement, he has been an independent
consultant in marketing and advertising.
Arthur Zankel became a director of the Company in October
1988. For more than the last five years, he has been a General
Partner of First Manhattan Co., a money management firm. Mr.
Zankel is also a director of Travelers Group; Fund American
Enterprises Holdings, Inc.; and Travelers/Aetna Casualty Property
Corp.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of the written representation of the
Company's directors and executive officers and copies of the
reports they have filed with the Securities and Exchange
Commission, the Company believes that all Section 16(a) filing
requirements applicable to its executive officers, directors and
greater than ten percent (10%) beneficial owners were followed.
Item 11. Executive Compensation
Summary of Cash and Certain Other Compensation
The following table discloses compensation received by the
Company's Chief Executive Officers and named executive officers
for the three fiscal years ended November 1, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Other
annual Securities
compen- underlying All other
Name and principal Salary Bonus sation Options/ compensation
position Year ($) ($) ($) SARs/(#) ($)
-------- ---- --- --- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Charles R. Frederickson F<1> 1998 301,828 120,300 3,861
Chairman, Chief Executive 1997 311,538 63,000 3,562
Officer and President 1996 291,923 703
J. Michael Jenkins F<2> 1998 241,052 358
Chief Executive 1997 377,386 428
Officer and President 1996 350,000 300,000 520
Robert E. Kaltenbach 1998 198,463 390,384 100,000 3,688
President/Village Inn 1997 181,267 150,000 3,522 F<3>
Division 1996 175,000 100,000 564 F<3>
Richard E. Sabourin F<4> 1998 250,621 100,250 100,000 3,648
Executive Vice 1997 259,201 52,500 1,091
President/Chief Financial 1996 43,269
Officer
Joseph F. Trungale F<5> 1998 253,269 153,075 50,000 218
President/Bakers Square 1997 40,385
Division
</TABLE>
F<1> Mr. Frederickson was appointed Chief Executive Officer and
President in May 1998. The amount shown under "All Other
Compensation" represents $335, $3,200, and $3,200 paid as the
Company's matching contribution under its 401(k) plan and $368,
$362, and $661 paid by the Company for term life insurance
premiums for the years 1996, 1997, and 1998, respectively.
F<2> Mr. Jenkins resigned from the Company on April 30, 1998.
Under "All Other Compensation", the amount shown represents the
Company's payment for term life insurance premiums for 1996,
1997, and 1998, respectively.
F<3> The amount shown represents $335, $3,200, and $3,200 paid as
the Company's matching contribution under its 401(k) plan and
$229, $322, and $488 paid by the Company for term life insurance
premiums for years 1996, 1997, and 1998, respectively.
F<4> Mr. Sabourin joined the Company as its Executive Vice
President/Chief Financial Officer in August 1996. The amount
reflected in the column captioned "All Other Compensation"
represents $791 and $3,200 paid as the Company's matching
contribution under its 401(k) plan and $300 and $448 paid by the
Company for term life insurance premiums for 1997 and 1998 and
$75 for term life insurance premiums for 1996.
F<5> Mr. Trungale was appointed to the position of
President/Bakers Square Division, in August 1998. He first
joined the Company as a Regional Operating partner for the
Chicago Bakers Square Restaurants in July 1997. Under "All Other
Compensation" the amount shown represents the Company's payment
for term life insurance premiums for 1998.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential realizable value at assumed
Individual Grants annual rates of stock price appreciation
for option term
- ------------------------------------------------------------------------ ------------------------------------------
Name Number of Percent of
securities total Exercise or Expiration 5% ($) 10% ($)
underlying options/SARs base price date
SARs granted to ($/sh)
granted employees
(#) in fiscal year
- ------------------------------- ------------------ ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Robert E. 50,000 33 1/3 18.25 4/9/2008 573,866.35 1,454,289.99
Kaltenbach 50,000 33 1/3 14.25 10/2/2008 448,087.42 1,135,541.50
- -------------------------------------------------------------------------------------------------------------------------
Joseph F. Trungale 50,000 33 1/3 14.25 10/2/2008 448,087.42 1,135,541.50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Aggregated Option / SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option / SAR Values
The following table provides information on option/SAR
exercises in fiscal 1998 by the named executive officers and the
value of such officers' unexercised options/SARs at November 1, 1998.
<TABLE>
<CAPTION>
Value of
unexercised in-
Number of the-money
unexcercized options/SARs at
options/SARs at fiscal year end
fiscal year end ($)
(#) ----
---
Shares
acquired on Value
exercise realized Exercisable/ Exercisable/
Name (#) ($) unexercisable unexercisable
---- --- --- ------------- -------------
<S> <C> <C> <C> <C>
Charles R. Frederickson 2,000 19,500 50,000/0 0/0
J. Michael Jenkins 100,000 268,166 0/0 0/0
Robert E. Kaltenbach 12,500/87,500 0/0
Richard E. Sabourin 50,000/50,000 131,250/131,250
Joseph F. Trungale 0/50,000 0/0
</TABLE>
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The members of the Compensation Committee for fiscal 1998 were Carole Lewis
Anderson, Bruce B. Brundage, Robert T. Marto, Dudley C. Mecum, Dennis B.
Robertson, Hunter Yager, and Arthur Zankel.
Employment Contracts and Termination of Employment and Change-of-Control
Arrangements
In August 1994, Mr. Jenkins entered into a five-year employment
agreement. Under that agreement for fiscal year 1998, he was to receive a
base salary of $450,000 and was eligible to earn a bonus (not to exceed $1.5
million) equal to 20% of the amount by which the Company's earnings before
interest, taxes, and the bonus itself, exceeded $32 million. Upon Mr. Jenkins'
resignation in April 1998, the agreement terminated without any payment to
him other than his base salary earned through the date of his resignation.
Mr. Sabourin executed an employment agreement of undefined term with the
Company in July 1996. Mr. Sabourin is to receive a base salary of $250,000
per year and is eligible to participate in the incentive bonus program, if
any, as approved annually by the Board of Directors. Pursuant to the
agreement, Mr. Sabourin was granted the option to purchase a total of 100,000
shares of the Company's Stock at an exercise price of $11.50 per share, the
fair market value of the Company's Stock on the date of grant. The options
vest in 25,000-share increments on September 1, 1997, 1998, 1999, and 2000.
The agreement provides Mr. Sabourin benefits consistent with those provided
to other Company officers.
Certain employees of the Company, including Messrs. Kaltenbach,
Sabourin, and Trungale, have entered into employment severance agreements
with the Company. Those agreements expire December 31, 1999, unless a
Change-of-Control occurs prior to that date, then the agreements expire two
years after the Change-of-Control. If a covered employee is terminated
within one year following a Change-of-Control, the employee is entitled to the
following payments. If the termination is because of death, disability,
retirement, the employee's voluntary action or for cause (as defined in the
agreement), the Company must pay all earned, but unpaid, compensation to the
date of termination. If the termination is for other reasons, the Company
must pay all compensation earned and unpaid, as of the date of termination; a
lump sum cash payment equal to two times the employee's base salary at the
greater of the rate in effect on the date of the Change-of-Control or the
Notice of Termination and the amount equal to the bonus compensation the
employee earned in the most recent fiscal year for which the employee earned
a bonus. Additionally, the Company must provide for eighteen (18) months
following termination, or until the employee obtains other comparable
benefits from another employer, medical, hospitalization, and dental benefits
comparable to those provided prior to the Change-of-Control. All stock
options granted the employee become immediately exercisable upon a
Change-of-Control. If the employee is terminated within the second year
after a Change-of-Control, the benefits the employee is to receive are the
same except the base salary component of the lump sum payment is based upon
one, not two, times base salary.
Under the severance agreements, a Change-of-Control is defined as a
change in beneficial ownership of 50% or more of the combined voting power of
the Company; the first purchase of stock in a non-Company sponsored tender or
exchange offer; or upon shareholder approval of certain merger
consolidations, sales or disposition of substantially all of the Company's
assets, a plan of liquidation; or a change in at least two-thirds of the
members of the Board absent approval of the then existing Board members.
In April 1989, Mr. Frederickson entered into an employment severance
agreement with the Company. The terms of that agreement are substantially
the same as described above for other Company employees except (i) if
termination is for reasons other than cause, disability, retirement or by the
voluntary action of the employee, the lump sum cash payment shall be equal to
two and three-quarters times his annual base salary plus the amount equal to
the bonus compensation to which he was entitled during the most recent fiscal
year in which he earned a bonus; and (ii) if he becomes employed within one
year after termination, he shall repay to the Company any cash compensation
actually received by him as a result of such employment during the one-year
period up to a specified amount.
Report of the Compensation Committee
This report discusses the manner in which base salaries, incentive
compensation and stock option grants for the Company's Chief Executive
Officers and other executives named in the Summary Compensation Table were
determined for the 1998 fiscal year.
The Company's compensation policies for the stated individuals are
administered by the Compensation Committee of the Board of Directors, all
members of which are outside directors. The compensation policies are
intended to enhance the financial performance of the Company by aligning the
financial interest of the Company's executives with those of its
stockholders. The Committee believes that the most effective executive
compensation program is one which serves to attract and retain talented
individuals who are incented to achieve both current and long-term management
goals in keeping with the ultimate goal of enhancing stockholder value.
The primary components of executive compensation are base salary, cash
bonus and longer-term incentives in the form of stock option grants.
Base Salaries
The base salaries of Messrs. Jenkins and Sabourin were established by
the terms of their respective employment agreements. See Executive Contract
and Termination of Employment and Change-of-Control Arrangements for a
discussion of those agreements.
The base salaries, which were in the median range of the companies
included in the survey described below, of Messrs. Frederickson and
Kaltenbach were determined by the Compensation Committee in December 1997.
In making the determination, the committee reviewed information contained in
the 1997 Chain Restaurant Compensation Association Survey, considered the
Company's performance, and evaluated the competitiveness of the entire
compensation package for each.
The independently conducted Chain Restaurant Compensation Association
Survey was deemed to be an appropriate indicator of the competitiveness of
the Company's salaries when compared with other restaurant companies because
of the number and nature of companies participating. In excess of sixty
companies participated. Public and private companies in various segments of
the restaurant industry were represented. Included among those companies
were ones on the Dow Jones Entertainment & Leisure - Restaurant Index.
Mr. Trungale's compensation was approved by the Committee in January
1998 when he was appointed an officer and became responsible for the
Company's Midwest Bakers Square Restaurants. In approving the package, the
same criteria used for Messrs. Frederickson and Kaltenbach were applied.
Bonus Program
In December 1997, the Compensation Committee approved a bonus program
for certain officers of the Company including Messrs. Frederickson and
Sabourin which was predicated upon achievement of overall Company performance
against a set baseline of earnings before interest and taxes as computed in
accordance with generally accepted accounting principles. The measure of
earnings before interest and taxes and the baseline that was established
(which was an increase over the previous year) were selected by the Committee
as being appropriate because of their direct relationship to shareholder
interest. Under the program each participating executive officer could earn
a bonus of up to 52% of the executive's base salary. Bonuses were determined
by application of a formula that takes into account the extent to which the
earnings' target was met or exceeded. In fiscal 1998, 106.5% of the
earnings' target was achieved resulting in a bonus payment to the
participating executive officers of 40% of that individual's base salary.
With respect to Mr. Kaltenbach, in December 1997, the Compensation
Committee approved a bonus program. The payout, a percentage of profit and
income, was predicated upon achieving store operating profits (restaurant
results excluding corporate overhead), plus net franchise income targets.
The measures were selected because of their direct relationship to Mr.
Kaltenbach's areas of control and responsibility. In fiscal 1998, the
targets achieved resulted in a bonus payment to Mr. Kaltenbach equal to
approximately 1.5% of the Village Inn store operating profit and net
franchise income.
Mr. Trungale's bonus program was predicated upon the store operating
profits (restaurant results excluding corporate overhead) for the Midwest
Bakers Square Restaurants. That measure was selected because of its focus on
increasing profits and because it was directly tied to his area of control
and responsibility. His bonus program was not modified upon his appointment
in August 1998 to the position of President/Bakers Square Division. Mr.
Trungale's performance resulted in a bonus payment equal to approximately 1%
of the gross store operating profit of the Company's Midwest Bakers Square
Restaurants.
Mr. Jenkins was ineligible for any bonus payment due to his resignation
from the Company.
Deductibility of Compensation
The Compensation Committee has considered the potential impact of
Section 162(m) (the "Section") of the Internal Revenue Code adopted under the
Federal Revenue Reconciliation Act of 1993. The Section disallows a tax
deduction for any publicly-held company for individual compensation exceeding
$1 million in any tax year for any of the named executive officers, unless
the compensation is performance-based. The Company intends to structure its
compensation plans to achieve maximum deductibility under the Section with
minimal sacrifices in flexibility and Company objectives. The Compensation
Committee will consider the deductibility of compensation payments in
connection with future compensation arrangements with the named executive
officers, but deductibility will not be the sole factor used by the
Compensation Committee in determining appropriate levels or types of
compensation. If, in the judgement of the Compensation Committee, the
benefits of a compensation package that does not satisfy the requirements of
the Section outweigh the costs to the Company of a failure to comply with the
Section, the Compensation Committee may adopt compensation arrangements in
the future under which payments are not deductible under the Section.
Compensation Committee Members
This report is submitted by the members of the Compensation Committee of
the Board of Directors:
Dennis B. Robertson, Chairman
Carole Lewis Anderson
Bruce B. Brundage
Robert T. Marto
Dudley C. Mecum
Hunter Yager
Arthur Zankel
Directors' Compensation
Non-employee directors are compensated for their services at the rate
of $2,000 per fiscal quarter plus $1,000 per day for services rendered, and
reimbursement of actual expenses incurred. Each non-employee director is
also granted options to purchase shares of the Company's Stock pursuant to
the terms of its 1983 Non-Qualified Stock Option Plan ("1983 Plan"). The
1983 Plan, which is mandatory in its operation, provides that each
non-employee director when first elected to the Board is granted an option to
purchase 10,000 shares of the Company's Stock, which vest 4,000, 4,000, and
2,000 shares over the ensuing three years. Upon a director's election for
the fourth consecutive term and each year thereafter, the director is granted
an additional 2,000 shares. All options granted under the 1983 Plan are at
100% of the fair market value of the Company's Common Stock on the date of
grant.
PERFORMANCE GRAPH
The following performance graph reflects percentage change in the
Company's cumulative total shareholder return on common stock as compared
with the cumulative total return of the Dow Jones Equity Market Index and
the Dow Jones Entertainment & Leisure - Restaurant Index.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
VICORP Restaurants, Inc. 20.750 16.750 11.000 14.500 15.500 14.125
Dow Jones Restaurant Index 844.420 796.600 1,051.54 1,152.920 1,140.860 1,609.820
Dow Jones Equity Market Index 541.120 561.220 709.270 877.420 1,164.460 1,412.960
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Stock
The following table sets forth information as of February 23, 1999,
with respect to the beneficial ownership of VICORP's Stock by all persons
known by the Company to be the beneficial owners of 5% or more of the
outstanding shares, each director of the Company, each of the executive
officers named in the Summary Compenstion Table (see Executive Compensation)
and all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent
Class Owner Ownership of Class
------- ---------- ---------- --------
<S> <C> <C> <C>
Stock Southeastern Asset 1,279,900 F<1> 14.12%
(par value $.05 Management, Inc.
per share) 6410 Poplar Avenue, Suite 900
Memphis, TN 38119
Quaker Capital 820,700 F<2> 9.05%
Mangement Corporation
1300 Arrott Building
401 Wood Street
Pittsburgh, PA 15222
First Manhattan Co. 751,901 F<3> 8.29%
437 Madison Avenue
New York, NY 10022
The Prudential Insurance 654,200 F<4> 7.22%
Company of America
751 Broad Street
Newark, NJ 07102-3777
Dimensional Fund Advisors, Inc. 520,700 F<5> 5.74%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401-1038
Franklin Advisory Services, Inc. 480,000 F<6> 5.30%
One Parker Plaza, 16th Floor
Fort Lee, NJ 07024
Carole Lewis Anderson 21,000 F<7> *
3616 Reservoir Road NW
Washington, DC 20007
Bruce B. Brundage 31,000 F<7> *
5290 DTC Parkway
Suite 160
Englewood, CO 80111
Charles R. Frederickson 163,654 F<7> 1.69%
400 West 48th Avenue
Denver, CO 80216
John C. Hoyt 61,868 F<7> *
500 SE Sixth Street
Bartlesville, OK 74003
J. Michael Jenkins -0- *
8393 South Peninsula Drive
Littleton, CO 80120
Robert E. Kaltenbach 12,525 F<7> *
400 West 48th Avenue
Denver, CO 80216
Robert T. Marto 24,000 F<7> *
354 New Cannan
Wilton, CT 06897
Dudley C. Mecum 23,500 F<7> *
33 Khakum Woods Road
Greenwich, CT. 06831
Dennis B. Robertson 28,000 F<7> *
1987 West 111th Street
Chicago, IL 60643
Richard E. Sabourin 53,544 F<7> *
400 West 48th Avenue
Denver, CO 80216
Joseph F. Trungale -0- *
501 Forest Avenue #205
Glen Ellyn, IL 60137
Hunter Yager 10,000 F<7> *
314 West Fields
Manchester, VT 05255
Arthur Zankel 168,100 F<8> 1.85%
437 Madison Avenue
New York, NY 10022
All directors 596,691 6.41%
and exectutive officers
as a group (13 persons
including those
named above)
</TABLE>
- --------------------------------------------
* Percent of class is less than 1%
F<1> Of the 1,279,900 shares beneficially owned, the shareholder has
sole voting power over 281,000 shares, shared voting power over 982,400 shares,
no voting power over 16,500 shares, sole dispositive power over 297,500
shares, and shared dispositive power over 982,400 shares.
F<2> Of the 820,700 shares beneficially owned, the shareholder has sole
voting power over 287,300 shares, shared voting power over 533,400 shares,
sole dispositive power over 287,300 shares, and shared dispositive power over
533,400 shares.
F<3> Of the 751,902 shares beneficially owned, the shareholder has sole
voting power over 364,500 shares, shared voting power over 385,702 shares,
sole dispositive power over 364,500 shares, and shared dispositive power over
387,402 shares. Arthur Zankel, a director of the Company, is a Partner of
First Manhattan Co.; and 152,100 of the shares owned by him are reflected
in the share ownership reported by First Manhattan Co.
F<4> Of the 654,200 shares beneficially owned, the shareholder has sole
voting power over 173,600 shares, shared voting power over 480,600 shares,
sole dispositive power over 173,600 shares, and shared dispositive power over
480,600 shares.
F<5> Of the 520,700 shares beneficially owned, the shareholder has sole
voting and dispositive power over all of the shares.
F<6> Of the 480,000 shares beneficially owned, the shareholder has sole
voting and dispositive power over all of the shares.
F<7> Includes 20,000, 16,000, 50,000, 20,000, 12,500, 24,000, 22,000,
16,000, 50,000, and 10,000 shares which Ms. Anderson, Messrs. Brundage,
Frederickson, Hoyt, Kaltenbach, Marto, Mecum, Robertson, Sabourin, and Yager,
respectively, have the right to purchase under options that are presently
exercisable.
F<8> Includes 152,100 shares owned directly by Mr. Zankel, 16,000 shares
which he has the right to purchase under options that are currently
exercisable.
VICORP is unaware of any arrangement which would at a subsequent date
result in a change in the control of the Company.
Item 13. Certain Relationships and Related Transactions
John C. Hoyt, a director of the Company, and members of his family are
the principal shareholders of Midwest Pancake Houses, Inc. ("MPH"). MPH has
been a franchisee of the Company since 1970 and currently operates seven
Village Inn Restaurants in Oklahoma. MPH paid an initial franchise fee of
$1,000 each for the operating units and pays franchise service fees equal to
2% of gross sales at each of those locations. Total franchise service fees
paid by MPH in fiscal 1998 were $164,935. MPH additionally was indebted to
the Company on its open account. The largest aggregate amount outstanding on
that open account at any time during fiscal 1998 was $47,217. As of
February 21, 1999, MPH's open account was current.
MPH is also the managing partner for a franchised Village Inn
Restaurant located in New Mexico. In fiscal 1998 the franchisee, 3155
Associates Limited Partnership ("3155"), paid franchise service fees (2.7% of
gross sales at that location) in the ammount of $40,420. It was also
indebted to the Company on its open account. The largest aggregate amount
outstanding on that open account at any time during fiscal 1998 was $2,162.
As of February 21, 1999, 3155's open account was current.
Ratification of Certain Transactions
The transactions described in the foregoing discussion have been
approved or ratified by the unanimous vote of those directors having no
interest in those transactions. The Company believes that the terms of those
transactions are no less favorable to the Company than those that could have
been obtained from independent third parties.
