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                                                                    EXHIBIT 10.1


                            FAMILY RESTAURANTS, INC.
                                       AND
                               FRI-MRD CORPORATION
                           VALUE CREATION UNITS PLAN

         1.       PURPOSE

                  THE PURPOSE OF THE VALUE CREATION UNITS PLAN (THE "PLAN") OF
                  FAMILY RESTAURANTS, INC. ("FRI") AND FRI-MRD CORPORATION
                  ("FRI-MRD") IS TO PROVIDE PARTICIPANTS WITH A CONTINGENT
                  FINANCIAL INCENTIVE TO CONTRIBUTE TO THE LONG-TERM SUCCESS OF
                  THE CORPORATION.

         2.       DEFINITIONS

                  As used in this Plan, the following terms shall have the
                  meanings set forth below:

                  a.   "Adjustment Period" -- means September 1, 1996, through
                       the Expiration Date.

                  b.   "Authorized Corporate VCUs" -- means 100,000 Corporate
                       VCUs.

                  c.   "Authorized Chi-Chi's VCUs" -- means 100,000 Chi-Chi's
                       VCUs.

                  d.   "Authorized El Torito VCUs" -- means 100,000 El Torito
                       VCUs.

                  e.   "Board" -- means the Board of Directors of FRI.

                  f.   "Change of Control" -- shall have the meaning given to
                       such term in the Indenture, dated as of January 27, 1994,
                       relating to FRI's 9 3/4% Senior Notes due 2002 as in
                       effect on the date this Plan is adopted (excluding any
                       such Change of Control occurring by reason of clause (ii)
                       of the definition thereof); provided, that such term
                       shall not include any Change of Control occurring by
                       reason of conversion or exchange of any indebtedness of
                       the Corporation.

                  g.   "Chi-Chi's" -- means Chi-Chi's, Inc., a wholly owned
                       subsidiary of the Corporation, and each of said
                       subsidiary's wholly owned subsidiaries.

                  h.   "Chi-Chi's Value Created" -- means Chi-Chi's EBITDA for
                       fiscal year 1998 plus $14,000,000, multiplied by six (6);
                       provided, that (a) if all or substantially all of the
                       capital stock or assets (on a consolidated basis) of
                       Chi-Chi's, Inc. is sold prior to the Expiration Date, the
                       Chi-Chi's Value Created shall be the higher of (i) the
                       Enterprise Value of Chi-Chi's, Inc. implied by such sale,
                       as determined by the Board, plus $84 million; and (ii)
                       Chi-Chi's EBITDA for the twelve (12) fiscal months
                       preceding the date of such sale, as adjusted by the
                       applicable provisions of Section 2.m. below, multiplied
                       by

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                       six (6), plus $84 million, and (b) if the El Torito Value
                       Created is less than $0, such amount shall be deducted
                       from the Chi-Chi's Value Created.

                  i.   "Chi-Chi's VCU" -- means a unit granted pursuant to this
                       Plan, the value of which is determined based on increases
                       in Chi-Chi's and FRI's EBITDA.

                  j.   "Chi-Chi's VCU Pool" -- means the dollar amount
                       determined by dividing Chi-Chi's Value Created by
                       Corporate Value Created, multiplying this percentage by
                       the Initial VCU Pool, and reducing this amount by 50%;
                       provided, that in no event shall the Chi-Chi's VCU Pool
                       be less than $0.

                  k.   "Chi-Chi's VCU Value" -- means the Chi-Chi's VCU Pool
                       divided by 100,000, the number of Authorized Chi-Chi's
                       VCUs.

                  l.   "Corporation" -- means Family Restaurants, Inc., a
                       Delaware corporation and FRI-MRD Corporation, a Delaware
                       corporation, jointly and severally.

                  m.   "Corporate Value Created" or "CVC" -- means FRI's EBITDA
                       for fiscal year 1998 multiplied by six (6), with
                       adjustments as follows for a sale of a division, asset
                       sales and lease terminations:

                       (i)  In the event that all or substantially all of the
                            capital stock or assets (on a consolidated basis) of
                            Chi-Chi's, Inc. is sold prior to the Expiration Date
                            (a) for the purpose of computing CVC, FRI's EBITDA
                            for fiscal year 1998 shall be reduced by $14 million
                            and if such sale occurs during fiscal year 1998,
                            FRI's EBITDA for fiscal year 1998 shall be further
                            reduced by Chi-Chi's EBITDA reported for said year
                            to the extent otherwise included in FRI's EBITDA and
                            (b) CVC shall be increased by the Enterprise Value
                            of Chi-Chi's, Inc. implied by such sale, as
                            determined by the Board, plus $84 million, and
                            further increased by a factor of 1% per month simple
                            interest times the number of full months elapsed
                            from the month of sale to the Expiration Date.

                       (ii) In the event that all or substantially all of the
                            capital stock or assets (on a consolidated basis) of
                            El Torito Restaurants, Inc. is sold prior to the
                            Expiration Date (a) for the purpose of computing
                            CVC, FRI's EBITDA for fiscal year 1998 shall be
                            increased by $14 million and if such sale occurs
                            during fiscal year 1998, FRI's EBITDA for fiscal
                            year 1998 shall be decreased by El Torito's EBITDA
                            reported for said year to the extent otherwise
                            included in FRI's EBITDA and (b) CVC shall be
                            increased by the Enterprise Value of El Torito
                            Restaurants, Inc. implied by such sale, as
                            determined by the Board, minus $84 million, and
                            further increased by a factor of 1% per month simple
                            interest times the number of full months elapsed
                            from the month of sale to the Expiration Date.





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                       (iii) For all sales of operating assets consummated
                            during the Adjustment Period other than (A) sales of
                            inventory and other sales in the ordinary course of
                            business, (B) sales of Traditional Dinnerhouse
                            Assets, (C) sale/leaseback transactions and (D)
                            contemplated by clauses (i) and (ii) above, CVC will
                            be increased by the amount of the after-tax net
                            proceeds received by FRI or its subsidiaries (in the
                            case of non-cash consideration, as valued by the
                            Board) and a factor of 1% per month simple interest
                            times the amount of such proceeds times the number
                            of full months elapsed from the month of sale to the
                            Expiration Date.

                       (iv) Sale of Traditional Dinnerhouse Assets will not
                            create additional CVC. To the extent that lease
                            termination payments incurred by FRI or any of its
                            subsidiaries during the Adjustment Period exceed the
                            after-tax net proceeds received by FRI or its
                            subsidiaries (in the case of non-cash consideration,
                            as valued by the Board) from the sale of Traditional
                            Dinnerhouse Assets (other than (i) sales of
                            inventory and other sales in the ordinary course of
                            business and (ii) sale/leaseback transactions), that
                            excess amount plus 1% per month simple interest
                            times the amount of such proceeds times the number
                            of full months elapsed from the month of sale to the
                            Expiration Date will reduce CVC.

                       (v)  All additional rent expense reducing EBITDA in
                            fiscal 1998 and directly attributable to (i)
                            sale/leaseback financing of real property acquired
                            prior to January 1, 1996, consummated during the
                            Adjustment Period or (ii) sale/leaseback financings
                            of furniture, fixtures and equipment acquired prior
                            to January 1, 1996, will be added back to EBITDA
                            before determining CVC.

                       (vi) Prior to computing the El Torito and/or Chi-Chi's
                            Value Created, the adjustment to the CVC dictated in
                            m(iii) and m(v) will also be made to the divisions'
                            EBITDA from which the adjustment originated.

                  n.   "Corporate VCU" -- means a unit granted pursuant to this
                       Plan, the value of which is determined based on increases
                       in FRI's EBITDA.

                  o.   "Corporate VCU Pool" -- means the Initial VCU Pool less
                       the sum of (i) the Chi-Chi's VCU Pool and (ii) the El
                       Torito VCU Pool.

                  p.   "Corporate VCU Value" -- means the Corporate VCU Pool
                       divided by 100,000, the number of Authorized Corporate
                       VCUs.

                  q.   "Debt" -- shall have the meaning given to such term in
                       the Indenture, dated January 27, 1994, relating to FRI's
                       9 3/4% Senior Notes due 2002, as in effect on the date
                       this Plan is adopted.

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                  r.   "EBITDA" -- means earnings (loss) before gain (loss) on
                       disposition of properties, provision for divestitures,
                       writedown of goodwill, interest, taxes, depreciation,
                       amortization, gain or loss on extinguishment of debt, and
                       extraordinary items, in each case as determined in
                       accordance with generally accepted accounting principles
                       consistently applied. EBITDA shall not be reduced by
                       reason of any accrual or payment with respect to VCUs
                       that would otherwise be reported as an operating expense
                       in accordance with generally accepted accounting
                       principles.

                  s.   "El Torito" -- means El Torito Restaurants, Inc., a
                       wholly owned subsidiary of the Corporation, and each of
                       such subsidiary's wholly owned subsidiaries.

                  t.   "El Torito Value Created" -- means El Torito's EBITDA for
                       fiscal year 1998 minus $14,000,000, multiplied by six
                       (6); provided, that (a) if all or substantially all of
                       the capital stock or assets (on a consolidated basis) of
                       El Torito Restaurants, Inc. is sold prior to the
                       Expiration Date, the El Torito Value Created shall be the
                       higher of (i) the Enterprise Value of El Torito
                       Restaurants, Inc. implied by such sale, as determined by
                       the Board, minus $84 million; and (ii) El Torito's EBITDA
                       for the twelve (12) fiscal months preceding the date of
                       such sale, as adjusted by the applicable provisions of
                       Section 2.m. above, multiplied by six (6), minus $84
                       million, and (b) if the Chi-Chi's Value Created is less
                       than $0, such amount shall be deducted from the El Torito
                       Value Created.

                  u.   "El Torito VCU" -- means a unit granted pursuant to this
                       Plan, the value of which is determined based on increases
                       in El Torito's and FRI's EBITDA.

                  v.   "El Torito VCU Pool" -- means the dollar amount
                       determined by dividing El Torito Value Created by
                       Corporate Value Created, multiplying this percentage by
                       the Initial VCU Pool, and reducing this amount by 50%;
                       provided, that in no event shall the El Torito VCU Pool
                       be less than $0.

                  w.   "El Torito VCU Value" -- means the El Torito VCU Pool
                       divided by 100,000, the number of Authorized El Torito
                       VCUs.

                  x.   "Employee" -- means any full-time employee of FRI or any
                       of its subsidiaries.

                  y.   "Enterprise Value" -- means for any person the sum of (a)
                       the aggregate value of the fully diluted common equity of
                       such person, based on the price paid in the transaction
                       giving rise to the need to calculate Enterprise Value,
                       plus (b) the aggregate principal amount of all
                       indebtedness and the aggregate liquidation preference of
                       all preferred stock of such person and its subsidiaries
                       shown on the consolidated balance sheet of such person
                       prepared as of the date of such transaction in accordance
                       with generally accepted accounting principles, less (c)
                       all cash and cash equivalents of such person and its
                       subsidiaries, exclusive of restaurant safe and change
                       funds.

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                  z.   "Exit Event" -- means the earliest to occur of (i) a bona
                       fide registered underwritten initial public offering of
                       unrestricted shares of common stock, par value $.01 per
                       share, of FRI and (ii) a Change of Control.

                  aa.  "Expiration Date" -- means December 27, 1998, the date as
                       of which VCUs are to be initially valued.

                  bb.  "Expiration Rate" -- means the sum of (i) the publicly
                       announced prime or base rate of Bank of America on the
                       Expiration Date (or, if such institution has no such
                       publicly announced rate on such date, the publicly
                       announced prime or base rate of such other nationally
                       recognized banking institution chosen by the Board) plus
                       (ii) a spread, which shall initially be 3.75%, and which
                       shall increase by 100 basis points on each full year
                       anniversary of the Expiration Date.

                  cc.  "Initial VCU Pool" -- means an amount determined by using
                       the following formula:

<TABLE>
<CAPTION>
        CORPORATE VALUE CREATED                                  INITIAL VCU POOL
<S>                                               <C>
           $0 - $75,000,000                             2% of Corporate Value Created (CVC)
      $75,000,001 - $150,000,000                    $1,500,000 plus 4% of CVC above $75,000,000
      $150,000,001 - $250,000,000                  $4,500,000 plus 6% of CVC above $150,000,000
             $250,000,001+                        $10,500,000 plus 7.5% of CVC above $250,000,000
</TABLE>

                  dd.  "Involuntary Termination For Cause" -- means termination
                       of employment of a Participant if such Participant (i)
                       willfully breaches significant and material duties he or
                       she is required to perform; (ii) commits a material act
                       of fraud, dishonesty, misrepresentation, or other act of
                       moral turpitude; (iii) is convicted of a felony; (iv)
                       exhibits gross negligence in the course of his or her
                       employment; (v) is ordered removed by a regulatory or
                       other governmental agency pursuant to applicable law; or
                       (vi) fails to obey a lawful and reasonable direction from
                       the Board or the Participant's duly authorized manager.

                  ee.  "Involuntary Termination Not For Cause" -- means
                       termination of employment of a Participant for reasons
                       other than those specified as reasons for Involuntary
                       Termination For Cause; provided, that said definition
                       shall not include termination of employment of a
                       Participant resulting from the sale of all or
                       substantially all of the capital stock or assets of
                       Chi-Chi's or El Torito prior to the Expiration Date.


                  ff.  "Participant" -- means any Employee who is a party to a
                       VCU Agreement.

                  gg.  "Traditional Dinnerhouse Asset" -- means all assets used
                       in the operation of FRI's Traditional Dinnerhouse
                       division.

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                  hh.  "VCU" -- means collectively Corporate VCUs, Chi-Chi's
                       VCUs, and El Torito VCUs.

                  ii.  "VCU Agreement" -- means an agreement between a
                       Participant and the Corporation evidencing an award of
                       VCUs pursuant to this Plan. The VCU Agreement shall
                       remain in effect until each VCU issued pursuant thereto
                       has been forfeited, converted, terminated or paid out. A
                       VCU shall automatically be forfeited if the Employee to
                       whom it has been granted does not execute a VCU Agreement
                       within 90 days of the date of grant of such VCU.

                  This Plan is established assuming that FRI is comprised of two
                  divisions, El Torito and Chi-Chi's, and that the total EBITDA
                  for FRI is equal to the sum of Chi-Chi's EBITDA plus El Torito
                  EBITDA, including a total allocation of G&A expenses. If in
                  the future another division is added to FRI, whether by
                  acquisition or otherwise, or one of the divisions is sold or
                  taken public, the Board will make such adjustments to this
                  Plan as it deems appropriate in its sole discretion.

                  Unless the context otherwise requires, other terms used herein
                  shall have the same meaning as in the Severance Plan of FRI as
                  in effect on the date hereof.

                  3.       PLAN MECHANICS

                  The following steps describe the process that will be used to
                  calculate the amounts payable to Participants:

                  a.   Determine the Corporate Value Created (CVC), Chi-Chi's
                       Value Created, and El Torito Value Created.

                  b.   Using the CVC, compute the Initial VCU Pool.

                  c.   Using the Initial VCU Pool, determine the Corporate VCU
                       Pool, the Chi-Chi's VCU Pool, and the El Torito VCU Pool.

                  d.   Using the Corporate VCU Pool, the Chi-Chi's VCU Pool, the
                       El Torito VCU Pool, compute the Corporate VCU Value, the
                       Chi-Chi's VCU Value, and the El Torito VCU Value.

                  e.   Using the VCU values computed in 3(d) and the number of
                       VCUs granted to each Participant (as set forth in each
                       Participant's VCU Agreement), compute each Participant's
                       incentive payment.

         4.       ADMINISTRATION

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                  a.   This Plan will be administered by the Board. The Board
                       may delegate its authority to administer all or any part
                       of this Plan to an employee or a committee, in its sole
                       discretion.

                  b.   The Board will have the final authority to determine, in
                       its sole discretion:

                       (i)  The Employees who will participate in the Plan;

                       (ii) The number of VCUs to be granted to each Participant
                            (which need not be a whole number);

                       (iii) The time or times when VCUs will be granted; and

                       (iv) Any other conditions relating to the grant or
                            payment for each VCU.

                  c.   Notwithstanding Section 4(b) above, on December 27, 1998,
                       all VCUs must be held by Employees. Accordingly, any VCUs
                       not previously granted by the Board on or before December
                       27, 1998, shall be allocated to Participants on said date
                       on a pro rata basis (based upon the % of VCU's held by
                       each Participant on said date).

                  d.   The Board will have the discretionary authority to
                       interpret this Plan and to make all determinations
                       necessary in administering this Plan, including (without
                       limitation) all determinations relating to accounting
                       matters. Without limiting the foregoing, whenever any
                       amounts are required to be allocated between divisions,
                       the determination of the Board shall be final.

                  e.   From time to time, the Board may adopt rules relating to
                       any of the determinations to be made by the Board under
                       this Plan. The Board may at any time amend or repeal any
                       such rules. The adoption, amendment, or repeal of any
                       such rules shall be deemed an amendment of this Plan.

         5.       VCU TERMS AND CONDITIONS

                  a.   VCUs are non-transferable and non-assignable. On death,
                       benefits hereunder shall be paid to beneficiary or estate
                       as described below.

                  b.   VCUs shall be valued within 90 days of the end of the
                       Expiration Date.

                  c.   No payment on a Participant's part will be required to
                       receive a grant of VCUs or receive payment for the value
                       of VCUs previously granted.

         6.       EXIT EVENT

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         If there is an Exit Event prior to June 30, 2000, and the Enterprise
         Value of FRI implied by such Exit Event, as determined by the Board,
         (the "Exit Event Enterprise Value") is in excess of the CVC, in
         addition to the payments to which participants are entitled under
         Section 3 of the Plan, each Participant shall be entitled to an
         additional payment with respect to each VCU held by such Participant
         (the "Excess Amount") equal to the excess of (i) the amount payable
         under Section 3 of the Plan with respect to such VCU calculated as if
         the Exit Event Enterprise Value had been the CVC, over (ii) the actual
         amount payable under Section 3 of the Plan with respect to such VCU. At
         the option of FRI, the Excess Amount may be paid in shares of common
         stock of FRI or the acquiror, as the case may be, valued at the amount
         per share of such common stock paid in the Exit Event; provided, that
         immediately after such Exit Event such shares of common stock are not
         restricted within the meaning of Rule 144 under the Securities Act of
         1933, as amended and are traded on a national securities exchange.

     7.  PAYMENTS/TAX WITHHOLDING

         All payments with respect to VCUs shall be made subject to all
         applicable Federal, state, and local tax withholding requirements, and
         will be made within 90 days following the Expiration Date; provided,
         that if an Exit Event occurs after the Expiration Date, payments with
         respect to the Excess Amount will be made within 90 days following the
         Exit Event. Notwithstanding the foregoing, if the ratio of (a) the sum
         of FRI's and its subsidiaries' Debt on the Expiration Date to (b)
         EBITDA of FRI for the most recent four full fiscal quarters ending on
         or prior to the Expiration Date equals or exceeds 6.0, all payments
         may, at the option of the FRI, be postponed; provided, that (i) such
         payments shall bear interest at the Expiration Rate from the Expiration
         Date through the date such payment is made, (ii) such payments will
         become automatically due and payable if, following the Expiration Date,
         an event of default occurs and extends beyond any period of grace
         applicable thereto under any instrument under which there may be issued
         any indebtedness of FRI or any of its subsidiaries having an
         outstanding principle amount of $10,000,000 or more in the aggregate
         if, as a result of such event of default, such indebtedness has been
         declared to be due and payable prior to its date of maturity; and (iii)
         in any event, all payments with respect to VCUs shall be made to
         Participants no later than December 31, 2000.

     8.  TERMINATION OF EMPLOYMENT

         a.   If a Participant ceases to be an Employee prior to the Expiration
              Date due to death, disability, or Involuntary Termination Not For
              Cause, the number of VCUs held by the Participant and paid in
              accordance with the Plan will be reduced to equal that number of
              VCUs granted to the Participant multiplied by the ratio of (i) the
              number of full months of employment elapsed between the Date of
              Grant and the date of termination divided by (ii) the number of
              full months elapsed between the Date of Grant and the Expiration
              Date; and all other VCUs granted to such Participant will be
              forfeited and no payments will be made with respect thereto. In
              the case of death, payment for VCUs will be made to the
              Participant's designated beneficiaries or, if none exist, to the
              Participant's estate. In no

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                  case shall any Participant have a right to any payment under
                  this Plan until the times expressly provided in Section 7 and
                  9 hereof.

         b.       If a Participant ceases to be an Employee prior to the
                  Expiration Date due to Involuntary Termination For Cause,
                  voluntary termination, or retirement, all VCUs held by such
                  Participant will be forfeited and no payments will be made
                  with respect thereto.

         c.       In no event shall a Participant's rights to payment under this
                  Plan be forfeited or reduced if the Participant's employment
                  terminates (i) as a direct result of the sale of all or
                  substantially all of the capital stock or assets (on a
                  consolidated basis) of Chi-Chi's, Inc. or El Torito
                  Restaurants, Inc. prior to the Expiration Date; or (ii) after
                  the Expiration Date; provided, that if a Participant
                  terminates his or her employment after the Expiration Date but
                  prior to an Exit Event, the Participant shall not be entitled
                  to receive any Excess Amount payable as a result of the Exit
                  Event.

         9.       LIQUIDATION OF THE CORPORATION

                  In the event of the liquidation of the Corporation before the
                  Expiration Date, all VCUs will accelerate and be valued and
                  paid as of the date of such liquidation. It is anticipated
                  that the value of the Corporation as determined in connection
                  with the liquidation will be used to determine the value of
                  all VCUs, in accordance with Section 3. The Board may
                  determine an alternative value(s) for VCUs if, in its opinion
                  and sound business judgment, an alternative VCU value(s) more
                  accurately reflects the value created by the Corporation, Chi-
                  Chi's, and/or El Torito.

         10.      RIGHTS OF PARTICIPANTS

                  VCUs are solely a device for the measurement and determination
                  of the incentive amounts to be paid to Participants under this
                  Plan and as such:

                  a.   Shall not constitute or be treated as an entitlement to
                       any specific property of, or to participation in any
                       trust fund maintained by, the Corporation.

                  b.   Shall give Participants no rights other than those of a
                       general creditor of the Corporation with respect to
                       amounts due from VCUs.

                  c.   Shall represent unfunded and unsecured obligations of the
                       Corporation with respect to incentive amounts due for
                       VCUs.

                  d.   Shall not entitle any individual to ownership or to the
                       right to ownership of assets, or shares of capital stock,
                       of the Corporation.

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                  e.   Shall give Participants no rights to continued employment
                       with the Corporation or any of its subsidiaries, or to
                       continued participation in this Plan.

                  f.   Shall not give any Participant any control, vote, or
                       management authority over any assets of the Corporation,
                       including, without limitation, any control over the
                       leasing, management, financing, refinancing, acquisition,
                       or disposition of all or any Corporation assets.

                  g.   Shall not represent the fair market value of the
                       Corporation or any or all of its assets for any purpose
                       other than the valuation of VCUs granted pursuant to the
                       terms of this Plan.

             11.  PLAN AMENDMENT

                  The Board may modify or amend this Plan in writing at any time
                  in any manner without limitation, provided however, that no
                  such amendment shall materially adversely affect or impair the
                  rights of Participants with respect to VCUs previously granted
                  under the Plan without the consent of the holders of a
                  majority of the VCUs that have been granted and not forfeited
                  prior to the date of such modification or amendment. The Plan
                  itself is the controlling document. No other explanatory
                  materials, statements, representations, or examples, oral or
                  written, shall constitute an amendment to the Plan.

         12.      BINDING EFFECT

                  a.   This Plan, and any VCU Agreements executed pursuant
                       hereto, shall be binding upon and enforceable against all
                       successors and assigns of the Corporation.

                  b.   Notwithstanding any provision contained herein to the
                       contrary, the benefits accrued under this Plan and any
                       VCU Agreement shall not be payable unless the
                       shareholders of the Corporation approve this Plan in
                       accordance with the terms of Section 280G(b)(5) of the
                       Internal Revenue Code of 1986, as amended, and the
                       regulations thereunder. Any right to the payment of
                       benefits under this Plan and any VCU Agreement shall be
                       contingent on the receipt of such approval.

         13.      EFFECTIVE DATE

                  The effective date of this Plan is January 1, 1996.

         14.      GOVERNING LAW

                  This Plan shall be construed and its provisions enforced and
                  administered in accordance with the laws of the State of
                  California without regard to choice of law rules.

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                            FAMILY RESTAURANTS, INC.
                                       AND
                               FRI-MRD CORPORATION
                      VALUE CREATION UNITS (VCU) AGREEMENT

                  Family Restaurants, Inc., a Delaware corporation ("FRI") and
         FRI-MRD Corporation, a Delaware corporation ("FRI-MRD") (hereinafter
         FRI and FRI-MRD are collectively referred to as the "Company"), hereby
         grants as of the ____ day of _________, 19__, to ________________ (the
         "Participant"), ________ VCUs. This grant of VCUs is subject to the
         following terms and conditions:

                  1. GRANT UNDER VCU PLAN. These VCUs are granted pursuant to
         and are governed by the Company's VCU Plan (the "Plan") and, unless the
         context otherwise requires, terms used herein shall have the same
         meaning as in the Plan. Determinations made in connection with these
         VCUs shall be governed by the Plan.

                  2. RESTRICTIONS ON TRANSFER. VCUs may not be transferred.
         During the Participant's lifetime, only the Participant can receive
         payments upon the valuation of these VCUs.

                  3. METHOD OF VCU VALUATION AND PAYMENT. VCUs will be valued
         and payments made to the Participant in the time and in the manner
         provided for in the Plan.

                  4. NO OBLIGATION TO CONTINUE EMPLOYMENT. Neither the Plan,
         this Agreement, nor the grant of these VCUs imposes any obligation on
         the Company or its subsidiaries to continue to employ the Participant.
         Employment with the Company and its subsidiaries remains at will and
         can be terminated by either party, at any time, with or without notice
         and with or without cause.

                  5. WITHHOLDING TAXES. Individual payments, subject to all
         applicable Federal, state, and local tax withholding requirements, will
         be made in the time and in the manner provided for in the Plan.

                  6. PROVISION OF DOCUMENTATION TO EMPLOYEE. By signing this
         Agreement the Participant acknowledges receipt of a copy of this
         Agreement and a copy of the Plan.

                  7. CONFIDENTIALITY. Participant agrees to keep strictly
         confidential any information provided to the Participant by the Company
         about the Company in connection with Participant's grant of VCUs,
         valuation and payment for VCUs, or otherwise in connection with this
         Agreement, including without limitation, information with respect to
         the Company's financial

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         statements and position and other information about its financial
         condition, trade secrets, customer list, pricing, other such Company
         transactions, and other such information.

                  Participation in this Plan shall not create any right for the
         Participant or obligation by the Company for the Company to provide any
         proprietary information to the Participant, including without
         limitation, information with respect to the Company's financial
         statements and position and other information about its financial
         condition, trade secrets, customer list, pricing, other such Company
         transactions, and other such information.

                  8.       MISCELLANEOUS

                           (a) NOTICES: All notices hereunder shall be in
         writing and shall be deemed given when sent by certified or registered
         mail, postage prepaid, return receipt requested, to the address set
         forth below. The addresses for such notices may be changed from time to
         time by written notice given in the manner provided for herein.

                           (b) ENTIRE AGREEMENT; MODIFICATION: This Agreement
         and the provisions of the Plan constitute the entire agreement between
         the parties relative to the subject matter hereof, and supersedes all
         proposals, written or oral, and all other communications between the
         parties relating to the subject matter of the Plan and this Agreement.
         This Agreement may be modified, amended or rescinded only by a written
         agreement executed by both parties.

                           (c) SEVERABILITY: The invalidity, illegality or
         unenforceability of any provision of this Agreement shall in no way
         affect the validity, legality or enforceability of any other provision.

                           (d) SUCCESSORS AND ASSIGNS: This Agreement shall be
         binding upon and inure to the benefit of the parties hereto and their
         respective successors and assigns, subject to the limitations set forth
         in Section 3 hereof.

                           (e) GOVERNING LAW: This Plan shall be construed and
         its provisions enforced and administered in accordance with the laws of
         the State of California without regard to choice of law rules.

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<PAGE>   13
                  IN WITNESS WHEREOF, the Company and the Participant have
         caused this instrument to be executed as of the date first above
         written.

                                                     Family Restaurants, Inc.
         ----------------------------                18831 Von Karman Avenue
         Participant                                 Irvine, CA  92715

         ----------------------------
         Print Name of Participant

                                                      By:
         ----------------------------                    -----------------------
         Street Address                                     Kevin Relyea
                                                            President and CEO

         ----------------------------
         City      State    Zip Code

                                                     FRI-MRD Corporation
                                                     18831 Von Karman Avenue
                                                     Irvine, CA  92715

                                                      By:
                                                         -----------------------
                                                         Robert T. Trebing, Jr.
                                                         President

                                       13