12. Commitments and Contingencies

Commitments

As of December 31, 2012, we are committed under lease agreements expiring through 2023 for occupancy of our retail restaurants and for office space at the following minimum annual rentals:

Fiscal Year	Amount

	(in thousands)
2013		12,600
2014		10,691
2015		8,990
2016		6,093
2017		2,722
Thereafter		5,975

	$	47,071

Amounts shown are net of approximately $0.7 million of sublease rental income under non-cancelable subleases. Rental expense for fiscal years 2012, 2011, and 2010 totaled $13.1 million, $13.1 million, and $14.2 million, respectively. Certain lease agreements have renewal options ranging from 3 years to 5 years. In addition, certain leases obligate us to pay additional rent if restaurant sales reach certain minimum levels (percentage rent). Amounts incurred under these additional rent provisions and agreements were approximately $0.2 million in each of the fiscal years 2012, 2011, and 2010.

Certain of our lease agreements provide for scheduled rent increases during the lease term or for rental payments to commence at a date other than the date of initial occupancy. Rent expense is recognized on a straight-line basis over the term of the respective leases from the date we take possession. Our obligation with respect to these scheduled rent increases has been presented as a long-term liability in other liabilities in the accompanying consolidated balance sheets and totaled $2.1 million, $2.6 million, and $3.6 million as of the end of fiscal years 2012, 2011, and 2010, respectively.

Certain of our leases also provide for landlord contributions to offset a portion of the cost of our leasehold improvements. These allowances are recorded as deferred liabilities and amortized on a straight-line basis as a reduction to rent expense over the term of the related leases. Included in other long-term liabilities in the accompanying consolidated balance sheets for fiscal years 2012, 2011, and 2010 were landlord allowances of $0.5 million, $0.7 million, and $0.9 million, respectively.

As of December 31, 2012, the Company had outstanding approximately $0.2 million in standby letters of credit, which were provided as security deposits for certain of the lease obligations. The letters of credit are fully secured by cash deposits or marketable securities held in accounts at the issuing banks and are not available for withdrawal by the Company. These amounts are included as a component of "Other Assets" in the accompanying consolidated balance sheets.

The lease termination charges during fiscal years 2012 and 2011 were immaterial. We recorded lease termination charges of approximately $0.2 million during fiscal 2010 related to one restaurant in the Midwest where we reached an early termination agreement with the landlord and one restaurant in the Seattle market where we assigned the lease in fiscal 2008 and reached an agreement with the landlord and subtenant to terminate it in fiscal 2010.

As of December 31, 2012, future minimum lease payments related to restaurants that have been closed or locations with subleased spaces are approximately $2.0 million, before expected sublease payments, with remaining lease terms ranging from one to six years. For each of these locations, a lease termination reserve has been established based upon management's estimate of the cost to exit the lease or the time it would take to enter into a new sublease. The accompanying consolidated balance sheets include a liability of $0.2 million in accrued lease termination costs with a current portion of $0.01 million at each of fiscal year-ends 2012 and 2011.

Purchase Commitments

We have agreements with some of the nation's largest food, paper, and beverage manufacturers in the industry. This enables us to provide our restaurants with high quality proprietary food products and non-food items at competitive prices. We source and negotiate prices directly with these suppliers and distribute these products to our restaurants primarily through a national network that consists of some of the nation's largest independent distributors. These primary suppliers and independent distributors have parallel facilities and systems to minimize the risk of any disruption of our supply chain. We do not utilize a commissary system. Our inventory control system allows each restaurant to place orders electronically with our master distributor and then transmits the invoices electronically to our accounts payable system.

We have an agreement with Distribution Market Advantage, Inc. ("Distribution Marketing Advantage") that provides us access to a national network of independent distributors. Under this agreement the independent distributors supply us with approximately 80% of our food and paper products, primarily under pricing agreements that we negotiate directly with the suppliers. This agreement was renegotiated and has been extended through December 2013.

We have a long-term beverage marketing agreement with the Coca-Cola Company. We received a marketing allowance under this agreement, which is being recognized as a reduction to expense ratably based on actual products purchased. Effective January 1, 2011, the beverage marketing agreement with the Coca-Cola Company was amended to provide for additional products as well as higher marketing allowances based on purchases.

In October 2010, we entered into an agreement to purchase all contracted coffee products through a single supplier, Royal Cup Coffee, Inc. This agreement expires in October 2015.

Self-Insurance

We have a self-insured group health insurance plan. We are responsible for all covered claims to a maximum limit of $100,000 per participant and an additional aggregating maximum limit of $50,000 for the plan year. Benefits paid in excess of these limits are reimbursed to the plan under our stop-loss policy. In addition, we have an aggregate stop-loss policy whereby our liability for total claims submitted cannot exceed a pre-determined dollar factor based upon, among other things, past years' claims experience, actual claims paid, the number of plan participants and monthly accumulated aggregate deductibles. We did not exceed this pre-determined maximum during fiscal years 2012, 2011, and 2010. For our 2013 plan year, this pre-determined dollar amount is $1.8 million. Health insurance expense for fiscal years 2012, 2011, and 2010 was $1.4 million, $1.3 million, and $1.4 million, respectively. The balance in the self-insurance reserve account was approximately $0.1 million and $0.2 million at December 31, 2012 and January 2, 2012, respectively.

Litigation

From time to time, we are a defendant in litigation arising in the ordinary course of our business. As of the date of this report, there are no legal proceedings that would require accrual or disclosure under ASC 450.

Other events

Regaining Compliance with The Nasdaq's Market Value of Listed Securities Standard

On June 15, 2012, we received notice from the Listing Qualifications Department of the Nasdaq Stock Market indicating that, for the last 30 consecutive business days, the market value of the Company's listed securities ("MVLS") had closed below the minimum $50,000,000 required for continued listing on The Nasdaq Global Market under Nasdaq Listing Rule 5450(b)(2)(A). The notification letter stated that the Company would be afforded 180 calendar days, or until December 12, 2012, to regain compliance with the minimum MVLS requirement. In order to regain compliance, the Company must maintain a minimum MVLS of at least $50,000,000 for a minimum of ten consecutive business days.

On August 8, 2012, we received notice from the Listing Qualifications Department of The Nasdaq Stock Market that we have regained compliance with The Nasdaq Listing Standards by curing the market value of listed securities deficiency. The notification letter stated that for the 10 consecutive business days, from July 25, 2012 to August 7, 2012, the Company's market value of listed securities had been $50,000,000 or greater.

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

On May 25, 2012, we received notice from the Listing Qualifications Department of the Nasdaq Stock Market indicating that, for the last 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share required for continued inclusion on the Nasdaq Global Market under Nasdaq Listing Rule 5450(a)(1). The notification letter stated that we would be afforded 180 calendar days, or until November 21, 2012, to regain compliance with the minimum bid price requirement. In order to regain compliance, shares of the Company's common stock must maintain a minimum bid closing price of at least $1.00 per share for a minimum of ten consecutive business days.

The Company did not regain compliance with the minimum bid price listing requirement within the 180-day period and accordingly, the Company received written notification from the Staff (the "Staff Determination") stating that the Common Stock would be subject to delisting from The NASDAQ Capital Market unless the Company appeals the Staff Determination by requesting a hearing before the NASDAQ Listing Qualifications Panel (the "Panel") to review the Staff's Determination.

On November 30, 2012, the Company appealed the Staff's Determination and at an oral hearing on January 17, 2013 presented a plan to regain compliance with the minimum bid price listing requirement. As a result, the Company was granted additional 180 calendar days from the Delisting Determination, or until May 28, 2013, to regain compliance with this requirement. As part of the plan, the Company is currently seeking the approval of its stockholders to amend the Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company's outstanding and treasury shares of common stock having a split ratio ranging from one-to-two to one-for-twenty as such split ratio shall be determined by the Board of Directors of the Company to be in the best interest of the Company and its stockholders, and pay to the Company's stockholders cash in lieu of fractional shares at fair market value. The Board of Directors will reserve the right, after stockholder approval, to forego or postpone the filing of the amendment to the Amended and Restated Certificate of Incorporation to effect a reverse stock split if it determines that action not to be in the best interest of the Company and its stockholders.

Release from a Contractual Obligation

Pursuant to the employment agreement with Carin Stutz, Chief Executive Officer and President, and in connection with the September 21, 2012 sale of Ms. Stutz' primary residence in Dallas, TX, the Company has been released from its contractual obligation to purchase the Executive's residence prior to December 31, 2012.